Does an economic depression mean slower progress towards green objectives?

Copyright: SyB -
Copyright: SyB -

We didn’t make much progress reducing emissions when times were good. Will the looming depression makes things worse or better? The discussion of this issue, at least in the UK, tends to be superficial. The only question asked seems to be ‘will people buy less eco-bling when times are hard?’


Of course they will. ‘Voluntary environmentalism’ may be in decline. Being ‘green’ might not be as fashionable. People may be much less likely to waste money on showy demonstrations of environmental virtue. But this is not the real question. Consciously or unconsciously, will the world emit less – now and in the future – because growth rates have fallen everywhere and capital is in short supply?

Here is the case for the pessimists:

  1. Green energy sources will require vast sums of capital. Nobody has any money. So we will continue with the old and well-established means of electricity and heat generation. Petrol will still fill the tanks of our cars.
  2. In times of consumer gloom, households will buy the cheapest alternative and ignore the environmental quality of their prospective purchases.
  3. The poor state of public finances will mean that governments will not themselves invest in low-carbon technologies, or provide financial support for their introduction elsewhere.
  4. Regulations demanding higher energy efficiency standards will be dropped as manufacturers struggle to survive. The car makers are the prime example.
  5. When what Keynes called ‘animal spirits’ are low, fewer speculative and venturesome investments take place. So householders are less likely to go for a truly eco-friendly house extension and companies will not risk investing in that interesting but untried new technology.

The arguments in favour of a prolonged recession being good for the future path of emissions are more numerous:

  1. Many environmental improvements, of which housing insulation is the most important, make clear financial sense. People or companies facing a decline in income may choose to make more investments in energy saving technologies. The list of large UK companies making substantial and plausible promises to reduce their energy use lengthens by the day. Although energy prices are lower than a year ago, the onset of recession has made all companies sharply aware of how much they could save through simple measures. Whether it is replacing halophosphate tubes with triphosphor lights or insulating pipework, energy use is now – and will remain – a subject of greater interest to top management. Where homeowners were happy to live with high gas bills when times were good, economising is now common.
  2. Interest rates are lower so capital investment becomes easier to justify. Many companies demand payback on their investments in two or three years and relatively few ‘low-carbon’ capital expenditures repaid their investors that quickly. As interests have fallen those businesses that have access to cash now face much lower funding costs for useful investments in energy reductions. It now makes much more financial sense to invest in longer payback projects.
  3. Similarly, the lack of need for capacity-enhancing projects (such as building a new factory) means that companies are freer to invest in cost-reducing actions, many of which will focus on cutting energy use.
  4. Companies and consumers are more likely to purchase longer-lived goods. Whether it is the teenage girl deciding to buy one high quality T-shirt rather than two inferior items or the company weighing up whether to replace lease cars after three or after four years, low interest and consumer gloom make it more likely that the buyer will go for the longer-lived product. Product longevity will be the new black.
  5. Waste, whether household or business, becomes more visible and signifies inefficiency. Whether it is throwing away uneaten food, or clearing out over-bought stationery, people will be more sensitive to the need not to waste unnecessarily. By reducing the things they buy, they are cutting their carbon footprint. Conservation will replace throwing away.
  6. People and companies don’t show off as much in a recession. Driving up to the door in a large and expensive car is always going to be what people want to do. But they are less likely actually to buy showy goods and services when others are suffering. When hundreds of people are being fired, the CEO doesn’t go out and buy a new Mercedes. Or shouldn’t do.
  7. Marginal units of income tend to be spent on high-carbon goods and services. For example, the bottom 50% of the UK’s income earners don’t generally take holidays abroad. This means that their footprint from air travel tends to be low. Extra pounds of income tend to go on carbon-intensive activities. In a recession, as the incomes of people sink they will travel less, spend less money on imported goods (which are generally made in countries with less efficient use of energy, such as China), and replace some purchases with their own labour. They might make their own meals, for example, rather than buying them from a supermarket. Supermarket foods tend to be much more ‘carbon-intensive’ than the same goods made at home. Prepared food needs more energy to make, chill, transport, and then refrigerate at the supermarket. Or they might simply buy less meat and more lentils. This alone could have a major impact on a person’s responsibility for emissions.
  8. Activities are slightly more likely to be done communally in a recession. You might share a car-ride for example. Or arrange a shared meal for lunch at the church.
  9. When the tide is high, most companies float. When it falls, the most vulnerable companies go aground. As we are seeing most spectacularly in China and Detroit today, it is the least energy-efficient who sink.
  10. At the most general level, units of GDP all take energy to create. All other things being equal, lower rates of GDP growth, or even a decline, mean lower emissions. In the language of climate-change buffs, a recession will ‘bend the curve’ of emissions downwards.

While the future impact of the likely depression remains difficult to predict, there is surprisingly little a priori evidence to support the view that this is bad for emissions growth. This area is a good subject for an economics Master’s thesis. Please would someone volunteer to do some work on it, so we can have something to throw at the newspaper columnists who say that green behaviour will disappear?

* A footnote on car use:

I looked at the data on how petrol consumption varies with the expenditure patterns of UK households. Unsurprisingly, fuel use rises with income. People have bigger cars and can afford to drive more. Above median incomes the increase is less marked, but continues nevertheless. If a family’s income declines, the fuel purchased will therefore tend to fall. Broadly speaking a loss of £1,000 of annual household income will reduce carbon emissions from fuel use by about 30kg per person or about a quarter of one percent of the total. Detailed figures available to anyone interested.