Green Economy

29 May 2014, By Jonathan Clayton

The inclusive Green Economy is far more than the latest buzz phrase of committed environmentalists. It seeks to marry two apparently contradictory challenges – population growth and increased economic well-being.

A concept first developed by Ed Barbier and others in the late 80’s and rolled out by UNEP in 2008 as a response to the financial crisis, the Green Economy is the only way we can ensure new jobs for a world population which will soon number some nine billion people and reduce poverty while not destroying the very planet on which we depend.

Creating the inclusive Green Economy is therefore not an option. It is more a question of when and how this can happen.

It is a priority which must encompass all facets of the development agenda. It is about creating decent jobs, eradicating poverty, improving health and livelihoods all within an economically sustainable framework which does not destroy our world. It is about creating MORE jobs in new energy efficient, low carbon industries.

But to make this dream a reality presents policy makers with one of the greatest challenges of our age. It requires a complete overhaul of our current economy, including how we measure wealth and price natural capital. UNEP has led efforts in this field. The transition to a low carbon, resource efficient economy can only be done if the private sector and capital markets come to the party. The World Economic Forum recently estimated that an investment in infrastructure of approximately US$ 6 trillion annually is needed over the next 16 years to deliver a low-carbon economy. A few months ago, UNEP launched an Inquiry into policy options for guiding the global financial system to invest in the transition to a green economy.

The inquiry aims to engage, inform and guide policy makers, financial market actors and other stakeholders concerned with the health of the financial system and its potential for shaping the future economy. Ultimately, it will lay out a series of options for advancing a sustainable financial system. This subject forms the basis of the high-level segments of June’s inaugural UNEA meeting in Nairobi. UNEP will discuss with governments and investors specific steps of how to finance this transition.

Achim Steiner, UNEP’s Executive Director, explained: “The kinds of transformations we are talking about today in the transport sector, building infrastructure, the energy sector, agriculture, are of such magnitude in a relatively compressed horizon of time – 20, 30, 40 years –that there is no public budget that can carry this on its own.”

“Public expenditure is anywhere from 20-30 per cent of GDP in a country, so we need to start finding ways in which we can get private capital and the capital markets invested in these transitions,” he added in a recent UNEA interview.

Fiscal policies are of particular importance in a green economy transition. Governments have a variety of fiscal instruments at their disposal: taxing fossil fuel use or emissions in different sectors, reforming energy subsidies that promote wasteful and environmentally harmful economic activity, and supporting clean technology and sustainable production with the help of fiscal incentives.

Globally, the cost of energy subsidization is high and accounts for a significant part of GDP annually. Fossil fuel subsidies alone, for instance, amount to about US $500 billion annually, with global externalities reaching up to USD 2 trillion/year according to the IMF.

It is estimated that removing these subsidies could boost the global economy by around 0.3 per cent. In addition to the potential fiscal benefits, the removal of fossil fuel subsidies in developing and emerging economies could reduce global GHG emissions by 6 per cent in 2050.

Environmental taxes can also an effective and, if appropriately designed, efficient tool for environmental policy. They can also be leveraged to generate private financing. Evidence shows that fiscal instruments have helped increase green investment. Carbon taxes could direct investment towards cleaner technologies and encourage energy efficiency.

Many developing countries are well positioned to gain from mainstreaming sustainability considerations in their trade-driven growth strategies, including through the export of certified commodities in the fisheries, forests or agriculture sectors, increased investments in sustainable production and supply chains, or the expansion of eco-tourism.

For example, the Bio-trade sector in Peru has grown by 20 per cent in the last five years - generating significant revenue and promoting sustainable development, while simultaneously supporting pro-poor development.

The Green Economy transition opens up new opportunities for regional and global trade. For example, the global market in low-carbon and energy efficient technologies is projected to nearly triple to US $2.2 trillion by 2020.

The world is entering a phase of rapid change, most of it human induced. How countries cope with that change – indeed, how they can flourish – depends largely on their ability to create opportunity from the challenges before them. Perhaps none is bigger than reconfiguring the economy to be greener and more inclusive.

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