-------------------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 19 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.