Green growth or degrowth: The way forward in the Dutch energy transition

Abstract

Climate change is considered to be one of the most pressing issues of our time. To address this problem, 159 countries agreed in Paris in 2015 to reduce net carbon emissions to 0 in 2050. The methods to reach this goal are however still undecided. Net carbon emissions could be achieved through either a green growth or degrowth approach. Green growth is a strategy to reach net zero emissions through innovation, green investments and technological progress. Degrowth assumes these methods will not be enough, so consumption must decrease significantly to become carbon neutral in 2050.

This research has investigated whether green growth or degrowth is a more feasible strategy regarding economic costs and efficacy in reaching net zero emissions. This was done through the main research question: ‘What is the influence of green growth and degrowth on the Dutch economy and energy transition in the Netherlands?’. This question assessed the influence of both strategies on the Dutch economy and energy transition and looked at their impact on the quality of life of Dutch citizens. The main research question was answered through the following sub-questions:

1. What is the current state of the Dutch economy and Dutch energy transition?
2. How are the external factors innovation and geopolitics impacting the energy transition?
3. What is the influence of a green growth and degrowth approach on the Dutch economy?
4. What is the influence of a green growth and degrowth approach on the Dutch energy transition?
5. What strategies are the most effective in tackling the energy transition while maintaining the quality of life of Dutch citizens?

The methods used in this research include a mixture of literature research and macroeconomic modelling. This information was synthesised in a multi-criteria analysis to find the most effective strategies among green growth and degrowth alternatives. Five scenarios explored different combinations of high and low innovation, as well as high and low geopolitical cooperation. These five scenarios were: ‘long-lasting trade war’, ‘Chinese invasion of Taiwan’, ‘Business as usual’, ‘Fourth industrial revolution’ and ‘Extended war in Europe’.

The economic situation of the Netherlands should offer the necessary space for investments in the energy transition. This can be seen in the low debt to GDP, which is between 40% and 45%. It can also be seen in the relatively stable level of inflation and low unemployment rate. Currently only 15% of total energy consumption is provided through green energy sources. This shows a lot of investments into the transition are still needed, which are expected to be about 750 billion euros total until 2050.

It is unlikely that all sectors within the Dutch economy can become climate neutral through innovation and technological progress, as for example sustainable aviation is still nowhere near possible. Either carbon capture storage or degrowth of these specific sectors would be required to make them sustainable by 2050. However, innovation would speed up climate neutrality in several other sectors. For example, innovative battery technologies such as solid-state, as well as improvements in current lithium-ion batteries will likely help the transition to renewables, causing less net congestion. Small Modular Reactors could also help with more stable energy production, although these might be more expensive than renewable alternatives. Technologies such as nuclear fusion are unlikely to make an impact before 2050.

The other external factor, geopolitics, also heavily influences the energy transition and the efficacy of green growth and degrowth policy. Low geopolitical cooperation could cause more trade wars and more wars in general, disrupting global supply chains. A degrowth policy could lead the Netherlands to become more dependent on other countries, while a green growth policy could allow the country to export more green energy and increase geopolitical leverage. This could allow the Netherlands to get other countries on board with the energy transition as well.

The macroeconomic model used in this research found climate neutrality to be achievable with both degrowth and green growth policy. The costs for the transition would be the lowest in the most optimistic scenario ‘Fourth industrial revolution’ and the highest in the ‘Chinese invasion of Taiwan’ scenario. Four alternatives were researched, which the government could use in a green growth and degrowth path respectively. Degrowth policies such as increasing luxury consumption taxes or making taxes more progressive would not result in sufficient consumption reduction to reach climate neutrality before 2050 without additional investments. The green growth policies of higher infrastructure investments and household energy transition subsidies would result in net zero emissions in 2050 in most of the scenarios, through their additional government and private investments. Total real investments needed with green growth policy would come down to an increase of 5-15 billion euros extra per year, or about 0.5% to 1.5% of GDP. Real consumption reductions with degrowth policy would have to be about 50% compared to 2024, higher than what can be achieved through these alternatives alone.

Future research could focus on more accurately determining the costs of the energy transition through a degrowth or green growth approach, as the economic model used in this study can only give more general conclusions. More research can also help ascertain whether there is enough public support for degrowth and green growth strategies and what can be done to improve the willingness to accept such a strategy or a mixture of both strategies. Finally, further research could look at how geopolitics influences the energy transition and vice versa. This could show how degrowth and green growth can be paired with energy independence and geopolitical leverage.

In conclusion, this research finds green growth has a more positive impact on the Dutch energy transition and economy than degrowth has. However, a combination policy where energy consumption decreases while green investments are considerably higher, is still very helpful to reach the energy transition goals even more smoothly. Whichever strategy is chosen; it is clear the Dutch government will have to take much more action to reach climate neutrality in 2050.