2020, when the 21st century started!

Aug 10, 2020 by

After an overwhelming day full of Economics terminology, we were happy to start Wednesday with a focus on biophysical topics. Both of us have a background in natural science, so we expected numbers, statistics and concrete steps to make the economy more sustainable. But, to our surprise, we realized that we cannot disentangle the natural and socio-economic world. At the end of the day, we realized that the social and natural world are interdependent, and that we need to completely change our social paradigms and the underlying foundations of our economic system in order to survive as a species. Not good or comforting news, to be honest. But we have two weeks ahead, so we remain hopeful.

One common theme present throughout all three lectures was that it is important to think about the economy as one component to a larger system, not as a stand-alone process. The economy is embedded into the natural and social system, and therefore, it follows some of the natural laws. Thomas Hahn, from the SRC, started the day  providing a nice overview on the topic of resilience and emphasizing the difference between adaptation to and resilience embedded in existing systems. Brian Fath from IIASA followed with a review of the biophysical limits to economic growth and provided a conceptual framework to transform economics by mimicking ecosystem processes and structures into the economic system. Finally, Sigrid Stadl, from the WU, explained the limitations of the current, prevalent economic theories and stressed the importance of introducing externalities and the rebound effect in theories and policies. The lecturers seemed to complement themselves, and they agreed during the Q&A and discussion session on the limits of current economic paradigms.

Changing the goal of the economy and the indicators of wellbeing, they said, would make the economy more sustainable and equal. However, while the paradigm of economic growth is outdated and unsustainable in the developed world, the developing world stills needs to grow to bring their people’s well-being to an acceptable level, or as Thomas Hahn said: “to achieve SDGs 1-7”. One example of how to change the goal of the economy is to defocus GDP as an indicator of growth. GDP is just an indicator of wealth, yet many political decisions are based purely on GDP. Additionally, every sector will need to be transformed in order to not further degrade our environment for societal “progress”. One interesting new aspect we learned is the role of negative feedback loops in nature, which could play an important role in our future economic system to stop relentless growth.

An aspect that fascinates both of us is the rebound effect of efficiency. Many projections underline the importance of increasing the efficiency in sectors such as energy, so that less energy has to be produced to achieve the same results. As Sigrid Stadl pointed out in her lecture, while that may seem to be a logical thought, the gain of this effect at the end is not as strong as expected due to the following mechanic: When you increase the efficiency in the production of a commodity, this also decreases the cost and with it the price. A lower price leads to a higher consumption, which increases the emissions again (this is called the Jevon’s Paradox). This effect needs to be taken into account in considerations concerning efficiency gains. This relates to the concept of climate change when looking at carbon intensive energy sources; when the demand for coal goes down due to increased interest in renewables, the price of coal will drop, opening a door for higher consumption due to the lower price.

To wrap the day up, it was a very exciting experience despite the screen time. The discussion with the three experts expanded our knowledge and made us understand important mechanisms on the topics of resilience, biophysical limits, and the importance of introducing externalities and the rebound effect in economic theories. Unfortunately, the lecturers said that the SDGs will not lead us to sustainability as long as you do not implement a-growth. This, of course, is not a motivational closure of the day, but Hahn found the right words, when he said that 2020 will be marked as the year when the 21st century really started. This is our century and we will need to start to make change now.

Written by: Ivo and Diana Luna

Based on the session with Thomas Hahn, Brian Fath and Sigrid Stagl during the AEMS 2020.