ENVIRONMENT AND GROWTH

Comitato Organizzatore

During the lockdown period, from the windows of my home in Milan I could always see the foothills of the Alps clearly, even on gloomy days with little wind. In all the years I have lived there I had rarely stopped to admire this panorama. The quality of the air in our cities improved significantly when we were all shut up at home and on the streets there were only ambulances and delivery workers (mostly immigrants) on their bikes. I’m sure I was not the only one to ask myself: is it really necessary to go through this nightmare, confined to our homes with all non-essential activities strictly forbidden, in order to be able to breathe clean air in our cities?

It is often thought that environmental protection is in conflict with economic growth. Growth is believed to lead to pollution, depletion of natural resources and damage to the environment, whereas policy focusing on the prevention of climate change, improvement of air and water quality and the safeguarding of local areas is considered to be costly in terms of slowing down the growth rate of the world economy and the economies of individual countries. Environmentalist movements, above all in Italy, have a not entirely unjustified reputation for being against growth. They are perceived as wanting to block many economic initiatives and investment projects that could create jobs, offering income and opportunities to the less well-off, in the name of environmental protection. This reputation makes the environmentalist movement into an elitist group, while struggles to safeguard the environment are something that only the rich can afford, especially now we need to recover from the profound crisis affecting the whole planet. Populism is often set against environmentalism in the name of employment and growth.

So is it really true that safeguarding the environment leads to a reduction in the rate of growth for our economies?

In actual fact this is not the case, or in any event is not necessarily true. There is indeed policy that supports growth while respecting the environment. In many fields technological solutions have been identified and sustainable development strategies developed in relation to containing emissions and supplying energy. At the same time, there is increasing evidence that atmospheric pollution has negative effects on productivity, for example by increasing absenteeism due to ill health, thus affecting the rate of growth of our economies. There are also those who affirm that the Covid-19 pandemic is more lethal in regions with a higher level of pollution, because the virus encounters people with poorer immune systems (but here the empirical evidence is anything but solid).

In other words, failure to pay attention to the environment leads to a deterioration in our human capital, which is one of the driving forces of growth, as we have seen in previous editions of the Festival.

Furthermore, the most recent estimates of the costs, even strictly economic, of not doing anything in the face of phenomena such as climate change are pretty alarming. Sooner or later, we risk finding ourselves beyond the point of no return.

Having established that environmental protection policy is not necessarily detrimental to economic growth, the two main unresolved questions are what to do, and how to coordinate the action of different countries.

As regards the first aspect, it is often proposed to introduce taxes based on the principle that those who pollute must pay. The problem with this approach is that (Pigouvian) taxes of this kind can be highly regressive, as it is often the poorest families who use the most polluting energy sources. Another strategy is to subsidise innovations favourable to the environment.

The problem of how to bring common problems into decision-making processes still largely handled internally in each country is even more complex. It is a strong temptation for individual nations to allow others to bear the burden of adjusting for more sustainable growth.

An increasing number of economists are dealing with these issues, studying measures that impose costs on those, whether multinational companies or governments, who make development choices that are not sustainable for the overall system. The best minds in the profession are preparing themselves, together with legal experts and scientists from very different backgrounds (in ecology, biology, physics, chemistry, plant science, zoology, mineralogy, oceanology, limnology, soil science, geology and atmospheric science) for the next “condominium meetings”, called on to discuss how to manage common resources.

We hope that this year, at a Festival where there will always be a speaker present in person, but with a much larger number of speakers participating via video links than in the past, useful ideas will once again emerge from Trento on how to deal with a problem that concerns the future of us all, and especially of our children.

Tito Boeri

Scientific Director of the Festival of the Economics