top of page
  • Writer's pictureRuwan

Is sustainability 'good for the economy'?

Acting on climate change isn’t just imperative to restore and preserve the environment, but could also be great for global economies. In light of the coronavirus pandemic’s ravaging effects to economies worldwide, we are going to need some pretty major financial recovery plans in order to avoid a long-winded recession... and in this article, we explore how taking climate action will actually help global economies!

It can be tempting to ignore climate change while governments struggle to contain COVID-19 surges and revive their economies, despite scientists warning governments that the climate crisis is rapidly worsening. What’s the bad news this time around? Well, NASA announced that this September was the hottest September on record, a new study found that the Great Barrier Reef has more than halved in size over the past 25 years, and wildfires continue to ravage forests from California to Syria. Despite the distracting avalanche of political and economic news, acting on climate change remains imperative for the environment and the economy.

The IMF recently released a new report that outlines how an “initial green investment push combined with steadily rising carbon prices would deliver the needed emission reductions at reasonable transitional global output effects, putting the global economy on a stronger and more sustainable footing over the medium term.”

While COVID-19 poses many challenges to economic growth, it also creates opportunities for the climate change mitigation agenda. The problem, and reason why governments may be hesitant to initiate this economic transformation, is that it can post a short-term challenge to countries with economies heavily reliant on fossil fuel exports or those with rapid economic and population growth. The current global recession makes it more challenging to draft and enact any stringent climate-friendly policies (i.e. higher carbon taxes) when there seems to be more urgent needs for citizens (rising unemployment, financial stresses, healthcare crisis).

While this all remains true, a green fiscal stimulus would support global GDP and employment during the COVID-19 crisis recovery as well as lay the ground for higher carbon prices by increasing productivity in low-carbon sectors. Gradually rising carbon prices are a powerful tool to deliver the quick and significant reductions in carbon emissions required to reach net zero emissions by 2050. While higher carbon losses would mean global output losses in the fossil fuel industry, these losses would be made up for by the expected income gains from avoided climate change in the shape of natural disasters, sea level rise, and rising temperatures.

Many economists have publicly endorsed one particular climate change solution: A gradually rising tax on carbon, in which all funds are returned to households. Why do economists support this policy? For one, correcting market prices by charging for pollution will improve how economic resources are allocated.

A comparable situation is the tax placed on cigarettes... as smoking ultimately yields substantial costs for the treatment of associated illnesses. If the market cost of cigarettes was low, and didn’t reflect the external costs, cigarettes are too cheap, there are too many produced and consumed, and the economy devotes excessive resources to treating those diseases. In addition to this, there are far more premature deaths as a result of cigarette smoking. By internalising those external costs with the cigarette tax, fewer resources are used on tobacco products and the treatment of related diseases, and there are less premature deaths.

It could work the same with burning fossil fuels: the costs to people’s health and the climate from burning fossil fuels isn’t reflected in the market price businesses charge for the sale of fossil fuels. As a result, fossil fuel prices are too low, too much of it is burnt for energy, and we have far too much carbon pollution which results in negative health effects and damaging climate degradation. So, we are spending far more on healthcare and recovering from wildfires, heat waves, floods, droughts, strong storms and hurricanes, sea level rise, etc than we should be!

Unless climate change is slowed down, there will be extremely high costs in dealing with an increase in environmental damages (i.e. more hurricanes damaging homes and sea level rises overtaking cities.)

The economic costs of a low-carbon transition could be lowered further if low-carbon technologies were developed and invested in. The economic costs of this low-carbon transition differ all over the world. Countries like China and India with fast economic and population growth, and a reliance on fossil fuels and high-carbon energy, are likely to suffer the most economically at first. However, for those same fast-growing countries, the costs are small given the projected growth over the next 30 years as well as the savings made by avoiding climate change. Local pollution and mortality rates will go down simultaneously.

A study published in Nature found that “if nations fail to rein in greenhouse gas emissions sufficiently, as agreed upon in the international Paris Agreement, the global economy stands to lose at least $150 trillion to as much as $792 trillion by the end of the century.”

Research from this study reveals that there doesn’t need to be a choice between taking climate action and finding economic success - many countries can mitigate climate change and increase their net income. This research team found that if nations were able to work together to collectively reduce greenhouse gas emissions, then the net global benefit would range between $127 trillion and 616$ trillion by 2100. Wondering what a net economic benefit is? It’s defined as “the climate damage avoided minus the costs to keep warming in check.”

Co-author of the study Biying Yu, from the Beijing Institute of Technology, said something to remember: “climate change may lead to a global catastrophe," and thus inaction could result in "substantial socio-economic losses.”

"Combating climate change is not a matter for one country. It requires collective action and cooperation from all countries around the world," explained Yu, "Let's work together and save ourselves."

While many governments may hesitate to pull the trigger on major reform when it comes to enacting climate-friendly policies, whether it is investing more money in renewable energies or implementing a higher carbon tax, research concludes that these changes would only help revive the economy, rather than negatively impact it. Instead of a world where governments have to pay to fix the damage caused by worsening climate change, why not avoid it completely? Only time will tell...


Recent Posts

See All


bottom of page