[#14] Economic growth in a warming world: The Club(s) of Rome (and Davos)

Technology is necessary, but not nearly sufficient, to mitigate climate risk and adapt to what’s coming. Absent innovation across political, social, financial, cultural and regulatory dimensions, the Club of Rome’s warnings of limits to growth may yet bear out.

Back in the early 1970’s the Club of Rome — an informal but elite group of academics, scientists and other brainy notables — partnered with MIT mathematical modellers to publish the now-notorious report Limits to Growth. Infinite economic growth was impossible, they claimed, in a world of finite resources. Scarcity loomed! Mainstream economists laughed their eco-pessimist colleagues out of the room. Growth is endless, they countered, because human ingenuity can always invent alternatives to that which is scarce. The success of the ‘green revolution’ — a increase in agricultural production through the 1980’s driven by high-tech pesticides, fertilizers and better-yielding crop varieties — cemented the mainstream view. If technology solved food production, surely the rest — cars, TVs, jets and toys — follows. Techno-optimists reigned supreme.

The annual gathering of elites in Davos, which started just as Limits to Growth was published, represents the mainstream view. Absurdly, climate risk wasn’t on the official agenda until 2017, but rose to prominence in 2020 when Greta Thunberg preached to a polite crowd. While furrowed brows reflect soberly on global challenges like climate risk and inequality, the general mood is overwhelmingly techno-optimistic. Deference to technology as driver of endless growth is an unquestioned assumption, whatever the geopolitical worries of the day. Talk of limits is an amusing antithetical counterpoint, akin to the idiot invited to supper to entertain the rest of the table in the film The Dinner Game.

Since these clubs’ founding, debates about the environment and economy focus on innovation versus scarcity. Techno-optimists in Club Davos believe innovation can push through any limit — when something gets scarce, it’s price goes up and market forces incent its replacement. The eco-pessimists of Club of Rome point to the unforgiving math of a growing economy (and population) in a finite world — you can’t innovate around the laws of nature.

Absent climate risk, it’s a philosophically fascinating debate. It’s clear finite global resources can’t accommodate unlimited hikes in demand. But economic growth is more nuanced than mere gobbling of material. Value might come from ever-more-complex patterns of matter[1], infinitely recycled, put together ever-more-efficiently with new sources of energy. Think AI-driven molecular discoveries for personalized genetic medicine at a cellular level, or being entertained by increasingly complex interactive virtual worlds. Material use gets circular as we extract every molecule of waste as renewed industrial input. Fusion takes over from solar as energy needs increase.

Technology, like science, is cumulative. Intellectual and technological giants stand on the shoulders of giants, who stand on the shoulders of giants, perhaps forever. Complexity knows no real limit, and energy (fusion or solar) is effectively[2] infinite. Serious risks, from inequality to war, are socially contingent and — while frustratingly impervious[3] to the same cumulative gains as science — theoretically amenable to long-term resolution[4]. On this view, the human condition and our economy are open-ended. Whether this lasts for eternity, or merely hundreds of years, is a question for philosophers and cosmologists, not economists!

But technology’s promise of ongoing abundance won’t pay out on climate risk. Absent innovation across many social dimensions, from finance to culture, there are profound consequences for economic growth. I see four inter-connected reasons:

1. Climate risk grows in real time.

In 2015 I characterized (Walrus Talk & op-ed) the Davos/Rome tension as a 21st century cage match: Cleantech Bulls vs. the Climate Bear! to capture the dynamic nature of the climate challenge. In a fight you don’t get to go slow, catch your breath, or come back later. There are no timeouts or do-overs. Cleantech Bulls innovate to drive costs down and performance up across the clean energy sector to reign in emissions. Meanwhile, the Climate Bear — damage from a destabilized climate — grows ever-stronger as long as emissions exist. I’ve no doubt given enough time, the Cleantech Bulls will crush resource-based energy sources fossil fuels — that’s the nature of technology and it’s any climate-tech investor’s long-term bet. But to win the fight, the Bull’s innovations — EV, solar, storage, carbon capture, etc — must bring emissions to zero before the Climate Bear gets too big to fight. That’s not happening. Since Club Davos first met, the Climate Bear has grown from playful cub to dangerous adult. In 2015 I optimistically gave the fight even odds. It’s now clear the Bear wins.

2. Scarcity doesn’t apply.

Club Davos gets it wrong because we need to replace fossil fuels before they get scarce. On the techno-optimist view, scarcity drives up prices that act as market signals to motivate technological alternatives, which (when deployed) alleviate the original scarcity. Price signals for scarce commodities are like the market’s anti-bodies against limits. Absent those signals, technology dies on the vine. We’ve invented most of what we need to fight the Climate Bear, but price signals haven’t pulled them into market at a relevant scale.

When oil hit $150/barrel in 2008 (and Jeff Rubin warned anyone who’d listen their world was about to get a lot smaller) it appeared those market dynamics might kick in. But two things happened. First, oil’s high price was partly responsible for the following recession that brought those prices crashing down. Energy markets are so fundamental there’s built-in price protection: if prices gets too high, economic growth slows, demand slackens and the price comes back down. Second, innovation helps fossil fuels too — advances in fracking gave us gushers of new oil & gas. Cleantech never stood a chance.

If scarcity builds anti-bodies, policy interventions like a carbon price are a vaccine — an artificial price signal to indicate scarcity and cure market failure. But limited political appetite prevents an effective vaccination campaign (with some exceptions like Uruguay and Northern Europe). Ontario’s effort was thrown under the fossil fuel bus by Ford. Canada’s carbon pricing net is well-intentioned but has holes big enough for entire industries to slip through. The American way — the Inflation Reduction Act (IRA) — is all carrots and no sticks, and may be more politically stable. The vaccine must be strong enough to crush fossil fuel demand, and energy majors are not about to let that happen.

3. Infrastructure ain’t software.

It’s true technology can eat the world — fast — often without scarcity or artificial price signals. AirBnB, Uber, Facebook and Twitter crushed industries who never saw it coming. ChatGPT and AI extend technology’s disruptive reach. These innovations move at the speed of software. But energy systems are nothing like software, and comprise the largest infrastructure ever built. It’s not little wires transmitting bits, but big cables transporting Gigawatts. It’s not iPhones in our pockets, but pipelines to feed power plants, industrial steel-making and cement production. It’s millions of HVAC systems heating and cooling buildings. We won’t disrupt energy markets with an app.

Replacing fossil fuel infrastructure, built over generations, in a couple of decades takes trillions in project finance, supplied by a single-mindedly profit-seeking banking system, stuffed into an industry allergic to technology risk. Even distributed cleantech, like building retrofits, need bespoke engineering and boots on the ground. Make no mistake, fossil fuel energy will be displaced by technology. Accelerating that transition is my day job. But infrastructure’s clock doesn’t run on software time. I argued in Frog: 2014 against Vaclav Smil’s pessimistic view — that it takes a century to replace energy systems with something better — as overly historically determinist. But we’re walking through that history today.

4. Climate risk is systemic, permanent and global.

What Bad Warming brings is no recession, regional downturn or even another Great Recession. It’s not a one-time shock to a country or sector. It has no time limit or geographical constraint. Climate shocks will be economy-wide, they won’t end, and they’ll happen everywhere. I wrote about lower economic inefficiency and abandoned assets. Driving Club of Rome: supply chains choke when drought affects transport on rivers and the Panama Canal; water shortages in Taiwan restrict semi-conductor fabrication; energy supplies from French nuclear and American hydro suffer; all in addition to now-expected floods, fires, food shortages and refugees. The leading titles of a new genre of writing (derided by some as ‘climate porn’) — Hothouse Earth and The Uninhabitable Earth — make for tough reading.

Our civilization presumes energetic boundary conditions on climate. Absent those constraints: everything, everywhere is affected all at once and forever. Technology can help at the margin — drought resistant crops, better irrigation, fake meat made in bioreactors, AI-fire prediction — but won’t blunt this onslaught. The Davos view that limits don’t matter because we’re ingenious become that idiot at dinner. But this movie ain’t funny anymore.

The Upshot

Climate risk continues to build, market signals to drive adoption of innovation remain weak and infrastructure is locked. To break this cycle, technological advances must be coupled with innovation across policy, regulation, finance, education and culture. I wrote two books of solutions (in Frog: 2014 and Climate: 2019) and stand by those recommendations. We may yet avoid Catastrophic Warming.

But we face permanent, systemic and global economic headwinds. For years, policy wonks and economists were given false comfort by Nobel-prize winner William Nordhaus’ dominant climate-economic models DICE and RICE[5], which assured us of continued growth in the face of 2, 3 even 4C. That’s utter nonsense (as I wrote in this 2014 chapter).

Economic growth, understood as rising real incomes and increased abundance, will become a distant memory. Of course, opportunities will remain. Capital will chase them. Some people will still make money and create wealth. But top-line growth will end. Worse, as John Kenneth Galbraith warned decades ago, we’ve no idea how to operate without it: the sustainability of public debt; investing in RRSPs and national pension plans to fund retirement; the promise that inequality doesn’t matter because rising tides lift all boats — all are assumptions predicated on endless growth. A few brave souls explore alternatives.

I hope Club Davos is right. But I reckon it’s Club of Rome’s century. My fear is the return of Malthus.

[1] A pragmatic caveat: as much as the developed world might de-couple material use from value, in the short-and-medium term the developing world wants more stuff — meat, TVs, cars, air-conditioning.

[2] On a human time scale.

[3] For a long and fascinating development of the implication of the limits of social knowledge and human institutions versus the advancement of science and technology see John Gray’s Straw Dogs: Thoughts on Humans and Other Animals (2002) and The Silence of Animals: On Progress and Other Modern Myths (2013).

[4] As long as we avoid catastrophic outcomes like nuclear war, AI overlords, micro-bot epidemics and military-grade virus attacks. Ha ha, sort of.

[5] Dynamic Integrated Model of Climate and the Economy & Regional Integrated Model of Climate and the Economy.