Growth and sustainability (part 2)
proposed ‘Right to Repair’ legislation ensures that car owners have ‘equal access to repair and maintenance tools as automakers’ dealerships’. 24 On the supply side, offshore production overseas offers an escape for HICs to offload their GHG emissions to export-driven manufacturing countries such as Brazil (exports account for 18% of GDP). To assist in the absolute decoupling of GDP from environmental degradation, negotiating trade agreements to embed environmental policies (Contingent Trade Agreements rather than FTAs) enables a linkage between economic incentive and environmental conservation: this is achieved by introducing tariffs that are contingent to the environmental conditions (e.g. reduced forest cover = higher tariffs). More critically, the tariffs must function so that the allocations of the gains from trade must lay on the ‘Pareto frontier’ (see figures 6 and 7). With hypothetical numerical projections, Brazil’s agricultural expansion can be reduced from 27% to 3% with CTAs from the EU and USA. 25
V S = Brazil V N = USA
Figure 7: Pareto’s Frontier using CTAs – the increased economic gains from land expansion get offset by higher tariffs
Figure 6: Pareto’s Frontier using FTAs. Deforesting whilst extracting economic gains
Green Enterprise
The social responsibility of business is to increase its profits. (Friedman, 1970) The notion of ‘green capitalism’ provides the middle-way to sustainable growth, reinventing businesses as ‘environmental crusaders’. 26 However, what mechanisms are needed to push for that green vision in a global economy dominated by capitalism? It is imperative to recognize that companies aim to ‘maximize shareholders’ wealth’ and that their actions are determined by reacting to consumer behaviour. On the one hand, Thaler’s and Sunstein’s concept of nudge policies (concerning choice architecture) offers a remedy by influencing company actions while simultaneously giving them the freedom of choice. On the other, making it mandatory for companies to disclose information about their performance based on social, environmental and governance factors (ESG) showcases a firm’s sustainability reputation. This allows consumers to purchase sustainably in line with their sense of ecological responsibility. Therefore, market forces (declining customer sales) will ‘nudge’ corporations to strive for energy efficiency and will stimulate 24 Shepardson, D. (2022, February 3). U.S. lawmakers introduce 'Right to Repair' bills to spur competition . See https://www.reuters.com/world/us/us-lawmakers-introduce-right-repair-bills-spur-competition-2022-02-03/. 25 Harstad, B. (2023, December 2). Trade and trees: How contingent trade agreements can reduce deforestation . See https://cepr.org/voxeu/columns/trade-and-trees-how-contingent-trade-agreements-can-reduce-deforestation. 26 Fowler, R. (2023, December 18). ‘Green Capitalism’: Is This Really the Answer? See https://sites.manchester.ac.uk/global-social-challenges/2023/12/18/green-capitalism-is-this-really-the- answer-2/.
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