imgEconGrowthIcon Economic Growth

Assume higher or lower growth in goods produced and services provided. Economic Growth is measured in Gross Domestic Product (GDP) per person and is a key driver in energy consumption. Alternatives exist to meeting people’s needs through economic frameworks not based on constant GDP growth.

Examples

  • Global efforts to reduce overconsumption and embrace voluntary simplicity.
  • Possible impacts on economic growth from the effects of climate change.

Big Message

  • Slower economic growth would be a high leverage approach for avoiding future temperature increases, however, there are lots of questions about how this might occur and be done in a way that is equitable.

Key Dynamics

  • Population gets multiplied with GDP per capita to equal total global GDP, or Gross World Product. Increases in this variable accelerate the exponential growth of GDP, arguably the most important driver of future carbon dioxide emissions.
  • Watch all the sources of energy change as you change economic growth.
  • As you increase the economic damage caused by climate change, notice how this reduces the emissions, but cannot halt the temperature increase even under extreme assumptions where the world’s GDP plummets.

Potential Co-Benefits of Lower Growth

  • Focus may be shifted to alternative measures of prosperity that enhance people’s wellbeing, such as gross national happiness.
  • Greater focus on resource conservation and less on material consumption can lead to less waste.

Equity Considerations

  • Economic growth is tied to pulling people out of poverty worldwide. Although, in recent decades, many gains in economic growth have gone to the world’s wealthiest. Regardless, policies must be tailored to specific local and regional circumstances.
  • When GDP growth slows or contracts, governments can incur higher budget deficits, often implementing austerity measures—cutting spending and raising taxes—to offset the difference. These reforms can severely impact the poor and working class causing job losses and all the inequities that come with loss of livelihood. [1]

Slider Settings

Economic Growth

low growth status quo high growth
Long-term economic growth 0.5% to 1.2% 1.2% to 1.9% 1.9% to 2.5%
Near-term economic growth 1.7% to 2.1% 2.2% to 2.9% 3.0% to 3.7%

The “Long-term economic growth” slider is the main slider that is used for controlling economic growth, however, more precise assumptions about economic growth can be set by also adjusting the “Near-term economic growth” slider. This slider sets the initial global average growth in GDP per person. The slider “Transition time” is available to change the amount of time it takes for the “Near-term economic growth” level to reach the “long-term economic growth” level.

Reduction in GDP from Climate Impacts

The two sliders “Reduction in GDP at 2°C from climate impacts” and “Maximum reduction in GDP” (located in the Assumptions menu under ‘Economic impact of climate change’) enable the user to explore the strength of the feedback between climate impacts and economic growth. These two sliders are displayed on a single line since they are related to each other. Maximum reduction in GDP cannot be smaller than Reduction in GDP at 2°C, hence they move together if a user tries to move them past each other. To see the dynamics as you adjust these sliders, view the graph “Reduction in GDP vs Temperature.“

Climate change is expected to have multiple adverse effects on the economy, such as decreased investment in goods and services due to the cost of responding to changes in extreme weather events, sea level rise, desertification, crop yield decreases, flooding, and resulting migration. Several economists formulated this impact, known as the “damage function,” as a percentage reduction on global GDP, and estimated it as a function of temperature change. The four main functions in the literature are from Nordhaus (2017), Weitzman (2012), Dietz & Stern (2015) and Burke et al. (2015). You can see their estimates for economic damage in the “Reduction in GDP vs Temperature” graph, and replicate them in En-ROADS by entering the following values for the two sliders, or by selecting the function in the ‘Preset’ menu:

En-ROADS Slider Nordhaus Weitzman Dietz & Stern Burke
Reduction in GDP at 2ºC 0.9% 1.3% 2.6% 13%
Maximum reduction in GDP 22% 97% 98% 20%

Model Structure

In the real world, there would be multiple feedbacks to economic growth from energy prices, and various taxes, however, the model only features the feedback from climate impacts to GDP. The user can explore the other feedbacks by changing economic growth projections with the sliders manually.

Please visit support.climateinteractive.org for additional inquires and support.

Footnotes

[1]Ruckert, A., & Labonté, R. (2017). Health inequities in the age of austerity: The need for social protection policies. Social Science & Medicine, 187, 306–311. https://doi.org/10.1016/j.socscimed.2017.03.029