Decoupling natural resources from economic growth – is it possible?

The study “Growth-positive zero-emission pathways to 2050” commissioned by Sitra reviews the decoupling of greenhouse gas emissions from economic growth. The key finding of the report is that the economy can grow while climate warming can be limited to 1.5 °C in the best-case scenario. Limiting climate warming to 1.5 °C requires robust and consistent measures over decades.

The report provides a valuable contribution to the debate about decoupling emissions from economic growth, but it does not tell the whole truth. Because of the limited scope of the work, it did not set out to investigate whether economic growth can be decoupled from the overconsumption of natural resources.

This article supplements the report by assessing the principle of economic growth based on the overconsumption of natural resources, and the alternatives to such a model.

Connection between nature, natural resources and the economy

The ecological sustainability crisis and its associated dimensions – the climate crisis, biodiversity loss and diminishing natural resources – cannot be resolved without addressing the root cause: overconsumption.

According to an estimate by the International Resource Panel, the sourcing and processing of natural resources causes approximately half the global greenhouse gas emissions and 90 per cent of biodiversity loss.

Biodiversity loss and the climate crisis can only be solved by ending the overconsumption of natural resources and instead only using materials that are already in use.

What makes this difficult is the scale of the issue. Scarcity on a global level is difficult for people to comprehend. We live as if natural resources were infinite. In a way, this is in fact true. The earth is a sort of a closed system in which matter circulates endlessly, changing its form and location.

However, the current linear economic model is not based on closed loops; more natural resources are continually included in the scope of the economy. When natural resources have been used for some time, they are removed from the economy as waste and pollution. This means that economic growth needs new natural resources.

The depletion of non-renewable natural resources has worried scientists and decision-makers since the early 20th century. While the exploitation of renewable natural resources has been viewed with less concern up until now, this century it has become clear that even renewable natural resources are only renewable to a limited extent. Paradoxically, it is renewable resources such as fish stocks, tropical forests and croplands that humanity has bled dry.

Because of market principles, we probably will never actually run out of mineral natural resources. The scarcer and poorer the discovered reserves become and the higher the demand for these natural resources, the higher their price increases. The search for alternative solutions will begin as the prices increase.

Globally, the use of natural resources has more than tripled in 50 years, and the OECD estimates that it will almost double from the current level by 2060 unless we change our production and consumption habits. Yet, according to Circle Economy, only under nine per cent of sourced natural resources remain in circulation.

There is already global competition for natural resources. The growing economies of China, India and African states need enormous amounts of new natural resources for the linear economic models. In addition, several of the natural resources critical to the functioning of modern society are in the hands of a small number of countries, such as China, which dominates the market for rare earth metals.

The European Union also has to think about ways to safeguard the availability of raw materials to companies operating in the EU, as well as security of supply. Arable land, clean water and some other raw materials needed by industry are already at risk of depletion (see the list of critical raw materials for the EU).

Price of the sustainability crisis

Our current economic model not only wastes natural resources, it has also failed at pricing the negative externalities of functions. No price has been calculated for wasting natural resources, the extinction of species and climate warming. The economic system rewards activities that accelerate the ecological sustainability crisis within the framework of its indicators, such as gross national product.

In addition, states spend enormous sums of money to subsidise the overconsumption of natural resources and the depletion of biodiversity. According to the Dasgupta report published in January 2021, global subsidies with negative impacts on the environment amount to between 4,000 and 6,000 billion US dollars a year, and they concern fishing, forestry and agriculture, among other sectors. The subsidies had a purpose when they were adopted, but with the planet’s ecological problems increasing, it is difficult to find grounds for continuing the subsidies on an extensive scale in their current form.

So, public funds are used to mitigate the sustainability crisis on the one hand and to accelerate it on the other. Substituting beneficial subsidies for harmful subsidies would be vital for the sake of the common good.

Can the circular economy be the solution to decoupling?

According to Sitra’s study, ambitious emission reductions and economic growth can go hand in hand, meaning that decoupling is possible when it comes to emissions. However, solving the sustainability crisis also requires that the use of natural resources is brought to a sustainable level.

If we want to keep our planet vital, the market economy in its current form simply must come to an end. We must start to rein in the overconsumption of natural resources. We are in dire need of a new economic mindset and new economic mechanisms. Rapidly developing markets require changes in consumption and production habits, the development of radical new technologies, innovation, changes in the operating methods of value networks and new kinds of competence.

Currently, a change is emerging that is more systemic than just the development of individual technological solutions: the transition to the circular economy the circular economy in which minerals and other natural resources that have been put to use are kept in circulation in the economy.

The circular economy can be one of the key solutions to producing well-being without overconsuming natural resources. The circular economy is a new economic model in which production and consumption take place within the planet’s carrying capacity. When natural resources are used sustainably and materials and products are kept in use for as long as possible, their value is also retained longer. After first use, it is ensured that the materials and products end up in reuse and circulation.

The transition to a circular economy requires a systemic change in society. It also means new kinds of business models and revenue models in which value is generated from practices other than simply selling goods. Instead of conventional linear single-use consumption, business is based on diverse sharing services, renting, servicing and maintenance, and more conventional recycling.

The EU Green Deal calls for sustainability in everything

Promoting the circular economy is also at the heart of Europe’s growth strategy, the European Green Deal. The growth strategy is based on the mitigation of climate change, clean industry, prevention of the contamination of nature, sustainable food production, biodiversity and sustainable funding criteria, or taxonomy.

The starting point of the European Green Deal is identifying and acknowledging the challenges. It states that climate change, biodiversity loss and environmental pollution are fundamental threats to Europe and the world, but the EU can turn these threats into opportunities. The ambitious goals of the European Green Deal include that, by 2050, no net greenhouse gas emissions will be caused, economic growth will be decoupled from the use of natural resources and achieving these goals will be done in a socially responsible and fair way. The ways to reach these goals, however, are still being developed.

The economic impacts of the circular economy on the EU have been calculated in many contexts . For example, according to the EU Circular Economy Action Plan, the circular economy can create up to 700,000 jobs in the EU and increase the EU’s GDP by 0.5 per cent by 2030.

Rapid adoption of current solutions will increase the use of natural resources

Adopting existing solutions in order to slow down climate change will inevitably mean having to increase the use of natural resources. Otherwise, we will not be able to implement the production of renewable energy, for example, to the required extent and rate. The same applies to transport electrification.

These current solutions require valuable and partly critical mineral resources, many of which are not currently recycled, so we will need to increase the extraction of minerals. Even though the consumption of raw materials might increase in the short term, the circular economy can play a bigger role in implementing a sustainable economy in the long term.

However, the circular economy alone cannot solve the sustainability challenge and satisfy the increasing need for raw materials if we keep on producing more and more goods.

The modelled main scenario of the “Growth-positive zero-emission pathways to 2050” report indicates that three industries will inevitably increase their share of GDP: construction – globally, within the EU and in Finland; agriculture – on a global scale; and the manufacture of equipment for the renewable energy and energy-efficiency markets – globally and across the EU. These three sectors will not only grow in terms of share of GDP but in absolute size too.

The impact of these sectors on the use of natural resources, and thereby biodiversity loss, is enormous. It is therefore absolutely necessary for growth in economic value not to be created by increasing consumption of materials, but by adopting the principles of the circular economy.

The published report supports the notion that in addition to reducing greenhouse gas emissions, we need to decouple economic growth from the use of natural resources in key sectors.

Dire need for additional information

The European Union has been promoting solid long-term environmental policies, but tackling the sustainability crisis calls for unprecedented action on all levels and in all sectors of society. Not all the solutions are ready and investment in research, development and education is still needed in many sectors.

Sitra’s report provides the EU’s growth strategy with important information. The report reviews the technological and economic changes required for achieving the emissions target and the political measures needed to enable these changes. However, most circular economy opportunities need to be researched further. Even if global socio-economic development does not proceed according to the ideal scenario, ambitious attempts to close material loops could nevertheless make it possible to keep on the 1.5-degree path while helping to safeguard biodiversity.

Next, we will need research-based information on whether economic growth and the use of natural resources can be decoupled with the help of the circular economy, for instance, and if it can, what the prerequisites for it would be.

The world is facing difficult decisions, and these decisions must be taken based on sound research. But the research process must not delay the rapid scaling up of already tried-and-tested solutions. The ecological challenges are escalating, and there is no time to waste.