Climate policy has been largely driven by two overarching narratives: decoupling vs degrowth. The degrowth mentality is that people consume too much, and restricting economic activity is a necessary means to combat climate change. Degrowth policies will trap people in poverty, restrict access to energy, and purposely constrain levels of prosperity and human well-being. That is not a viable option. It is also not a politically salient or durable strategy. It is worth remembering political scientist Roger Pielke Jr.’s iron law of climate policy: when policies focused on economic growth confront policies focused on emissions reductions, it is economic growth that will win out every time.¹

The viable path forward is to decouple economic growth from emissions. Decoupling economic growth from emissions has occurred in many developed countries, and it can happen faster in developing countries as the cost of low—and zero-emission technologies declines. Green growth “win-win” scenarios will increase prosperity and economic growth while reducing emissions. The priority for policymakers, then, is to implement policies and reforms that will benefit the economy and the environment.

The effectiveness of economic freedom on climate mitigation and adaptation will depend on which policy lever increases or decreases economic freedom lawmakers use. More efficient tax policy or improving permitting processes could increase economic freedom, improving technological innovation and, therefore, increasing economic and environmental efficiencies, resulting in zero or negative emissions abatement costs.

On the other hand, regulations or taxpayer spending on deploying clean energy technologies could reduce emissions and economic freedom. As a matter of public policy, it is necessary to understand the trade-offs involved and properly consider the costs and benefits.

Several studies have examined the causal effects of economic freedom on CO2 emissions and environmental degradation using CO2 as a proxy, and the results have been mixed. Like other byproducts of industrial activity, it stands to reason that if higher economic freedom results in higher economic growth, it will also lead to higher levels of greenhouse gas emissions.

While it stands to reason that emissions increase as a country uses more energy and grows, it is also important to consider if the Environmental Kuznets Curve exists for CO2 emissions. If so, free market policies can help decouple and drive down emissions. A 2020 Research of Industrial Economies paper found encouraging results. The paper combines emissions growth, GDP per capita, and rankings on the Fraser Institute’s Economic Freedom of the World Index to find that “available data from 155 countries observed in five-year periods between 1975 and 2015 indicate that economic freedom not only reduces overall CO2 emissions but also shifts the top point of the EKC to the left. As such, the evidence suggests that the transition to lower emissions technology appears at an earlier stage in economically free societies.”²

If cleaner technologies, processes, and products are more cost-effective, developing countries will be incentivized to pursue those technologies as opposed to their higher-emitting counterparts. To the extent mature, clean energy sources (as well as all energy technologies) are unsubsidized, they will likely have a greater chance of long-term economic success because there will be more transparency regarding the price at which these technologies are competitive in the market.

1. Roger Pielke Jr., “The Iron Law of Climate Policy,” The Iron Law of Climate Policy – by Roger Pielke Jr., June 13, 2022, https://rogerpielkejr.substack.com/p/the-iron-law-of-climate-policy[↩]
2. Christian Bjørnskov, (2020) : Economic Freedom and the CO2 Kuznets Curve, IFN Working Paper, No. 1331, Research Institute of Industrial Economics (IFN), Stockholm, https://www.econstor.eu/bit-stream/10419/240474/1/wp1331.pdf[↩]