Shifting economic activity to services has limited potential to reduce global environmental impacts due to the household consumption of labour

Abstract

The tertiary (or ‘service’) sector is commonly identified as a relatively clean part of the economy. Accordingly, sustainable development policy routinely invokes ‘tertiarization’—a shift from primary and secondary sectors to the tertiary sector—as a means of decoupling economic growth from environmental damages. However, this argument does not account for environmental impacts related to the household consumption of tertiary sector employees. Here we show using a novel analytical framework that when the household consumption of labour is treated as a necessary and endogenous input to production, the environmental impacts of all sectors converge. This shift in perspective also exacerbates existing disparities in the attribution of environmental impact from economic activity among developed and developing economies. Our findings suggest that decoupling of economic activity from environmental impacts is unlikely to be achieved by transitioning to a service-based economy alone, but rather, that reducing environmental damages from economic activity may require fundamental changes to the scale and composition of consumption across all economic sectors.

Keywords

• input–output
• sustainable development
• green growth
• decoupling
• climate impacts
• land use