Green Growth is Not Enough. Here’s Why.
Investments in clean technologies are still a sideshow, despite the price signals of climate inaction indicating disaster.
Insurers know something that anyone who wants to grow a business or to make money should understand by now: Treating the environment like a dumping ground comes with a significant cost. It is a cost that can no longer be ignored. Yet it continues to be. With reckless abandon.
Why?
Capitalism is the art of maximizing profits. That means getting the price signals right. Otherwise, why bother with labour and capital cost calculations, or even a business plan? You might as well just triple your capital costs and bankrupt the whole shop in the process. Ditch those project management courses!
Today, we know that the cost of environmental inaction is nothing to sneeze at — so why do the costs of environmental harm keep getting buried? Floods, fires and heatwaves cost billions (the insurer Swiss.Re estimates insurance losses globally will hit $145B USD in 2025). These costs can no longer be ignored, or relegated to the ‘deal with later’ folder.
We know that bumper-to-bumper traffic (and the pollution it entails) eats into productivity. Poor harvests resulting from weather extremes are terrible for the economy. Poisoned water causes cancer and kills.
So how come the costs of poor environmental planning are still not factored into balance sheets and investment calculations of businesses small and large?
I spoke with Catherine McKenna, Canada’s former environment minister, as well as an advisor to the United Nations on climate action, for this story.
She attributes the difficulty of challenging business-as-usual to the fact that the fossil fuel industry, with its tremendous political sway and massive capital reserves, “fought everything,” and “weren’t real partners” in cutting emissions.
But government inaction, she says, is a huge part of the problem, she tells me.
It’s “bonkers,” she says, that government subsidizes a highly-destructive industry to the tune of hundreds of billions of dollars per year— and that this industry then turns around and returns its massive profits back to its shareholders.
This, she says, is an affront to rational market economics — and to ‘green growth.’
“If you were to allow market forces, then we would be able to actually make a tonne of progress.”
That’s because, she tells me, “the reality is, the economics are such that there is an absolute case for green growth. The clean tech sector is massively growing, there’s huge innovation. There’s huge job opportunities, but we are not being rational.”
So why aren’t more firms, to say nothing of government, stepping up to the plate to correct these massive distortions? In short, why are investments in clean technologies still a sideshow for the world’s biggest oil and gas companies, when the price signals of climate inaction clearly indicate we’re heading off a cliff?
Sure, a business — say a coal-fired utility, or a textiles manufacturing plant — might not notice a change in its bottom line from year to year by continuing with business as usual and releasing massive amounts of pollution into the air or into a river.
Out of sight and out of mind, right?
But conveniently pretending like pollution isn’t a cost to be factored to keep the engines running (and/or the shareholders happy) doesn’t make sense when the information signals of polluting the planet with reckless abandon are available, plentiful… and scary.
Thus, the limitations of green growth. It may be needed to – but is relying on market dynamics enough?
First, some background.
Ignoring the costs of pollution
The cost of polluting has been conveniently overlooked for decades, some would say since the start of industrialization.
The scale of that pollution is staggering, as this chart shows:
In the case of the fossil fuel industry, the costs of inaction have been ignored for short-term profits soaring into the hundreds of billions of dollars, to say nothing of government subsidies in the billions as well.
The result?
The atmosphere is treated like a sewer for burning oil, coal and gas. This, even though clean-energy solutions are available at scale (and available to be researched and developed at even greater scale if only the money went where it ultimately needed to go, as opposed to, say, subsidizing more oil and gas development.
“It was just so depressing,” McKenna says, of the intransigence she witnessed. “I [said], ‘you want to make life more affordable? Get everyone a heat pump.’”
For decades, governments and corporations could pollute with abandon and get away with it. Now, shifts in public opinion, the availability of solutions, and the rapidly shrinking cost of renewables coupled with energy storage solutions, are changing the landscape — despite efforts by the fossil fuel industry, and its supporters in government (i.e., Trump), to stand in the way.
Prior to the Rio Earth Summit in 1992, environmental concerns were hardly a blip on the radar. It took Al Gore’s movie, “An Inconvenient Truth,” in 2006 to wake millions of people up to terrifying implications of a warming planet.
For years, short term profits and four-year election cycles superseded the costs of environmental action, experts and policymakers tell me.
In the past, at least, the board of directors or the shareholders could ignore the environment as a consideration (though no company would allow garbage to accumulate unfettered outside their corporate headquarters, so why is the atmosphere OK?).
Not any more. The reassuring lie of business-as-usual can no longer be ignored for the inconvenient truth of properly pricing pollution into economic calculations.
The gig is up but the question is: how to factor in environmental considerations into policy and planning… and most importantly, price, as Catherine McKenna tried to do?
“The incentives are so screwed up,” she tells me.
“We actually have the solutions, but the incentives to get to the solutions are just so hard, and in insidious ways.”
During her time in government, McKenna lobbied to put a price on pollution in Canada in the form of a carbon tax — to attempt to at least start correcting those distorted price signals.
At one point, she even saw the fossil fuel industry as a partner for that change. How else, she tells me, would one interpret oil and gas industry leaders sharing a stage with politicians announcing the creation of a carbon tax (as happened in Canada in 2015? You can watch the video below):
However, politics and profits eventually got in the way.
“I just learned they were not real partners,” she says of the fossil fuel industry, who continue to advocate for false solutions like carbon capture and storage or ‘carbon-neutral oil.’
But things are starting to change as the legal arguments against climate inaction mount and — especially — as the costs of environmental inaction become more clear as a threat to economic performance, both micro and macro.
The insurance industry has long known what governments (and corporations) implicitly know but all too often fail to act upon: the climate chickens are coming home to roost and the costs of inaction exceed the costs of cutting into emissions.
Maybe we need a new approach. Enter the idea for a new nature economy.
The nature economy
One intervention that is not discussed as much in climate policy or economic circles is can be described as a ‘nature economy’ (or a ‘nature-first economy’).
This approach — yes, it is still somewhat philosophical rather than practical —requires accurately accounting for price signals, i.e. actually factoring in the costs of environmental harm into the overall calculations of doing business as usual.
In economics, this is known as ‘true cost pricing.’
The idea of a ‘nature economy’ is similar, but slightly different, to at least two other concepts that have been proposed in recent years.
The first — triple bottom line reporting — is akin to ESG, in my view. The idea with TBLR is that companies must take into account the social (including environmental) implications of their business-as-usual. But TBLR, in my view, is predicated more on corporate ‘do goodism’ than an actual and/or accurate accounting of environmental price signals.
The second paradigm, ‘natural capital accounting’ (NCA), treats nature as an asset, with a value that can be calculated. Thus, the natural world (rivers, forests, oceans, etc.) provides a ‘service’ to the economy. If you don’t protect nature, you don’t protect the economy.
NCA is very similar to a concept of a nature economy, as I see it. But the difference, albeit small, is important.
In a nature economy, governments and companies calculate the cost of nature (and of harming it) into their bottom line calculations. In other words, a nature economy is a form of best practice.
Under NCA, nature is capital — i.e., it has a value that can be monetized. But there is no imputation of protecting nature to support the economy. Put another way, NCA is great as a tool for tracking the depletion of natural resources. It is less great as a best-practice for economic development.
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If you subscribe to the notion of a nature economy, then a company or corporation that clicks off — i.e., turns a blind eye to — the environmental harm it is doing is, essentially, engaging in a deeply anti-capitalistic practice. It is shooting itself, and everyone else, in the foot (even though it might think it isn’t).
This is because capitalism requires accurately taking stock of price signals: benefits and costs, including long-term ones to society. You wouldn’t hire staff at $50/hour if all you could afford was $25. So why would ignore other externalities?
Of course, the shareholders might not choose to think about long-term costs and negative externalities so long as the (short-term) dividends keep rolling in. But, as the costs of climate inaction start to show up in the real economy, the CEO of any firm should at the very least be thinking ahead.
The approach of some Indigenous Nations in Canada, and specifically their way of reconciling nature with economic growth, is an example where I think a nature economy has worked effectively.
In British Columbia, where I am from, an initiative known as ‘Coast Funds,’ developed by several coastal First Nations, is having an impact on some local economies.
The fund (it’s actually two funds, that manage $118M Canadian dollars) is moving Nations away from extracting natural resources (e.g., old growth trees) for economic development, and toward non-extractive industries, such as Indigenous ecotourism.
So, whereas communities on the coast of B.C., and in the province’s interior, have depended cutting trees to sustain themselves, increasingly, there’s a realization that the most ancient, valuable trees are worth more standing than they are cut down.
Indigenous communities are often on the forefront of that change; they understand that 500-year-old trees can’t be replaced.
Carrot and stick
Trouble is, applying true cost pricing in the day-to-day operation of a business will not happen voluntarily. This is primarily because, for most businesses, the negative externalities of environmental harm do not affect them directly enough, or significantly enough.
Thus, an airline might know its planes are heating the atmosphere, or that short-haul flights are not necessary when trains are readily available for customers. But the negative environmental externalities do not affect its profit-making operations in any existential sort of way, save for perhaps a few more cancellations due to severe weather that it can easily absorb into its business plan. So it doesn’t make sense for it to internalize those externalities.
The same could be said for oil and gas companies — even agriculture (though the line between environmental harm and the economic hit — in the form of a poor crop—is arguably much shorter there).
But government action could change all that. The role of government is, after all, to level the playing field for the greater good. And when the costs of climate change can no longer be ignored — as is starting to happen— change might finally come.
As ‘green’ investment analyst and author of The Case for Climate Capitalism, Tom Rand has told me, government (i.e., public policy) is the best entity for creating a level playing field for everyone, with clear rules and enforcement. He calls government, and public policy, the ‘conductor of the orchestra.’
But for government to play that role, politicians have to put aside their short-term interests and realize the cost numbers are showing up in the real economy — whether in insurance claims or healthcare costs — from all those wildfires or heatwaves.
Nobody every said change was easy.
Then there is the law
Luckily, the legal framework is growing more robust in response to the escalating dangers posed by climate change as well.
The landmark ruling by the International Criminal Court in July reminding each country of its legal obligations to protect the environment is the most important legal stick that has ever been wielded by a legal entity.
The remarkable thing? It took a group of law students from Vanuatu to make it happen.
The ICJ ruling may not be legally binding. But, say legal experts, it should give pause to any government or corporation that carries out economic activities detrimental to planetary protection.
“The bases for lawsuits is getting stronger, and the willingness to take on powerful industries is also increasing as the impacts become more apparent,” says Eugene Kung, a lawyer at West Coast Environmental Law in Vancouver, B.C.
No longer, he says, can corporations pollute with abandon, or without at least looking over their shoulder at whatever group of individuals may be ready to go after them in court.
“I think it’s emboldening certain jurisdictions to hold accountable the handful of oil companies that are responsible for the majority of emissions.”
The China model
China gets a lot of attention for its remarkable transition toward a ‘green economy.’ But green growth, which China has been doubling down on in recent years, is not the same as a ‘nature economy’ — and shouldn’t be confused as such.
There was a time, around 2020, that China’s leader, Xi Jinping, was promoting ‘carbon neutrality,’ toying with controlling coal fired power plants, other carbon-intensive projects, and total energy consumption. This approach, says Lauri Myllyvirta, a Finland-based climate and energy policy analyst, “basically went out the window,” as China turned to ‘green’ supply-side economics. In short, green growth.
Green growth depends on technology to decarbonize key sectors of the economy (electricity, buildings, transportation, etc).
China is flooding the marketplace with a tremendous amount of renewables. But for the moment, says Myllyvirta, it still does “very little to discourage emissions and fossil fuel use.”
That’s green growth, not a nature economy.
The result? A net decline not just in China’s CO2 emissions as well as a ‘green’ ripple effect abroad as well. In a recent report published for his agency, the Centre for Research on Energy and Clean Air, Myllyvirta found that China’s green energy exports shaved one per cent off global carbon dioxide emissions.
Is this approach enough?
Probably not. China has hardly cut its appetite for coal and other dirty fossil fuels, so more incentives — a greater push — are needed.
Beyond green growth
So, we’ve established that green growth is not enough, but, I’d argue, not for the reasons that often get articulated.
The German author and journalist Ulrike Herrmann argues in her book The End of Capitalism, that green growth is still growth, and fundamentally a bad thing, as a result.
That’s because, she says, green growth is a model based on unfettered consumption — in short, capitalism — which she insists is fundamentally at odds with planetary protection.
‘Degrowth,’ or as Herrmann calls it, ‘green shrinkage,’ builds on the standard of cutting consumption, or essentially doing away with capitalism, which, she argues, is what the world needs. The idea was most famously proposed by Naomi Klein in her 2014 book This Changes Everything: Capitalism vs. the Climate.
But it is a proposition that is roundly rejected by most environmental modellers and economists.
“The idea that you could convince people in India, Indonesia, Brazil, let alone lower income African countries, that they do not need economic growth, they don’t need industrialization, they do not need any of that, they need to shrink their economies — it seems completely absurd,” says Myllyvirta.
That, and the fact, he adds, that the ecological footprint of the Global South is already increasing rapidly while the countries of the Global North are not about to all of a sudden close down their economies, shutting down their pensions, their trillions of dollars in real estate investments, their consumption patterns, etc.
Simon Fraser University energy modeller, and author of The Citizen’s Guide to Climate Success, Mark Jaccard, challenges the abolish-capitalism argument, too.
“Scandianvian countries today,” Jaccard tells me over email, “are capitalist, market economies and do quite well with environmental protection. In fact, the evidence is strong that humans have acted unsustainably for centuries before the advent of modern capitalism, as technological advances enabled early humans to hunt species to extinction, deforest vast areas, deplete soils and destroy ecosystems.”
Economic growth, he insists, is going to happen because humans want it and have always wanted it.
The challenge, he says, is how to accelerate “intervention at a global scale” and create a system whereby “climate-concerned governments work together to motivate supportive action by other countries.”
This, he concurs, requires an understanding of the price signals for why not to pollute. Because when you do, bad things happen and it costs you more in the long run.
Hence, the nature economy.
Climate change costs… and kills
Thus, to correct the miscalculation of modern economic development — i.e., to apply true cost pricing (i.e., internalizing externalities) — is the essence of a nature economy.
As a concept, it too might seem pie-in-the-sky or wishful thinking — until it is not. It didn’t take the insurance industry very long to figure it out. As Eugene Kung points out, “their whole model doesn’t work with climate change.”
So they had to change.
Some Indigenous groups in Canada (and elsewhere) have known for millenia that nature is better left protected than dead. Now, some Nations are actively incorporating that philosophy into their actual economic development strategies and thinking.
Other sectors know this too, except they are too reluctant, at best, or greedy at worst, to do anything about it. Hence the need for government intervention in the form of public policy…and the critical importance of electing to office what Simon Fraser’s Mark Jaccard calls “climate-concerned governments.”
“What we need is simply to reduce the Earth system effects of our energy and material throughputs. It is not easy. It is not cheap. But it is possible, even with some degree of economic growth.”
