A Discussion on Decoupling Economic Growth from the Emissions of Carbon Dioxide

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Report: TR 2007/02
Author: Annabelle Giorgetti

Abstract

The purpose of this paper is to highlight the key sustainability issues associated with decoupling to encourage further discussion on the topic. It explores the link between economic growth and energy consumption and consequently the production of greenhouse gases (GHGs), specifically carbon dioxide (CO₂) emissions.

Like the rest of the world, New Zealand relies on fossil fuels for energy production, which release CO₂ emissions. These emissions have increased by 33 per cent since 1990. If New Zealand does not change its energy policies, then fossil fuels will prevail in electricity production and energy prices will rise.

Most countries are experiencing a direct link between CO₂ emissions and GDP: whilst economic activity rises, emissions increase. Progress in decoupling CO₂ emissions from economic growth has been slow. Most countries have experienced a slight drop in emissions relative to GDP but absolute emissions are still rising.

International trends show that declines in energy intensities have not been sufficient to offset a growing travel demand; absolute levels have not declined. Observed increases in demand for transportation and energy supply are consistently offsetting any gains.

There is mixed evidence on the causes for decoupling. Globally, it does not seem to be possible to offer a general answer as to whether decoupling is happening or not, therefore a focus on the actual CO₂ emissions may prove more productive.

New Zealand does not seem to have achieved either relative or absolute decoupling between GDP and CO₂ emissions. Emissions are growing at a higher rate than GDP. Recent data show a slight relative decoupling between GDP and energy demand.

The costs of not taking action to curb climate change are estimated to be five times the costs of action. Only the degree of urgency of action is being contested. In the absence of policy interventions, the long-run positive relationship between income growth and emissions per head is likely to persist.

New Zealand, like a number of other countries, will not be able to meet its Kyoto Protocol commitments solely through domestic decoupling and will have to buy emissions allowances on the international market.

Domestic decoupling opportunities include pricing CO₂ emissions, improving resource productivity and efficiency and supporting innovation. Opportunities are limited by a number of barriers New Zealand is experiencing related to its physical location, the type of its energy resources and the nature of its economy.

Looking at the long term costs and benefits of each policy option will identify the most promising mix. A short term policy measure for New Zealand may include buying allowances coupled with preparing domestic decoupling policies in the future. The more medium to long term goal could be to pursue domestic decoupling. With a number of initiatives already announced or under development to tackle climate change, New Zealand is best to use decoupling as an indicator to measure the success of its policies, rather than introducing it as a separate policy measure.

A Discussion on Decoupling Economic Growth from the Emissions of Carbon Dioxide
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