Emissions, Economic Growth, and Energy Sources

Contrary to what history has shown, the world has proven that economic growth and carbon emissions are able to be dissociated, with the global economy taking the first true steps towards developing the sustainable model for global growth that is becoming increasingly necessary. There are signs that carbon emissions do not necessarily need a positive correlation with GDP growth, and that decoupling (i.e. the dissociation of a rise in GDP and a rise in carbon emissions) is an achievable goal that must be strived after if the world is to approach a new era of sustainability.

2014 was the first time that there was global GDP growth while carbon emissions levelled off, with both metrics having been recorded for the last 40 years. While at the time experts acknowledged it could be an anomaly, the International Energy Agency (IEA) reported last month that “The new figures confirm last year’s surprising but welcome news: we now have seen two straight years of greenhouse gas emissions decoupling from economic growth,” said IEA Executive Director Fatih Birol. Previous to the last 2 years, the only periods in which carbon emissions had levelled or fell were in the early 1980s, 1992, and 2009 – each of these being periods of economic weakness, most recently the Global Financial Crisis. However, the fact that the most recent period included global GDP growth of 3.4% in 2014 and 3.1% in 2015 suggests that decoupling is indeed a realistic endeavour.

Not coincidentally, it has been found that since the beginning of the 21st century, 21 countries, including the USA, have decoupled their economic growth from carbon emission. This is according to researcher at the World Resources Institute Nathaniel Aden, who claims that the results “suggest that countries can sever the historic link between economic growth and greenhouse gas emissions.” Of course, while 21 countries have achieved decoupling, the majority, including Australia, are still achieving growth via traditional means, which are directly connected to carbon pollution. While The Paris Agreement in December committed almost every country to confront climate change, it is understandable that, in the absence of major breakthroughs in climate change technology, governments are reluctant to aggressively tackle carbon emissions if the result is loss in economic growth.

The largest economy in the world, the United States, has achieved the decoupling of emissions and economic growth predominantly through the boom in domestic natural gas. When burned, the natural gas produces half the carbon pollution of coal, and as a result drove electric utilities away from coal and at the same time powered even more homes and factories. In Sweden, economic growth of 31% was achieved while reducing emissions by 8% and accordingly, half of Sweden’s electricity is derived from nuclear power, an emissions-free source, and 36% is from renewable sources, particularly hydroelectric. While there is a valid argument that decoupling leads to de-industrialisation and therefore an inequality in income, the point made in the cases of the USA and Sweden is that the road to decoupling is via a cleaner energy source to power these industries, rather than moving the industries themselves as Britain did post Industrial Revolution as its financial and services sectors grew.

From an investment point of view, it is fair to say that the prospects of renewable sources and cleaner energy pose an unimaginably enormous opportunity for investors. Perhaps not in the next few years, perhaps not even in the next few decades, but it is inevitable that the world one day embraces these sources as legitimate and crucial factors to the sustainability of this Earth. While renewable energy sources such as wind, solar and hydropower have existed for decades, now more than ever are they becoming genuine sources of power, particularly with new technologies in energy storage being developed every day and as a result, presenting the next great investment opportunity of the future. Of course, today it is impossible to believe that resources such as crude oil will one day be obsolete. In response to this notion, it is convenient to note that whale blubber was once a viable and highly sought after source of energy.

Sources: Sydney Morning Herald, ABC News, IEA