rethink sustainability

‘Net-zero economic growth’ need not be a contradiction

As of right now, the countries that are most vulnerable to the consequences of sticking with fossil fuels, and struggling to get on the path to net zero, are disproportionately low- and middle-income countries (LMICs). Directly, the health1, social2 and economic3 costs of pollution are now notorious. And indirectly, the natural disasters and climate impacts that will result from the greenhouse gases (GHGs) already in the atmosphere and those we will emit in the future will be felt most keenly by developing nations, which tend to be located in those parts of the world that will be hardest hit by climate change.

…the natural disasters and climate impacts that will result from the greenhouse gases (GHGs) already in the atmosphere and those we will emit in the future will be felt most keenly by developing nations…


However, it is argued that, in order to deliver long-term prosperity for their citizens, LMICs must first focus on growing their economies before turning their attention to the environment and achieving net-zero emissions—a luxury that, so the argument goes, can only be funded by already-thriving economies.

But does this make sense?


Must history repeat itself?

Globally, before the 1800s, CO2 emissions were almost zero. Then, following the Industrial Revolution, they began to rise, before exploding in the mid-20th century as we began to drive rapid economic growth by deploying in earnest our growing technological know-how. Between 1950 and 1990, annual CO2 emissions quadrupled. And while year-on-year emissions increases have slowed in the years since, they continue to rise all too quickly4.

In short: historically, our economic model has tended to rely on growth at any cost, including that of significant GHG emissions. Which is a problem. Because as the amount of CO2 in the atmosphere increases, so will the scale of the greenhouse effect and its consequence: a steady increase in the average global temperature which is set to cause increasingly devastating severe weather events and climate change. Worse, despite the increase in green energy production in recent years, the peak of emissions is nowhere in sight. This is why, even as they acknowledge the importance of economic growth to people living in LMICs, many worry that it will drive further emissions increases, pushing the peak even further into the future and ensuring that global net zero remains a pipe dream.

Perhaps this worry is unfounded. If renewable technologies now offer the possibility of carbon-free energy, do LMICs now have the tools to do what most rich nations couldn’t: ‘decouple’ the growth of their economies from CO2 emissions? Indeed, could renewables enable LMICs to simultaneously traverse the paths to economic development and net zero?

Some say, the answer is a resounding no. LMICs can grow their economies or reduce their emissions, but they can’t do both. This, so the argument goes, is in contrast to developed nations that are fortunate enough to already have the surplus wealth required to fund and maintain the costly transition to renewables while continuing to grow their economies. LMICs have, almost by definition, little to no surplus wealth available to fund such a project, and so they face a zero-sum choice: invest the wealth they have into either economic growth or renewable energy. For millions in LMICs who still face a daily struggle just to put food on a table that could be taken from them at any moment, such a choice is no choice at all—economic growth is a need, while renewables are a luxury to which they can only dream of being in a position to aspire.

LMICs can avoid the risk of economic disruption that would come with immediately replacing existing fossil fuel infrastructure by…ensuring that any new energy infrastructure is based on renewables


Economic growth and net zero: a positive-sum game for LMICs

On its face, this is a compelling argument. However, when you look at the details of what it might look like for LMICs to adopt renewables, it becomes clear that it need not come at the cost of economic stagnation.

First, LMICs can avoid the risk of economic disruption that would come with immediately replacing existing fossil fuel infrastructure by taking the more sensible first step of ensuring that any new energy infrastructure is based on renewables. Once they have scaled their renewable infrastructure and ironed out any significant issues, LMICs will be better placed to begin phasing out fossil fuels.

As for the notion that fossil fuel energy is cheaper than renewables, electricity from new solar and onshore wind power plants was indeed significantly more expensive than that of coal—back in 2009. But, in most parts of the world, this is no longer the case. By 2019, the cost of solar and wind had fallen by 89% and 70%, respectively, taking each well below the price of coal5. The main reason for this precipitous drop is that, unlike fossil fuel power stations, renewable technologies follow ‘learning curves’—when the cumulative installed capacity of renewables doubles, the cost halves. As such, we can expect the price difference between renewables and coal to continue to grow for the foreseeable future—a difference LMICs can take advantage of as they expand their energy production and replace their existing infrastructure.

So, transitioning to renewables need not hinder economic growth. But, more than that, a reasonable path to net zero could actually accelerate it.

By transitioning to carbon-free energy sources and production methods early, LMICs can foster innovation and create a competitive advantage that they can exploit…


At Lombard Odier, we believe that the current momentum is such that The Sustainability Revolution is inevitable, and that no industry, company and, indeed, country, will be left untouched. As such, even if LMICs do not transition to carbon-free energy sources now, they must do so eventually. And the problem with ‘eventually’ is that, the further into the future countries push the transition, the more fossil fuel infrastructure they will need to build in the meantime to fuel economic growth. Countries that delay the inevitable, then, will be saddled with growing amounts of legacy infrastructure that they must someday dismantle and replace—sunk costs that will make the transition far more economically painful than it need be.

In addition, those countries that pursue decoupled growth will be better positioned to take advantage of the opportunities that will come with the accelerating transition to the CLIC™ economy. By transitioning to carbon-free energy sources and production methods early, LMICs can foster innovation and create a competitive advantage that they can exploit in their business dealings with countries that are prioritising net zero and looking for suppliers of more sustainable solutions, such as greener steel, cement and chemicals.


A decisive moment

All of this means that, for LMICs, the choice between economic growth and net zero is no choice at all.

By transitioning to renewables, LMICs can contribute to mitigating and, eventually, rolling back climate change and, in turn, the scale of the negative consequences they must face. And in pursuing a well-designed path to net zero, LMICs will fuel the economic growth they need to build infrastructure that will enable them to withstand the effects of climate change. In the long term, then, net zero will not be a drag on economic growth. It will be an enabler of it.

In the long term…net zero will not be a drag on economic growth. It will be an enabler of it


All of this means that this is our decisive moment. For every single company, every single industry—and every single country— it’s get ahead, or get left behind. Because the time for CO2 is up. It’s net zero everything, or nothing. Not tomorrow, but today. Because net zero isn’t 30 years away. Net zero starts now.

1 https://openknowledge.worldbank.org/bitstream/handle/10986/35721/World-The-Global-Cost-of-Ambient-PM2-5-Air-Pollution.pdf?sequence=1&isAllowed=y
2 https://mitsloan.mit.edu/ideas-made-to-matter/psychological-economic-and-social-costs-air-pollution
3 https://openknowledge.worldbank.org/bitstream/handle/10986/25013/108141.pdf?sequence=4&isAllowed=y
4 Ritchie, H. and Roser, M. (2020) ‘CO₂ Emissions’, Our World in Data.
5 Roser, M. (2020) ‘Why did renewables become so cheap so fast? And what can we do to use this global opportunity for green growth?’, Our World in Data.

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