Decarbonising the Downturn

The renewable investment boom “will have to swim against” the long-term stagnation of the world economy, says this paper published in the journal Competition and Change. The paper brings together scholarship on decarbonisation with the literature on contemporary economic stagnation to ask how we can decarbonise the downturn through conscious economic planning.

Since the 1970s, the world economy has displayed “relatively weak” profitability, investment, productivity and GDP growth. In this paper, Jack Copley – a specialist in global economic governance at the University of Durham – explores the “perverse dynamics” of trying to usher in vast amounts of green private investment in an economic system that relies on continuous growth and is unable to deliver it at previous levels without extraordinary policy interventions.

According to Copley, the prime mover of global economic stagnation is the “self-generated exhaustion of capitalist dynamism”. Market logic is built on the need to continuously expand and increase labour productivity to compete. This creates a powerful tendency to overproduction which reduces prices, profitability and growth. Paradoxically, as capitalism increases its productivity, it often struggles to emulate past patterns of prosperity.

Pursuing rapid expansion of green growth in this context means contending with three complex dynamics: contradictions of renewable energy investment, mixed consequences of growth on emissions, and sapping political legitimacy.

Firstly, the current consensus is that the renewable transition must be achieved through an enormous reallocation of private investment, yet investment trends in this area remain weak. Copley cites research by the International Energy Agency showing that, except solar photovoltaics (PV) and bio-energy, investment in renewable energy industries fall far short of net-zero targets.

An additional stumbling block of market-driven renewable growth is that it will only thrive insofar as it is profitable, but increased investment may cause dwindling profitability and curb growth. The enormous investment in the solar industry, for instance, led to boosts in productivity which have resulted in overcapacity and collapsing prices. For example, a study found that 91% of listed solar PV companies in China experienced overcapacity, with an average of 55%. While falling prices benefit solar’s competitiveness as an energy source, Copley says they make it hard to turn a profit, especially in manufacturing, posing a potential threat to solar’s future growth.

Secondly, “de-growth” economists highlight that slowed growth has historically led to fewer global emissions as the demand for energy decreases. However, Copely points out that these reductions are insufficient to meet Paris agreement targets. They may also curb essential investment in energy efficiency and retrofitting of industrial processes such as steel production.

Finally, stagnated growth creates political legitimacy issues: if states are unable to produce growth they may be pressured to scale back transition plans, increasing the losses caused by natural disasters. As temperatures rise, large economic losses will follow and expensive ad hoc state interventions will “undoubtedly” be needed without proper planning.

Copley recommends a “conscious” or “democratic” approach to economic planning which engages financial infrastructures to directly pursue a just transition as a societal – rather than purely profit-driven – goal. This would, he says, disarm needlessly expansionary market approaches which damage the environment and, as a result, threaten economic stability.