A French dilemma: environmental leadership vs. environmentally damaging economic growth

France has tried to play a leading role in global efforts to fight climate change, but as Muhammad Shahbaz, Muhammad Ali Nasir and David Roubaud write, this came at a time when France’s economic growth and prospects were bleak. They stress the importance of recognizing the factors that contribute to the degradation of the environment, but also of appreciating the economic realities and the challenges that France is facing, which could have profound implications for its ability to meet its objectives. promises and plans to deal with environmental challenges.

Looking for a America First Policy, the United States withdrew from the Paris Agreement (COP21), with serious economic and ecological consequences and representing a serious reaction Global leadership of the United States to face environmental challenges and problems related to climate change. There was no evidence public appetite for the US withdrawal from the Paris Agreement, but on the positive side, the European Union (EU) and China responded with announcing that they will strengthen their collaboration and intensify their efforts to tackle climate change.

Moreover, in response to the Lima call for climate action, the EU and its Member States have engaged to a target of 40% reduction in national greenhouse gas emissions by 2030, from 1990 levels. Perhaps the country that has shown the most remarkable leadership in response to the US withdrawal is the France. President Macron announced the continuation of credible efforts tackle this problem. In its efforts to combat climate change, with the aim of carrying out tangible and collective actions, of innovating and of supporting each other, France welcomed the “One Planet Summit”Two years after the Paris Agreement.

In order to match ambitions with reality, it is necessary to take into account the crucial factors causing environmental degradation. Nevertheless, it is also essential to contextualize the realities and economic challenges facing France, which can have profound implications for its ability to keep promises and plans to face environmental challenges. As it stands, economic growth and the overall outlook for France have been anemic and dark since the Global Financial Crisis (GFC), which was followed by the European sovereign debt crisis. The youth unemployment rate remains above 20% and public debt has reached a very high and unsustainable level, exceeding 90% of annual national income.

Keeping this in context, the French economy needs to structural reforms, which may include further liberalization of the labor market and regulatory regime, as well as a massive increase in investment. Therefore, France is firmly committed to continuing encourage foreign direct investment (FDI) as a means of creating jobs and stimulating economic growth. It should be noted that while FDI has decreased globally, France has been able to attract a significant amount of FDI in 2017. FDI flows to France increased from $ 28 billion to around $ 50 billion in 2017, an increase of 77%, which made France the 9th country in the world in terms of FDI inflows this year. There is no doubt that FDI plays an important role in economic growth and the development of an economy, especially when local savings are not sufficient to meet domestic investment needs.

But while FDI is important for economic growth and development, it can also be a source of concern when considering the ecological consequences of economic growth driven by FDI. In the case of the French economy, the link between FDI and the environment has profound ecological implications. Unfortunately the proof suggests that FDI contributes to environmental degradation in France by increasing CO2 emissions.

The relationship between economic growth and environmental degradation is also crucial. Successful efforts to increase growth can result in an increase in short-term environmental degradation. However, in the long run, there could be environmental improvement (a phenomenon known as Environmental Kuznets curve). Arguably, for the long term economic benefit, short term negative effects could be tolerated in policy formulation. But compared to ecological realities and commitments (including the Paris Agreement), this reasoning is fundamentally flawed.

Specifically, commitments were made to reduce carbon emissions in the form of Nationally Determined Contributions (NDCs) and the EU and its Member States expressed a “binding national reduction target for greenhouse gas emissions“. At the same time, any negative gesture or any ecologically unsustainable stance, in particular from a country like France, will have negative effects on global efforts to face environmental challenges. This implies a choice between economic growth by stimulating investment and global ecological leadership from the front, a clear manifestation of the dilemma facing President Macron!

The GFC re-launched the debate on the importance of the financial sector for the real economy and the notion of financial and economic stability as two sides of the same coin. However, it is also important to take into account the role of financial development in environmental degradation. There is a argument that financial development can offer more opportunities to develop the renewable energy sector by providing more funds to innovative companies. This raises the question of whether or not such a notion prevails in the case of France.

Proof sur la France suggests that sustainable financial intermediation can play an important role in the fight against environmental degradation by facilitating investments in ecologically more sustainable sectors of the economy. Likewise, in the link between environmental degradation and its contributing factors, an important factor to be taken into account is the Technological innovations, which can be useful in moving to more sustainable energy sources, including renewables. Fortunately, especially in France, the proof suggests that innovations in energy research can reduce French carbon emissions and therefore lead to an improvement in environmental quality. In short, research and development in the field of energy innovations is useful for improving the quality of the environment by reducing carbon emissions.

Without a doubt, France stands at an interesting crossroads. On the one hand, it is hungry for capital investments (especially FDI) and, on the other hand, it projects global leadership and commitment to tackle climate challenges, forcing it to be an example. for the others. It seems that there is a crucial dilemma and compromise that French policymakers might face.

So, how to face this dilemma and what measures should France take?

  • First, an important aspect that France must take into account is that in the formulation of its future policy and while encouraging FDI, the environmental aspect should be one of the main considerations, with the emphasis being placed on investments in most environmentally sustainable sectors.
  • Second, it is vital that even the short-term negative effects of growth on environmental degradation are taken into account when formulating economic and environmental policies.
  • The third, there is also an important dimension of financial and ecological stability for the environment and “financial stability and environmental sustainability are two sides of the coin“. The French financial sector can therefore play an important role in meeting environmental challenges. Especially if we put this together with the implications of foreign direct investment. Simply put, the focus should be on green and climate finance.
  • Fourth, energy innovation can also complement the positive role of the financial sector and strive to improve the quality of the environment. Therefore, research and development in energy innovation is a crucial factor, as it significantly improves the quality of the environment. At the same time, it is intuitive to suggest that in the future the policy implications of financial development and research and development in the field of energy innovation should be considered categorically.

These four steps will enable France to meet environmental challenges and honor its commitments. Indeed, France would lead by the front and by example!

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Note: This article originally appeared on our sister site, LSE Business Review. It gives the point of view of the authors, and not the position of EUROPP – European Politics and Policy or of the London School of Economics. Photo through Chairman of the Joint Chiefs of Staff, under a CC-BY-2.0 Licence


About the authors

Muhammad Shahbaz – Montpellier Business School
Muhammad Shahbaz is Chair in Energy and Sustainable Development at Montpellier Business School. His research interests are applied economics, energy and environmental economics, development economics and financial economics.

Muhammad Ali Nasir – Leeds Beckett University
Muhammad Ali Nasir is Senior Lecturer in Economics in the Department of Economics, Analysis and International Business at Leeds Beckett University.

David Roubaud – Montpellier Business School
David Roubaud is Deputy Director General (Deputy Director General) of Montpellier Business School. He graduated from the management school of HEC and Sciences Po in Paris. Before completing a doctorate in economics and finance (2011), he worked as a strategy consultant in Russia and before that was a partner in the mergers and acquisitions department at Merrill Lynch in New York and London. Previously, he worked as an analyst at Rothschild Bank in Paris. He was an assistant professor at Sup de Co Montpellier Business School Group since April 2011. In September 2013, he was appointed dean of the faculty and joined the management team of the business school. His research themes include decision theory under uncertainty, the representation of ambiguity in economic and financial models, and the axiomatization of stochastic processes. The key field of application of his research is real options theory in corporate finance.

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