-------------------Green Economy-------------------
Economic norms defines a green economy as one that results in
“improved human well-being and social equity, while
significantly reducing environmental risks and ecological
scarcities”. In its simplest expression, a
green economy is low-carbon, resource efficient, and
socially inclusive. In a green economy, growth in income
and employment are driven by public and private
investments that reduce carbon emissions and pollution,
enhance energy and resource efficiency, and prevent
the loss of biodiversity and ecosystem services.
These investments need to be catalysed and supported
by targeted public expenditure, policy reforms and
regulation changes. The development path should
maintain, enhance and, where necessary, rebuild
natural capital as a critical economic asset and as a
source of public benefits. This is especially important for
poor people whose livelihoods and security depend on
nature.
The key aim for a transition to a green economy is to
enable economic growth and investment while
increasing environmental quality and social
inclusiveness. Critical to attaining such an objective is to
create the conditions for public and private investments
to incorporate broader environmental and social
criteria. In addition, the main indicators of economic
performance, such as growth in Gross Domestic Product
(GDP) need to be adjusted to account for pollution,
resource depletion, declining ecosystem services, and
the distributional consequences of natural capital loss
to the poor.
A major challenge is reconciling the competing
economic development aspirations of rich and poor
countries in a world economy that is facing increasing
climate change, energy insecurity and ecological scarcity.
A green economy can meet this challenge by offering a
development path that reduces carbon dependency,
16
Introduction
promotes resource and energy efficiency and lessens
environmental degradation. As economic growth and
investments become less dependent on liquidating
environmental assets and sacrificing environmental
quality, both rich and poor countries can attain more
sustainable economic development.
The concept of a green economy does not replace
sustainable development; but there is a growing
recognition that achieving sustainability rests almost
entirely on getting the economy right. Decades of
creating new wealth through a “brown economy” model
based on fossil fuels have not substantially addressed
social marginalisation, environmental degradation
and resource depletion. In addition, the world is still
far from delivering on the Millennium Development
Goals by 2015. The next section looks at the important
linkages between the concept of a green economy and
sustainable development.
A green economy and sustainable development
In 2009, the UN General Assembly decided to hold a
summit in Rio de Janeiro in 2012 (Rio+20) to celebrate
the 20th anniversary of the first Rio Earth Summit in
1992. Two of the agenda items for Rio+20 are, “Green
Economy in the Context of Sustainable Development
and Poverty Eradication”, and “International Framework
for Sustainable Development”. With the green economy
now firmly established on the international policy
agenda, it is useful to review and clarify the linkages
between a green economy and sustainable development.
Most interpretations of sustainability take as their
starting point the consensus reached by the World
Commission on Environment and Development (WCED)
in 1987, which defined sustainable development as
“development that meets the needs of the present
without compromising the ability of future generations
to meet their own needs” (WCED 1987).
Economists are generally comfortable with this broad
interpretation of sustainability, as it is easily translatable
into economic terms: an increase in well-being today
should not result in reducing well-being tomorrow. That
is, future generations should be entitled to at least the
same level of economic opportunities – and thus at least
the same level of economic welfare – as is available to
current generations.
As a result, economic development today must ensure
that future generations are left no worse off than current
generations. Or, as some economists have succinctly
expressed it, per capita welfare should not be declining
over time (Pezzey 1989). According to this view, it is the
total stock of capital employed by the economic system,
including natural capital, which determines the full
range of economic opportunities, and thus well-being,
available to both current and future generations (Pearce
et al. 1989).
Society must decide how best to use its total capital
stock today to increase current economic activities and
welfare. Society must also decide how much it needs to
save or accumulate for tomorrow, and ultimately, for the
well-being of future generations.
However, it is not simply the aggregate stock of capital
in the economy that may matter but also its composition,
in particular whether current generations are using up
one form of capital to meet today’s needs. For example,
much of the interest in sustainable development is driven
by concern that economic development may be leading
to rapid accumulation of physical and human capital at
the expense of excessive depletion and degradation of
natural capital. The major concern is that by irreversibly
depleting the world’s stock of natural wealth, today’s
development path will have detrimental implications for
the well-being of future generations.
One of the first economic studies to make the
connection between this capital approach to sustainable
development and a green economy was the 1989 book
Blueprint for a Green Economy (Pearce et al. 1989). The
authors argued that because today’s economies are
biased towards depleting natural capital to secure
growth, sustainable development is unachievable. A
green economy that values environmental assets,
employs pricing policies and regulatory changes to
translate these values into market incentives, and adjusts
the economy’s measure of GDP for environmental losses
is essential to ensuring the well-being of current and
future generations.
As pointed out by the Blueprint for a Green Economy
authors, a major issue in the capital approach to
sustainable development is whether substitution
among different forms of capital – human capital,
physical capital and natural capital – is possible. A
strong conservationist perspective might maintain that
the natural component of the total capital stock must
be kept intact, as measured in physical terms. However,
this may be questioned in practice, especially in the
context of developing countries, if natural capital is
relatively abundant while physical and human capital
needs to be developed to meet other human demands.
This type of substitution reflects the unfortunate reality
that the creation of physical capital – for example roads,
buildings and machinery – often requires the conversion
of natural capital. While substitution between natural
capital and other forms of capital is often inevitable,
there is often room for efficiency gains. There is also a
growing recognition of environmental thresholds that
would constrain substitution beyond minimum levels
needed for human welfare.
Yet, there has always been concern that some forms of
natural capital are essential to human welfare, particularly
key ecological goods and services, unique environments
and natural habitats, and irreplaceable ecosystem
attributes. Uncertainty over the true value of these
important assets to human welfare, in particular the
value that future generations may place on them if they
become increasingly scarce, further limits our ability to
determine whether we can adequately compensate future
generations for today’s irreversible losses in such essential
natural capital. This concern is reflected in other definitions
of sustainable development. For example, in 1991, the
World Wide Fund for Nature, the International Union for
Conservation of Nature (IUCN), and UNEP interpreted
the concept of sustainable development as “improving
the quality of human life within the carrying capacity of
supporting ecosystems” (WWF, IUCN and UNEP 1991).
As this definition suggests, the type of natural capital
that is especially at risk is ecosystems. As explained
by Partha Dasgupta (2008): “Ecosystems are capital
assets. Like reproducible capital assets … ecosystems
depreciate if they are misused or are overused. But they
differ from reproducible capital assets in three ways:
(1) depreciation of natural capital is frequently
irreversible (or at best the systems take a long time
to recover); (2) except in a very limited sense, it isn’t
possible to replace a depleted or degraded ecosystem
by a new one; and (3) ecosystems can collapse abruptly,
without much prior warning.”
Rising ecological scarcity is an indication that we are
irrevocably depleting ecosystems too rapidly, and
the consequence is that current and future economic
welfare is affected. An important indicator of the
growing ecological scarcity worldwide was provided
by the Millennium Ecosystem Assessment (MEA) in 2005,
which found that over 60 per cent of the world’s major
ecosystem goods and services covered in the assessment
were degraded or used unsustainably.
Some important benefits to humankind fall in this
category, including fresh water; capture fisheries; water
purification and waste treatment; wild foods; genetic
resources; biochemicals; wood fuel; pollination; spiritual,
religious and aesthetic values; the regulation of regional
and local climate; erosion; pests; and natural hazards.
The economic values associated with these ecosystem
services, while generally not marketed, are substantial
(see Table 1).
One major difficulty is that the increasing costs
associated with rising ecological scarcity are not
routinely reflected in markets. Almost all the degraded
ecosystem goods or services identified by the Millennium
Ecosystem Assessment are not marketed. Some goods,
such as capture fisheries, fresh water, wild foods, and
wood fuel, are often commercially marketed, but due
to the poor management of the biological resources
and ecosystems that are the source of these goods, and
imperfect information, the market prices do not reflect
unsustainable use and overexploitation.
Nor have adequate policies and institutions been
developed to handle the costs associated with
worsening ecological scarcity globally. All too often,
policy distortions and failures compound these
problems by encouraging wasteful use of natural
resources and environmental degradation. The unique
challenge posed by rising ecological scarcity and
inefficient resource and energy use today is to overcome
a vast array of market, policy, and institutional failures
that prevents recognition of the economic significance
of this environmental degradation.
Reversing this process of unsustainable development
requires three important steps. First, as argued by the
Blueprint for a Green Economy authors, improvements in
environmental valuation and policy analysis are required
to ensure that markets and policies incorporate the full
costs and benefits of environmental impacts (Pearce et al.
1989; Pearce and Barbier 2000). Environmental valuation
and accounting for natural capital depreciation must be
fully integrated into economic development policy and
strategy. As suggested above, the most undervalued
components of natural capital are ecosystems and
Biodiversity Ecosystem goods and
services (examples) Economic values (examples)
Ecosystems (variety & extent/area)
• Recreation
• Water regulation
• Carbon storage
Avoiding greenhouse gas emissions by conserving forests: US$ 3.7 trillion (NPV)
Species (diversity & abundance)
• Food, fiber, fuel
• Design inspiration
• Pollination
Contribution of insect pollinators to agricultural output: ~US$ 190 billion/year
Genes (variability & population)
• Medicinal discoveries
• Disease resistance
Valuing
ecosystem goods and services is not easy, yet it is
fundamental to ensuring the sustainability of global
economic development efforts.
A major international research effort supported by UNEP,
the Economics of Ecosystems and Biodiversity (TEEB), is
illustrating how ecological and economic research can
be used to value ecosystem goods and services, as well
as how such valuation is essential for policy making and
investments in the environment (Sukhdev 2008; TEEB
2010).
Second, the role of policy in controlling excessive
environmental degradation requires implementing
effective and appropriate information, incentives,
institutions, investments and infrastructure. Better
information on the state of the environment, ecosystems
and biodiversity is essential for both private and public
decision making that determines the allocation of
natural capital for economic development. The use of
market-based instruments, the creation of markets, and
where appropriate, regulatory measures, have a role
to play in internalising this information in everyday
allocation decisions in the economy. Such instruments
are also important in correcting the market and
policy failures that distort the economic incentives for
improved environmental and ecosystems management.
However, overcoming institutional failures and
encouraging more effective property rights, good
governance and support for local communities, is also
critical. Reducing government inefficiency, corruption
and poor accountability are also important in reversing
excessive environmental degradation in many countries.
But there is also a positive role for government in
providing an appropriate and effective infrastructure
through public investment, protecting critical
ecosystems and biodiversity conservation, creating new
incentive mechanisms such as payment for ecosystem
services, fostering the technologies and knowledge
necessary for improving ecosystem restoration, and
facilitating the transition to a low-carbon economy.
Third, continuing environmental degradation, land
conversion and global climate change affect the
functioning, diversity, and resilience of ecological
systems and the goods and services they supply. The
potential long-term impacts of these effects on the health
and stability of ecosystems are difficult to quantify and
value. Increasing collaboration between environmental
scientists, ecologists and economists will be required to
assess and monitor these impacts (MEA 2005; Polasky
and Segerson 2009). Such interdisciplinary ecological
and economic analysis is also necessary to identify and
assess the welfare consequences for current and future
generations from increasing ecological scarcity. Further
progress in reversing unsustainable development calls
for more widespread interdisciplinary collaboration
to analyse complex problems of environmental
degradation, biodiversity loss and ecosystem decline.
Interdisciplinary research also needs to determine
the thresholds that should govern the transformation
of specific types of natural capital into other forms of
capital. For example, how much forestland is allowed
for conversion into farmland, industrial use or urban
development in a given area? How much underground
water is allowed for extraction each year? How much
and what fish species can be caught in a given season?
Which chemicals should be banned from production
and trading? And more important, what are the criteria
for setting these thresholds? Once these standards
are established, incentive measures at national or
international levels can be devised to ensure compliance.
The other key to balancing different forms of capital
recognises that substitutability is a characteristic
of current technologies. Investing in changing and
substituting these technologies can lead to new
complementarities. Most renewable energy sources,
such as wind turbines or solar panels, considerably
reduce the amount of natural capital that is sacrificed
in their construction and the lifetime of their operation,
compared to fossil fuel burning technologies. Both
of these types of solutions – setting thresholds and
altering technologies – are important for achieving a
green economy.
In sum, moving towards a green economy must become
a strategic economic policy agenda for achieving
sustainable development. A green economy recognises
that the goal of sustainable development is improving
the quality of human life within the constraints of
the environment, which include combating global
climate change, energy insecurity, and ecological
scarcity. However, a green economy cannot be focused
exclusively on eliminating environmental problems and
scarcity. It must also address the concerns of sustainable
development with intergenerational equity and
eradicating poverty.
A green economy and eradicating poverty
Most developing countries, and certainly the majority of
their populations, depend directly on natural resources.
The livelihoods of many of the world’s rural poor are also
intricately linked with exploiting fragile environments
and ecosystems (Barbier 2005). Well over 600 million
of the rural poor currently live on lands prone to
degradation and water stress, and in upland areas, forest
systems, and drylands that are vulnerable to climatic
and ecological disruptions (Comprehensive Assessment
of Water Management in Agriculture 2007; World Bank
2003). The tendency of rural populations to be clustered
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Towards a green economy
on marginal lands and in fragile environments is likely
to be a continuing problem for the foreseeable future,
given current global rural population and poverty trends.
Despite rapid global urbanisation, the rural population
of developing regions continues to grow, albeit at a
slower rate in recent decades (Population Division of the
United Nations Secretariat 2008). Furthermore, around
three-quarters of the developing world’s poor still live
in rural areas, which means about twice as many poor
people live in rural rather than in urban areas (Chen and
Ravallion 2007).
The world’s poor are especially vulnerable to the
climate-driven risks posed by rising sea levels, coastal
erosion and more frequent storms. Around 14 per cent
of the population and 21 per cent of urban dwellers
in developing countries live in low elevation coastal
zones that are exposed to these risks (McGranahan et al.
2007). The livelihoods of billions – from poor farmers to
urban slum dwellers – are threatened by a wide range
of climate-induced risks that affect food security, water
availability, natural disasters, ecosystem stability and
human health (UNDP 2008; OECD 2008). For example,
many of the 150 million urban inhabitants, who are
likely to be at risk from extreme coastal flooding events
and sea level rise, are likely to be the poor living in cities
in developing countries (Nicholls et al. 2007).
As in the case of climate change, the link between
ecological scarcity and poverty is well-established for
some of the most critical environmental and energy
problems. For example, for the world’s poor, global
water scarcity manifests itself as a water poverty
problem. One-in-five people in the developing world
lacks access to sufficient clean water, and about half the
developing world’s population, 2.6 billion people, do not
have access to basic sanitation. More than 660 million of
the people without sanitation live on less than US$ 2 a
day, and more than 385 million on less than US$ 1 a day
(UNDP 2006). Billions of people in developing countries
have no access to modern energy services, and those
consumers who do have access often pay high prices for
erratic and unreliable services. Among the energy poor
are 2.4 billion people who rely on traditional biomass
fuels for cooking and heating, including 89 per cent of
the population of Sub-Saharan Africa; and, the 1.6 billion
people who do not have access to electricity (IEA 2002).
Thus, finding ways to protect global ecosystems, reduce
the risks of global climate change, improve energy
security, and simultaneously improve the livelihoods of
the poor are important challenges in the transition to a
green economy, especially for developing countries.
As this report demonstrates, a transition to a green
economy can contribute to eradicating poverty. A
number of sectors with green economic potential are
particularly important for the poor, such as agriculture,
forestry, fishery and water management, which have
public goods qualities. Investing in greening these
sectors, including through scaling up microfinance, is
likely to benefit the poor in terms of not only jobs, but
also secure livelihoods that are predominantly based
on ecosystem services. Enabling the poor to access
microinsurance coverage against natural disasters
and catastrophes is equally important for protecting
livelihood assets from external shocks due to changing
and unpredictable weather patterns.
However, it must be emphasised that moving towards
a green economy will not automatically address
all poverty issues. A pro-poor orientation must be
superimposed on any green economy initiative.
Investments in renewable energy, for example, will have
to pay special attention to the issue of access to clean
and affordable energy. Payments for ecosystem services,
such as carbon sequestration in forests, will need to
focus more on poor forest communities as the primary
beneficiaries. The promotion of organic agriculture
can open up opportunities, particularly for poor smallscale
farmers who typically make up the majority of the
agricultural labour force in most low-income countries,
but will need to be complemented by policies to ensure
that extension and other support services are in place.
In sum, the top priority of the UN MDGs is eradicating
extreme poverty and hunger, including halving the
proportion of people living on less than US$ 1 a day by
2015. A green economy must not only be consistent with
that objective, but must also ensure that policies and
investments geared towards reducing environmental
risks and scarcities are compatible with ameliorating
global poverty and social inequity.
