Emissions Reduction “Without Compromising” Economic Growth?

  • Date: 18/04/17
  • Dr John Constable: GWPF Energy Editor

By mistakenly using inappropriate data from the OECD, The Energy and Climate Information Unit (ECIU) misled The Times into claiming that per capita GDP in the UK grew by 130% in the period 1992 to 2014, when the correct figure, from the UK’s Office of National Statistics is 44%. This error led both the ECIU and The Times into thinking that the UK had cracked the ‘clean’ growth conundrum by decoupling emissions and economic growth. The truth is more complicated and much less clear.

The text that follows is sharply critical of data for GDP per head published by the OECD and used without due care in the sources reviewed here. In that context, I have drawn on the advice of Professor David Henderson, formerly Head of what was then the Economics and Statistics Department at the OECD, and an advisor to the GWPF from the time of its foundation.

On Monday the 10th of April The Times carried an editorial, “Green Growth: Britain is a richer and cleaner country than it was 25 years ago”. This leading article claimed that a new “OECD study” demonstrated that “environmental policies and economic enrichment are compatible”, a view summarised in a single sentence:

In the 25 years since the UN climate convention was signed Britain’s output per person has more than doubled while its per-capita carbon dioxide emissions have declined by a third.

However, anyone turning to the OECD website for details of these striking claims would find that there is no new study there on this subject.

In fact the editorial is based on a short paper by a think-tank, the Energy and Climate Intelligence Unit (ECIU), which is directed by Richard Black, the former BBC Environment Correspondent, and principally funded by the European Climate Foundation and the Grantham Foundation for the Protection of the Environment. The ECIU study, Conscious decoupling: On the eve of Brexit, UK leads G7 in both growth and carbon cuts, was also described in a news story elsewhere in that day’s Times: “Nation proves economy can expand while emissions fall”.

Unfortunately for The Times, the ECIU’s study was not a secure foundation for their confident editorial assertions. Foremost amongst many failings is the fact that the ECIU based its argument for high rates of ‘clean’ economic growth on OECD figures for GDP per capita in the G7 that do not bear the construction placed on them by the ECIU and The Times. Simply, those figures do not reflect real output per head, correctly defined and measured; and the differences between the correct series and the OECD numbers are very large.

The case of the UK is illustrative. The official estimates of real output per head, correctly defined with GDP measured in constant prices in national currency, are available from the United Kingdom’s Office of National Statistics (ONS), where it can be seen that the increase between 1992 and 2014 (the period taken by the ECIU paper) was 44 per cent. The OECD counterpart figure, used in the ECIU study, is 133 per cent, three times greater. As with other G7 countries referred to in the study, this latter number does not at all reflect actual economic growth, and the OECD series should not have been used for this purpose. Reference to the IMF datasets, which collect national government data for the G7 economies amongst others, delivers similar corrections. For example, the ECIU reports the OECD data to the effect that Japanese GDP per head grew by 83 per cent in this period, when in fact the correct figure for real growth is 16 per cent.

How the OECD came to publish such extraordinary figures is a subject beyond the scope of this article, but it is a remarkable lapse. No matter how they were arrived at, the implausibility of figures of this kind should have been obvious to both the ECIU analysts and The Times leader writers. Surprisingly, they were not, and the resulting errors undermine the ECIU study’s principal claim, again repeated by The Times, that “the UK has been the most successful of the big developed nations in […] reducing greenhouse gas emissions without compromising economic growth”. While it is true that the UK’s actual 44% growth is ahead of the rest of the G7, the margin is not wide, and this alone leads to a distinctly different picture of the extent of the ‘decoupling’, if indeed there is any decoupling at all.

A thorough investigation of that whole question would require a more detailed and careful examination of the subject than can be given here, and certainly more than is provided in the superficial and jejune work of the ECIU. Readers interested in the matter might start, for example, with the work of Professor John Barrett of the University of Leeds, who was actually quoted in the ECIU’s own press release (though it is hard to believe he had any hand in the study itself). Professor Barrett’s website provides a number of useful papers, and some interesting data on both territorial emissions and those rendered in the imported goods and services consumed within the United Kingdom. In earlier phases of his research Professor Barrett worked with the Department of Environment Food and Rural Affairs (DEFRA), and some part of that work is available through DEFRA, though because of its longer time series I shall here prefer the University of Leeds dataset. The following chart, drawn from the Leeds tables, represents the total emissions of all Greenhouse Gases (not just carbon dioxide) associated with the UK economy, that is to say the emissions related to imported goods and services and those related to territorial activities (less emissions related to exports), for the period 1990 to 2013. On the secondary axis, the, correct, Real GDP per capita data from the ONS, has been plotted for comparison.

leeds.ons.emissions.gdp

Figure 1: Primary axis, United Kingdom Greenhouse Gas Emissions (megatonnes of CO2e), Imported and Territorial: Data source: University of Leeds. Secondary axis: UK Real Gross Domestic Product per capita at constant prices in national currency: Data source ONS.

To claim, as The Times does, that there has been a straightforward decoupling of emissions and GDP growth is clearly mistaken. Territorial emissions in the UK certainly fell, but this fall was more than offset for much of the period, up to 2007 in fact, by an increase in imported consumption emissions. Indeed, Professor Barrett himself has noted that “the UK is one of the largest net importers of emissions embodied in trade in the world”.

While, those imported emissions did drop substantially as a result of the 2008 financial crisis, it is far too soon to say, though the ECIU rashly implies this conclusion, that they will not rise again if economic growth in the UK continues to recover.

For the reasons given above, amongst others, the ECIU study does not merit serious consideration, and it is very unfortunate that credulous reporting by The Times, not least in its editorial, has given currency to conclusions that are premature and exaggerated, as well as misleading with regard to the causal history and the probable future. While it is true that the United Kingdom’s performance over the period 1992 to the present has been respectable by G7 standards, that fact is largely the result of the programme of market-oriented reforms brought in by the Thatcher government. Over the past decade, by contrast, and as a consequence of the climate change measures adopted by successive administrations, the direction of policy in the energy sector has been reversed, and the British energy market is now severely distorted, with effects on consumers and on present and future growth that are very unlikely to be favourable. As a poorer country the United Kingdom may well be importing far fewer goods and services, and thus be reducing its total consumption emissions, but whether it will be celebrating the fact is open to question.