What does Bathtub Economics say about green growth?

Writing in the Swedish daily, SVD, on 7th July, Johan Rockström set out some bitter truths (my translations):

1. Green growth – that is to say the economy grows whilst extracting less from and reversing damage to natural systems – is nigh on impossible.
2. It is questionable whether the goal of maximum 1.5 degrees increase in global warming can be achieved.

Let us examine these points from a circular economy and bathtub economics point of view.

First a recap on bathtub economics – more information on that here. Bathtub economics says to understand how the economy works think of four bathtubs and money like water. The diagram below shows that, simply put, all money in the economic system in the hands – directly or indirectly- of citizens. This is because citizens own companies, cooperatives, and because even if there is money in government and municipal accounts, these accounts represent living beings – citizens.

In the economic system, money circulates rather like water. Citizens pay bills each month and the money comes back in the form of wages and benefits.

Growth is not needed for the system to work

Growth is often talked about as being necessary for the system to work. In bathtub terms growth is an increase in the total number of “drops” falling in a given time period. What this simple picture shows that is the system works for all when everyone – each citizen – has enough money to pay for their needs, and each firm and official body has enough to pay their expenses. There is in theory no need to keep increasing the number of drops per citizen although that can happen.

As western economies demonstrate – economic growth can increase but so does the growth in the size and number of people in debt, homeless people and those going hungry. So to say growth stops misery is also wrong. The bathtub model shows that the economy can function without growth – if it is managed so the redistribution of money fills everyone’s needs.

Natural resources do not enter any bathtub. They create money in one, though

A step further in the model shows where natural resources – mineral and living – come in. The diagram above adds a” fifth” bathtub – nature – although no money goes to or comes from nature. Money arises in the bathtub of the firm, mostly, when the natural resource it extracts/harvests is sold on via the first and last invoice. It is firms, government or privately owned, that do the harvesting/extracting and returning /dumping back.

For the economy to go 100% green, the market needs to discover the price of not extracting and of not dumping. It will do this as the price of the first invoice rises to the point where it is cheaper to recycle or harvest regeneratively.

We can discover the price of keeping below 1.5 degrees

One mechanism, proposed by the Swedish Sustainable Economy Foundation, among others, is to levy an extraction surcharge at source. This surcharge is increased until the price of alternatives are lower than the price for extraction. Of course, the surcharge is paid back and redistributed to citizens equally under a polluter-pays – more model.

The same applies to release into nature. As the resource becomes more valuable it is more likely the market will seek to recover it. Failing that, a surcharge on release will discover the price to not dump the material.

Let us consider the next question – if maximum 1.5degrees can be held. What bathtub economics says is that given the right management, a radical first invoice surcharge system can be applied to key materials and natural systems. If the system could ensure that everyone gets enough money to pay for their needs, then the rapid transition of society – akin to the complete transformation of American manufacturing into weapons during World War 2, could emerge.

Fortunately, Johan Rockströms own Planetary Boundaries work points the way. It looks from my reading of the boundary work that the following should be subject to green levies and dividends:

• Nitrogen and phosphorus extraction
• Extraction and burning of fossil fuel
• Manufacture of toxic substances
• Changing the ecological and hydrological status of real property (land)

Bathtub economics points the way to managing the economy so we can all live the good, green life. Albeit it might be something we are starting to call luxurious simplicity – but nevertheless, the focus on luxury could be a better alternative than trying to press out economic growth from a system that does not need it.

Further reading

Enell, M. (2012). Flexible Emission Fees: An Incentive for Driving Sustainable Production and Consumption. Nordic Council of Ministers.

Hinton, S. Aligning Environmental Fiscal Reform with the four Natural Step conditions using the FSSD approach. pdf on Academia.eu

Rockström, J., Steffen, W. L., Noone, K., Persson, Å., Chapin III, F. S., Lambin, E., … & Nykvist, B. (2009). Planetary boundaries: exploring the safe operating space for humanity. Ecology and society.