Financial Crises, Environment and Transition

Abstract

The chapter contributes state-of-the-art perspectives and results for the poorly understood relationship between economic crises and the environment in the context of sustainability transition. We first develop a theoretical perspective on the relationship between crises and the environment using case study evidence from the literature. We point to key parameters such as the nature of each crisis and its context, the degree of socio-environmental resilience, the multiple environment and economic sectors involved, the diverse temporality of effects, the capacity of the countries involved, and the policy responses adopted. In the second part of the paper, we present evidence on the environmental impact of more than 400 financial crises during the period 1970–2015, focusing on atmospheric emissions, deforestation and biodiversity. We complement this analysis with evidence on the environmental impact of the Great Stagnation, i.e. the period of slower growth rates following the global financial crisis of 2008/09. Our findings demonstrate that financial crises do not have a unidirectional effect on the environment. We find short-term benefits to air pollution, decreases in biodiversity and some evidence of decreasing deforestation rates. Benefits can be short-lived, though, and may be accompanied by shifts in the involved actors’ practices and behaviours that lead to negative longer-term impacts. Neither is the Great Stagnation associated with a unidirectional environmental impact, and there is worrying evidence of a worsening of biodiversity. We conclude that a slowdown in economic growth rates –even a prolonged one that acquires the characteristics of a ‘new normal’ does not inevitably lead to environmental improvement. Meeting the SDGs and transitioning to sustainability requires a paradigmatic policy shift that goes beyond a narrow focus on the rate of economic growth.