Beyond the Limits-The Great Disruption - The Great Disruption: Why the Climate Crisis Will Bring On the End of Shopping and the Birth of a New World - Paul Gilding

The Great Disruption: Why the Climate Crisis Will Bring On the End of Shopping and the Birth of a New World - Paul Gilding (2011)

Chapter 4. Beyond the Limits-The Great Disruption

The plans we have been making for our economies, our companies, and our lives have all been based on a key assumption that is clearly wrong. This assumption is that our current economic model will carry on unless we choose to change it—in other words, no action means more of the same.

This is not surprising. For fifty years, eminent scientists, economists, and philosophers have correctly presented these issues as a warning rather than a forecast—if we don’t change, this will be the result. In this context, choice has framed the debate—the choice to change before the consequences become serious.

That has led to endless debates, scientific, philosophical, ideological, and political. Many argued the warnings were wrong, or at least exaggerated. Others argued the warnings were right but that we would comfortably address them in the natural course of events. They argued humans are smart and always come up with new technologies and behaviors through the market. We would fix the problems and so avoid the consequences we would otherwise face. Others have argued that consumerism is a bad culture for humanity—that it leads to bad social outcomes and lives without meaning—so we should try to develop a better economic model for society in order to enhance our quality of life.

Many of these debates continue today. My message is that you can now leave them all behind. They are of relevance only to historians. We didn’t change. So now change will be forced upon us by actual physical consequences. Here’s why.

It’s all about the math, and it’s simple math at that. We have an economy, tightly integrated into an ecosystem that is already operating at about 140 percent of capacity, as we discussed earlier. While different studies have variations in the details, at its core this conclusion is not conjecture; it is scientific fact.

Now we plan to run that economy faster and harder. First we plan to increase the population to over 9 billion by 2050. The UN high projection sees a population of 10.5 billion, but let’s work with the medium projection of just over 9 billion.1 This amounts to an average annual growth rate of about 0.7 percent over the coming decades. Even under the UN’s most optimistic projection, we’ll still be dealing with a staggering 8 billion. So going forward, we can assume an increase in population of approximately a third. So that gives us a Very Big Problem times 1.33. That would by itself present a Very, Very Big Problem, but that’s just the beginning.

We also plan to grow per capita income around the world even faster than we are growing the population. According to International Monetary Fund (IMF) and Australian Treasury estimates, by 2050 we can expect global output per capita to be three times the size of output per capita in 2005.2 This amounts to a growth of around 2.5 percent each year. Let’s make this clear—this means that year after year, each individual produces and consumes 2.5 percent more than the year before, meaning that by 2050, the world economy would be around three times larger than that of 2005—even if the population didn’t grow at all.

Goldman Sachs has another set of data and predictions that reach similar conclusions. They forecast that while per capita GDP will approximately double in the G7 developed economies by 2050, the real growth in per capita income will occur in the BRIC (Brazil, Russia, India, and China) and N-11 (Next Eleven, the large developing economies that along with the BRIC have the potential to overtake the G7 as the world’s largest economies this century). In these economies, Goldman Sachs sees per capita income increasing on average by almost ten times between 2006 and 2050.3 These countries already are (in the case of China) or are rapidly becoming the world’s major economies.

When we add population increases to per capita income increases, we can see a world in 2050 where the economy is many times the size of today’s. According to the IMF and Australian Treasury figures, it will be five times larger. According to accounting firm PricewaterhouseCoopers (PwC), we can forecast an average global growth rate of 3.2 percent a year in purchasing power terms until 2050, which over forty years means an economy more than 3.5 times larger than today’s.4

So now we have a Very Big Problem times 3.5 or maybe times 5. That’s a planet now running at 140 percent of capacity that will subsequently run at somewhere between 500 and 700 percent of capacity. Yes, it is true, that there is potential for significant efficiency gains that will decrease resource use and pollution per dollar of output, but that has a natural limit—we can make things lighter and cleaner, but in the end we still have to make them. This combined with the fact that we keep making more of them means efficiency gains will not even come close to compensating for the growth we plan for. Consider the following.

Over the thirty years to 2009, world resource use per unit of GDP decreased by 30 percent. That means that each year on average, we have used our resources 1.2 percent more efficiently than the year before.5 This trend in the use of general resources has largely been matched in the particular case of energy use, with energy use per unit of GDP declining 33 percent between 1970 and 2007, or about 1.1 percent per year.6 If such trends continue, we’ll be using resources 38 percent more efficiently by 2050. This seems like good progress.

And yet as suggested by the earlier numbers, such “decoupling” or efficiency gains have been far offset by rising per capita incomes and population growth—in fact, as we’ll come back to, increased efficiency seems to actually encourage increased consumption. So since 1990, the Kyoto Protocol base year, emissions have risen 40 percent despite these efficiency gains. When each of us demands and expects our incomes to increase 2.5 percent a year, using 1.2 percent less resource per dollar of income doesn’t avoid the overwhelming logic—our environmental impact continues to grow and grow. Today, as a global average, an individual consumes 22 kg of resources each day—but regionally, consumption ranges from just 10 kg for the average African to 100 kg for the average Australian. On current trends, we can expect that to continue rising.

Putting the numbers together, including continued efficiency gains, we plan to create an economy which in 2050 is running at somewhere between 300 percent and 400 percent of capacity. Based on their own data sets and projections, the Global Footprint Network has warned that we are on course to be running at 200% of capacity by the early 2030s—two planets’ worth.7 Having only one planet makes this a rather significant problem.

Consider as well that when I say we plan to grow the economy by this amount, this is not just a casual forecast or the current policy. This is the absolute underpinning idea behind the global economy and society and is pursued by virtually all participants with steely determination and political focus. With few exceptions, every government regardless of its political system believes it must deliver economic growth to its constituents or it will be removed from power. So even taking the lower PwC estimate, our economy will be 3.5 times bigger than today’s. That’s the overwhelming logic of compound growth—a seemingly small growth of 3.2 percent in purchasing power each year produces a global economy that doubles in size every twenty-two years. So if we start at 140 percent of capacity in 2009, then twenty-two years takes us to 280 percent of capacity in 2031 and forty-four years takes us to 560 percent in 2053.

It is not going to happen.

Not because it’s economically, environmentally, and politically challenging. Not because we don’t want it to happen. Not because doing so would damage the environment. It’s not going to happen because achieving it would defy the laws of physics, biology, and chemistry or of mathematics. Those laws are firmly established and are not negotiable.

This means the assumptions we are all making about global society—that we will bring the poor out of poverty, that we will carry on creating jobs, food, and basic needs for the more than two billion new global citizens and the existing seven billion or so, that we in the West will continue to increase our financial and material standard of living, that the world, despite conflicts here and there, will carry on in relative stability—are a grand delusion.

I repeat—it’s not going to happen.

So what will? We will face the Great Disruption. First, the economy will simply not grow. The earth is full; there is nowhere to put an economy that is twice the size of the earth, let alone five times the size. We will try hard to grow it; indeed, we will throw everything we have at the task, as we did when growth stalled in 2008. We will have some success, and growth will occur in individual countries and companies, and at different times it will occur globally for periods. But it will not happen on a significant scale or for sustained periods, for many decades to come. It will be prevented from doing so by the physical constraints of resource availability and the physical response of the global ecosystem, particularly the climate, on which our economy depends.

The faster we grow, the faster we will hit the limits and the harder and more dangerously we will bounce off them. So ironically, our obsession with economic growth will force the end of economic growth.

While our economy overall stagnates within this cycle of growing and shrinking for several decades, with all the associated political, social, and economic challenges that will present, we will also have to deal with the human and economic consequences of the systemic breakdown of the environment on which we depend.

In combination, this means we are entering a period of economic stagnation, geopolitical instability, and ecological chaos, during which we will need to both cope with all of that and begin the process of reinventing the global economic and political model under which we operate. I am confident that the latter will be part of the mix because there are only two ways this can unfold.

As happens with any system facing its limits, we will either shift to a higher order of existence or break down to a lower-order system. In other words, we will either evolve to a more intelligent, conscious, and stable civilization or we will enter what James Lovelock believes is inevitable, our terminal decline, or what Jared Diamond would call collapse. Either way, we’re now, in my view, inevitably going to pass through a rough patch on the way there, and in the geopolitical, economic, and climate chaos involved I expect we’ll tragically lose a few billion people.

Mmm. A moment for reflection … maybe a few moments.…

At this point, everyone who confronts this logic will have one or more of the following emotional responses. A common response is despair and a sense of the utter hopelessness of it all. Understandable. Some go to anger, either at themselves for being part of this idiotic behavior or at the world and those in charge for leading us here. Others go into denial, either “Oh, we’ve heard all this before, we always sort it out and we will again” or “What a lot of rubbish, the science is wrong, your analysis is flawed.” Personally, I’ve had all of these responses, even the last one, and considered them each carefully.

In the end, I have always come back to the overwhelming logic of the math, the science, and the rigor of the scientific process. People will always argue about different models, numbers, and forecasts. They will do different analyses and present alternative scenarios. The problem we face is not affected by such disputes because the scale of the problem is so clear. Running at 140 percent of capacity, then trying to increase output to even just 200 percent of capacity, let alone to 500 percent or 700 percent of capacity, means we are going to hit the wall.

Over the past five years, I have presented these ideas to business, political, and community audiences around the world and answered thousands of questions in response. The most common responses, other than stunned silence, are the “Yes, but what about …” questions.

So let’s deal with these questions first, while you’re working through the emotional responses to the inevitability of what I’m arguing. We’ll return to the latter, including why I now live with great hope, after you’ve had a little time for your right brain to process your emotional responses while your left brain is reading! I separate these two types of responses because we need to consider our situation with our whole being and give legitimacy to both logical and emotional responses.

Applying logical, rational thinking helps ensure we don’t live in artificial hope or become misled by our ideological beliefs or what we want to be the case.

I find this is best done using the mathematical equation famously expressed by Paul Ehrlich and others some forty years ago.8 The Ehrlich equation, I = P × A × T, states that environmental impact (I) of human activity is a product of the size of the population (P) times the affluence or income level per person (A) times the technological intensity of economic output or the impact associated with each dollar we spend (T).

What this says is that only three core things drive our environmental impact: population, affluence, and technology (including our behavior with it). This means we have only three levers we can pull to lower our environmental impact. We can have fewer people, we can have less affluence, or we can have lower impact per dollar spent, through either better technology or change in our behavior with that technology.

Remembering this equation helps us analyze the issue based on the data rather than on what we want to be true.

Within the context of those three levers, I will give you my answers to the three questions I am most often asked when I present these arguments.

1. The problem is population. There are just too many people, so we should focus on that.

2. When the impact hits we’ll respond and fix it. It will be difficult, but it won’t be a crisis. Markets and technology are remarkable.

3. We can just grow the economy in a different way, with fewer materials, less energy, and more renewable resources.

The first question is very popular, especially in Western countries. It’s usually something like “So the problem is population, isn’t it? There’re too many people, so we should just fix that!”

This is a consistent response to these issues and has been for decades. The answer lies in the numbers of the mathematics and the politics of reality.

First to the mathematics, remembering the critical equation I = P × A × T. What this shows is that while population is a lever we could pull, even if we did, the impact, while certainly helpful, would not solve the problem. The UN forecasts for world population increases reflect an average growth rate of around 0.7 percent over coming decades, to reach a peak population of just over nine billion by 2050 under the medium projection. So the nature of compound growth means that even a substantial reduction in the population growth rate would soon be overwhelmed by economic growth on a per capita basis, predicted to grow by about 2.5 percent each year, thus outrunning population growth rates considerably. I will give you an example of the comparative impact shortly.

The second challenge, of course, is the politics. While individual nations (most notably China) can and have acted on their own populations, there is no realistic chance that we could reach a global agreement to slow global population growth in the countries we need to in any meaningful way. We should remember here the comparison between growth rates in per capita wealth vs. growth rates in population. What they mean is that even a 50 percent reduction in the population growth rate, which would require a herculean effort, would actually have only a small impact on the trends we’re discussing.

To really have a substantial impact on the forecast environmental impact, we would need to dramatically reduce the global population by a significant percentage from what it is now. Given that we struggle even to slow the rate of growth, a deliberate strategy to reduce the population is not going to happen. We will return to whether it might happen involuntarily, but it certainly won’t be a strategy we deliberately pursue to avoid the crisis. It’s also worth bearing in mind that with 2050 less than forty years away and average world life expectancy now almost seventy years, many of the people of 2050 are already around today or soon will be.

So back to our core equation; the population lever is clearly broken, and pulling it would have little impact.

The most common question I get to my arguments from those who disagree is something along the lines of “Surely when the impact becomes clear for all to see, we can then change quickly and fix this without a major crisis. After all, haven’t we fixed many of our environmental and social problems in the past?”

Or it’s put as “There’s always been doom-and-gloom forecasts, but we always make it through. Markets and technology are remarkable and will deliver again.”

I have some sympathy for this view, and I have really challenged myself on this one. It’s always seemed to be the most likely reason I was wrong. After all, history has seen humanity face many crises and respond effectively. There have also been a remarkable series of extraordinary technological breakthroughs, often surprising ones, that have reshaped society and/or have addressed what would otherwise have caused a monumental crisis. Take the examples of World War II, which we will consider later; the agricultural green revolution of the 1960s onward, which saw food production in developing countries more than double;9 and the rapid growth of information and communications technology.

It is also true there are some remarkable and exciting technologies and business models both under research and in the process of commercialization that could have massive impacts on the “T” in our equation.

But even if technology could fix the underlying problem, it cannot prevent a major crisis from happening first. I will explain why in a moment.

Nor do I approach this philosophically as a person opposed to technology or to markets. Indeed, I have now spent fifteen years advocating the power of markets to drive change in this area and running companies delivering that change. So my natural sympathies are in that direction because I recognize the enormous potential to drive change at speed and scale globally through well-directed markets.

However, a sensible and calm analysis of the idea, applying not belief or hope but mathematics and science, gives us the answer to the question of whether markets and technology can save us from the crisis. The answer is, in short: “No, not this time.”

There are two reasons, one of which (around the scale and speed of the change required) I’ll come back to. The most important reason, however, is based in science. It is the lag between the action of emitting pollution or causing other ecosystem damage and the impact on the system of those emissions or damage. This of course also translates into a lag between reducing those emissions or impact and there being a benefit to, or restoration of, the global ecosystem.

While we work in an economic system of annual targets, quarterly profits, and twenty-four-hour news cycles, the planet works in longer and more complex cycles. And, as U.S. senator Gaylord Nelson reminded us, “the economy is a wholly owned subsidiary of the environment, not the other way around.”

For example, the consequences we are seeing in the climate today are being caused largely by pollution emitted decades ago. As greenhouse gases trap heat in the atmosphere, much of that energy is absorbed in the upper layers of the ocean, meaning that temperatures are not immediately observed to increase. It’s only after the ocean has warmed up that we start noticing the impact of that CO2 on the climate and land-based ecosystems, a delay that is measured in decades. This observation caused the National Academy of Sciences to caution as early as 1979 that “we may not be given a warning until the CO2 loading is such that an appreciable climate change is inevitable.”10

Once we start noticing this warming, a lot more of it is already locked in given how long CO2 sticks around in the atmosphere, with some remaining there for over a thousand years after release.11 And it keeps warming the planet the whole time.

This principle applies to many environmental issues, making this lag an ecosystemwide problem, not just a climatic one. Examples include the acidification of the oceans (that at some point can prevent coral reefs from being formed and stop shellfish from having shells) and the ozone layer, which kept deteriorating long after we addressed the causes and may take until the next century to recover. Furthermore, many of these systems tend to act in nonlinear ways. They resist change while trying to absorb our impact, and then approach a tipping point, where they change rapidly or collapse. Likewise when we address the causes, recovery can take a very long time, if it occurs at all.

This means when we look around now and see the arctic sea ice melting, the glaciers disappearing, food supplies diminishing, and wildfires causing death and destruction, Mother Nature would like you to know “You ain’t seen nothing yet.” This is just the warm-up act.

What this means as a system tendency is that even if we had a dramatic societal response, which we will at some point, the momentum for change already built into the physical processes of the earth’s ecosystem means the impacts would continue for decades to come. To slow this down, we would not only have to reduce our impact (for example, cut CO2 emissions), but also actively restore the system (actually remove CO2 from the atmosphere so our net impact was to reduce concentrations). Doing so in the case of CO2 is imaginable, though very challenging. Doing so across the whole range of global ecosystem services at sufficient speed to overcome the various lags is stretching probability. I wouldn’t rate it as impossible, but I certainly wouldn’t be betting our future on it.

This doesn’t mean we can’t do anything. In fact, it means we must and will do even more extraordinary things. And when we do respond, it will be with breathtaking speed and scale, and it will drive the biggest economic and industrial transformation in history. This is the fun part we come to later in our story.

My point on technology as the solution is simple. It’s not that technology is not crucial; it most certainly is. It’s just highly unlikely that it will be physically possible to drive new technology and its adoption fast enough to overcome the inertia for ecological change already in the system—sufficiently to prevent an economic and social crisis.

This is particularly so given that the challenge is not primarily a technical “is it possible” one, but more a political/economic one. In this context, what the lag means is that we will be fixing the causes of future problems (such as reducing current emissions) while also dealing with the economic and social consequences of yesterday’s behavior (for example, dealing with rapid climate change, famine, and the like). This need to respond to past behavior will undermine our economic and political capacity to reduce future impact. An example might be the collapse of the global insurance industry in the face of rapid changes in the physical climate.

The momentum driving ecological change in the system is just too powerful to overcome smoothly. When the scale of change required to keep the issue from becoming a crisis is translated into arithmetic, as we’ll do shortly, it defies belief that it can be achieved. So, yes, I believe in markets, I just don’t believe in miracles that ignore the laws of physics and mathematics.

The final straw clutched at by market-focused technology optimists is that we can avoid the crisis by decoupling material and energy growth from economic growth. This has long been the holy grail of corporate sustainability experts and has been advocated by many, including myself until five years ago, as the solution to the growth dilemma.

The idea is that we can shift the structure of the economy away from stuff and pollution. We would move to renewable energy and resources and drive dramatic resource efficiency improvements, thereby using less and cleaner material and energy per unit of economic output. It assumes we can do so at sufficient speed and scale that economic growth can occur while total absolute environmental impact is dramatically reduced.

It is a good idea, and it is the right direction for the economy. Indeed, the focus on the concept has led to some very good business ideas that are being implemented around the world, like a shift from selling physical products to selling services. A good real-world example is the idea that we should buy the service of air-conditioning rather than the equipment. The logic is that we don’t want to own a machine, we want the air at a certain temperature and humidity, so we buy that service. The company we buy it from then owns the machine and pays the energy bill, so they would be encouraged to design it for longevity, recyclability, and efficiency because the company rather than the customer would bear the costs of repair, disposal, and energy consumed. The company would be incentivized to improve these, as they would get the resulting savings. This approach has long been applied in commercial photocopiers, where you can pay by the page.

Another example is the sustainability-focused carpet company Interface, led by the legendary sustainability-focused CEO Ray Anderson. They promote an “Evergreen Carpet” lease, where the customer pays for the service of having their floors covered. Interface is then incentivized to produce the carpet in a way that minimizes life cycle costs, including making the materials recyclable and hard wearing.

So why can’t we pursue decoupling by putting in place structures like these that incentivize efficiency? We can and will. The challenge is that we again face the problem of the math. Returning to Ehrlich’s formula, we are in this case dealing with the T in I = P × A × T.

An excellent study on this topic was published in 2009 by the U.K. government’s Sustainable Development Commission. Initiated under the chairmanship of my friend Sir Jonathon Porritt, this study, Prosperity Without Growth, was led by Professor Tim Jackson and offers an outstanding summary of the issues.12

The report presents some fascinating scenarios to 2050, using just the challenge of decoupling economic growth from CO2 emissions to achieve 450 parts per million (ppm) of CO2 concentrations. Keep in mind when reading these numbers that most scientists regard 450 ppm as an inadequate target, so the actual challenge is much greater than that expressed here.

It should also be noted that CO2 is one of the easiest decoupling challenges because energy can be produced with no CO2, whereas making cars without metals or plastics, for example, would be more difficult.

The study used the measure of grams of CO2 emissions per dollar of economic output to compare across the scenarios. In 2007, this measure was 768 g of CO2 per dollar globally. They give four potential scenarios going forward to show the scale of change required in this, the easiest decoupling challenge:

1. Under the midrange forecast of nine billion people and assuming economic growth continues as it has since 1990 at 1.4 percent per annum, we would require CO2/$ to decrease from 768 g CO2/$ today to 36 g CO2/$ in 2050, representing a 95 percent reduction.

2. With the upper forecast of eleven billion people, it would require a reduction to 30 g CO2/$.

3. If we assume that we deal with poverty and have nine billion people in 2050 at a per capita income equivalent to that in the European Union in 2007 (that is, no further per capita growth in the West), the target drops to 14 g CO2/$.

4. If we assume every country is broadly equal and the standard of living is based on the EU in 2007 but grows globally at just 2 percent per year, then we need to achieve a reduction from 768 g/$ to 6 g/$, or a reduction of around 99.2 percent.

There are a few key lessons from these numbers.

First, they strongly reinforce that population growth, while material, is not the key driver of the problem compared with per capita economic growth.

Second, they show that the scale of change required is quite extraordinary. Even scenario three with a midrange population and equal incomes with no further growth in the developed world requires an improvement in efficiency of 9 percent every year for forty years and results in an economy six times as large as today’s!

Third and most important, this is just the herculean task required to achieve action on climate with a growth economy. That is clearly the easiest challenge compared with finding the forest, land, fish, food, transport, minerals, and water to feed an economy six times the size of today’s.

Further complicating this strategy is what is known as “the rebound effect.” What happens when products become more efficient is that we use more of them. So as cars become more fuel-efficient through better engine technology, we make our cars heavier; as home appliances become more efficient in power use, we buy bigger ones; as air-conditioning becomes more efficient and therefore cheaper, we air-condition more homes. This means that as long as we consider only technology, rather than also considering per capita consumption, we’ll keep bouncing back and hitting the limits again.

As I said earlier, the Prosperity Without Growth scenarios consider only CO2 emissions, a significant challenge but still possible. But given that decoupling is about every resource that feeds the modern economy and we’re operating at 140 percent of capacity now, there is no conceivable decoupling scenario involving economic growth that sees us bringing the situation under control in time to avoid a crisis.

As the report itself concludes:

The truth is that there is as yet no credible, socially just, ecologically sustainable scenario of continually growing incomes for a world of nine billion people. In this context, simplistic assumptions that capitalism’s propensity for efficiency will allow us to stabilise the climate or protect against resource scarcity are nothing short of delusional.

Those who promote decoupling as an escape route from the dilemma of growth need to take a closer look at the historical evidence—and at the basic arithmetic of growth. Resource efficiency, renewable energy, and reductions in material throughput all have a vital role to play in ensuring the sustainability of economic activity. But the analysis in this chapter suggests that it is entirely fanciful to suppose that “deep” emission and resource cuts can be achieved without confronting the structure of market economies.

I’m most certainly not dismissing the core idea of decoupling or greater resource efficiency. There are enormous benefits on offer in such a strategy, and we will have to pursue it vigorously. My question at this point is simply, “Can we avoid a systemwide crisis?” and my conclusion is that decoupling and efficiency will not come close to that objective, even though they must be pursued for other reasons.

To summarize where we are at this stage:

✵ We have established that the challenge we face is clear, logical, scientifically based, and broadly accepted.

✵ We have identified that bringing the earth’s economy within its operating limits is a herculean task with the size of our present economy.

✵ The math indicates it is an inconceivable task if we carry on growing the economy even modestly.

✵ It is clear that markets and technology will not be capable of adjusting at the scale required.

✵ We have observed that despite all this evidence, humanity is not yet responding with any substantial action at the global scale, let alone with the massive warlike intervention we clearly need.

✵ The science tells us that the lag in the ecosystem between emissions and impact means there is now great momentum racing through the system toward us.

✵ The lack of response to date indicates that the inertia against change in human society and the global economy is very powerful. Given that the change we need to make is much, much greater than the change we’re already resisting, it is clear this resistance will continue and probably strengthen.

✵ This means any hope that we can mobilize the massive intervention required to avert the crisis is a false hope.

In combination, this evidence all points to one conclusion. We cannot now avoid the crisis of the Great Disruption.

How will this manifest?

If you thought the financial situation in 2008 was a crisis, and if you thought climate change was a cultural, economic, and political challenge, then hold on for the ride. We are about to witness humanity deal with its biggest crisis ever, something that will shake it to the core—the end of economic growth.