From the nef website:

As economist Herman Daly once commented, he would accept the possibility of infinite growth in the economy on the day that one of his economist colleagues could demonstrate that Earth itself could grow at a commensurate rate.

Whether or not the stumbling international negotiations on climate change improve, our findings make clear that much more will be needed than simply more ambitious reductions in greenhouse gas emissions. This report concludes that a new macro economic model is needed, one that allows the human population as a whole to thrive without having to relying on ultimately impossible, endless increases in consumption.

From the Introduction:

…In January 2006, nef (the new economics foundation) published the report Growth isn’t working.9 It highlighted a flaw at the heart of the economic strategy that relies overwhelmingly upon economic growth to reduce poverty. The distribution of costs and benefits from global economic growth, it demonstrated, are highly unbalanced. The share of benefits reaching those on the lowest incomes was shrinking. In this system, paradoxically, in order to generate ever smaller benefits for the poorest, it requires those who are already rich and ‘over-consuming’ to consume ever more.

The unavoidable result, the report points out, is that, with business as usual in the global economy, long before any general and meaningful reduction in poverty has been won, the very life-support systems we all rely on are likely to have been fundamentally compromised.

Four years on from Growth isn’t working, Growth isn’t possible goes one step further and tests that thesis in detail in the context of climate change and energy. It argues that indefinite global economic growth is unsustainable. Just as the laws of thermodynamics constrain the maximum efficiency of a heat engine, economic growth is constrained by the finite nature of our planet’s natural resources (biocapacity). As Daly once commented, he would accept the possibility of infinite growth in the economy on the day that one of his economist colleagues could demonstrate that Earth itself could grow at a commensurate rate.

The most recent data on human use of biocapacity sends a number of unfortunate signals for believers in the possibility of unrestrained growth. Our global ecological footprint is growing, further overshooting what the biosphere can provide and absorb, and in the process, like two trains heading in opposite directions, we appear to be actually shrinking the available biocapacity on which we depend.

Globally we are consuming nature’s services – using resources and creating carbon emissions – 44 per cent faster than nature can regenerate and reabsorb what we consume and the waste we produce. In other words, it takes the Earth almost 18 months to produce the ecological services that humanity uses in one year. The UK’s footprint has grown such that if the whole world wished to consume at the same rate it would require 3.4 planets like Earth.

Growth forever, as conventionally defined (see Box 1), within fixed, though flexible, limits isn’t possible. Sooner or later we will hit the biosphere’s buffers. This happens for one of two reasons. Either a natural resource becomes over-exploited to the point of exhaustion, or because more waste is dumped into an ecosystem than can be safely absorbed, leading to dysfunction or collapse. Science now seems to be telling us that both are happening, and sooner, rather than later.

Yet, for decades, it has been a heresy punishable by career suicide for economists (or politicians) to question orthodox economic growth. As the British MP Colin Challen quipped in 2006, ‘We are imprisoned by our political Hippocratic oath: we will deliver unto the electorate more goodies than anyone else.’12

Why do economies grow?
We should ask the simple question, why do economies grow? And, why do people worry that it will be a disaster if they stop? The answers can be put reasonably simply.

For most countries in much of human history, having more stuff has given human beings more comfortable lives. Also, as populations have grown, so have the economies that housed, fed, clothed and kept them.

Yet, there has long been an understanding in the quiet corners of economics, as well as louder protests in other disciplines, that growth cannot and need not continue indefinitely. As John Stuart Mill put it in 1848, ‘the increase of wealth is not boundless: that at the end of what they term the progressive state lies the stationary state.’20

The reasons for growth not being ‘boundless’ too, have been long known. Even if the modern reader has to make allowances for the time in which Mill wrote, his meaning remains clear: ‘It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution.’21

Why growth isn’t working
Between 1990 and 2001, for every $100 worth of growth in the world’s income per person, just $0.60, down from $2.20 the previous decade, found its target and contributed to reducing poverty below the $1-a-day line.38 A single dollar of poverty reduction took $166 of additional global production and consumption, with all its associated environmental impacts. It created the paradox that ever smaller amounts of poverty reduction amongst the poorest people of the world required ever larger amounts of conspicuous consumption by the rich.

Growth wasn’t (and still isn’t) working.41 Yet, so deeply engrained is the commitment to growth, that to question it is treated as a challenge to the whole exercise of economics. Nothing could be further from the truth. This report is a companion volume to nef’s earlier and ongoing research. It is written in the hope that we can begin to look at the fascinating opportunities for economics that lie beyond the doctrine –it could be called dogma – of growth.

One of the few modern economists to have imagined such possibilities in any depth is Herman Daly.42 The kind of approach called for in a world constrained by fuzzy but fundamental limits to its biocapacity is one, according to Daly, that is: ‘…a subtle and complex economics of maintenance, qualitative improvements, sharing frugality, and adaptation to natural limits. It is an economics of better, not bigger’.43

From Chapter 2: Scenarios of growth and emission reductions

Model assumptions
We used a globally aggregated Earth system model – the Integrated Science Model (ISAM) global carbon model to predict the effect of emissions on atmospheric concentrations of CO2. The ISAM model is available online and has been used widely in the IPCC assessment reports and climate policy analyses related to greenhouse gas emissions.201 The carbon-cycle component is representative of current carbon-cycle models.202 Model iterations were run with the IPCC B scenario for carbon emissions from land-use changes.203 Emissions of other greenhouse gases besides CO2were also assumed to follow the IPCC B scenario.

Even though the model provides a projection of median temperature increases, these have not been reported due to the uncertainty in projecting temperature changes with increasing greenhouse gas concentrations.204 We have, therefore, confined ourselves to demonstrating the necessary improvements in carbon intensity to meet various CO2 emissions targets.

To test whether the projections correspond to a sustainable economy, we examine the potential for overshooting of CO2 emission targets, with a given level of energy intensity of the economy improvements, energy demand and GDP growth. We have used the SIMCAP modelling platform developed by Malte Meinshausen to generate potential target emissions pathways.205 The model uses an Equal Quantile Walk (EQW) method to create more plausible scenarios for emissions paths out of the infinite combinations of yearly emissions that might achieve the targets.206

We have reported the results for target peaks of atmospheric CO2 concentrations of 350 ppm, 400 ppm, 450 ppm, 500 ppm and 550 ppm CO2. Note that we have confined our analysis in this section to actual CO2 emissions, ignoring the effect of other greenhouse gases. This was necessary because of the limits of the model in converting other emissions into CO2e emissions. Thus, the actual warming effect is greater than that created by the CO2 emissions. Based on current proportions, the CO2e would be around 75 ppm greater; for example, 350 ppm CO2 is around 425 ppm CO2e.

Scenarios of growth and emission reductions

The EQW method was used to create the emission scenarios required to meet the target, with emissions reductions starting in 2007 for the OECD and 2010 for other regions of the world. Using this scenario and the previously defined rates of GDP growth, we have calculated what the necessary energy intensity and/or carbon intensity improvements would have to be to remain below the CO2 targets. The EQW method was also used to create the post-2050 emissions pathways that would be necessary under the RS and AP scenarios to meet the targets.

Recent evidence and modelling has brought further clarity to the debate over feedback considerations. In the carbon-cycle, faster rates of emissions growth and accumulation of CO2 in the atmosphere will weaken the rate at which it can be absorbed into the oceans or terrestrial carbon sinks (see Box 11). While we have excluded such feedbacks from the main analysis, we have provided estimates using these data separately.

Peak Oil

Although increasingly warning of production capacity constraints, the IEA makes no detailed mention of the possible physical limits to continuing exploitation of fossil fuels to drive the global economy.

That is, with the single exception in one media interview, when Fatih Birol, the IEA’s chief economist, said, ‘In terms of the global picture, assuming that OPEC will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau.’207 In other words, a peak and long-term decline in the global production of oil. Evidence is presented later in this report on the likely onset of Peak Oil.

Projections for oil and gas production were obtained from Colin Campbell and the Association for the Study of Peak Oil (ASPO).208 Given the constraints in building and developing alternative sources of energy, such as nuclear or hydroelectric power stations, we have assumed that the energy requirements left unfilled because of the shortage of oil and gas will be filled by replacing those fuels with coal – a phenomenon that appears to be occurring already. This has significant effects on the carbon intensity of energy. While the rate of supply side efficiency improvements to the energy intensity of the economy are also dependent on the fuel mix, this substitution serves as a first order estimate of the effects of Peak Oil on anthropogenic greenhouse gas emissions.

As CCS is still an immature technology, yet to be proven at scale, we do not assume that it plays a role in reducing the carbon intensity of the economy.210 The future role of CCS is discussed in more detail later in this report.

We have also erred on the side of caution by not factoring in the declining net energy gains from fossil fuel extraction as more marginal stocks of oil, gas and coal are exploited. Increasing amounts of energy must be used to exploit heavy oils and tar sands which would have deleterious effects on the energy intensity ratio.211 But without a very comprehensive and detailed global energy model, predicting such effects would be difficult. Additionally, using coal that is higher in moisture or otherwise less efficient for electricity production would have similar negative effects on the energy intensity ratio which we have not modelled here for lack of data.

As shown in Figure 6, the scenarios developed by the IEA would lead to extremely high concentrations of atmospheric CO2, with the RS breaching the upper limit of our most generous target range in 2047. Even the optimistic AP scenario, would lead to atmospheric concentrations of CO2 of 487 ppm by 2050.

The results of a possible emissions scenario that would seek to stabilise atmospheric CO2 concentration at 500 ppm after 2050 is shown in Figure 7. Given the pre-2050 emissions pathway of the alternative policy scenario, it is impossible to prevent an overshoot of the target. The changes in emissions levels needed to even bring about stabilisation after an overshoot are quite dramatic. As Figure 7 shows, if the alternative policy scenario is followed until 2050, immediately thereafter carbon emissions would still have to be curtailed by roughly 1.1 per cent annually to even stabilise atmospheric CO2 below 550 ppm. This does not account for the impact of carbom-cycle feedbacks, however.

If we take into account the effects of carbon-cycle feedback mechanisms, the atmospheric concentrations of CO2 corresponding to a given level of emissions increases over time. As climate models disagree about the magnitude of the feedback effect, we have demonstrated the range of possible CO2 concentrations in Figure 8. Data on the potential carbon-cycle feedbacks were take from the C4MIP Model Intercomparison.212 In the worst-case scenario, the atmospheric concentration of CO2 is about 10 per cent larger than previously modelled.

The situation becomes much worse when the Peak Oil projections are combined with the possible efficiency improvements described in the IEA scenarios (see Figure 9). In the AP scenario, resulting emissions from the projected change in the fuel mix would be nearly 17 per cent higher than the IEA projections. This would bring projected atmospheric CO2 concentration to 501 ppm in 2050. Peak Oil, therefore implies that proceeding with every proposed improvement to energy intensity and adoption of cleaner fuels will not be sufficient to prevent a breach of even the most generous target and thus potentially disastrous climate change.

From Chapter 3: Peak Oil, Gas

Supplying the world with all the crude oil and natural gas it wants is about to become much harder, if not impossible. For oil, the horizon of the global peak and decline of production appears close and that for gas not much further behind. When demand exceeds production rates, the rivalry for what remains is likely to result in dramatic economic and geopolitical events that could make the financial chaos of 2008 in Europe and the USA seem light-hearted. Ultimately, it may become impossible for even a single major nation to sustain an industrial model as we have known it during the twentieth century.220

Counter-intuitively, the imminent global onset globally of the peak, plateau and decline of the key fossil fuels, oil and gas, will not help arrest climate change. If anything, it could be a catalyst for worse emissions and accelerating warming. For example, in October 2009, the UK Energy Research Centre (UKERC) reviewed the current state of knowledge on oil depletion.221 The study argued as we advance through peak oil:

…there will be strong incentives to exploit high carbon non-conventional fuels. Converting one third of the world’s proved coal reserves into liquid fuels would result in emissions of more than 800 million tonnes of CO2, with less than half of these emissions being potentially avoidable through carbon capture and storage.

In other words, with the analyses by Meinshausen and Allen discussed earlier in this report in mind, without extensive investment in low carbon alternatives to conventional oil, and policies that encourage demand reduction, Peak Oil is likely to drive emissions further towards a threshold of dangerous climate change.

Box 17. Peak Oil and food production
Increased fossil energy prices will in turn cause the price of food to increase significantly. On average, 2.2 kilocalories of fossil fuel energy are needed to extract 1 kilocalorie of plant-based food.222 In the case of meat, the average amount of kcal fossil energy used per kcal of meat is much greater, with an input/output ratio of 25.223

In early 2008, the UN World Food Programme had to reassess its agreed budget for the year after identifying a $500 million shortfall. It found that the $2.1 billion originally allocated to food aid for 73 million people in 78 countries would prove to be inadequate because of the rising costs of food. Higher oil and gas prices have contributed to this by increasing the costs of using farm vehicles and machinery, transporting food and manufacturing fossil-fuel-dependent input such as fertiliser. The move to grow biofuel crops has also exerted upward pressure on food prices by leaving less productive land available to grow crops.

The global economy is still well over 80 per cent dependent on fossil fuels. Oil remains the world’s most important fuel largely because of its role in transport and agriculture and the ease with which it can be moved around. The historical pattern has been for industrial societies to move from low-quality fuels (coal contains around 14–32.5MJ per kg) to higher quality fuels (41.9 MJ/kg for oil and 53.6 MJ per kg), and from a solid fuel easily transported and therefore well suited to a system of global trade in energy resources.224

Almost all aspects of our economy are dependent on a constant and growing supply of cheap oil, from transport to farming, to manufacturing and trade. In the majority world, where too many people live close to, or below the breadline, the long tail of green revolution agriculture depends on pesticides and fertilisers that need large amounts of fossil fuels. The implication of any interruption to that supply, either in terms of price or simple availability, means a significant shock to the global economy. Everyone will be affected, but some more than others.

From the last chapter: If not the economics of global growth, then what? Getting an economy the right size for the planet

The stationary state
The lineage of the notion of ‘one planet living’ can be traced at least as far back as the early nineteenth century. Philosopher and political economist John Stuart Mill was shaped by the human and environmental havoc of the voracious Industrial Revolution.

In reaction to it, he argued that, once certain conditions had been met, the economy should aspire to exist in a ‘stationary state’. It was a hugely radical notion for the time. Mill thought that an intelligent application of technology, family planning, equal rights, and a dynamic combination of a progressive workers movement with the growth of consumer cooperatives could tame the worst excesses of capitalism and liberate society from the motivation of conspicuous consumption.

He prefigured Kropotkin’s analysis that economics could learn from the success of cooperation, or ‘mutual aid’ as he coined it, in ecological systems, itself a riposte to the fashionable misappropriation of Darwinism to social and economic problems.406 The latter economic folk wisdom remains nevertheless strong. And even today, the Anglo Saxon economic model is commonly defended with similar misappropriations of Darwin that emphasise the ‘law of the jungle’ and ‘survival of the fittest.’ This view suggests that competition in economics, as in nature, should be the natural, dominant mode of operation. Yet, actual evolutionary biology has moved far beyond this caricature, identifying a wide range of different and equally successful strategies in evolution alongside competition.407

These include symbiosis (an example of which is the bacteria which fix nitrogen in plant roots consequently making life possible), collaboration (as was the case with primeval slime mould), co-evolution (the pollinating honey bee responsible for about one in three mouthfuls of the food we eat), and even reason (as with problem solving animals – like elephants, dogs, cats, rats, sperm whales and, sometimes, humans). Optimal diversity too is considered a key condition – nature’s insurance policy against disaster – suggesting that economic systems which allow clone towns to be dominated by massive global chain stores, are probably a bad idea.

Mill also prefigured Keynes’s hope, and similar faith in technology, that once the ‘economic problem’ was solved, we would all be able to turn to more satisfying pursuits, and put our feet up more. He also prepared the ground for the emergence of ecological economics.

The Steady state
In a fairly direct line of intellectual descent, economist Herman Daly has done perhaps more than anyone to popularise the notion of what he calls ‘steady state’ economics. His comprehensive critique, worked-up over decades, decries the absence of any notion of optimal scale in macro-economics, and the persistent, more general refusal of the economics profession to accept that it, too, like the rest of life on the planet, is bound by the laws of physics (see Introduction).

As he wrote in Beyond Growth: ‘Since the earth itself is developing without growing, it follows that a subsystem of the earth (the economy) must eventually conform to the same behavioural mode of development without growth.’408

Of course the big question concerns when, precisely, the ‘eventually’ moment comes. Daly borrows a public safety analogy from the shipping industry to demonstrate what is needed ecologically at the planetary level.

The introduction of the ‘Plimsoll line’ was, so to speak, a watershed to do with a watermark. When a boat is too full, rather obviously it is more likely to sink. The problem used to be that, without any clear warning that a safe maximum carrying capacity had been reached, there was always an economic incentive to err on the incautious side by overfilling. The Plimsoll line solved the problem with elegant simplicity: a mark painted on the outside of the hull that indicates a maximum load once level with the water.

Daly’s challenge to economics is to adopt or design an equivalent, ‘To keep the weight, the absolute scale, of the economy from sinking our biospheric ark’.409 But Daly is not a crude environmental determinist; for any model to work he insists that alongside optimal scale, equally important is a mechanism for optimal distribution based on equity and sufficiency.

To date, the nearest, in fact, only, leading contender to provide the environmental Plimsoll line is the Ecological Footprint. Before the Contraction and Convergence model, which is designed to manage safely greenhouse gas emissions, was ever thought of, Daly identified its basic mechanism as the way to manage the global environmental commons. First, he said, you need to identify the limit of whichever aspect of our natural resources and biocapacity concerns you, then within that, allocate equitable entitlements and, in order to allow flexibility, make them tradable. Such an approach could be applied to the management of the world’s forests and oceans as much as CO2. Daly credits the innovative American architect and polymath Richard Buckminster Fuller for first suggesting the approach. At a fundamental level, this is the primary mechanism to avoid the tragedy of the commons.

In addition, an indicator such as the Happy Planet Index410 which incorporates the Ecological Footprint helps to reveal the degree of efficiency with which precious natural resources are converted into the meaningful human outcomes of long and happy lives.

At the ‘eventually’ moment, or rather well before, these other ways of organising and measuring the economy become vital. In one sense it has already passed. According to the Ecological Footprint, the world has been over-burdening its biocapacity – consuming too many natural resources and producing more waste than can be safely absorbed – since the mid-1980s. We’ve been living beyond our ecological means. But, at what point does the damage become irreversible? This will be different for different ecosystems. But, where climate change is concerned, we have drawn a line in the atmospheric sand at the end of 2016. Based on current trends and several conservative assumptions, at that point, greenhouse gas concentrations will begin to push a new, more perilous phase of global warming.411

Dynamic equilibrium
‘Stationary’, ‘steady’, up to a point these words communicate the message that, logically, a subset of a system (the economy) cannot outgrow the system itself (the planet), and the need to establish a balance. Why suggest yet another term for an essential characteristic of true sustainability?

Yet, the terms ‘stationary’, and ‘steady’, are unattractive for our purposes. They fail to capture sufficiently the dynamism of the interactions between human society, the economy and the biosphere. They wrongly appear to suggest for economics, what was once famously, and with epic error announced for history, namely its end.

But, on the contrary, writes Daly, it is just that a very different economics is needed, one that is; ‘a subtle and complex economics of maintenance, qualitative improvements, sharing frugality, and adaptation to natural limits, It is an economics of better, not bigger’.412

‘Dynamic equilibrium’, is both a more accurate description of the condition we have to find and manage, and a more attractive term. Found typically in discussions of population biology and forest ecology, it captures a mirror of nature for society, in which, within ecosystem limits, there is constant change, shifting balances and, evolution. ‘Dynamic’ in the sense that little is steady or stationary, but ‘equilibrium’ in that the vibrant, chaotic kerfuffle of life, economics and society must organise its affairs within the parent-company boundaries of available biocapacity.

In his parting address from the World Bank, where he worked for six years, Daly left his colleagues with a formula for sustainability: stop counting the consumption of natural capital as income; tax labour and income less, and resource extraction more; maximize the productivity of natural capital in the short run and invest in increasing its supply in the long run; and most contentiously, abandon the ideology of global economic integration through free trade, free capital mobility, and export-led growth.

nef’s report, The Great Transition, explores how best to organise an economy that exists in a state of dynamic equilibrium with the biosphere. That and other research underway seeks to address all the usual questions such as ensuring livelihoods, security in youth and old age, maximising well-being and social justice. The point of this report has been simply to establish the case, as far as possible beyond question, that such an economy is needed.

The challenge: How to create good lives and flourishing societies that do not rely on infinite orthodox growth

This report set out to examine the physical and environmental constraints to unlimited global economic growth as measured by GDP. Taking climate change and fossil fuel use as a particular focus, we find that these constraints at the global level are real and immediate. This means, that in order to allow economic growth in low per capita income countries where, for example, rising income has a strong relationship to greater life expectancy, there will need to be less growth in those high-income countries where the relationship to increasing life expectancy and satisfaction has already broken down…