Misleading Talk about Decoupling CO2 Emissions and Economic Growth

You can call it my pet peeve or even my obsession, but whenever I read about the claimed “decoupling” of CO2 emissions and economic growth, I get annoyed.  Webster’s Dictionary defines decoupling as “eliminating the interrelationship” between two processes.  But the interrelationship between CO2 emissions and economic growth has certainly not been eliminated.

Decoupling is the wrong word and metaphor to describe what has been happening.  When a caboose is decoupled from a train, it stops moving altogether.  A better metaphor, although 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.

What Has Been Happening

True enough, the carbon intensities of many economies in the world, particularly those of the industrialized nations, have – for many years – been falling, as those economies have become less energy intensive (less energy use per unit of economic activity – Gross Domestic Product or 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.

Furthermore, in some cases, as economies grow, CO2 emissions can actually fall.  First, picture an economy which is growing exclusively in its services sector.  In this case, economic growth might be accompanied by no change in CO2 emissions.  Now picture an economy which 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.  Now add to this picture the presence of some public policies, such as those that cause the closure of coal-fired electric generation plants, as well as greater dispatch of electricity from natural gas-fired plants.  The result:  economic growth continues, with falling CO2 emissions.  But there has been no decoupling.

Confusion Due to Failure to Employ Appropriate Counterfactual

The problem and the confusion arises from a very common mistake in the popular press and, for that matter, in many casual conversations:  failure to use the right counterfactual for analysis.  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 would emissions 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, although 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 (although there are others).

First, energy comes at a cost in all economies, and so economic incentives exist to economize on energy use through technological change.  The energy-intensity of the U.S. economy has gradually fallen – almost monotonically – since early in the twentieth 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, specific to the United States, has been the combination of horizontal drilling and hydraulic fracturing (fracking), which has caused a significant increase in supply and dramatic fall in the market price of natural gas, which has thereby led to a massive shift of investment and electricity dispatch from coal to natural gas.

Third, in the richer countries of the world, including this one, the process of economic growth has led to changing sectoral composition:  heavy industry to light manufacturing to services.  The deindustrialization of California 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 the California case, there has also been a fourth factor …

Fourth, public policies have in some jurisdictions of the world (Europe, the United States, and most of the other OECD countries) discouraged carbon intensity.  In the USA, this has happened both through climate policies and other, non-climate policies.  Some non-climate policies, such as EPA’s Mercury Rule, discourage investment, encourage retirement, and discourage dispatch of coal-fired electricity, while other non-climate policies, 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, such as 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 CO2 cap-and-trade system.

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.  And, in some cases, the combination of energy price changes, technological change, changes in sectoral composition, and climate and other public policies has meant that emissions have fallen in years when economic growth has continued.  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.

Author: Robert Stavins

Robert N. Stavins is the Albert Pratt Professor of Business and Government, John F. Kennedy School of Government, Harvard University, Director of the Harvard Environmental Economics Program, Director of Graduate Studies for the Doctoral Program in Public Policy and the Doctoral Program in Political Economy and Government, Co-Chair of the Harvard Business School-Kennedy School Joint Degree Programs, and Director of the Harvard Project on Climate Agreements.

7 thoughts on “Misleading Talk about Decoupling CO2 Emissions and Economic Growth”

  1. You make an pedantic but very important point.

    Many commentators use many words as interchangeable eg energy/power, electricity/energy, carbon/carbon dioxide/ghg, energy intensity (per capita, GDP, etc?). We cannot expect policy makers to deliver good policies unless we give them precise and meaningful definitions.

    (My pet bane is the political equation that global warming = carbon = carbon dioxide = energy = electricity which leads to the conclusion that the solution is to cut electricity use whereas the converse is nearer the truth – in the EU nearly 50% of electricity is carbon free and getting more so every year.)

  2. The part of this rhetoric that annoys me most is that people ignore the outsourcing of CO2 emissions. Can you really say your economy is less carbon-intensive if you’re causing the same output of CO2, but now it happens to be in China rather than California? I call BS.

  3. I mean — you’re right — the metaphor isn’t perfect — but that’s kind of a minimal complaint isn’t it? I can always point to some aspect of a metaphor and find flaws. As for “decoupling” what is useful about it as a metaphor is that the ‘goal’ becomes very clear. For ‘clutch slippage’ what is the goal? It makes it sound detrimental rather than positive. (I usually take the car into the shop after the clutch lets go to much to have that fixed)

    Secondly — I think many would disagree with you. That sectoral change which causes lower energy and/or carbon intensity? Yes – that is decoupling (slippage — whatever). That is an economy producing more with less of something — that is the relationship changing. It isn’t the same thing as manufacturing being decoupled — but since we measure gdp to get a sense of quality of living, carbon (energy) intensity is a measure of how much carbon (energy) we need for a certain standard of living. The fact that it is decreasing in california is significant — whether or not you like the nomenclature.

    Bodz — most metrics find global intensities to be falling as well as just californian ones. (I can’t say all do — I don’t know all metrics). So to the extent that you are worried that measuring changes carbon intensity in a limited geographic area is foolish because the world economy is interconnected — you need not be worried — we are getting better at this. To the extent that we are getting better too slowly and our metrics don’t show that — there may be an issue.

  4. Interesting post and one that was needed. But I wonder if there is a fifth reason?
    Even if the headline GDP numbers don’t show it, China may actually be in something of a recession. If you took their current economic circumstances (fall in housing starts, dip in steel production year on year etc.) and applied them to the EU or USA, GDP would probably be heading south. For some reason, that’s not as clear in China, perhaps because of the way their economy is structured or how the GDP is established.
    So this means that the current claim that “emissions have detached from global economic growth at a time when there is no economic reason for this”, doesn’t really apply. With a major part of the global economy in a virtual (but not statistical) recession, emissions have plateaued. As we might expect. Only time will really answer this question.

  5. Rob,
    Can you take the decline in measured energy intensity (BTUs per dollar of output) along w/ the increase in energy efficiency and back out a measure of “energy work” (ton-miles of transport, turns of the flywheel, degrees cooled etc.)? That would presumably be increasing along w/ capital intensity. In other words, there must be a fast growth rate of energy productivity. If I understood Acemoglu’s directed technical change, I might be able to tell you why, but it must have to do with the differential costs of the different directions (“biases”) of technical change.
    Jim

  6. Dear Robert,

    I think decoupling is perceived by many correctly – as an integrated impact of all factors in any decomposition analysis ( starting from Kaya identity and going deeper in allocation of GHG emission drivers impacts). So, economic growth does drive emissions up, but under some conditions is partly or fully neutralized by other factors.

    Kaya identity completely ignores prices. I want to attract your attention to the attached paper, which shows that prices do matter a lot and determine the speed of energy intensity progress as well as the economy and technological restructuring.

    Bashmakov I. and M. Grubb, 2016. ‘Minus one’ and energy costs constants. rep. at XVII Apr. Intern. Acad. Conf. on Economic and Social Development, Moscow, April 19–22, 2016/ Nat. Res. Univ. Higher School of Economics. — Moscow: Higher School of Economics Publ. House, 2016.

    Igor Bashmakov

  7. Rob,
    I appreciate this blog post since for a long time I have been irritated by the persistent use of falling energy intensity as a proxy for solely increasing energy efficiency. Ignoring the structural changes is misleading in many ways. One that seems to get ignored commonly is the embodiment of energy (and carbon) in those imports of manufactured goods that used to be manufactured in the U.S. but are now made in Asia with, of course, the attendant CO2 generation credited there rather than here, leading to further policy dilemmas. So, thanks for addressing the “decoupling” issue.

    That all said, I think your suggested replacement metaphor isn’t quite right either. You suggest: “A better metaphor, although less linguistically appealing, would be a ‘slipping clutch.’ The engine continues to transmit power, and as a result the driveshaft continues to rotate, but less than when the clutch was new.” But that suggests the same amount of power is being generated and energy consumed with less power getting transferred to the wheels, or worse that actually more power and energy is required of the engine to do the same work to compensate for the slipping clutch. I think what you really mean is that the transmission is more efficient and the same work is getting done with the necessity of less power being generated and energy consumed by the engine, c’est vrai? Or perhaps these days, even more analogous, the vehicle is a hybrid car with two power sources: the carbon intensive combustion engine (manufacturing) and an the arguably less carbon intensive electric motor (services). The transmission draws on both sources but increasingly on the electric motor, resulting in the same work (GDP) getting done with fewer emissions, at least locally.

    At any rate thank you again for addressing the misleading decoupling issue.

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