12. Developing a “Green” Economy

The financial crisis of 2008 and the subsequent responses of financial bailouts and austerity measures have had some potentially encouraging implications for conservationists: with a system ready for change, more room may be found for a green economy. But the concern over the collapsing economic system is diverting attention from another system that is on the verge of collapsing: the global ecosystem.

Climate change, failing fisheries, dwindling freshwater access, ecosystems degraded beyond repair; and the litany goes on, as recorded by the Millennium Ecosystem Assessment (MA). The same growth model that led to the financial crisis is leading to an ecological crisis of devastating proportions. A growth model that defies limits and externalizes costs is hardly sustainable. Mother Nature, unlike governments, does not do “bailouts”.

The current operating system for the monetary economy is based upon unsustainable production of energy and material goods and consumption of the resulting goods, and the services that go along with them. People have been happy with consumption, and indeed many want more of it. However, the impacts of unsustainable consumption on the environment are becoming increasingly known and consumers are starting to react. National Geographic, in collaboration with Globescan, has developed a Greendex indicator to measure consumer choices and the environment. Their 2009 report provided information on 17 countries, of which India and Brazil were the most environmentally-conscious consumers while Canadians and Americans were at the bottom of the list (Figure 12.1).

How can the act of consumption be made net neutral with the environment on a global scale and not just in the higher rating countries in Greendex? This is the key challenge faced by a green economy. At an individual level, living sustainably is about managing our personal consumption so that it does not put undue stress on the Earth. At the other end of the scale, sustainability for a business is a question of giving back more to the Earth than it takes from it. The green economy recognizes that the environment, economy and society are all part of the same balance sheet. The health of the economy, based on consumption and production, lies in balance with the health of the environment.

MEASURING SUSTAINABILITY

A key to a more balanced and healthy Earth is to move away from natural resource use as the driver of economic growth. By bringing the environment and ecosystem services into the calculus of the world economy, economic instruments can be used to support the environment and environmental protection and conservation. But the way we currently measure progress, through Gross Domestic Product (GDP), Human Development Index (HDI), and other similar indicators, does not adequately reflect the contribution of the environment.

Figure 12.1 Greendex 2009 (National Geographic)

The environmental impact of over-consumption in developed countries is magnified because the prices for natural goods and services do not correctly reflect the true costs to ecosystems and the environment more generally. Affluent people damage the environment through their buying practices, driving market forces which deplete natural resources both domestically and in the developing world, where environmental standards are often lacking or poorly enforced.

TOOLS FOR A TRANSITION TO A GREEN ECONOMY

Valuation of the environment

Understanding the value of the environment to our economy, as well as the costs of inaction or failing to conserve it, is increasingly the subject of economic study. Ten Brink (2008) has estimated that if we do not halt biodiversity loss today, the cumulative costs to human well-being by 2050, from the loss of forest goods and services alone, could amount to Euro 14 trillion (7% of global GDP).

The Economics of Ecosystems and Biodiversity (TEEB, Chapter 4) aims to improve understanding of the true costs of consumption, as well as the problems of externalities within modern supply chains and production systems (TEEB, 2008). Supply chains are the interlinked primary producers, manufacturers and distributors who buy and sell from each other in order to deliver finished products to consumers.

Supply chain managers looking for efficiencies sometimes find cost savings by refusing to pay the full costs of sustainable production. Examples include the money “saved” by not treating polluted water, or by not offsetting carbon sinks lost during land clearing. These are real costs which need to be reflected in supply chains, and ultimately passed on to buyers, so that consumers understand the value of the ecosystem services that went into producing the products they buy.

INCENTIVES – THE GOOD AND THE BAD

Market mechanisms used to support conservation are extremely varied and range from simple water-pricing schemes to sophisticated environmental hedge funds. Ideally, any such financial mechanism, rather than simply providing one-off funding, should operate as a sustained incentive for conservation. By accounting for the long-term role of ecosystems through such mechanisms, sustainability is incorporated into economic decisions. Of course, such schemes only function effectively if there are credible standards, verification and enforcement systems in place.

Offsets

An offset is a measure taken to counteract or compensate for the impact of other actions. For climate change, the best-known carbon offset programme is the 1997 Kyoto Protocol (and in particular the Clean Development Mechanism – CDM), which was devised to allow countries with emission control commitments under the Protocol to implement some of their required emission reductions in developing countries. While the CDM is designed to help meet intergovernmental commitments, under a binding legal framework, there are also voluntary carbon markets which, in 2008, nearly doubled in terms of both the volume of carbon traded and its value, as compared to 2007, with a total market value of US$ 705 million in 2008 (Hamilton et al., 2009).

Offsets have also been applied to species and habitats, in some cases. The latter applications are relatively new but the Business and Biodiversity Offsets Programme (BBOP) is seeking to define principles and methodologies to support best practice in voluntary biodiversity offsets (BBOP, 2009).

Payments for ecosystem services (PES)

Payments for ecosystem services (PES) have been mentioned frequently in this volume as an important means of reflecting the value of the benefits people receive from nature (Wunder, 2005). One ecosystem service for which PES schemes are in place in several countries, especially in Latin America, is payments for watershed protection. As consumers become more aware of the many services provided by watersheds (water quality and quantity for industrial, domestic and recreational needs), motivation to pay for their conservation has grown (Smith et al., 2006). Such payments may include payments by private water users to environmental agencies and non-governmental conservation organizations (NGOs), as well as direct payments by central government to private landowners. Experience suggests that payments for watershed protection are most appropriate when:

Effective development and implementation of markets for ecosystem services are constrained by several factors including weak market institutions, especially poorly-defined property rights, inadequate recognition of liability for environmental damages, no culture of rewarding positive contributions to ecosystem health, and weak regulatory capacity (Bishop et al., 2009).

Certification

Biodiversity-relevant standards and certification schemes are increasingly seen as important tools for enhancing biodiversity performance of business. Certification schemes assume that consumers will prefer to buy or even pay more for certified goods and services. Certification is already an important part of several sectors including agriculture, forestry, tourism, and financial services (Bishop et al., 2009). The value of certified products is substantial and growing, including the global market value of organic products of US$ 23 billion (2002) (Willer and Minou-Yussefi, 2006). Similarly, the volume of certified production is increasing; for example, certified forest area increased from 5.8 million hectares in 1998 (www.earthtrends.org) to over 300 million hectares worldwide by mid-2008, with most in the UNECE region, driven by green building systems and public procurement policies (UNECE and FAO, 2008).

Subsidies and tax incentives

Economic incentives for conserving biodiversity have been used for decades (McNeely, 1988) but this use has been relatively modest and needs to be significantly enhanced (as called for in the Convention on Biological Diversity's (CBD) Article II) (CBD, 2004a). In several countries incentives to encourage resource conservation have included subsidies and tax incentives, for example, in the form of income tax relief on charitable contributions. This mechanism has served as motivation for land donations in the United States and Europe, protecting millions of hectares (The Trust for Public Land, 2009; Bräuer et al., 2006).

However, the potential for negative impacts from incentives such as subsidies is epitomized in the current situation with respect to global fisheries. In 2000, an estimated US$ 26 billion in subsidies were paid in the fisheries sector, of which US$ 16 billion was to increase fishing capacity in a world where the majority of fisheries are already overexploited (Chapter 17) (Sumaila and Pauly, 2006).

MAKING DEVELOPMENT INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT A DRIVER FOR GROWTH

Natural resources have long been the basis for economic growth. This growth, when poorly managed or unchecked, has caused long-term poverty, conflict and environmental degradation. Historically, much of colonialism was driven by the search for natural resources, largely for the benefit of the colonial powers. More recent examples include copper, coltan and cobalt production in the Democratic Republic of Congo, diamond mining in Sierra Leone, or oil-drilling in Nigeria.

Much of this degradation of natural resources stems from weak governance. Even countries with strong governance import resources for manufacturing and energy production, a sign that production is not locally-sustainable and a strong justification for global trade. Sustainable management of natural resources at both local and global levels has the potential to support long-term pro-poor economic growth and thus the achievement of broader development goals.

The use of natural resources can contribute to poverty reduction and peoples' health and wellbeing. Maintaining natural capital is essential for the preservation of human capital. The OECD (2008) calls this “critical natural capital” – the threshold of natural capital necessary for other capital, such as human capital, to exist. Subsistence farmers who are skilled in local agricultural processes are one example. Once the soil fertility has collapsed, these farmers will be unable to farm, thus losing the human skills along with the natural capital in the soil. To ensure that natural resources support growth, sustain it, and contribute to lifting people out of poverty, developing countries are seeking efficient, equitable and sustainable use of natural resources (Box 12.1).

Box 12.1 Diamonds for development: the case of Botswana

Botswana has been using its natural resource wealth (diamonds) for poverty reduction, through the establishment of a Revenue Stabilization Fund and a Public Debt Service Fund. While diamonds are not a renewable resource, human capital is. By developing its diamond processing industry and enhancing economic diversification, and by channeling fiscal revenues from the minerals sector to the education and health sectors, Botswana has been able to reinvest gains made from the diamond industry into enhancing the country through the development of village institutions, local empowerment, village identity and culture, and reduced dependency on government support. All of this in turn has taken pressure off the environment, as people are not driven to exploit natural resources for subsistence.

Source: PEP, 2005

ANOTHER OPTION: DEVELOP A NEW ECONOMIC SYSTEM

The economic instruments detailed above work to incorporate environmental costs into macroeconomic policies. While many applaud these steps towards bringing the natural and monetary systems together, others worry that the current economy relies upon the model of perpetual growth and no matter how much we amend the model, we are inevitably continuing down an unsustainable path (e.g. Speth, 2008).

The present day model will soon reach the point where the economy is outstripping the Earth's ability to sustain it. We are living beyond our carrying capacity (Box 12.2).

Box 12.2 Beyond carrying capacity

In November 2005, the European Environment Agency released its report, “The European Environment: State and Outlook 2005”. It concluded that it takes 2.1 times the biological capacity of Europe to support Europe. With a population amounting to 7% of the world total, its demand on global ecological capacity is nearly 20% of global productivity. That biological capacity for Europe is coming from the rest of the world. What would be a fair price for this excess demand and how would it be paid?

Source: EEA, 2005

Many people (though not necessarily a majority of economists) believe that the world needs to invest in a new system, one that does not give perverse incentives for unsustainable growth. The world needs a system that shifts people's consumption habits, one that invests in green infrastructure (meaning both investments in the environment as fundamental infrastructure as well as physical infrastructure constructed in environmentally-friendly ways) and one that thinks strategically about how we are to live on this fragile planet. The world's collapsing systems make it painfully clear that it is time for fundamental change. Models proposed include a “circular economy” as articulated in China whereby economic and environmental goals are pursued in tandem and “one facility's waste is another facility's input” (Pinter, 2006). McDonough and Braungart espouse a similar philosophy in Cradle to Cradle (2002). Another approach is for conceptual reform towards a sustainable economy that promotes development rather than growth, fully integrates nature's values in the system and applies a precautionary approach in public economic policy (WorldWatch Institute, 2008).

Yet another option is for a green economy to return closer to home for most of its inputs. The “buy locally” movement is one indicator of this. While its advocates recognize that some global trade is essential, they reject being totally subservient to the global economy and instead support the development of much greater local self-reliance, for everything from food to energy. This would involve greater collaboration within communities, which has been an age-old adaptation that has been neglected in modern times (McKibben, 2007).

No matter what the model chosen, personal choices about consumption and the values of nature will be important drivers towards a more sustainable economic system. Support for economic instruments such as carbon offsets can happen at the individual level every time an individual travels and buying products certified as sustainable is a means to ensure that the natural resources consumed are being effectively managed.

A “green economy” is an essential pre-condition for IUCN to achieve its mission. While the shape of this new economy is rapidly evolving through activities like TEEB, the United Nations Environment Programme's (UNEP) Green Economy Initiative, payments for ecosystem services and various national initiatives, the membership of IUCN is actively involved in ensuring that biodiversity and ecosystem services will be well reflected.

“The use of natural resources can contribute to poverty reduction and peoples' health and well-being.”

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