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Philip Roeland

Inequality, Growth and Poverty Eradication in a Carbon-Constrained World

David Woodward | 28 January 2013

There is an inevitable trade-off between global growth and climate change. Unless there is a direct causal link from faster economic growth to the development of carbon-reducing technologies, and this is strong enough to reduce the carbon intensity of production and consumption as much as the additional growth increases their scale, faster growth will entail greater emissions, and more rapid global warming.

The commentaries and blogs in this debate so far have focused mainly on inequality within countries, with occasional references to inequality between countries. But the combination of the two means that global inequality – inequality among the population of the world taken as a whole – is greater than in the most unequal country (see Figure below).

Of course, global inequality is nothing new. But climate change transforms the issue into one of vital importance.

The continued failure of the global community to take any effective action to reduce global carbon emissions has resulted in their spiralling ever further out of control (see Figure below). The result is an increasing threat of catastrophic and irreversible climate change in the coming decades. A recent World Bank study found that global temperatures could rise by 4°C by the end of the century, even if current commitments were fulfilled (and by 6°C if they were not), highlighting the devastating consequences, particularly for the poorest.

 

Given the increase in atmospheric concentrations which has already occurred, limiting global warming to the generally accepted target of 2°C – itself an alarming prospect – then drastic reductions in carbon emissions will be required. And if global economic growth resumes at its pre-crisis rate, this will require a reduction in the carbon intensity of production and consumption on a scale which seems unimaginable with known and anticipated technologies, even setting aside the risk of unanticipated side-effects (e.g. of bio fuels on food prices). What we currently produce and consume with 40 units of carbon must, by the 2040s, be produced and consumed with one.

 

Resumption and maintenance of pre-crisis global growth rates thus seems the best we can hope for if we are to avoid environmental disaster. But even a return to the pre-crisis growth scenario would have little effect on poverty, because even before the crisis global growth simply did not “trickle down” to any significant extent.

With the notable exception of China, the effect of global growth in reducing poverty before the crisis was dismal. Preliminary results of an analysis I am currently conducting (hopefully for publication later this year) suggest that the rate of increase of the per capita incomes of the poorest 10% of the world population between 1993 and 2008 was barely half the growth rate of global GDP per capita. And this was a period which saw major debt relief, from the 1994 HIPC Initiative to the 2005 Multilateral Debt Relief Initiative, major increases in aid (after 1997), the Millennium Development Goals, and the shift from structural adjustment to Poverty Reduction Strategies as a basis for external assistance.

If we don’t address global income distribution directly, this is the best we can hope for – resuming the pre-crisis pattern of global growth and maintaining the pre-crisis rate of improvement of conventional development assistance. But is it good enough? If we think in terms of poverty reduction, we might be tempted to conclude that it is. Poverty did fall during this period, at least in a statistical sense (although shortcomings in the purchasing-power parity methodology which underlie all World Bank poverty data mean that the disproportionate effect on the poorest of the tripling of basic food prices between 2005 and 2008 are not taken into account, which could well negate the entire statistical gain in terms of actual living standards). So, provided we can regain some normality in food markets, a resumption of these trends would imply further reductions.

But if we consider the issue in terms of poverty eradication – as we surely must – then the picture looks very different. Extrapolating the 1993-2008 trend, it would take more than 100 years to eradicate poverty, even based on the $1.25-a-day poverty line. And this is based on a whole raft of artificially optimistic assumptions: not only that the 1993-2008 pattern of growth (and, by implication, improvement of development policies) can be maintained indefinitely, with no greater effects on the poorest as a result of climate change, but also that the incomes of the poorest households are half the average for the poorest 10%, and that they increase at the same rate.

If – as, again, we surely must – we consider poverty, not in terms of the very low and essentially arbitrary $1.25-a-day line, but on the basis of an income which might be considered to constitute a morally acceptable standard of living in the contemporary world, the picture is considerably worse. If we consider such a poverty line to be in the order of $5-a-day, for example, the timeframe for poverty eradication is measurable not in decades, or even in generations, but in centuries.

In principle, of course, we could eradicate poverty sooner if the global economy were to grow faster. But – apart from the question of whether it is economically feasible to accelerate global growth without further worsening the distribution of its benefits – there is an inevitable trade-off between global growth and climate change. Unless there is a direct causal link from faster economic growth to the development of carbon-reducing technologies, and this is strong enough to reduce the carbon intensity of production and consumption as much as the additional growth increases their scale, faster growth will entail greater emissions, and more rapid global warming; and, given the particular vulnerability of the poorest to the impact of climate change, this will inevitably impede poverty eradication. In all likelihood, the net effect would be negative.

Thus the complacent world-view in which global inequality can be ignored, and poverty reduction can be left to trickle-down from global growth is tenable only if one considers as morally acceptable the perpetuation of poverty for centuries, and of the most extreme ($1.25-a-day) poverty for several generations. The only alternative is to address the issue of global inequality directly, by shifting decisively from a global economy focused primarily on global growth irrespective of who benefits towards a system aimed more directly and explicitly at increasing the incomes, and meeting the needs of the poorest.

References:

Milanovic, Branko (2012) Global income inequality by the numbers, in history and now: an overview. Policy Research Working Paper WPS 6259, World Bank, Washington D.C.

Global estimate from Milanovic (op. cit.); country data from World Bank: World Development Indicators

Data from Boden, T.A., G. Marland, and R.J. Andres (2010) Global, regional, and national fossil-fuel CO2 emissions. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn., U.S.A. doi 10.3334/CDIAC/00001_V2010. Adjustment scenarios based on reduction of global emissions by 60-80% from the 1990 level by 2050.

World Bank (2012) Turn Down the Heat: Why a 4°C Warmer World Must be Avoided. A report for the World Bank by the Potsdam Institute for Climate Impact Research and Climate Analytics. Washington D.C.: World Bank, November

This analysis uses data from PovcalNet: the on-line tool for poverty measurement developed by the Development Research Group of the World Bank.

See Woodward, David (2010) How Poor is “Poor”? Towards a Rights-Based Poverty Line. nef (the new economics foundation)

Photo credit main picture: Philip Roeland