Back to list

Not considering a Plan B is irrational and dangerous

Sigrid Stagl was the first person in the world to be awarded a PhD in the new field of ‘Ecological Economics’. In this interview, she talks about the dilemmas of her discipline, false incentives, and the role of economic growth.

Professor Stagl, in 1999 you were the first person in the world to be awarded a doctorate in Ecological Economics. What’s the difference between Ecological Economics and ‘normal’ Economics?

Stagl: We refer to a ‘preanalytic vision’ as being the starting-point for our analysis. We start out by assuming the biophysical sphere – nature – is the basis for all our economic activity. If nature is not intact, if it is not functioning well, so to speak, and cannot provide the services we need as a result, then the economy cannot function well either. There is a kind of hierarchy, therefore: we have to take care of nature if we want to be able to run the economy well, and to turn that around, we need an economy that keeps the biophysical sphere intact. This is also true of our principles. Efficiency is also an important criterion for us, of course – but not just viewed in the short term. For us, long-term efficiency is also key. We also extend efficiency to include the goal of distributive justice. A further goal for us is the biophysical scope of production. That means you always measure how many emissions result or materials are consumed by a production or consumption model – not just in relation to efficiency, but also viewed as a whole. Because for the planet, the absolute volume of CO2 in the atmosphere, or how much material we are taking out of the Earth’s crust, counts. That’s why, in Ecological Economics, we always explicitly take the total volume into account. And when we reach our limits, we also have to include these in our models.

How can we create economic incentives for people to voluntarily restrict their consumption? It’s safe to assume your disciple also has political consequences…

Stagl: Yes, of course. I’ll give you one example that results from the setting of limits. On the one hand, that’s the Emission Trading Scheme we have at European level anyway. The idea is that there’s a bearable volume of emissions defined for the system as a whole – the European economy – which those active in the economy then have to divide up somehow. The economy as a whole is not permitted to emit any more than this defined volume, however. From an economic standpoint, it makes sense to leave the dividing up of the total to these economic actors. One actor will buy certificates from someone else, for example, if it’s cheaper for him to have the certificates than to switch his production. For the other, it may be cheaper to reduce emissions because it’s costing him so much. So he then sells the certificates that have been allotted to him. In principle, it’s a policy instrument that corresponds very much to the principles of the Ecological Economy. The problem with the system was that that there were serious problems implementing it. There were errors in it, insofar as the biophysical limit was not drawn at a sufficiently high level. Too many certificates were issued, and in the design, too, the way the certificates were allocated, the incentives weren’t well thought-through. It was the first time it had been done, and you have to learn from these things. You just have to learn fast. It’s important that an emissions certificate system should not be vulnerable to the lobbying of individual states, because they will always lobby for their industry to get more certificates. So that’s one instrument.

And what’s the other?

Stagl: You could think of it as being similar to a household, in that every household is allotted a certain amount of carbon it is allowed to emit. If it has to, or wants to go beyond that, because it is planning to take a long-haul flight to go on holiday, for example, then it has to save on carbon in advance, or – if it’s a tradable system – can purchase additional certificates from others which may deliberately not be taking a long-haul flight, and have carbon points over as a result. The problem is that implementation isn’t very efficient, and would also be very expensive. The benefit is it really would take the concept of thinking within biophysical limits to the level of decision-makers in households. So it would be very effective, presumably, but not very efficient. These are the dilemmas we are faced with when we’re making policy recommendations. Otherwise, we also do research into how you can get a better understanding for how people act on the one hand, and how you can motivate people to act more sustainably on the other. And to do that we need a whole battery of measures. It’s not just about financial incentives; you also need to factor in social effects – that it’s not cool to drive around in an SUV, for example, but to ride a bike instead. It also depends on the infrastructure, of course. We know infrastructure creates usage. If we have wide motorways, then we’ll have lots of car journeys, and if we have great cycle paths, then to some extent, we’ll have more cycle journeys. A fourth field – and this too has to do with social interaction – would be that you support, promote and highlight those who are particularly motivated and prepared to behave in a sustainable way, to show you really can live a sustainable lifestyle and have fun at the same time.

You also deal with behavioural economy, a very young discipline. To what extent can the behavioural economy be useful for sustainability?

Stagl: This is a very exciting field, which has produced a great deal of research results, particularly in the last 15 to 20 years, and borrows a great deal from psychology, social psychology and sociology. There are many exciting results; one fundamental finding shows that there are hardly any types of people who always behave altruistically or selfishly. Rather, it’s all highly dependent upon the context. Depending on the institutional setting you find yourself in, you will behave in a certain way – more selfishly or more altruistically, in other words. There are different biases of this, of course, but it’s not a question of influencing the person in his or her being, but of creating the right institutional setting, and then it will be easy for the person to behave sustainably. Non-sustainable behaviour should actually be the more unattractive, difficult and expensive option, where you have to find out yourself how to actually implement it. At the moment, the incentives are in exactly the wrong direction in almost all fields. We need to work on offering suggestions as to how to change structures so that it is made easy for people to behave sustainably.

Many sustainability researchers say the strong focus on economic growth is the root of all evil. As an economist, what do you say to this – how “evil” is growth really?

Stagl: In the past, economic growth was a vehicle for helping people attain greater prosperity, in the hope that other aspects of well-being would also be influenced positively as a result. That’s true, and it works for poor households in rich societies and for poor societies in general. To be able to satisfy your requirements better and have the scope to participate better in society as well, you need a certain economic basis. At this early stage, economic growth is good; for these people, more income is positive. In rich countries, we have reached a level nowadays where it is well-documented that hardly any more wellbeing is being generated with additional income. At the same time, however, economic growth continues to have biophysical consequences, particularly at this high level, which poses the question of whether it is an efficient means of generating wellbeing within our society, if we have to suffer such clearly undesirable side-effects, such as emissions and resource consumption, at the same time. For me, economic growth is a means to an end – a basis for calculation, if you will, which we then look at to see how it comes out. Will it turn out to be in the positive range, or not? But it’s just a basis for calculation. Society has targets, such as social participation, covering the needs of the population, making it possible for people to operate productively and creatively by working, etc. We want to meet these targets, of course. But as I said, GDP is just a means to an end, a way to partially achieve these targets.

Why does economic growth play such a major role, then?

Stagl: Our macroeconomic thinking and criteria for success developed at a time when more income and higher GDP were clearly viewed as being positive. That’s why the macroeconomy, the success indicators and important social institutions in our society like the pensions system, job market, social insurance, education system, etc., are structured to ensure we have economic growth. That’s also why it’s difficult to think about alternatives. We know we want a functioning job market, a pension system that lets our old people lead a good life, etc. Now we just have to think about how we organise that, if we can no longer have economic growth because we’re destroying the biophysical atmosphere to achieve it. That means we need a ‘Plan B’. A few groups are currently working on this Plan B – although in my view, it should be many more. We could use the expertise from other fields within the economy. And if we don’t need it because we discover some amazing new technology that allows us to continue growing without destroying nature, then great; we had a Plan B and didn’t need to use it. But in the situation as it stands at present, not even thinking of a Plan B is irrational and dangerous.

We currently find ourselves in the midst of financial crisis in Europe that is being solved through austerity policies, with the pressure to do so stronger in Germany than anywhere else. Is this austerity course a friend of sustainability? Surely the constant calls to “save, save, save” should fit perfectly with your own needs?

Stagl: No, they don’t. We do need to question how much growth we need to guarantee the well-being and happiness of the population, but not in this crisis-led way. The crisis has to be dealt with, of course, but we would be thinking much more along the lines of “Where do we want to go?” “What social goals are important to us?” and “How do we succeed in achieving those goals most effectively?” rather than the current thinking, which seems to me to be saying: “How do we get back to business as usual as quickly as possible?” From our perspective, the business-as-usual path hasn’t been sustainable, which is why it’s not an attractive path. There are also very high social costs being paid at the moment. Peter Victor summed it up very well in the title of his book: “Slower by design, not disaster”. That means we need to ask ourselves how we can get closer to a sustainable economy – but one that has been thought-through, not created in reaction to a financial crisis. The financial crisis would be a great opportunity to think about exactly where we want to go, of course. This thinking happens far too little. In my view, that’s a wasted opportunity.

Sigrid Stagl is a Professor of Environmental Economy and Environmental Policy at Vienna University of Economics and Business.