Challenges and Prospects for a Green Economy
Why do businesses and governments need to develop a new paradigm to tackle the climate change challenge? Can they be green and still grow? What strategies will help an inclusive growth that promotes economic development while preserving ecosystems, and how can they be prioritized? What are the stumbling blocks in the path to greening the economy and how can they be overcome?
These were several of the stimulating questions answered by Pavan Sukhdev on December 1, 2009 in a seminar organised by the Singapore Environment Institute (SEI). Andrew Tan, from Centre for Liveable Cities, Singapore which co-hosted the event, made the introduction.
Pavan, combines his expertise in the financial sector as Chairman of Deutsche Bank’s Global Markets Centre Mumbai, as well as his deep understanding of environmental issues. He leads the UNEP’s “Green Economy Initiative”, the G8+5 commissioned report on “The Economics of Ecosystems and Biodiversity” (TEEB) and the Green Indian States Trust (GIST)
The TEEB highlights the economic impact of biodiversity loss. It parallels what the Stern report does to highlight the economic impact of climate change.
What is a green economy?
According to Pavan, it is easier to define a green economy by what it is not. A green economy does not consume natural capital or risk human survival.
The ecological footprint of human activities as measured by the demand on the resources of Earth’s ecosystems, already exceeds the planet’s regenerative capacity by 40%. Humanity is now demanding 1.4 Earths. In fact, we have been in “ecological debt” for the last 20 years, using up natural “capital” instead of living off the “interest” it generates.
With Global Greenhouse gas (GHG) emissions at 42 GTCO2e (Gigatons) at 5 times higher than the Earth can absorb, the planet faces climate risk at a pace that can’t be sustained.
Watch Pavan Sukhdev talk about the consequences of the erosion of natural capital
Economies can adopt a more sustainable path, if they increase their investment in “green” sectors and the share of the GDP devoted to renewable energies, clean transportation, clean technologies, green buildings, waste management, water services, sustainable agriculture and forestries. Such investment will bring about an increase in quality and quantity of green jobs.
Concurrently, it is important to reduce the energy use per unit of production, as well as carbon emissions per unit of GDP, while minimizing wasteful consumption in various sectors of the economy.
Having said that, there is inertia in moving away from an unsustainable growth path, and this is because “we can’t manage what we can’t measure.” An economy’s Gross Domestic Product or GDP is a linear measure of growth, capturing only value of goods and services produced within its boundaries for a given year. It is not reflective of human or societal wellbeing or the state of ecosystems.
If there is a tsunami or earthquake for example, the economy may continue to register a growth in GDP due to the related manufacturing and repair expenses. It does not indicate the human misery or suffering of the people. We need a measure that captures the three-dimensional aspects of Human and Social Capital, Natural Capital as well as Financial and Physical Capital.
The environment provides the foundation upon which society can become healthy and wealthy. A severely deforested state of Haiti shows how losing natural capital has led to poverty, lack of economic development, increased child mortality and deterioration of maternal health. All these are interdependent. A green economy is as much about society, human well-being, and the natural environment.
A study by Green Accounting for Indian States Project (GIST) shows that the connection between loss of ecosystem services and poverty can be stark. In India, ecosystem services account for 7.3% of the GDP (based on 2002-2003 data). However, if you isolate the GDP of the poor, ecosystem services can constitute as much as 57% of the livelihoods they earn in small farming, small scale forestry, fisheries and animal husbandry. So degradation of the environment directly exacerbates poverty.
Which sectors should be given priority in a green economy?
The accumulation of risks resulting from the depletion of natural capital, can lead to various pressures such as a hike in food and oil prices. This directly affects the poor. A 1% loss in GDP could well translate into 20 million people going below the poverty line of US $1 a day.
A rule of thumb would be to allocate resources in sectors that create jobs. In the US, there are 2.3 million employed in the renewable energy sector, compared to 2 million in the oil refining sector. If projected investments in the renewable energy sector of US $630 million pan out by 2030 globally, there is potential for 20 million jobs to be created.
If the share of renewable energy in the total energy mix in the US were to increase from 5% as it is currently, to 25%, it would create a huge multiplier effect on employment without the contingent liabilities associated with carbon emissions.
In South Korea, the government has taken a leadership role in steering the economy towards green growth. The investment of US $1.5 billion in the Four Rivers Project, to clean up the rivers has created 350 thousand jobs. Such a project builds the ecological infrastructure, and the nation’s productive natural capital which is vital for the future.
There are big opportunities in increasing energy efficiency of buildings as the technology exists. It is estimated that in the US, an investment of US$100 billion over 4 years could generate 4 million new jobs. India could create 900,000 jobs by 2025 in biomass gasification.
There is considerable scope for bringing about efficiency in the agriculture sector as well. According to a study by the UNEP, when one accounts for various kinds of wastage in the food supply chain, from planting and harvesting in the fields, from the field to the table in the manufacturing process, discards in fisheries, and also the leakage that arises from using 1/3rd of the world’s cereal grains to feed livestock instead of people directly, food wastage could be as high as 50%.
How can we feed the rising population as well as preserve the biodiversity of the planet? The answer lies not in “more agriculture” but efficient agriculture through reduced wastage, organic farming and proper land allocation.
Why don’t we have a Green Economy yet?
A green economy is often easier said than done, because we can’t solve the problems with the same thinking that created them. Often it’s a question of inertia amongst policy makers, businesses and the public, who have to be convinced about the ROI and benefits of green economic growth.
Pavan highlighted that there are two broad enabling conditions that need to be addressed. The first is the International Policy Architecture which includes development of global markets for carbon as well as ecosystem services. Policies are needed for development and transfer of technologies, and for international trade, aid, and co-ordination.
The second enabling condition is in the area of Domestic Policies. These include dismantling lopsided subsidies to fossil fuels, taxes and policies that promote renewable energies, environmental legislation, integrated management of fresh water, policies for proper land use for urban and agricultural areas, monitoring and accounting of ecosystem services.
According to the Global Green New Deal report by the UNEP more than $300 billion are being spent on energy subsidies across developed and developing economies, the bulk of it on fossil fuels. Removing these subsidies would actually add 0.1% to global GDP and reduce global greenhouse gas emissions by 6%.
Mitigating the effects of climate change: The different colours of carbon
Often enough, there is a lot of focus on “brown carbon” or emissions from energy use and industry. Other types of carbon should be given weightage in mitigation efforts. ”Blue carbon” is the carbon stored in the oceans. In fact, they bind an estimated 55% of all carbon in living organisms. “Green carbon” refers to what is stored in the biomass of forests, agricultural lands and pastures. According to the IPCC 2007, by “halting the loss of ‘green’ and ‘blue’carbon, the world could mitigate as much as 25% of total GHG emissions, with co-benefits for biodiversity, food security and livelihoods”
“Black carbon“ is the soot generated by burning coal, biomass and biofuels, and can be reduced by adopting clean technologies.
According to a TEEB study on the Estimates of Costs and Benefits of Restoration Projects in Different Biomes , economies should recognize the crucial role that ecosystems can play in climate change adaptation. Restoring ecosystem services will help deal with freshwater scarcity, natural hazards like cyclones and improve agriculture and fisheries productivity.
Mangrove planting increases productivity by 80% in the ecosystem, and brings benefits of risk management against natural disasters and resilience for farming communities.
The study shows the incredible IRR range from 7% to 79% on projects that rebuild Ecological Infrastructure. The associated Cost Benefit ratios that have been calculated by the GEI team are 3-75 times in different ecosystems from coral reefs to rainforests to grasslands, which is significantly more than any conventional industrial project.
Global Green New Deal
The Global Green New Deal is a report by the Green Economy Initiative, launched by the UNEP in 2008. It outlines a global plan for governments and businesses to build green economies using 3 main pillars.
Firstly, valuing and mainstreaming nature’s services into national and international accounts. Secondly, employment generation through green jobs and the laying out the policies and thirdly, encouraging instruments and market signals able to accelerate a transition to a Green Economy.
According to the Deal, “one third of the around $2.5 trillion-worth of planned stimulus packages should be invested on ‘greening’ the world economy. The estimated $750 billion of green investment, equal to about one per cent of current global GDP, could trigger significant, multiple and potentially transformational returns.”
Unfortunately as the September 2009 update to the report notes, ” The effectiveness of the green stimulus risks being compromised by delays in allocation of funds. At the end of the first half of 2009, around only 3% of committed green funds had been disbursed. Moreover, many G20 members have not included sufficient green investments in their overall stimulus packages.”
As the world emerges out of recession, we have a historical opportunity to transform economies into engines of green growth. Technologies exist. Solutions exist. As Pavan pointed out in the Q&A, what is needed is the behaviourial change to bring about the transition. Change has to come from policy-makers , businesses and enlightened citizens who all need to push actively for this transition based on the new paradigm and mindset.
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