No Trade-Off: How Climate Action Can Power Growth

Executive Summary

The link between growth and emissions is weakening. Across advanced economies, including the Netherlands, production and consumption have both become cleaner even as GDP per capita has continued to rise. Most new growth of per capita emissions stems from low-emission service sectors, while the emission intensity of agriculture and industry has fallen sharply. The data suggest that green growth is not only possible, but already under way.

Climate policy may slow growth, but only slightly and temporarily. Model studies for the EU indicate that policies consistent with net-zero by 2050 reduce cumulative GDP growth by roughly 1–2 percentage points. The impact depends on how carbon pricing revenues are recycled and whether the transition is gradual or abrupt. Shorter and more disorderly transitions cause larger but still modest short-term losses.

The cost of inaction is greater. According to simulations by the Network for Greening the Financial System (NGFS), climate change and transition effects together could reduce Dutch GDP by about 7 percent by 2050 if global action is delayed. Only 0.4 percentage points of this loss stems from climate policy; the rest reflects unmitigated physical damage from heat, drought, and productivity decline. A faster and more complete transition would roughly halve this loss.

Growth resumes once the transition is complete. Neither theory nor empirical evidence points to a permanent slowdown in potential growth. Once economies adjust to a low-carbon structure, productivity and innovation are expected to drive expansion again. Green investment and technological progress can reinforce, rather than replace, the sources of long-term growth.

The transition entails costs, but not stagnation. Climate policy will redistribute resources and require public investment, but the overall macroeconomic effect is limited. The decisive question for Europe is not whether to sacrifice growth, but how to manage a just and orderly transition that safeguards it.

Policy recommendations

1. Take timely climate action, for example by Prioritising investment in clean technologies and infrastructure to boost productivity and offset transition losses.
2. Integrate climate damage estimates into fiscal and growth planning, ensuring the cost of inaction is visible in national projections.
3. Plan for distributional fairness so that households and firms most exposed to higher energy costs are supported during adjustment.