Growth Compass
We thus arrive at two main dimensions of growth: one that describes an increase or decrease in economic value creation (gross profit at corporate level, GDP at national level) and another that describes an increase or decrease in the environmental footprint (EF).In the following, I'll speak of three related measures of environmental footprint: carbon footprint (the greenhouse gas emissions in tons), material footprint (measured as material consumption of biomass, fossils, metals, and minerals added together in tons), and ecological footprint (in global hectares of biocapacity). All three are methods to measure the environ-mental footprint of any economic activity. Depending on usefulness for the issue in question, data availability, and quality, any of these may be best suited when total resource use and resource productivity are discussed, as when defining green growth below. Whichever we use, they tend to be highly correlated. Rather than waiting for the one perfect metric, companies and countries can focus on continuous improvement right away, fine-tuning the accounting along the way. This gives four possible models that any country or corporation can move along over time. I call it the green growth compass, and anyone can use it to navigate the economic growth landscape. Figure 5.1 shows these four different models of economic growth. If there is economic growth (GDP up), but the growth uses more physical resources, increasing its environmental footprint (EF goes right).

The growth compass shows the four possible directions of growth, based on the change in value added (GDP) and the change in environmental footprint (EF) per year. EF can be measured in tons of greenhouse gas emissions, materials consumed, or global hectares of biocapacity, depending on data relevance and availability. The bold white line shows the improvement of resource productivity (more value created with less footprint). every year, then we're in gray growth territory. That's the northeast (upper right) quadrant—the typical realm for 1900s economic growth, and still the dominant realm for the majority of countries in the 2010s. In the gray growth model, a country's economy typically makes more market value for its own people while using so much more oil, soil, trees, fish, water, and other resources every year that nature is left in a worse situation. Extreme examples of gray growth are easy to find: the United Kingdom in the 1800s, the United States in the 1900s, and China in the early 2000s.

In gray growth, there are often efficiency gains (more output per resource unit). But the volume of the growth eats up the efficiency gains. The result is a higher footprint too. This catch-22 is known as the rebound effect: Efficiency brings down costs and resource use in individual products, but those lower costs encourage more consumption of other products, which begets more resource use overall. It's part of the growth paradox—specifically the Jevons paradox, named for William Jevons, who in the nineteenth century observed that transforming coal into energy in more efficient and thus cheaper ways led to people using more, not less, of it. This paradox underlies one of the biggest green-growth worries of the environmentally alarmed: what may initially look like promising green growth may backfire and end up pushing gray growth. There are three main kinds of rebound effects—direct, indirect, and economy-wide. If the auto industry makes cars more fuel efficient but the fuel savings encourage more people to drive longer, that would be a direct rebound. The magnitude of the rebound depends on people's responsiveness to the resource price. An indirect rebound happens when, say, the owner of the new and better SUV doesn't really drive more than before but spends the fuel savings on some other type of consumption, like an extra flight to Florida. Even something as green as a windmill has indirect rebound effects. It may produce power without carbon emissions, but it takes embodied energy, steel, and concrete to make and install it, and other resources to maintain it, operate it, and distribute its energy. An economy-wide rebound represents the sum of all direct and indirect effects from better efficiency rippling through the entire system. This is what Jevons observed in the United Kingdom during the 1800s. New, improved steam engines needed less coal to do the same work. But the improvements resulted in seemingly ever-growing coal use as the new engines' popularity skyrocketed. The relative cost of using a resource decreased, which increased the quantity demanded. The Jevons paradox suggests that more efficient (and hence comparatively cheaper) energy leads to faster overall economic growth, which again increases resource use throughout the economy. Some see rebound as inevitable for all resource productivity solutions. Its effects, they say, make efficiency savings impossible. So, will all efficiency improvements inevitably rebound? Is resource productivity indeed futile as a solution to resource overuse? A lot of research often complex and with varying definitions has tried to figure this out since around 1980. But findings from the last decade are quite clear. Direct rebounds when they happen tend to be rather small. Rebound rates varied depending on a number of factors, but studies typically show that in richer countries, with generally high levels of overall consumption, only 0 to 30 percent of resource savings is lost to rebound.Many early studies that showed higher rebound used twentieth-century data collected long before radical efficiency or green growth concepts got the faintest chance to influence real policies. And also, long before cheap renewables became a reality, digital end-user efficiency and circular economy practices gained traction in the marketplace. All these factors can reduce rebounds and create a greener growth.

Indirect rebound effects can be somewhat larger, often 20 to 40 percent of the savings, if good design and material flow analysis of the value chain is not taken into account. But the rebound can be reduced by shifting to renewable energy down the supply chain, shifting from waste chains to value cycles, and greening procurement in all companies as well as governments. Consumer savings that might feed more consumption can even be redirected into further efficiency investments, such as saving for an electric car rather than the extra trip to Florida. Some studies show that this kind of efficiency with increasing returns makes even super-conservation possible. Certainly, rebound effects can undermine piecemeal efficiency efforts and need to be taken into account when planning. Yet, fretting about strong rebound is mainly a distraction. Any remaining economy-wide rebounds are best handled with coordinated policy (see part III). For example, controlling fossil fuel use and emissions with cap-and-trade measures,increasing efficiency standards, or imposing green taxes on resource use all help to socialize the gains from efficiency innovations. Without such measures, the shift from gray to green will likely be slower.

When GDP growth happens with less resource use from nature than the previous year, then we are moving toward green growth in the northwest (upper left) quadrant. When a country manages to move into and stay inside that quadrant year for year, it means that the economy is making more value for people while leaving nature in relatively better shape each year too. Decreasing footprint can be done by emitting and extracting less while reinvesting in nature. These waste-killing and regenerative practices are what moving in the direction of better resource productivity is all about (the bold white arrow in figure 5.1). Is this truly possible? Yes. Sweden is one example of a country that has improved its carbon footprint every year since 2000. Denmark, the United Kingdom, the United States, and fourteen more countries are also heading in this direction. If GDP declines from one year to another, then this reduced production and consumption may reduce the physical resource use, too. This means a lower environmental footprint, with less pressure on rivers, forests, soils, and oceans. When both the GDP and EF go down each year, then we're in a green degrowth (the thin dotted white arrow in figure 5.1).

The challenge with degrowth is that as sales go down, companies start to fire employees, probably increasing unemployment and inequality. And private investments in new (risky) opportunities go down, slowing the speed of structural change in the economy. This happened to Russia in the 1990s,after the Soviet Union collapsed: Many of its dirty state industries were stalled when the subsidies stopped, and resource use, as well as CO2 emissions, dropped accordingly. Japan from the 1990s to 2010 is another example: the economy contracted during what was dubbed the "lost decades," and emissions fell somewhat, too. During both the 2008 financial and 2020 corona crises, the United States and the European Union were also in this quadrant: GDP shrank, as did emissions.

The fourth quadrant (southeast, or lower right) is one that nobody wants to inhabit. In dirty degrowth, GDP falls while the EF increases, as happened in Venezuela since 2013. The economy crumbled, and the rich emigrated. Everyone became worse off, particularly the poor and vulnerable. Today, dirty petroleum production chugs along with little or no investment in cleaner production. Some other industries, such as gold mining, have seen an uptick, but there is no money to clean up the mining waste, which then poisons the rivers. When gray degrowth takes hold, there can be no money to enforce compliance. Things can become increasingly corrupt, downright illegal, and violent. The hungry start to chop down trees around them to cook, start illegal wildlife hunting, or to steal food from restaurants or local farmers. Heading in the dirty degrowth direction for a while soon makes human lives more "nasty, brutish and short," in the words of Thomas Hobbes. Nature, too, goes down the drain. Japan has also been visiting this quadrant, particularly in the years following the 2011 Fukushima nuclear accident: less GDP and more pollution.Syria since 2011 is a third such case.

A couple of things are key to remember. First, growth always means change over time. It says nothing about the absolute level of anything in the economy. The growth compass is thus a compass for orientation: In what direction are we moving over any time period? Second, resting our future goals on GDP alone has many critics, and nearly all professional economists agree with those critics at least on one count that GDP alone is neither a good goal nor a measure for well-being development.GDP is simply the total volume of all economic activity in any year, based on market prices and embracing the good, the bad, and the ugly. Sure, GDP can rise with the proliferation of good things like solar energy or wind power. But bad things can drive up GDP, too. Huge wildfires, for instance, generate a flurry of economic activity. Large brigades of firefighters are hired. Homes are burned down and must be rebuilt. Lots of people need medical care. Similarly, if a terrorist throws a bomb into a mall, then the hunt, the cleanup, and rebuilding will all increase GDP. Wars, too, can fuel economies in insidious ways.

These are certainly not the kind of GDP increases that anyone really wants. Even so, I'm personally not a big fan of GDP. It measures economies imperfectly and with large omissions and margins of error. One can only hope that, on average, any growth in GDP per person contributes to improving human well-being. It tends to do so in poor countries, but in already wealthy countries, that contribution is weak or nonexistent.
Still, GDP is one of the best-known, most widely used economic metrics we've got, and something that "everyone" relates to. That's why, if we're careful about how we use it, GDP can be put to good use as an indicator of the activity level of the entire market economy with a relatively well documented, long-term series of data available to us. Because it is, after all, these activities (the driving, logging, farming, mining, fishing, flying, manufacturing, computing, video streaming, healthcare, service delivery, and so on) that cause the total resource use. And it's the activity level that tends to generate jobs or, if it falls, unemployment for people. There have been many attempts to modify GDP or replace it with something else like indicators of genuine progress, or sustainable development, or even happiness. But rather than wasting our time on GDP bashing or somehow struggling to correct it for its many faults, we can integrate existing GDP numbers with additional measures to tell whether any observable change in future GDP is the type of growth we want or the opposite. GDP is a little like a tachometer, the device that in combustion engine cars monitors the revolutions per minute (RPM). It doesn't show where we're going or if we're going uphill or downhill. Neither does it show if we're speeding toward our vision or moving like a snail. It's useful to show whether the economic engine is revving too low or too high.

Along with many others, I believe we can supplement GDP with a broader set of a few meaningful key metrics that will give us a fuller economic dashboard. We can then reframe it into something useful, rather than continue to fight it or worship it. We can even be agnostic about GDP, neither for nor against it. Because there is no reason to expect GDP numbers themselves to give any account of human well-being, trust or natural capital. One approach to a meaningful use of GDP is to see it in connection to fossil-fuel use and greenhouse gas emissions. We then get an indicator of the economy's "carbon productivity": How many dollars of value creation do we get for each ton of greenhouse gas emitted ($/tCO2e)? Now, that's an interesting metric for anyone interested in systems change to solve global heating.

Some directions of GDP growth are beneficial for society over time. Moving into the upper left green growth quadrant reduces the pressure on nature measured in tons of resources used while making people better off in terms of purchasing power. It also potentially benefits the poor (the topic of chapter 6). If we get genuine green growth right, we can grow companies, cities, industry sectors, and the entire economy in a direction that brings us to one-planet-compatible living. Humanity can keep flourishing, economically and otherwise, inside the safe boundaries of the planet. Defined by the typically feel-good words growth and green, it has the air of a win-win game. That's why phrases such as "green growth" and "green new deal" have been used frequently by major national and international players since around 2008. The usefulness of the growth compass lies in cleaning up the fog of confusion around these words and concepts: Many politicians, executives and international agencies acknowledge that conventional growth is environmentally unsustainable, or gray. Most people recognize that material resource use is already too high. It's causing global warming (from fossil fuels) and vast losses of natural, beautiful wildlife (biomass). It's filling the oceans with toxics and plastics (one-time consumption). And these trends seem set to continue to rise indefinitely. Hence the need to talk of greening future growth. But speaking about green growth does not change the environmental footprint. Only real-world investment and thoughtful action, by both companies and governments, both cities and citizens, can do that. The all-too-human response has so far been to chatter away about sustainability and green growth while continuing to walk in the gray growth direction. But this is greenwashing: pretending to be walking in another direction than you are. Speaking about northwest while walking northeast is not helpful. You'll get lost but pretend everything is just fine. This is where psychology comes to the fore when doublespeak and self justification move in to cover over the dissonance.

Some improvements are often made even while wandering astray;
the gray growth is made a little less gray. Corporations that are clever at greenwashing highlight a few green things they do. They might plant some trees, or put ecological soaps and efficient LED lighting in the bathrooms of oil rigs drilling at full speed. Or they might aim for something more directly related to their products like a food company that tightens its certified palm-oil sourcing enough to tout its efforts but not sufficiently to end its complicity in vast fires burning in tropical forests to make way for palm plantations. These small strides are of course far from sufficient in that the total ecological footprint still grows in physical, absolute terms, even if a tiny bit slower than previously. A little less gray is far from genuinely green. Yet for our work, and in this book, real green growth is considered not just wishful thinking or a theoretical possibility. There are success stories of eliminating wastefulness at company, city, national, and regional levels as we'll see in chapter 7. Genuine green growth is a new growth model that is very different from twentieth-century gray growth. It only really got going during in leading countries and companies during the 2010s and is now delivering the first steps toward a healthier economy.

When accelerating green growth year after year, and rapidly scaling it to a global level, we will be able break the strong historical coupling between global resource use and global GDP. The economy will then gradually change from its current high-risk track of destroying ecosystems to one that thrives within them. The question is whether we're seeing quick enough green growth to change the system in time. And what exactly does that new, fully changed system a green economy look like? The short answer is this: A thriving green economy will mean about double the volume of global GDP from 2020 to 2050, with less than half the ecological footprint, while human greenhouse gas emissions are approaching net zero.

A balance sheet for each country and the Earth: How we can achieve healthy growth—more regenerative than wasteful, instilling equity rather than exacerbating inequalities.
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Maria Katarina T. Michelsen
Per Espen Stoknes
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