Pointless speculation or dangerous denial?

By Hughes-Marie Aulanier, manager at Carbone 4

The Organization for Economic Cooperation and Development (OECD) has the slogan Better policies for better lives. A noble and commendable ambition.

This international organization frequently publishes a variety of reports, such as one of its most recent ones, the Global Material Resources Outlook Through 2060, subtitled economic drivers and environmental consequences.

Given the current systemic environmental crisis (severe loss of biodiversity, climate change, disruption of biochemical cycles, etc.), it is indeed timely to reflect on how the use of metal, mineral, fossil fuel, and biomass resources is evolving.

The OECD therefore had its experts examine this crucial issue. And the answer is mind-blowing!

In the scenario favored by the report’s authors, greenhouse gas emissions would increase by more than 50% by 2060, reaching 75 Gt CO2 eq per year. Where, in the OECD’s models, are the Paris Agreement and the goal of at least halving global emissions by 2050, with the aim of achieving carbon neutrality between 2050 and 2100? In this report, the OECD projects a minimum temperature rise of +4°C, which we know would pose a serious threat to the size and life expectancy of the human population.

Source: Global Material Resources Outlook 2060, OECD

Nevertheless, this does not prevent the OECD from calling for the implementation of “ additional policy efforts are needed to meet the [Paris Agreement] goals, such as incorporating policies aimed at reducing greenhouse gas emissions into a comprehensive resource management policy package ".

The explanation for this apparent contradiction lies in the model used to conduct this prospective study, which turns out to be to reverse the causal relationship with respect to physical reality.

The authors used a classical macroeconomic approach, in which an exogenous GDP (and therefore based on an assumption)—which grows because that is our desire—"drives" the consumption of materials and energy. It is therefore sufficient to set conventional assumptions regarding population growth and per capita GDP growth for global GDP to quadruple by 2060.

This implies that global material demand will rise from 79 Gt/year in 2011 to 362 Gt/year in 2060, a figure that the OECD ultimately revises downward to 167 Gt/year in 2060 (-53%) by placing strong emphasis on two key drivers: structural change in the economy (including the growth of the service sector) and technological progress (including improvements in material efficiency).

Even if we assume that these optimistic projections for these two factors come true, annual material needs would still double by 2060. This would simultaneously lead to a doubling of greenhouse gas emissions and a massive increase in the environmental impacts of human activity.

One of the major flaws in this type of model is that it implicitly assumes that the economic damage caused by climate change is negligible. In fact, even if we were being dragged into an increasingly hostile world, it would have no negative impact on the economic activity of human societies, since GDP would still quadruple!

In fact, these macroeconomic models do not take into account the negative feedbacks of environmental and climate degradation on GDP, and when they do (as was the case with Nordhaus, for example), they do so using damage functions set at the modeler’s discretion (the economic damage does not stem from a physical analysis of the climate trajectory, but simply from the modeler’s “idea” of it).

Nor do these models take into account resource constraints, even though they are already becoming increasingly difficult to extract (decline in EROEI^[1] (in terms of energy resources and metal content) and that, by their very nature, they are finite in quantity. The case of construction sand is emblematic here, with demand set to double by 2060, even though it is already a resource under strain, particularly in Asia, where demand is highest.

The reason lies in the reversal of the causal relationships mentioned above. It is easy to understand that productive activity requires resources to be transformed, as well as the means to transform them (i.e., energy). Resources and energy are therefore inputs into production, which in fact cannot be carried out with just labor and capital. GDP, which measures the value added associated with our labor and income, is thus an output measure. With this kind of approach, it is immediately clear that Growth is possible only if resources are available without time constraints within the scenario.

But with GDP—which, by definition, is growing and “demands” resources and energy—we’re reversing the reality of the flow. And as a result We become blind to the issue of limits on resource stocks and flows (including a stable climate) and energy.

In summary, the OECD has published a forward-looking scenario titled baseline, which, on the one hand, promises great things for people’s standard of living and the economy, but on the other hand leads to environmental hell, with a severely degraded planet—even though the planet itself is the foundation of our productive activities. The latest version of the scenario Sustainable Developmentfrom the World Energy OutlookThe IEA's report is along the same lines (https://energypost.eu/the-iea-comes-up-short-on-climate-again/).

Are these forward-looking, theoretical exercises—which international institutions of this kind typically conduct—actually useful? There is a strong temptation for certain political and economic actors to focus solely on the good news (economic growth taken for granted) without mentioning environmental limits, even though this would lead humanity into a dead end… and the ensuing economic collapse due to a lack of resources. Therefore, such information cannot serve as a basis for decision-making.

Yet, in the current context of environmental transition, it is more necessary than ever for economic decision-makers to regain their ability to anticipate the future. To achieve this, the foresight process must be reinvented by directly reconnecting its models to the real physical world. The physical limits of the only environment in which humanity can live—namely, Earth—must be factored in to understand what changes to anticipate and what strategic response this requires from economic actors. Carbone 4’s overarching goal is to offer economic actors an approach that may be more unsettling, but one that has greater predictive value. (http://www.carbone4.com/strategie-dentreprise-monde-decarbone/).

^[1] EROEI stands for Energy Return on Energy Invested, which is the ratio of usable energy obtained from a given energy source to the amount of energy expended to obtain that energy.

Hughes-Marie Aulanier