Catastrophe and Market Decoupling: Our Failure to Regulate Emissions

Introduction

Despite various global net zero pledges, treaties, and massive renewable subsidization, one thing is abundantly clear: the world is not reducing emissions fast enough. Specifically, the 1.5-degree threshold set by the Paris Treaty is on track to be violated, with most scientists agreeing that the current temperature of 1.1 degrees is still on the rise (Elbein, 2023; Bergen, 2024). Crossing this crucial 1.5-degree threshold is predicted to proliferate a series of crises like catastrophic wildfires, droughts, hurricanes, widespread famines, diseases, and economic hardship, with many of these impacts disproportionately falling upon lower-income countries in the Global South, making it imperative that the world takes immediate action to resolve these crises before they wreak havoc on the most vulnerable populations.

What is decoupling?

This is where the idea of decoupling comes in. Decoupling refers to the statistical correlation between GDP per capita and environmental degradation, with relative decoupling referring to when both increase, but GDP per capita increases faster, and absolute decoupling referring to when GDP per capita grows while environmental degradation falls in absolute terms (Infante-Amate, 2024). The debate over whether the world is decoupling or not is long-standing and controversial, but ultimately, the world has not achieved absolute decoupling. A synthesis of 835 peer-reviewed articles, the largest summary of the existing literature on decoupling to date, concludes that the world is not on track to absolutely decouple at a rate that is fast enough and on a global and permanent scale (Sorman, 2023).

So, why is it important to view emissions through the lens of decoupling, as opposed to normal emission measurements? Economic growth, to some extent, can cause emissions. The expansion of market economies requires the extraction of more resources to obtain new capital and transform that capital into goods for consumers to purchase and use. Understanding this interaction of market forces is critical to conceptualizing how to develop market regulations that allow strong economic growth without hurting the environment (World Economic Forum, 2024).

Why isn’t the world decoupling?

First, Jevons's paradox, also known as the rebound effect, is an observation made in 1865 by British economist William Stanley Jevons that says that increasing the efficiency of energy and material use, which is often the goal of various renewable subsidization efforts, leads to an increase in consumption. Various studies conclude that savings from cheaper energy sources are outweighed by a direct and indirect increase in the demand for those energy sources, as the economy continually grows and compels further resource usage. For example, more efficient combustion engines encourage consumers to drive more, which increases emissions, and spend their new savings on more CO2-intensive consumption. Some economic models even predict that the rebound in emissions could be more than 100%, indicating that our attempts to green our growth could be net emissions positive (Brockway, 2021). 

Second, polluting practices are often offshored overseas to countries in the Global South. Many Western industrialized countries have shifted the extraction and production of various goods and services overseas to Global South countries in which workers can be paid comparatively less. This creates the illusion that the greatest emitters, like China and the US, have reduced their emissions in relation to their GDP when they’ve simply shuffled their emissions around the globe.

Solutions

While this data may create the illusion that markets are the problem and that maybe a newer, more radical alternative should be pursued, this is not the case. Firstly, the planet simply does not have enough time to have a major reshuffling of our society, which is largely based around markets, to another theoretically more useful system of management based on central planning or degrowth, which promotes decreasing economic growth to meet environmental goals. Maybe in another universe, we can reorganize the economy with centrally planned inputs and outputs guided by super intelligent AI that creates a Goldilocks rate of growth in which we meet the needs of a growing population without excessive pollution, but the imminence of global warming makes any radical change doomed to fail. Secondly, markets are the proper corrective measure, with certain limits. The implementation of grossly large fossil fuel subsidies has artificially reinforced the market share of the more pollutive technologies, while the social cost of impending climate change fails to be adequately internalized. 

Implementing a carbon tax is just one example of a policy that would adjust the market equilibria to incentivize renewable technologies. Unlike subsidies and regulations, which can silo the market and favor certain renewable technologies over others, a carbon tax would ensure an economy-wide signal that increases renewable competitiveness in every sector of the market (Francis, 2023). The tax’s constant cost on any pollution would also prevent the rebound effect, as any attempt to redirect savings from efficiency improvements into increased consumption would be taxed. The implementation of a carbon border adjustment in tandem with a domestic tax would distribute the tax on all imports into the US from countries without a matching tax, incentivizing them to match with a tax of their own (Bistline, 2024). The financial power of the American market could help ensure the spread of the tax to all parts of the globe, including the Global South, which would prevent offshoring. 

In sum, confronting climate change with urgency through policies like carbon taxes and border adjustments is essential to keep global warming within the 1.5-degree threshold, and there remains a suite of innovative policies that can guide the world toward a sustainable future without compromising economic growth.

Edited by Sherry Cai

References

Bistline, J. (2024). Climate Policy Reform Options in 2025. UCLA School of Law. 24(2). pp. 1-39.
https://ssrn.com/abstract=4735984

Van den Bergh, J. (2024). Climate Policy Reform Options in 2025. International Review of Environmental and Resource Economics. 18(3). pp. 351-384.  https://doi.org/10.1561/101.00000172

Francis, R. (2023). How carbon pricing accelerates innovation deployment. Climate Leadership Council.
https://clcouncil.org/blog/how-carbon-pricing-accelerates-innovation-deployment/

Russo, F. (2024). Decoupling economic growth and emissions. World Economic Forum. https://www.weforum.org/agenda/2024/01/decoupling-economic-growth-emissions/

Brockway, P. (2021). Guest post: Why rebound effects may cut energy savings in half. Carbon Brief. https://www.carbonbrief.org/guest-post-why-rebound-effects-may-cut-energy-savings-in-half

Sorman, A. (2023). Deceitful Decoupling: Misconceptions of a Persistent Myth. The Barcelona School of Ecological Economics and Political Ecology. pp. 165-167. http://dx.doi.org/10.1007/978-3-031-22566-6_15

Infante-Amate, J. (2024). Unsustainable prosperity? Decoupling wellbeing, economic growth, and greenhouse gas emissions over the past 150 years. World Development. 184(106754). https://www.sciencedirect.com/science/article/pii/S0305750X24002249#:~:text=Absolute%20decoupling%20takes%20place%20when,so%20at%20a%20faster%20rate

Elbein, S. (2023). Society isn’t changing fast enough to stop climate change, study finds. The Hill. https://thehill.com/policy/energy-environment/3839348-society-isnt-changing-fast-enough-to-stop-climate-change-study/

Bergen, M. (2024). 1.5 degrees of global warming: Are we there yet? NRDC. https://www.nrdc.org/stories/15-degrees-global-warming-are-we-there-yet#:~:text=Intensifying%20wildfires%2C%20droughts%2C%20floods%2C,of%20warming%20would%20feel%20like

TPG/Getty Images. (n.d.). Workers try to clear algae from a polluted lake in Anhui Province [Photograph]. Getty Images. https://mahabal.com/rains-and-environmental-problems-challenges/