Asia growth maths fails to count environment

The most glaring weakness in the Prime Ministers white paper on the Asian century is its failure to factor in the high likelihood that mounting environmental problems will stop Asia continuing to grow so rapidly  as well as limit our ability to take advantage of what growth there is.

The most glaring weakness in the Prime Ministers white paper on the Asian century is its failure to factor in the high likelihood that mounting environmental problems will stop Asia continuing to grow so rapidly  as well as limit our ability to take advantage of what growth there is.

To be fair, most of the environmental problems that could trip up Asias economies and ours do rate a mention in the bowels of the 300-page document.

But it doesnt join the dots. Asias environmental problems are dismissed merely as among the various challenges to be overcome  bumps along the road. As for our own environmental problems, the governments existing policies have them well in hand.

And it would be unfair to single out the Gillard government as unwilling to face up to the seriousness of our problems with the natural environment and start integrating them into its forecasts and projections.

Thats just as true of almost all economists and business people. While most economists (and some business people) are prepared to acknowledge particular environmental problems  climate change, water, soil, fish stocks, biodiversity  theyre not prepared to see them as symptoms of a much bigger problem: we may be reaching the physical limits to continued growth in natural resource use.

So, just like the white paper, they continue to put worries about environmental problems in a box marked environment, which they keep separate from the box marked economy, where they do their forecasts and longer-term projections of economic growth.

Its an uncontroversial statement that the global economy  the production, consumption and other economic activities of humans  exists within, and depends on, the natural environment, the global ecosystem.

And its obvious to anyone with eyes that certain economic activities are doing damage to the ecosystem, which is already rebounding on the economy in the form of costs and disruption (hurricane Sandy, for instance). Its not hard to believe these costs and disruptions are likely to multiply unless we start organising the economy very differently.

It thus makes all the sense in the world for economists to integrate the environment and the economy when thinking about what the future holds. So why dont they? Because they never have, and find the idea pretty frightening.

Economists standard way of thinking about the economy effectively assumes away the environment. Thats because their conventional model  which has changed little in the past 100 years  is built around the prices charged in markets, whereas most environmental assets  clean air, clean water, good soil, reasonably reliable weather  cant be bought and sold in markets.

Thus most of the costs and benefits generated by the ecosystem are external to the model and so liable to be overlooked. Schemes such as the carbon tax are attempts to put a price on greenhouse gas emissions and so get them into the price mechanism (and the model).

So you can bolt bits of the environment onto the model, but you have to do it case-by-case, which is hardly satisfactory. As Professor Herman Daly has said, if the survival of your society is external to your model, you probably need a new model.

The funny thing is, if youre still not sure why so many scientists doubt it will be physically possible for Asia to grow as big as economists project, the clues are all there in the white paper. To put things in context, at present the developed world accounts for just 15 per cent of the worlds population, but 51 per cent of gross world product.

The 19 per cent of the worlds population living in China has a standard of living equivalent to 20 per cent of Americas. The white paper expects that to reach 40 per cent in just 13 years.

For India and Indonesia, accounting for a further 21 per cent of the worlds population, their standard of living could also double, from 10 per cent to almost 20 per cent. And, of course, living standards in other parts of Asia are also supposed to be rising rapidly, meaning more than half the worlds population is applying to join the profligate rich club.

Have you any idea what that would mean in additional use of the worlds energy and other natural resources?

The white paper advises that, in the 19 years to 2009, Asias energy consumption more than doubled and its share of world energy consumption jumped from 25 per cent to 38 per cent. China is now the worlds biggest energy consumer.

Having gone from consuming less than half as much energy as the US in 2000, China now consumes slightly more. It accounts for almost half the worlds coal consumption. Its the worlds largest consumer of steel, aluminium and copper, accounting for about 40 per cent of global consumption for each. Its predicted to be 90 per cent dependent on imported oil by 2050.

In 2009, fossil fuels accounted for about 82 per cent of Asias energy mix. Asia accounts for about 40 per cent of global greenhouse gas emissions  up from 31 per cent in 2001. China recently overtook the US as the worlds largest emitter.

The white paper happily assumes effective global action to limit climate change will be forthcoming, so makes no allowance for it in its projections.

Its not the done thing for economists to imagine we could ever run out of natural resources. Prices may rise a bit, but this will merely call forth the solution to the problem, whereupon prices will fall back. And every textbook leaves you thinking this process happens seamlessly.

So, no need to worry. Our faith in unending growth remains unshaken.

Twitter: @1RossGittins

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