Degrowth and the Environment

A service-led growth for environmental sustainability

Philippe Aghion, Timo Boppart, Michael Peters, Matthew Schwartzman, and Fabrizio Zilibotti develop a novel growth model to analyze how economic activity can transition from material-intensive production (which is environmentally damaging) to quality-driven, service-based production (which is less polluting). The methodology combines theoretical modeling, empirical calibration, and quantitative analysis.

Theoretical framework:
The model distinguishes between two types of goods: necessities (material-intensive, polluting) and luxuries (service-intensive, higher quality, less polluting). Consumer preferences are non-homothetic: as income rises, demand shifts toward luxuries, which are more sensitive to quality improvements. Innovation can be directed either toward increasing material productivity (quantity) or enhancing product quality.  The direction of innovation is endogenous, determined by market incentives and the evolving structure of demand and production.

Empirical calibration and quantitative analysis:
The model is parameterized using U.S. data from the Consumer Expenditure Survey, Input-Output tables, and EPA emissions data and solved and simulated to match observed trends in GDP, sectoral employment, and emissions. Structural parameters (preferences, technology, innovation, quality measurement) are estimated to fit observed moments, including the Engel elasticity, sectoral cost shares, and the relative inflation of luxuries vs. necessities. Finally, policy experiments (e.g., taxing goods, subsidizing services, redirecting R&D) are simulated to assess their effects on emissions, growth, and welfare.

Findings

• As economies grow richer, demand and innovation shift toward service-intensive, high-quality goods. This “weightless” growth leads to a stabilization—and eventual decline—of material (polluting) production, even without explicit resource constraints or degrowth policies.
• Quality improvements drive long-run increases in living standards, while measured GDP growth may slow due to the undermeasurement of quality gains in services.
• The structural shift toward services is a major driver of declining emissions intensity in advanced economies. Empirically, a 10 percentage point increase in the service share of an industry is associated with a 19.5% reduction in emissions per dollar; cross-country and cross-county data confirm this negative relationship.
• In the long run, material output converges to a finite upper bound, and with ongoing green innovation, emissions can fall to net zero.

Policy implications:
Policies that accelerate the shift from goods to services (e.g., taxing goods, subsidizing services) can reduce emissions and be welfare-enhancing overall. However, these policies have uneven distributional effects as poorer households, who spend more on material necessities, bear a larger burden. Redirecting innovation toward quality (rather than material productivity) is key for sustainable growth and environmental progress.

International trade:
Trade can accelerate the transition to service-based economies in rich countries, but may lead to specialization in polluting goods in developing countries. Nonetheless, trade raises global incomes and shifts demand toward cleaner goods, potentially reducing global emissions if green technologies diffuse internationally.

Interpretation of growth slowdown:
The observed slowdown in measured productivity (TFP) growth may reflect a structural shift toward sectors where quality improvements are harder to capture in official statistics, rather than a real decline in innovation.

A Theory of Endogenous Degrowth and Environmental Sustainability
Authors: Philippe Aghion, Timo Boppart, Michael Peters, Matthew Schwartzman, Fabrizio Zilibotti
From: College de France, University of Zurich, Yale University

Degrowth vs green growth

Degrowth: definitions, research and controversies

Degrowth is a response to concerns about the ecological and existential risks posed by continuous economic growth, particularly in the context of climate change and environmental degradation. The concept has roots in critiques of growth dating back to the 18th and 19th centuries and gained prominence in the 1970s with the “Limits to Growth” report, which argued for establishing sustainable ecological and economic stability.

Definitions and interpretations
There is no single, universally accepted definition of degrowth. It is variously described as:

1. A planned reduction in energy and resource use to achieve ecological sustainability and equitable wellbeing.
2. A socially sustainable reduction of society’s throughput, often incompatible with further GDP growth.
3. An umbrella concept encompassing various ideas and social movements aimed at addressing ecological emergencies.

Degrowth is often contrasted with the belief that technological improvements alone can solve environmental problems, with many advocates skeptical that efficiency gains will be sufficient.

Research and evidence
The academic literature on degrowth is fragmented, with varying definitions and a lack of conceptual coherence.

• Three recent systematic reviews of degrowth research (published in 2023–2025) used different methodologies and came to different conclusions about the robustness and quantity of quantitative research in the field.
• Most research is opinion-based, with relatively little empirical or quantitative analysis; however, some reviews identify a growing body of modeling and simulation studies.
• There is a clustering of research activity in Europe, particularly around the “Barcelona school” of ecological economics, with Spain, Sweden, and the UK as leading contributors.

Critiques and controversies

• Degrowth faces criticism for its ambiguity, lack of clear policy proposals, and challenges in modeling its effects using conventional economic tools.
• Critics argue that reducing GDP could hinder investment in necessary technologies, including those for renewable energy.
• The mainstream economics community has largely not engaged with degrowth, partly because the field views technological progress and market mechanisms as sufficient to address resource constraints.
• The debate echoes earlier disputes over the “Limits to Growth” model, with systems theorists and mainstream economists interpreting evidence and models differently.

Degrowth: is there any consensus on whether it might be a good idea?
By: Eoin McLaughlin – Heriot-Watt University