The Promise of Environmental Action for Economic Growth

While governments around the world cite job losses as the reason for the lack of enthusiasm to invest in climate action, research indicates that the green economy has the potential to create employment and spur economic growth.

It is universally agreed upon that the rising pollution levels in our cities and towns have been resulting in deleterious effects on human health. Air pollution alone is estimated to cause around seven million deaths a year worldwide (Active Sustainability). But, what many of us fail to understand is that asthma, impaired lungs, high risk of cardiovascular diseases and cancer, and shortened life spans are a few of the multitude of effects of a degraded environment and these translate into enormous costs for the economy as well. A diseased populace produces an inefficient workforce, which works below its optimal level, and significantly lowers the margin between the output and input. In an environment where development is assessed by the rising gross domestic product (GDP) growth rates, one may not even see the above correlation, but research findings reveal a grim picture. According to the 2016 data of the World Bank, the health toll of air pollution costs India around 8.5% of its GDP, or more than $560 billion (Chakraborty 2016).    

A major problem with mainstream economic indicators like the GDP is that they do not factor in ecosystem services, which refer to the broad spectrum of benefits derived from the ecological processes. These include efforts to recharge groundwater table, keep the nutrient cycles running, among others. However, such aspects do not feature in the mainstream narratives around “growth” and “development,” simply because our economic models have failed to quantify the transactions in the ecosystem. Our biodiversity has always been perceived as an absolute and altruistic entity that would bless us with more, without demanding anything from us in return. In 1997, ecological economist Robert Costanza, along with his colleagues, estimated that ecosystem services on an average have an annual worth of $33 trillion globally (Holzman 2012). The link between the environment and economy has always existed and will only strengthen in the future.

Economic Impact of the Environmental Destruction

Ecosystem services are the foundation of economic productivity. Any disruption caused to such naturally occurring processes has a direct bearing on our potential to create money. A study found out that a single pollutant like bad ozone leads to a net loss in primary productivity, because of the reduced plant and biomass production, and increased plant susceptibility to stress (Persson et al 2010). 

On the other hand, environmental degradation has already begun to show its adverse impacts on the economy. For instance, the real estate sector in the National Capital Region (NCR), New Delhi, has been incurring severe costs to transport water for construction purposes from distant places (Magic Bricks 2013). This is because of the dip in the groundwater reserves, which has resulted from excessive extraction, concretisation, and deforestation. The increased costs for the real estate sector would mean a decline in the profit margin for the employers in the sector and a downward slide in the market. In turn, this would result in future costs in terms of lost jobs and a decrease in the national income.     

Another sector that has been reeling under the impact of environmental degradation is tourism. In 2018, the foreign tourist inflow into New Delhi declined to about 25%30% owing to the rise in the pollution levels every year in the aftermath of autumn festivities (Lal 2018). Agra has also been witnessing a sharp drop in the tourist footfall from 2017 due to the poor air quality index (AQI) levels (Qureshi 2017). The case of Dal Lake in Kashmir is similar. Once known for its pristine beauty, the Dal Lake in the recent past has been dumped with 9,000 metric tonnes of sewerage every year, and its colour has changed from bluish-green to hazel (Sidiq 2018). Due to the stench, tourists have been avoiding the lake, and has severely affected the livelihood of the locals. In 2016, the tourism sector contributed $7.6 trillion to the global economy (Statista 2018). But, rising pollution levels and the destruction of the environment on a massive scale has affected this adversely. 

Against this backdrop, governments across the world have been incurring significant costs for environmental remediation, which are complex processes employed to remove pollutants from the environment. World leaders are finally coming to terms with the fact that their stance on climate action is a matter of life or death, and there is no easy way out. The budgets in the recent past for environmental remediation efforts have gone up significantly. In India, for instance, the Narendra Modi government allocated a staggering Rs 20,000 crore in 2014 to clean river Ganga under the Namami Gange Project (National Mission for Clean Ganga). Despite the earmarked funds and a plan of action, the average annual sewerage discharge into Ganga stands at 4,93,400 million cubic metres (Mishra 2014). At the global level, the World Bank announced $200 billion, spread over five years, in 2018 for climate action (World Bank 2018).

Climate Action and Economy

While governments across the world have been citing job losses as a major reason preventing them from engaging in climate action, statistics, however, present a different picture. The International Labour Review estimates that there is a potential to create 24 million jobs across the world by 2030 in the area of climate action. It also observes that the renewable energy sector would become one of the top three sectors in the world by 2030 in terms of job creation (International Labour Organization 2018). Another report by the International Labour Organization estimates that there would be a loss of 80 million full-time jobs, and $2,400 billion to the global GDP by 2030 due to rising temperatures resulting from climate change (Kjellstrom 2019). The worst-affected would be the agriculture and construction sectors, which account for the most vulnerable and disadvantaged among the working populations. So, the hard reality is that climate inaction is expected to cost us more than climate action can compensate.  

Although there is mounting evidence regarding the correlation between climate change and development, many want to look the other way. The development narrative that has been peddled by policy-makers is quite hollow. Every product that we consume today comes from the resources that we have poisoned. Lands are turning fallow at a drastic pace as chemicals are being dumped into them to produce more. Poultry and cattle are being injected with steroids and harmful chemicals. Water, fruits, vegetables, meat, milk and everything that we consume, on a daily basis, affects our bodies like never before. It is not an exaggeration to say that we are buying our own death with every penny that we spend today. We are prodded into buying because it adds up to our GDP growth rates and ushers in a (distorted) development. Year on year, while we aim to increase GDP growth rates, we as individuals, lose out in many ways.

The Conflict between Welfare and Utility

Why is it that the quality of life decreases as the standard of living increases? This is simply because the standard of living is solely determined by economic indicators, and each economic indicator is a cumulative of all markets. The fundamental aspect of any market is the price of a product, and the price is determined by the demand for the product, rather than the welfare it entails for an individual who buys it. But, welfare is not the same as utility. For instance, a tobacco consumer derives negative welfare, but positive utility. In economics, utility is valued more than welfare. So, this obvious dichotomy between the quality of life and the standard of living never appears in the larger political and economic discourse. After all, it has the potential to disrupt all the existing structures by which we have been operating so far and measuring progress. It would also mean to project the world on a negative slope of welfare curve, which is bad for “good” economics.     

It is for the aforesaid reasons that climate action is not progressing at the pace it should have been despite our health, and even the economy being at stake. This is because we are governed by governments that change every few years and are dependent on short-term figures (that do not quantitatively measure the destruction that we have been leaving behind in our chase for “development”), and have no incentive to work for something that does not help them garner votes. Our economy is based on redundant models of growth that show progress despite the downward spiral we are in. This is also because not enough restrictions are put on those who contribute to environmental degradation, simply because they drive the GDP growth rates. The consumerist world that we live in promotes accumulation as a matter of pride rather than discourage and despise it for what it is doing to us and everything around us. 

Time for an Overhaul

The expert tribe of economists should acknowledge that their growth models only indicate one half of the truth. Economics that does not factor in the changing world needs to evolve. It is time that the field of economics takes into account the biggest crisis facing our world today, which is certainly not the same as what John Maynard Keynes saw and predicted. We should not cling to the age-old economic legacy, but come up with honest metrics that highlight the destruction that the GDP figures overlookMetrics that deduct money for every drop of sewage let out into the rivers, every tree uprooted, every unit of particulate matter we breathe.   

Lets us face the truth, the world has changed a great deal, with environmental degradation and climate change, after Simon Kuznets came up with GDP metrics to assess the economy in 1934. It is high time that we rework the models of our economy and development to factor in new realities of our times.


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