Climate economic theories

Climate economic theories have gained popularity over the later years. They have been derived from the current climate and biodiversity crisis:

1. Environmental economics, which seeks to solve environmental problems within the market economic framework. This involves the use of taxes to steer manufacturing and consumption in a more climate friendly direction.
2. Ecologic economic theories as e.g. Circular Economy and Doughnut Economy are reversely about how to reassess the foundation for economic thinking, so environmental and climate concerns and limits become the starting point for economic reasoning. The current growth model for the economy is considered outdated, and new targets for equilibriums must be defined. Prominent thinkers here include Herman Daly and Kate Raworth.
   1. Herman Daly og Kate Raworth er bl.a. i denne retning.

More fair?

Do ecological economic theories provide a clearer and fairer view than environmental economics supplemented with ESG?

• The disagreement is about the importance of using history as the basis for comparisons and decisions.

Traditional economics portray the market as a closed system where work services and capital flows from households to companies. Goods and services flow the other way together with payrolls to households etc. A neat and closed system developed in an age where the limitations in natural resources was still unknown to most people.

Doughnut economy

Doughnut economy (Kate Raworth) is one of the new ecological economic theories from 2017. It is about designing an economy that encourages human wealth irregardless of whether GDP goes up, is flat or is negative. Doughnut economy is referred to as “the missing link” for ESG, even though the theory states, that comparisons over simplify too much.

According to the theory the economy must be big enough to satisfy all legitimate needs of all humans. But it cannot be bigger than that, which is necessary to ensure the natural given basis for life. It thus has a starting point in the Brundtland reports "weak" definition of sustainability. It says that a development is sustainable when it meets the needs of the current generation without risking the fulfilment of the needs of future generations. More specifically this means that:

• Renewable natural resources such as trees, fish, water, air etc. cannot be used faster than they are renewed.
• Non-renewable resources cannot be used faster than alternatives have been developed, in good time.
• Emitting pollution to the environment cannot happen faster than at the speed where ecosystems can degrade or absorb the pollution.

The principle is illustrated through a doughnut. In between the inner and the outer circle of the doughnut is the safe sphere for an economy, that is sustainable and socially fair. This is seen as an economy where people can thrive.

Doughnut economy is often criticised for lacking clear answers to how this should be measured in a way suited for comparisons. Comparisons are necessary to evaluate if something has improved or not.

Circular economy

A more hybrid solution between environmental economic theories and ecologic economic theories is found in circular economyThis is based on the principle of de-coupling value creation from resource consumption. The basic idea is thus to move away from value creation based on raw materials usage.

• Circular economy thus seeks to increase the usage of raw materials through reuse and recycling and generally minimized waste.
  • Global waste is e.g. expected to increase by 70% towards 2050. In addition twice as many raw materials are expected to be extracted by 2060. Also 80% of global waste water is released untreated in the eco system.
• Circular economy is thus about optimizing the use and reuse of raw materials and energy so the footprint on climate and ecologic circle is minimised.
  • The Paris agreement, UN's sustainability targets, Chinas 5 year circular plan and the Durban declaration from 2019 are all examples of supernational agreements based on circular economic ideas.
  • In addition BlackRock has established a Circular Economy Fund since 2019. This now has more than 3 billion USD invested.
  • Correspondingly circular economy has become one of World Economic Forums central and permanent areas of interest.

Examples of circular economy

Circular Economy requires fundamental changes to e.g. business models, product design, life cycle etc. It thus requires cross-functional cooperation with and between suppliers.

• An early example of circular economy is Fords manufacturing of the model T.
  • One of the suppliers of chassis parts at some point changed its wood packaging to a lighter model with different outer measures.
  • This caused a breakdown in Fords manufacturing line. Ford had chosen to use the suppliers packaging directly as floors in its cars (without notifying the supplier). Ford was thus using all parts of the delivery, including reusing the packaging.
• More contemporary examples include e.g.:
  • Philips offer the sale of light as a service to e.g. airports and hospitals. The customers pay for lighting. Philips thus retain the ownership of all installations and thus are responsible for that all is working and is maintained. Philips claims to have demonstrated savings in lighting usage of up to 50%. In addition there is a higher degree of reuse and recycling of installations etc. upon end of lifetime.
  • Baby-clothes from companies such as Circos, Hulaaloop and Vigga, where consumers buy per clothing or packets of clothes. When the baby outgrows this, the subscribers can swap it to bigger sizes. This reuse claims to have produced savings of up to 80%.
  • RePack is a finnish company offering reusable packaging to online retail. When consumers select payment they are offered RePacks packaging against a smalle deposit. When the consumer has received the order, they can return the packaging and have their deposit returned. The packaging is designed to be used more than 20 times, and so far more than 60% of all packaging is returned.
• Circular economy thus requires up- and downstream thinking. It is necessary to involve suppliers and customers in your waste considerations to learn which opportunities have been overlooked.

Simplicity vs fairness

The climate crisis is one of the severest humanitarian crisis in present times and is still only in its infancy. The debate on one economic paradigm vs another will thus hardly conclude any time soon. But our approach to the climate crisis can change our perception of where the limits for economy and sociology should be. Using ESG alone as a key figure, in particular a weighted number, distorts and over simplifies the character and extent of the problem. 

The COP meetings are therefore about other and more than emission targets and ways to reduce climate footprint.