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Column: Don’t be fooled. CO2 emissions still tied to economic growth

You can call it my pet peeve or even my obsession, but whenever I read about the claimed “decoupling” of carbon dioxide (CO2) emissions and economic growth, I get annoyed. The Merriam-Webster dictionary defines decoupling as “eliminating the interrelationship” between two processes. When a caboose is decoupled from a train, it stops moving altogether.

Decoupling is the wrong expression because the interrelationship between CO2 emissions and economic growth has certainly not been eliminated. A better metaphor, though less linguistically appealing, would be a “slipping clutch.” The engine continues to transmit power, and as a result the driveshaft continues to rotate, but with less velocity than when the clutch was new.

Shifting services

True enough, the carbon intensities of many economies in the world, particularly those of the industrialized nations, have been falling for many years. Those economies have become less energy intensive (less energy use per unit of economic activity – GDP) and, therefore, less carbon intensive. For each dollar of economic activity, CO2 emissions are less than they used to be. For each unit of economic growth, there is less growth in CO2 emissions than previously.

But picture an economy that is growing exclusively in its services sector. In this case, economic growth might be accompanied by no change in CO2 emissions. Now, imagine an economy that is growing in its services sector while shrinking in its manufacturing sector. (Sound familiar?) In this case, economic growth might be accompanied by reduced CO2 emissions. Add to this picture the presence of some public policies, such as those that close coal-fired power plants but expand electricity generation from natural gas-fired plants. The result: Economic growth continues with falling CO2 emissions, but there has been no decoupling.

Confusion due to casual contrasts

The confusion with decoupling arises from a very common mistake in the popular press and, for that matter, in many casual conversations: failure to use the right counterfactuals — or examples that run contrary to fact.

The fact that GDP is rising while emissions are falling does not mean that GDP is not affecting emissions. The appropriate counterfactual for comparison is how much emissions would have fallen had there been no growth in GDP.

Presumably, emissions would have fallen even more. The excess of emissions in the factual case, compared with the counterfactual case, is the magnitude of emissions growth due to (actually, “associated with”) economic growth. There has been no elimination of the relationship between the two, though the nature and the magnitude of that relationship has changed.

What factors affect CO2 emissions?

So why have CO2 emissions been declining in some countries? Or, more broadly and more to the point, what factors have affected CO2 emissions? Four stand out (though there are others).

First, energy comes at a cost in all economies, so economic incentives exist to spend less on energy use through technological change. The energy intensity of the U.S. economy has gradually fallen — almost monotonically — since early in the 20th century.

Second, putting aside energy intensity and focusing on carbon intensity, some technological change has worked against the use of carbon-intensive sources of energy. The most dramatic example in the United States has been the combination of horizontal drilling and hydraulic fracturing (fracking), which has caused a significant increase in supply and a dramatic fall in the market price of natural gas. This, in turn, has led to a massive shift of investment and electricity dispatch from coal to natural gas.

Third, in the richer countries of the world including the U.S., the process of economic growth has led to changes in sector composition: from heavy industry to light manufacturing to services. California’s deindustrialization is a graphic example. Does the fact that California’s economy has grown while emissions have fallen mean that decoupling has occurred? Of course not. And, in California’s case, there has also been a fourth factor…

Fourth, public policies in some jurisdictions of the world (Europe, the U.S. and most of the other Organization for Cooperation and Development countries) have discouraged carbon intensity. In the U.S., this has happened both through climate and non-climate policies. Some non-climate policies — such as the U.S. Environmental Protection Agency’s mercury rule — discourage investment, encourage retirement and discourage dispatch of coal-fired electricity; while other examples, such as CAFE standards for motor vehicles, bring about greater fuel efficiency of the fleet of cars and trucks over time.

Climate-specific policies have also mattered in California, where the Global Warming Solutions Act of 2006 (AB-32) has brought down emissions through a portfolio of policies, including an economy-wide cap-and-trade system for CO2.

The bottom line

So yes, the carbon intensity of many economies continues to fall — for a variety of reasons, including but by no means limited to public policies. The combination of energy price changes, technological change, changes in sectoral composition, climate-related public polices and other, unrelated public policies has meant that emissions have fallen in years when economic growth has continued in some scenarios. But don’t be fooled. Economic growth does affect CO2 emissions. There has been no decoupling; just some (desirable) slipping of the clutch.

Of course, this is not an anti-environment message. On the contrary, a belief in decoupling per se could lead to a misguided laissez-faire attitude about the path of CO2 emissions. Being honest and accurate about the links between (desirable) economic growth and (desirable) CO2 emissions reductions puts our focus and emphasis where it ought to be: finding better ways to have both.