Economy and climate

Nowadays, we hear a lot about sustainability: sustainable development, sustainable consumption, sustainable agriculture, even “sustainable” gas is discussed. No wonder, as we are in the middle of multiple ecological crises, first and foremost the climate crisis. Today the atmospheric greenhouse gas concentration is the highest in the last 800,000 years. The global average temperature has risen by more than one degree Celsius and weather extremes like floods, long dry periods, snow chaos, forest fires and hurricanes get more frequent and intense. But what does sustainability mean? And how could a transformation towards a climate-friendly, sustainable economy look like?

The term sustainability originally comes from forestry; one should only fell as many trees as will regrow through new plantations, keeping tree populations and yields constant. The concepts of weak and strong sustainability have profoundly different understandings of a sustainable stock.

Weak sustainability is applied in environmental economics and is based on the principle of interchangeability; natural capital (natural resources) can be replaced by physical capital (e.g. machines or material infrastructure) and human capital (e.g. knowledge). Sustainability means keeping the total value of the capital stock (the sum of the three types of capital) constant or increasing it. Natural, physical and human capital are interchangeable by means of one measure, namely money. Markets, in which the three forms of capital are traded, can be created. This leads to commodification, meaning that free goods, like air and water, which are foundational for life, are turned into commodities, which can be traded like any other good. It is therefore not seen as problematic if natural capital is shrinking today as regions turn into deserts, as long as at the same time physical capital is increased, for example by building roads. Due to interchangeability, environmental damage can be compensated financially.

Strong sustainability is at the heart of the debates in ecological economics, which go beyond discussing an optimal allocation of resources. Strong sustainability is based on the principle of embeddedness: the economy is a subsystem, embedded in society and the biophysical sphere. Strong sustainability assumes that economic and social life is based on irreplaceable, interwoven ecosystems that must be preserved. Economic activities are confronted with ecological limits. The substitutability of nature with other types of capital is limited. Environment, social affairs and economy are in many respects not comparable with a measure, and therefore not mutually interchangeable.

As well as the conceptualisations of sustainability differ, also the strategies for a transformation towards a climate-friendly, sustainable economy diverge profoundly. The market-liberal strategy sees the market as the institution that combines individual action and social welfare. The image of the ‘invisible hand’ depicts the idea that pursuing one’s own interests unintentionally leads to a social optimum as demand meets supply. If there is a functioning market and property system, one can trust that the upcoming transformation will succeed spontaneously with the help of market processes. The state is seen as a coercive apparatus whose influence on concrete economic action must be minimised. Within this model, the spectrum ranges from libertarian positions that seek to minimise state intervention to neoclassical positions that opt for correcting market failures (for example, through carbon pricing).

According to the strategy of a socio-ecological transformation, a fundamental transformation is needed to open new paths towards a sustainable and just economy. Within this strategy, the spectrum ranges from pragmatic to radical ideas of socio-ecological transformation. A pragmatic position is, for example, that of the German Advisory Council on Global Change (WBGU), which proposes a new global social contract for a sustainable global economic order. This approach to ecological modernization combines social and systemic innovations. A strong public sector, good public technology and innovation policy and public infrastructure together create opportunities for ‘transformation by design’. However, economic growth remains important for solving distribution conflicts by distributing an ever larger ‘cake’. The degrowth movement calls for a radical socio-ecological transformation. It stresses that the growth imperative and the tendency towards commodification of all areas of human life have to be overcome. Instead of growing material prosperity and consumption, the focus should be on growing human well-being and sufficiency. Therefore, decommodification is needed, as many areas are not suitable to be traded as goods on the market. If fundamental basics of a good life, from fresh air and water, to good education, public health and public transport are provided to everyone, rather than traded on markets, well-being depends less on (growing) income and consumption.

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