1.Towards aPathways to Sustainable Development and Poverty Eradication

2. CitationUNEP, 2011, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication,www.unep.org/greeneconomyISBN: 978-92-807-3143-9Layout by UNEP/GRID-Arendal, www.grida.noCopyright United Nations Environment Programme, 2011This publication may be reproduced in whole or in part and in any form for educational or non-profit purposes without specialpermission from the copyright holder, provided acknowledgement of the source is made. UNEP would appreciate receiving acopy of any publication that uses this publication as a source.No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permissionin writing from the United Nations Environment Programme.DisclaimerThe designations employed and the presentation of the material in this publication do not implythe expression of any opinion whatsoever on the part of the United Nations Environment UNEP promotesProgramme concerning the legal status of any country, territory, city or area or of its au-thorities, or concerning delimitation of its frontiers or boundaries. Moreover, the views environmentally sound practicesexpressed do not necessarily represent the decision or the stated policy of the United globally and in its own activities. ThisNations Environment Programme, nor does citing of trade names or commercial publication is printed on 100% recycled paper,processes constitute endorsement.using vegetable - based inks and other eco-friendly practices. Our distribution policy aims toVersion -- 02.11.2011reduce UNEPs carbon footprint. 3. Towards aPathways to Sustainable Development and Poverty Eradication 4. AcknowledgementsThe writing of this report would not have been possibleChapter Coordinating Authors, interact with relevant expertswithout a coordinated effort from a cast of talented authors in UNEP, solidify outlines, review drafts, facilitate peer reviews,and contributors over the past two years. Acknowledgements compile review comments, guide revisions, conduct researchfirst go to Chapter Coordinating Authors: Robert Ayres, Steveand bring all chapters to final production.Bass, Andrea Bassi, Paul Clements-Hunt, Holger Dalkmann,Derek Eaton, Maryanne Grieg-Gran, Hans Herren, PrasadAdditionally, several UNEP staff members provided technical andModak, Lawrence Pratt, Philipp Rode, Ko Sakamoto, Rashid policy guidance on various chapters: Jacqueline Alder, JuanitaSumaila, Cornis Van Der Lugt, Ton van Dril, Xander van Tilburg,Castao, Charles Arden-Clarke, Surya Chandak, MunyaradziPeter Wooders and Mike D. Young. Contributing Authors of the Chenje, Thomas Chiramba, Hilary French, Garrette Clark, Robchapters are acknowledged in the respective chapters.de Jong, Renate Fleiner, Niklas Hagelberg, Arab Hoballah, James Lomax, Angela M. Lusigi, Kaj Madsen, Donna McIntire, DestaWithin UNEP, this report was conceived and initiated by theMebratu, Nick Nuttall, Thierry Oliveira, Martina Otto, David Owen,Executive Director, Achim Steiner. It was led by Pavan Sukhdev and Ravi Prabhu, Jyotsna Puri, Mark Radka, Helena Rey, Rajendracoordinated by Sheng Fulai under the overall management andShende, Soraya Smaoun, James Sniffen, Guido Sonnemann,guidance of Steven Stone and Sylvie Lemmet. Additional guidanceVirginia Sonntag-OBrien, Niclas Svenningsen, Eric Usher, Corniswas provided by Joseph Alcamo, Marion Cheatle, John Christensen, Van Der Lugt, Jaap van Woerden, Genevive Verbrugge, FaridAngela Cropper, Peter Gilruth and Ibrahim Thiaw. Alexander Yaker and Yang Wanhua. Their contributions at various stages ofJuras and Fatou Ndoye are acknowledged for their leadership in the report development are deeply appreciated.facilitating consultations with Major Groups and Stakeholders. Theinitial design of the report benefited from inputs from HusseinWe acknowledge and appreciate the partnership and support ofAbaza, Olivier Deleuze, Maxwell Gomera and Anantha Duraiappah. the team from the International Labour Organization (ILO), led by Peter Poschen. Many ILO staff, in particular Edmundo WernaThe conceptualization of the report benefitted from discussionsand those acknowledged in the individual chapters, providedinvolving Graciela Chichilnisky, Peter May, Theodore Panayotou,contributions on employment related issues. The tourismJohn David Shilling, Kevin Urama and Moses Ikiara. Thanks also chapter was developed in partnership with the World Tourismgo to Kenneth Ruffing for his technical editing and contribution Organization (UNWTO), through the coordination of Luigi Cabrini.across several chapters and to Edward B. Barbier and TimSwanson for their contributions to the Introduction Chapter. Special recognition and thanks are due to Lara Barbier, EtienneNumerous internal and external peer reviewers, acknowledgedCadestin, Daniel Costelloe, Moritz Drupp, Jane Gibbs, Anniein the individual chapters, contributed their time and expertise Haakenstad, Hadia Hakim, Jasmin Hundorf, Sharon Khan, Kimto improve the overall quality and sharpness of the report.Hyunsoo, Andrew Joiner, Kim Juhern, Richard LEstrange, Tilmann Liebert, Franois Macheras, Dominique Maingot, SemharIn addition, hundreds of people offered their views and perspectives Mebrahtu, Edward Naval, Laura Ochia, Pratyancha Perdeshi, Dmitryon the report at four major events: the launch meeting of the GreenPreobrazhensky, Marco Portugal, Alexandra Quandt, Victoria WuEconomy Initiative in December 2008, a technical workshop in April Qiong, Waqas Rana, Alexandria Rantino, Pascal Rosset, Daniel2009, a review meeting in July 2010, and a consultative meetingSzczepanski, Usman Tariq, Dhanya Williams, Carissa Wong, Yitongin October 2010. Although they are too numerous to mention Wu and Zhang Xinyue for their research assistance, and Dsireindividually, their contributions are deeply appreciated. ExpertsLeon, Rahila Mughal, and Fatma Pandey for administrative support.who commented on specific draft chapters are noted accordinglyin the relevant chapters. The International Chamber of CommerceMany thanks are also due to Nicolas Bertrand and Leigh Ann(ICC) warrants special mention here for its constructive feedback on Hurt for managing the production; Robert McGowan, Diannanumerous chapters. Rienstra, and Mark Schulman for editing; Elizabeth Kemf for copy-editing; and, Tina Schieder, Michael Nassl and Dorit LehrThe report was produced throughthe dedicated effortsof for fact-checking.the UNEP Chapter Managing Team: Anna Autio, Fatma BenFadhl, Nicolas Bertrand, Derek Eaton, Marenglen Gjonaj, AnaFinally, we would like to extend a special thanks to AnneLuca Iturriza, Moustapha Kamal Gueye, Asad Naqvi, BenjaminSolgaard and the team at UNEP/GRID-Arendal for preparing theSimmons and Vera Weick. They worked tirelessly to engage the layout and design of the report.UNEP would like to thank the governments of Norway, Switzerland and United Kingdom of Great Britainand Northern Ireland as well as the International Labour Organization, the UN World Tourism Organization and the UN Foundation for their generous support towards the Green Economy Initiative. 5. ForewordNearly 20 years after the Earth Summit, nations are again on the Road to Rio, but in a worldvery different and very changed from that of 1992.Then we were just glimpsing some of the challengesa reduced risk of the crises and shocks increasinglyemerging across the planet from climate change and theinherent in the existing model.loss of species to desertification and land degradation.New ideas are by their very nature disruptive, but far lessToday many of those seemingly far off concerns aredisruptive than a world running low on drinking waterbecoming a reality with sobering implications for not and productive land, set against the backdrop of climateonly achieving the UNs Millennium Development Goals, change, extreme weather events and rising naturalbut challenging the very opportunity for seven billionresource scarcities.people rising to nine billion by 2050 to be able tothrive, let alone survive.A green economy does not favour one politicalperspective over another. It is relevant to all economies,Rio 1992 did not fail the world far from it. It providedbe they state or more market-led. Neither is it athe vision and important pieces of the multilateral replacement for sustainable development. Rather, itmachinery to achieve a sustainable future.is a way of realising that development at the national,regional and global levels and in ways that resonateBut this will only be possible if the environmental and with and amplify the implementation of Agenda 21.social pillars of sustainable development are given equalfooting with the economic one: where the often invisibleA transition to a green economy is already underway, aengines of sustainability, from forests to freshwaters, are point underscored in the report and a growing wealthalso given equal if not greater weight in development of companion studies by international organisations,and economic planning.countries, corporations and civil society. But thechallenge is clearly to build on this momentum.Towards a Green Economy is among UNEPs keycontributions to the Rio+20 process and the overall goalRio+20 offers a real opportunity to scale-up and embedof addressing poverty and delivering a sustainable 21st these green shoots. In doing so, this report offers notcentury.only a roadmap to Rio but beyond 2012, where a farmore intelligent management of the natural and humanThe report makes a compelling economic and social capital of this planet finally shapes the wealth creationcase for investing two per cent of global GDP in greening and direction of this world.ten central sectors of the economy in order to shiftdevelopment and unleash public and private capitalflows onto a low-carbon, resource-efficient path.Achim SteinerSuch a transition can catalyse economic activity of atUNEP Executive Directorleast a comparable size to business as usual, but withUnited Nations Under-Secretary General 6. ContentsAcknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 PART I: Investing in natural capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Fisheries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151PART II: Investing in energy and resource efficiency. . . . . . . . . . . . . . . . . . . . 195Renewable energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453PART III: Supporting the transition to a global green economy. . . . . . 495Modelling global green investment scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497Enabling conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 7. IntroductionSetting the stage for a green economy transition 8. Towards a green economy Copyright United Nations Environment Programme, 2011 Version -- 02.11.201112 9. IntroductionContents1 Introduction: Setting the stage for a green economy transition . . . . . . . . . . . . . . . . . . . .141.1 From crisis to opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.2 What is a green economy?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161.3 Pathways to a green economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201.4 Approach and structure Towards a green economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25List of tablesTable 1: Natural capital Underlying components and illustrative services and values. . . . . . . . . . . . . . . . . . . . . . . . 18List of boxesBox 1: Managing the population challenge in the context of sustainable development. . . . . . . . . . . . . . . . 15Box 2: Towards a green economy A twin challenge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 13 10. Towards a green economy 1 Introduction: Setting the stage for a green economy transition 1.1 From crisis to opportunity reflect both structural weaknesses and unresolved risks. Forecasts by the International Energy Agency (IEA) and The last two years have seen the idea of a green economyothers of rising fossil fuel demand and energy prices float out of its specialist moorings in environmental suggest an ongoing dependence as the world economy economics and into the mainstream of policy discourse.struggles to recover and grow (IEA 2010). It is found increasingly in the words of heads of state and finance ministers, in the text of G20 communiques, andCurrently, there is no international consensus on the discussed in the context of sustainable development and problem of global food security or on possible solutions poverty eradication.for how to nourish a population of 9 billion by 2050. See Box 1 for further information on the population This recent traction for a green economy concept has no challenge. Freshwater scarcity is already a global doubt been aided by widespread disillusionment with problem, and forecasts suggest a growing gap by 2030 the prevailing economic paradigm, a sense of fatiguebetween annual freshwater demand and renewable emanating from the many concurrent crises and marketsupply (McKinsey and Company 2009). The outlook for failures experienced during the very first decade of theimproved sanitation still looks bleak for over 1.1 billion new millennium, including especially the financial andpeople and 844 million people still lack access to clean economic crisis of 2008. But at the same time, there is drinking water (World Health Organization and UNICEF increasing evidence of a way forward, a new economic2010). Collectively, these crises are severely impacting paradigm one in which material wealth is not deliveredthe possibility of sustaining prosperity worldwide perforce at the expense of growing environmental risks, and achieving the Millennium Development Goals ecological scarcities and social disparities. (MDGs) for reducing extreme poverty. They are also compounding persistent social problems, such as job Mounting evidence also suggests that transitioninglosses, socio-economic insecurity, disease and social to a green economy has sound economic and socialinstability. justification. There is a strong case emerging for a redoubling of efforts by both governments as well The causes of these crises vary, but at a fundamental as the private sector to engage in such an economic level they all share a common feature: the gross transformation. For governments, this would include misallocation of capital. During the last two decades, leveling the playing field for greener products bymuch capital was poured into property, fossil fuels phasing out antiquated subsidies, reforming policiesand structured financial assets with embedded and providing new incentives, strengthening marketderivatives. However, relatively little in comparison was infrastructure and market-based mechanisms, redirecting invested in renewable energy, energy efficiency, public public investment, and greening public procurement. transportation, sustainable agriculture, ecosystem For the private sector, this would involve understandingand biodiversity protection, and land and water and sizing the true opportunity represented by greenconservation. economy transitions across a number of key sectors, and responding to policy reforms and price signals throughMost economic development and growth strategies higher levels of financing and investment.encouraged rapid accumulation of physical, financial and human capital, but at the expense of excessive An era of capital misallocation depletion and degradation of natural capital, which Several concurrent crises have unfolded during the last includes the endowment of natural resources and decade: climate, biodiversity, fuel, food, water, and moreecosystems. By depleting the worlds stock of natural recently, in the global financial system. Acceleratingwealth often irreversibly this pattern of development carbon emissions indicate a mounting threat ofand growth has had detrimental impacts on the well- climate change, with potentially disastrous human being of current generations and presents tremendous consequences. The fuel price shock of 2007-2008 and risks and challenges for the future. The recent multiple the related skyrocketing food and commodity prices, crises are symptomatic of this pattern.14 11. IntroductionBox 1: Managing the population challenge in the context ofsustainable developmentThe link between population dynamics and urbanisation can be a powerful driver of sustainablesustainable development is strong and inseparable, development. Given that in 2008 the share of theas reflected in Principle 8 of the 1992 Rio Declarationurban population has for the first time exceeded theon Environment and Development.share of people living in the rural areas at the global level (UNFPA 2007), a transition to a green economyTo achieve sustainable development and a higher becomes increasingly important. Significantly, inquality of life for all people, States should reduce and the least developed countries where the majorityeliminate unsustainable patterns of production and of people are still living in the rural areas, 2000consumption and promote appropriate demographicto 2010 was the first decade that growth of thepolicies. Rio Declaration, Principle 8 (UN 1992). urban population outpaced the growth of the rural populations. These types of changes at a societalThis year the world population will reach 7 billionlevel can also present opportunities for a greenand by mid century grow to over 9 billion. Contraryeconomy to develop.to previous projections the most recent populationprojections expect continued population growth For example cities can provide essential services,thereafter (UN DESA 2009 and 2011). Population including health and education, at lower costs pergrowth raises the stakes in efforts to reduce poverty. capita due to economies of scale benefits. EfficienciesIt not only increases the challenge of feeding a are also realised in the development of vitalgrowing population, which crucially depends on infrastructure including housing, water, sanitationhigher agricultural output (FAO 2009 and 2010; and transport. Urbanisation can also reduce energyTokgoz and Rosegrant 2011), but also requiresconsumption, particularly in transport and housing,creation of sufficient employment opportunities, and create interactive spaces that further culturalwhich in turn depend on favorable economic outreach and exchange. Realisation of these positivedevelopment (ILO 2011; UNFPA 2011a; Basten et al.benefits requires proactive planning for the future2011; Herrmann and Khan 2008). demographic changes.A transition to a green economy can assist inForward planning by governments and localovercoming the contribution that populationauthorities can address population dynamics in agrowth makes to the depletion of scarce naturalproactive way. For example, one tool available toresources. The worlds least developed countries assist countries is to make better use of available(LDCs) are more strongly affected by environmental population data and conduct a systematicdegradation than most other developing countries population situation analysis (UNFPA 2011b), aiming(UNCTAD 2010a), so therefore have much to gain to highlight how current and projected populationfrom the transition to a green economy.trends affect the development of countries. Such analysis provides the necessary foundation toIn addition, changing spatial distributions of address population dynamics and their links topopulations, driven both by rural to urban migration sustainable development and poverty reductionand by urban growth, are changing environmentalstrategies.impacts and vulnerabilities. When planned, Source: UNFPAExisting policies and market incentives have contributed investment are increasingly being adopted around theto this problem of capital misallocation because they allowworld, especially in developing countries (UNEP 2010).businesses to run up significant, largely unaccounted for,and unchecked social and environmental externalities. To Why is this report needed now?reverse such misallocation requires better public policies,UNEPs report, Towards a Green Economy, aims to debunkincluding pricing and regulatory measures, to change the several myths and misconceptions about greening theperverse incentives that drive this capital misallocationglobal economy, and provides timely and practicaland ignore social and environmental externalities. At theguidance to policy makers on what reforms they needsame time, appropriate regulations, policies and publicto unlock the productive and employment potential ofinvestments that foster changes in the pattern of privatea green economy. 15 12. Towards a green economy Perhaps the most prevalent myth is that there is agriculture, forestry, freshwater, fisheries and energy. an inescapable trade-off between environmentalSustainable forestry and ecologically friendly farming sustainability and economic progress. There is nowmethods help conserve soil fertility and water resources. substantial evidence that the greening of economies This is especially critical for subsistence farming, upon neither inhibits wealth creation nor employment which almost 1.3 billion people depend for their opportunities. To the contrary, many green sectorslivelihoods (UNEP et al. 2008). provide significant opportunities for investment, growth and jobs. For this to occur, however, new enabling Third, it provides guidance on policies to achieve this shift conditions are required to promote such investments in by reducing or eliminating environmentally harmful or the transition to a green economy, which in turn calls for perverse subsidies, addressing market failures created by urgent action by policy makers. externalities or imperfect information, creating market-based incentives, implementing appropriate regulatory A second myth is that a green economy is a luxury only frameworks, initiating green public procurement and by wealthy countries can afford, or worse, a ruse to restrain stimulating investment. development and perpetuate poverty in developing countries. Contrary to this perception, numerous examples of greening transitions can be found in the 1.2 What is a green economy? developing world, which should be replicated elsewhere. Towards a Green Economy brings some of theseUNEP defines a green economy as one that results in examples to light and highlights their scope for wider improved human well-being and social equity, while application.significantly reducing environmental risks and ecological scarcities (UNEP 2010). In its simplest expression, a UNEPs work on green economy raised the visibilitygreen economy is low-carbon, resource efficient, and of this concept in 2008, particularly through a callsocially inclusive. In a green economy, growth in income for a Global Green New Deal (GGND). The GGNDand employment are driven by public and private recommended a package of public investments and investments that reduce carbon emissions and pollution, complementary policy and pricing reforms aimed at enhance energy and resource efficiency, and prevent kick-starting a transition to a green economy, whilethe loss of biodiversity and ecosystem services. reinvigorating economies and jobs and addressing persistent poverty (Barbier 2010a). Designed as a timely These investments need to be catalysed and supported and appropriate policy response to the economicby targeted public expenditure, policy reforms and crisis, the GGND proposal was an early output from the regulation changes. The development path should United Nations Green Economy Initiative. This initiative, maintain, enhance and, where necessary, rebuild coordinated by UNEP, was one of the nine Joint Crisisnatural capital as a critical economic asset and as a Initiatives undertaken by the Secretary-General of the source of public benefits. This is especially important for UN and his Chief Executives Board in response to the poor people whose livelihoods and security depend on 2008 economic and financial crisis.nature. Towards a Green Economy the main output of the Green The key aim for a transition to a green economy is to Economy Initiative demonstrates that the greeningenable economic growth and investment while of economies need not be a drag on growth. On theincreasing environmental quality and social contrary, the greening of economies has the potentialinclusiveness. Critical to attaining such an objective is to to be a new engine of growth, a net generator of decentcreate the conditions for public and private investments jobs and a vital strategy to eliminate persistent poverty. to incorporate broader environmental and social The report also seeks to motivate policy makers to createcriteria. In addition, the main indicators of economic the enabling conditions for increased investments in a performance, such as growth in Gross Domestic Product transition to a green economy in three ways. (GDP) need to be adjusted to account for pollution,resource depletion, declining ecosystem services, and First, the report makes an economic case for shiftingthe distributional consequences of natural capital loss both public and private investment to transform keyto the poor. sectors that are critical to greening the global economy. It illustrates through examples how added employment A major challenge is reconciling the competing through green jobs offsets job losses in a transition to a economic development aspirations of rich and poor green economy. countries in a world economy that is facing increasingclimate change, energy insecurity and ecological scarcity. Second, it shows how a green economy can reduceA green economy can meet this challenge by offering a persistent poverty across a range of important sectors development path that reduces carbon dependency,16 13. Introductionpromotes resource and energy efficiency and lessensavailable to both current and future generations (Pearceenvironmental degradation. As economic growth andet al. 1989).investments become less dependent on liquidatingenvironmental assets and sacrificing environmental Society must decide how best to use its total capitalquality, both rich and poor countries can attain morestock today to increase current economic activities andsustainable economic development.welfare. Society must also decide how much it needs to save or accumulate for tomorrow, and ultimately, for theThe concept of a green economy does not replacewell-being of future generations.sustainable development; but there is a growingrecognition that achieving sustainability rests almost However, it is not simply the aggregate stock of capitalentirely on getting the economy right. Decades ofin the economy that may matter but also its composition,creating new wealth through a brown economy modelin particular whether current generations are using upbased on fossil fuels have not substantially addressed one form of capital to meet todays needs. For example,social marginalisation, environmental degradationmuch of the interest in sustainable development is drivenand resource depletion. In addition, the world is stillby concern that economic development may be leadingfar from delivering on the Millennium Developmentto rapid accumulation of physical and human capital atGoals by 2015. The next section looks at the important the expense of excessive depletion and degradation oflinkages between the concept of a green economy andnatural capital. The major concern is that by irreversiblysustainable development. depleting the worlds stock of natural wealth, todays development path will have detrimental implications forA green economy and sustainable developmentthe well-being of future generations.In 2009, the UN General Assembly decided to hold asummit in Rio de Janeiro in 2012 (Rio+20) to celebrate One of the first economic studies to make thethe 20th anniversary of the first Rio Earth Summit inconnection between this capital approach to sustainable1992. Two of the agenda items for Rio+20 are, Green development and a green economy was the 1989 bookEconomy in the Context of Sustainable DevelopmentBlueprint for a Green Economy (Pearce et al. 1989). Theand Poverty Eradication, and International Framework authors argued that because todays economies arefor Sustainable Development. With the green economy biased towards depleting natural capital to securenow firmly established on the international policy growth, sustainable development is unachievable. Aagenda, it is useful to review and clarify the linkagesgreen economy that values environmental assets,between a green economy and sustainable development. employs pricing policies and regulatory changes to translate these values into market incentives, and adjusts Most interpretations of sustainability take as theirthe economys measure of GDP for environmental losses starting point the consensus reached by the World is essential to ensuring the well-being of current and Commission on Environment and Development (WCED)future generations. in 1987, which defined sustainable development asdevelopment that meets the needs of the present As pointed out by the Blueprint for a Green Economy without compromising the ability of future generationsauthors, a major issue in the capital approach to to meet their own needs (WCED 1987). sustainable development is whether substitution among different forms of capital human capital,Economists are generally comfortable with this broad physical capital and natural capital is possible. Ainterpretation of sustainability, as it is easily translatable strong conservationist perspective might maintain thatinto economic terms: an increase in well-being today the natural component of the total capital stock mustshould not result in reducing well-being tomorrow. Thatbe kept intact, as measured in physical terms. However,is, future generations should be entitled to at least thethis may be questioned in practice, especially in thesame level of economic opportunities and thus at least context of developing countries, if natural capital isthe same level of economic welfare as is available torelatively abundant while physical and human capitalcurrent generations. needs to be developed to meet other human demands. This type of substitution reflects the unfortunate realityAs a result, economic development today must ensurethat the creation of physical capital for example roads,that future generations are left no worse off than current buildings and machinery often requires the conversiongenerations. Or, as some economists have succinctlyof natural capital. While substitution between naturalexpressed it, per capita welfare should not be declining capital and other forms of capital is often inevitable,over time (Pezzey 1989). According to this view, it is the there is often room for efficiency gains. There is also atotal stock of capital employed by the economic system,growing recognition of environmental thresholds thatincluding natural capital, which determines the full would constrain substitution beyond minimum levelsrange of economic opportunities, and thus well-being,needed for human welfare.17 14. Towards a green economyEcosystem goods andBiodiversity Economic values (examples) services (examples) RecreationEcosystems (variety & extent/area) Water regulationAvoiding greenhouse gas emissions by conserving forests: US$ 3.7 trillion (NPV) Carbon storage Food, fiber, fuelSpecies (diversity & abundance) Design inspirationContribution of insect pollinators to agricultural output: ~US$ 190 billion/year Pollination Medicinal discoveriesGenes (variability & population) Disease resistance25-50% of the US$ 640 billion pharmaceutical market is derived from genetic resources Adaptive capacityTable 1: Natural capital Underlying components and illustrative services and valuesSource: Eliasch (2008); Gallai et al. (2009); TEEB (2009) Yet, there has always been concern that some forms ofpurification and waste treatment; wild foods; genetic natural capital are essential to human welfare, particularly resources; biochemicals; wood fuel; pollination; spiritual, key ecological goods and services, unique environments religious and aesthetic values; the regulation of regional and natural habitats, and irreplaceable ecosystemand local climate; erosion; pests; and natural hazards. attributes. Uncertainty over the true value of these The economic values associated with these ecosystem important assets to human welfare, in particular the services, while generally not marketed, are substantial value that future generations may place on them if they(see Table 1). become increasingly scarce, further limits our ability to determine whether we can adequately compensate futureOne major difficulty is that the increasing costs generations for todays irreversible losses in such essentialassociated with rising ecological scarcity are not natural capital. This concern is reflected in other definitionsroutinely reflected in markets. Almost all the degraded of sustainable development. For example, in 1991, theecosystem goods or services identified by the Millennium World Wide Fund for Nature, the International Union forEcosystem Assessment are not marketed. Some goods, Conservation of Nature (IUCN), and UNEP interpretedsuch as capture fisheries, fresh water, wild foods, and the concept of sustainable development as improving wood fuel, are often commercially marketed, but due the quality of human life within the carrying capacity ofto the poor management of the biological resources supporting ecosystems (WWF, IUCN and UNEP 1991).and ecosystems that are the source of these goods, andimperfect information, the market prices do not reflect As this definition suggests, the type of natural capital unsustainable use and overexploitation. that is especially at risk is ecosystems. As explained by Partha Dasgupta (2008): Ecosystems are capital Nor have adequate policies and institutions been assets. Like reproducible capital assets ecosystemsdeveloped to handle the costs associated with depreciate if they are misused or are overused. But they worsening ecological scarcity globally. All too often, differ from reproducible capital assets in three ways: policy distortions and failures compound these (1) depreciation of natural capital is frequentlyproblems by encouraging wasteful use of natural irreversible (or at best the systems take a long timeresources and environmental degradation. The unique to recover); (2) except in a very limited sense, it isntchallenge posed by rising ecological scarcity and possible to replace a depleted or degraded ecosystem inefficient resource and energy use today is to overcome by a new one; and (3) ecosystems can collapse abruptly,a vast array of market, policy, and institutional failures without much prior warning. that prevents recognition of the economic significanceof this environmental degradation. Rising ecological scarcity is an indication that we are irrevocably depleting ecosystems too rapidly, andReversing this process of unsustainable development the consequence is that current and future economicrequires three important steps. First, as argued by the welfare is affected. An important indicator of the Blueprint for a Green Economy authors, improvements in growing ecological scarcity worldwide was provided environmental valuation and policy analysis are required by the Millennium Ecosystem Assessment (MEA) in 2005,to ensure that markets and policies incorporate the full which found that over 60 per cent of the worlds major costs and benefits of environmental impacts (Pearce et al. ecosystem goods and services covered in the assessment 1989; Pearce and Barbier 2000). Environmental valuation were degraded or used unsustainably. and accounting for natural capital depreciation must befully integrated into economic development policy and Some important benefits to humankind fall in thisstrategy. As suggested above, the most undervalued category, including fresh water; capture fisheries; watercomponents of natural capital are ecosystems and18 15. Introductionthe myriad goods and services they provide. Valuingprogress in reversing unsustainable development callsecosystem goods and services is not easy, yet it isfor more widespread interdisciplinary collaborationfundamental to ensuring the sustainability of global to analyse complex problems of environmentaleconomic development efforts.degradation, biodiversity loss and ecosystem decline.A major international research effort supported by UNEP, Interdisciplinary research also needs to determinethe Economics of Ecosystems and Biodiversity (TEEB), isthe thresholds that should govern the transformationillustrating how ecological and economic research canof specific types of natural capital into other forms ofbe used to value ecosystem goods and services, as well capital. For example, how much forestland is allowedas how such valuation is essential for policy making and for conversion into farmland, industrial use or urbaninvestments in the environment (Sukhdev 2008; TEEB development in a given area? How much underground2010). water is allowed for extraction each year? How much and what fish species can be caught in a given season?Second, the role of policy in controlling excessiveWhich chemicals should be banned from productionenvironmental degradation requires implementingand trading? And more important, what are the criteriaeffective and appropriate information, incentives, for setting these thresholds? Once these standardsinstitutions, investments and infrastructure. Better are established, incentive measures at national orinformation on the state of the environment, ecosystemsinternational levels can be devised to ensure compliance.and biodiversity is essential for both private and publicdecision making that determines the allocation ofThe other key to balancing different forms of capitalnatural capital for economic development. The use of recognises that substitutability is a characteristicmarket-based instruments, the creation of markets, and of current technologies. Investing in changing andwhere appropriate, regulatory measures, have a rolesubstituting these technologies can lead to newto play in internalising this information in everydaycomplementarities. Most renewable energy sources,allocation decisions in the economy. Such instrumentssuch as wind turbines or solar panels, considerablyare also important in correcting the market andreduce the amount of natural capital that is sacrificedpolicy failures that distort the economic incentives for in their construction and the lifetime of their operation,improved environmental and ecosystems management.compared to fossil fuel burning technologies. Both of these types of solutions setting thresholds andHowever, overcoming institutional failures and altering technologies are important for achieving aencouraging more effective property rights, good green economy.governance and support for local communities, is alsocritical. Reducing government inefficiency, corruption In sum, moving towards a green economy must becomeand poor accountability are also important in reversinga strategic economic policy agenda for achievingexcessive environmental degradation in many countries. sustainable development. A green economy recognisesBut there is also a positive role for government inthat the goal of sustainable development is improvingproviding an appropriate and effective infrastructurethe quality of human life within the constraints ofthrough public investment, protecting critical the environment, which include combating globalecosystems and biodiversity conservation, creating new climate change, energy insecurity, and ecologicalincentive mechanisms such as payment for ecosystem scarcity. However, a green economy cannot be focusedservices, fostering the technologies and knowledge exclusively on eliminating environmental problems andnecessary for improving ecosystem restoration, and scarcity. It must also address the concerns of sustainablefacilitating the transition to a low-carbon economy. development with intergenerational equity and eradicating poverty.Third, continuing environmental degradation, landconversion and global climate change affect theA green economy and eradicating povertyfunctioning, diversity, and resilience of ecological Most developing countries, and certainly the majority ofsystems and the goods and services they supply. Thetheir populations, depend directly on natural resources.potential long-term impacts of these effects on the health The livelihoods of many of the worlds rural poor are alsoand stability of ecosystems are difficult to quantify andintricately linked with exploiting fragile environmentsvalue. Increasing collaboration between environmentaland ecosystems (Barbier 2005). Well over 600 millionscientists, ecologists and economists will be required toof the rural poor currently live on lands prone toassess and monitor these impacts (MEA 2005; Polaskydegradation and water stress, and in upland areas, forestand Segerson 2009). Such interdisciplinary ecologicalsystems, and drylands that are vulnerable to climaticand economic analysis is also necessary to identify andand ecological disruptions (Comprehensive Assessmentassess the welfare consequences for current and future of Water Management in Agriculture 2007; World Bankgenerations from increasing ecological scarcity. Further 2003). The tendency of rural populations to be clustered19 16. Towards a green economy on marginal lands and in fragile environments is likelynumber of sectors with green economic potential are to be a continuing problem for the foreseeable future, particularly important for the poor, such as agriculture, given current global rural population and poverty trends.forestry, fishery and water management, which have Despite rapid global urbanisation, the rural populationpublic goods qualities. Investing in greening these of developing regions continues to grow, albeit at a sectors, including through scaling up microfinance, is slower rate in recent decades (Population Division of thelikely to benefit the poor in terms of not only jobs, but United Nations Secretariat 2008). Furthermore, aroundalso secure livelihoods that are predominantly based three-quarters of the developing worlds poor still live on ecosystem services. Enabling the poor to access in rural areas, which means about twice as many poor microinsurance coverage against natural disasters people live in rural rather than in urban areas (Chen andand catastrophes is equally important for protecting Ravallion 2007). livelihood assets from external shocks due to changingand unpredictable weather patterns. The worlds poor are especially vulnerable to the climate-driven risks posed by rising sea levels, coastal However, it must be emphasised that moving towards erosion and more frequent storms. Around 14 per cent a green economy will not automatically address of the population and 21 per cent of urban dwellersall poverty issues. A pro-poor orientation must be in developing countries live in low elevation coastalsuperimposed on any green economy initiative. zones that are exposed to these risks (McGranahan et al. Investments in renewable energy, for example, will have 2007). The livelihoods of billions from poor farmers toto pay special attention to the issue of access to clean urban slum dwellers are threatened by a wide range and affordable energy. Payments for ecosystem services, of climate-induced risks that affect food security, watersuch as carbon sequestration in forests, will need to availability, natural disasters, ecosystem stability and focus more on poor forest communities as the primary human health (UNDP 2008; OECD 2008). For example,beneficiaries. The promotion of organic agriculture many of the 150 million urban inhabitants, who are can open up opportunities, particularly for poor small- likely to be at risk from extreme coastal flooding eventsscale farmers who typically make up the majority of the and sea level rise, are likely to be the poor living in cities agricultural labour force in most low-income countries, in developing countries (Nicholls et al. 2007).but will need to be complemented by policies to ensurethat extension and other support services are in place. As in the case of climate change, the link between ecological scarcity and poverty is well-established forIn sum, the top priority of the UN MDGs is eradicating some of the most critical environmental and energy extreme poverty and hunger, including halving the problems. For example, for the worlds poor, globalproportion of people living on less than US$ 1 a day by water scarcity manifests itself as a water poverty 2015. A green economy must not only be consistent with problem. One-in-five people in the developing worldthat objective, but must also ensure that policies and lacks access to sufficient clean water, and about half the investments geared towards reducing environmental developing worlds population, 2.6 billion people, do notrisks and scarcities are compatible with ameliorating have access to basic sanitation. More than 660 million ofglobal poverty and social inequity. 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 countries1.3 Pathways to a green economy have no access to modern energy services, and those consumers who do have access often pay high prices for If the desirability of moving to a green economy is clear erratic and unreliable services. Among the energy poor to most people, the means of doing so is still a work are 2.4 billion people who rely on traditional biomass in progress for many. This section looks at the theory fuels for cooking and heating, including 89 per cent ofof greening, the practice and the enabling conditions the population of Sub-Saharan Africa; and, the 1.6 billion required for making such a transition. However, before people who do not have access to electricity (IEA 2002). embarking on this analysis, the section frames thedimensions of the challenge. Thus, finding ways to protect global ecosystems, reduce the risks of global climate change, improve energy How far is the world from a green economy? security, and simultaneously improve the livelihoods ofOver the last quarter of a century, the world economy has the poor are important challenges in the transition to a quadrupled, benefiting hundreds of millions of people green economy, especially for developing countries.(IMF 2006). However, 60 per cent of the worlds majorecosystem goods and services that underpin livelihoods As this report demonstrates, a transition to a green have been degraded or used unsustainably (Millennium economy can contribute to eradicating poverty. A Ecosystem Assessment 2005). This is because the20 17. IntroductionBox 2: Towards a green economy A twin challengeMany countries now enjoy a high level of health, education, and potable water. The challengehuman development but at the cost of a for countries is to move towards the origin oflarge ecological footprint. Others have a very the graph, where a high level of humanlow footprint, but face urgent needs todevelopment can be achieved within planetaryimprove access to basic services such as boundaries. 12UNDP threshold for high human development African countries Asian countriesEcological footprint (global hectares per capita) European countries10 Latin American and Caribbean countries North American countries Oceanian countries 8 6World average biocapacity per capita in 1961 4 World average biocapacity per capita in 20062 High human development within the Earths limits 0.2 0.4 0.6 0.8 1.0 United Nations Human Development IndexSource: Global Footprint Network (2010); UNDP (2009)economic growth of recent decades has been scarcity and social inequity are clear indicators of anaccomplished mainly through drawing down natural economy that is not sustainable.resources, without allowing stocks to regenerate, andthrough allowing widespread ecosystem degradationFor the first time in history, more than half of the worldand loss.population lives in urban areas. Cities now account for 75 per cent of energy consumption (UN Habitat 2009) andFor instance, today only 20 per cent of commercial fishof carbon emissions (Clinton Foundation 2010).1 Risingstocks, primarily low priced species, are underexploited;and related problems of congestion, pollution and poorly52 per cent are fully exploited with no further room for provisioned services affect the productivity and healthexpansion; about 20 per cent are overexploited; and 8of all, but fall particularly hard on the urban poor. Withper cent are depleted (FAO 2009). Water is becomingapproximately 50 per cent of the global population nowscarce and water stress is projected to increase withliving in emerging economies (World Bank 2010) that arewater supply satisfying only 60 per cent of worldrapidly urbanising and developing, the need for green citydemand in 20 years (McKinsey and Company 2009).planning, infrastructure and transportation is paramount.Agriculture saw increasing yields primarily due to theuse of chemical fertilisers (Sparks 2009), yet has resultedThe transition to a green economy will vary considerablyin declining soil quality, land degradation, (Mller and among nations, as it depends on the specifics of eachDavis 2009) and deforestation which resulted in 13 countrys natural and human capital and on its relativemillion hectares of forest lost annually over 1990-2005level of development. As demonstrated graphically, there(FAO 2010). Ecological scarcities are seriously affectingare many opportunities for all countries in such a transitionthe entire gamut of economic sectors that are the(see Box 2). Some countries have attained high levels ofbedrock of human food supply (fisheries, agriculture, 1.For a critique of these figures, see Satterthwaite, D. (2008), Citiesfreshwater, and forestry) and a critical source of contribution to global warming: notes on the allocation of greenhouse gaslivelihoods for the poor. At the same time, ecological emissions, Environment and Urbanization, 20 (2): 539-549..21 18. Towards a green economy human development, but often at the expense of theirFor some time, economists such as Kenneth Arrow natural resource base, the quality of their environment,have shown that competitive firms and competitive and high greenhouse gas (GHG) emissions. The challengemarkets do not necessarily produce the optimal amount for these countries is to reduce their per capita ecologicalof innovation and growth within an economy (Arrow footprint without impairing their quality of life.1962; Kamien and Schwartz 1982).3 Public intervention within an economy is therefore critically important for Other countries still maintain relatively low per capitathese purposes. This is because industries in competitive ecological footprints, but need to deliver improved levelsmarkets have few incentives to invest in technological of services and material well-being to their citizens. Theirchange or even in product innovation, as any returns challenge is to do this without drastically increasingwould be immediately competed away. This is one of the their ecological footprint. As the diagram illustrates, one best-known examples of market failure in the context of these two challenges affects almost every nation, andof competitive markets, and provides the rationale for globally, the economy is still very far from being green. various forms of interventions (Blair and Cotter 2005). Enabling conditions for a green economy Examples of spurring growth and innovation can be seen To make the transition to a green economy, specific from histories of many recently emerged economies. In enabling conditions will be required. These enablingthe 1950s and 1960s, the Japanese and South Korean conditions consist of national regulations, policies, governments chose the direction of technological subsidies and incentives, as well as international market change through importing the technology of other and legal infrastructure, trade and technical assistance. countries (Adelman 1999). This changed in the 1970s Currently, enabling conditions are heavily weighted when these economies shifted to aggressive policies towards, and encourage, the prevailing brown economy, for encouraging energy-efficient innovation. Shortly which depends excessively on fossil fuels, resource afterwards, Japan was one of the leading economies depletion and environmental degradation.in the world in terms of research and development (R&D) investment in these industries (Mowery 1995).4 For example, price and production subsidies for fossilThis pattern of directed spending and environmental fuels collectively exceeded US$ 650 billion in 2008 (IEApolicies is being repeated today across much of Asia. et al. 2010). This high level of subsidisation can adverselyThe cases of South Korea and China in particular are affect the adoption of clean energy while contributingillustrative, where a large proportion of their stimulus to more greenhouse gas emissions. In contrast, enabling packages was directed at a green recovery and has conditions for a green economy can pave the way for now been instituted into longer-term plans for retooling the success of public and private investment in greeningtheir economies around green growth (Barbier 2010b). the worlds economies (IEA 2009). At a national level, examples of such enabling conditions are: changes toThus, moving towards a green development path is almost fiscal policy, reform and reduction of environmentallycertainly a means for attaining welfare improvements across harmful subsidies; employing new market-based a society, but it is also often a means for attaining future instruments; targeting public investments to green keygrowth improvement. This is because a shift away from basic sectors; greening public procurement; and improving production modes of development based on extraction environmental rules and regulations, as well as their and consumption and towards more complex modes of enforcement. At an international level, there are alsodevelopment can be a good long-term strategy for growth. opportunities to add to market infrastructure, improveThere are several reasons why this shift might be good for trade and aid flows and foster greater internationallong-term competitiveness as well as for social welfare. cooperation (United Nations General Assembly 2010). First, employing strong environmental policies can drive At the national level, any strategy to green economiesinefficiencies out of the economy by removing those should consider the impact of environmental policiesfirms and industries that only exist because of implicit within the broader context of policies to address subsidies in under-priced resources. The free use of innovation and economic performance (Porter and Van air, water and ecosystems is not a value-less good for der Linde 1995).2 In this view, government policy plays a any actor in an economy and amounts to subsidising critical role within economies to encourage innovationnegative net worth activities. Introducing effective and growth. Such intervention is important as a means regulation and market-based mechanisms to contain for fostering innovation and for choosing the direction of change (Stoneman ed. 1995; Foray ed. 2009).3. It has been known since at least the time of the seminal work of Kenneth Arrow (1962) and the structural work of Kamien and Schwartz (1982) that competitive firms and competitive markets need not produce the optimal 2.This point has been debated since at least the time of the initial amount of innovation and growth within an economy. statement of the Porter Hypothesis. Porter argued then that environmental 4. By 1987, Japan was the world leader in R&D per unit GDP (at 2.8 per cent) regulation might have a positive impact on growth through the dynamic and the world leader in the proportion of that spent on energy-related R&D effects it engendered within an economy.(at 23 per cent).22 19. Introductionpollution and limit the accumulation of environmental both a macroeconomic level and a sectoral level will beliabilities drives the economy in a more efficient direction. essential to informing and guiding the transition.Second, resource pricing is important not just forTo complicate matters, conventional economic indicators,the pricing of natural capital and services, but also such as GDP, provide a distorted lens for economicfor pricing of all the other inputs within an economy.performance, particularly because such measures fail toAn economy allocates its efforts and expenditures reflect the extent to which production and consumptionaccording to relative prices, and under-priced resourcesactivities may be drawing down natural capital. By eitherresult in unbalanced economies. Policy makers shoulddepleting natural resources or degrading the ability ofbe targeting the future they wish their economies toecosystems to deliver economic benefits, in terms ofachieve, and this will usually require higher relativeprovisioning, regulating or cultural services, economicprices on resources. An economy that wishes to developactivity is often based on the depreciation of natural capital.around knowledge, R&D, human capital and innovationshould not be providing free natural resources. Ideally, changes in stocks of natural capital wouldbe evaluated in monetary terms and incorporatedThird, employing resource pricing drives investmentsinto national accounts. This is being pursued in theinto R&D and innovation. It does so because avoidingongoing development of the System of Environmentalcostly resources can be accomplished by researching and Economic Accounting (SEEA) by the UN Statisticaland finding new production methods. This will include Division, and the World Banks adjusted net nationalinvestment in all of the factors (human capital and savings methods (World Bank 2006). The wider useknowledge) and all of the activities (R&D and innovation) of such measures would provide a better indicationlisted above. Moving towards more efficient resourceof the real level and viability of growth in income andpricing is about turning the economys emphasis employment. Green Accounting or Inclusive Wealthtowards different foundations of development. Accounting are available frameworks that are expectedto be adopted by a few nations5 initially and pave theFourth, these investments may then generate way for measuring the transition to a green economy atinnovation rents. Policies that reflect scarcities that the macroeconomic level.are prevalent in the local economy can also reflectscarcities prevalent more widely. For this reason, aHow might a green economy perform over time?solution to a problem of resource scarcity identified In this report, the macroeconomic Threshold 21 (T21)locally (via R&D investments) may have applicabilitymodel is used to explore the impacts of investments inand hence more global marketability. The first solution greening the economy against investments in businessto a widely experienced problem can be patented,as usual. The T21 model measures results in terms oflicensed and marketed widely. traditional GDP as well as its affects on employment,resource intensity, emissions, and ecological impacts.6Fifth, aggressive environmental regulation mayanticipate future widely-experienced scarcities and The T21 model was developed to analyse strategiesprovide a template for other jurisdictions to follow. Suchfor medium to long-term development andpolicy leadership can be the first step in the processpoverty reduction, most often at the national level,of innovation, investment, regulation and resourcecomplementing other tools for analysing short-termpricing described above (Network of Heads of European impacts of policies and programmes. The model isEnvironment Protection Agencies 2005).particularly suited to analysing the impacts of investmentplans, covering both public and private commitments.In sum, the benefits from a strong policy framework The global version of T21 used for purposes of this reportto address market failures and ecological scarcitiesmodels the world economy as a whole to capture thewill flow down the environment pathway that comes key relationships between production and key naturalfrom altering the direction of an economy. Policies and resource stocks at an aggregate level.market-based mechanisms that enhance perceivedresource prices creates incentives to shift the economy The T21 model reflects the dependence of economiconto a completely different foundation one based more production on the traditional inputs of labour and physicalon investments in innovation and its inputs of humancapital, as well as stocks of natural capital in the form ofcapital, knowledge, and research and development.5.World Bank, together with UNEP and other partners, have recently(at Nagoya, CBD COP-10, October 2009) announced a global project onHow to measure progress towards a green economy Ecosystem Valuation and Wealth Accounting which will enable a groupIt is difficult, if not impossible, to manage what is not of developing and developed nations to test this framework and evolvea set of pilot national accounts that are better able to reflect and measuremeasured. Notwithstanding the complexity of an overallsustainability concerns.transition to a green economy, appropriate indicators at6. See the Modelling chapter for details on the T21 model. 23 20. Towards a green economy resources, such as energy, forest land, soil, fish and water.being and social equity, and reducing environmental Growth is thus driven by the accumulation of capital risks and ecological scarcities. Across many of these whether physical, human or natural through investment, sectors, greening the economy can generate consistent also taking into account depreciation or depletion ofand positive outcomes for increased wealth, growth in capital stocks. The model is calibrated to reproduce the pasteconomic output, decent employment and reduced 40-year period of 1970-2010; simulations are conducted poverty. over the next 40-year period, 2010-2050. Business-as-usual projections are verified against standard projections from In Part I, the report focuses on those sectors derived from other organisations, such as the United Nations Population natural capital agriculture, fishing, forests and water. Division, World Bank, OECD, the International Energy These sectors have a material impact on the economy as Agency, and the Food and Agriculture Organization. they form the basis for primary production, and becausethe livelihoods of the rural poor depend directly upon The inclusion of natural resources as a factor of production them. The analysis looks at the principal challenges distinguishes T21 from all other global macroeconomicand opportunities for bringing more sustainable and models (Pollitt et al. 2010). Examples of the direct equitable management to these sectors, and reviews dependence of output (GDP) on natural resources areinvestment opportunities to restore and maintain the the availability of fish and forest stocks for the fisheries ecosystem services that underpin these sectors. In so and forestry sectors, as well as the availability of fossildoing, the chapters highlight several sector-specific fuels to power the capital needed to catch fish andinvestment opportunities and policy reforms that are harvest timber, among others. Other natural resourcesof global importance as they appear replicable and and resource efficiency factors affecting GDP includescalable in the goal to transition to a green economy. water stress, waste recycle and reuse and energy prices. 7 In Part II, the report focuses on those sectors that may be Based on existing studies, the annual financing demandcharacterised as built capital, traditionally considered to green the global economy was estimated to be in thethe brown sectors of the economy. In these sectors range US$ 1.05 to US$ 2.59 trillion. To place this demand in such as transportation, energy and manufacturing perspective, it is about one-tenth of total global investment the report finds large opportunities for energy and per year, as measured by global Gross Capital Formation.resources savings. These savings, it is argued, can be Taking an annual level of US$ 1.3 trillion (2 per cent of scaled up and become drivers of economic growth and global GDP) as a reference scenario, varying amounts of employment, as well as having important equity effects investment in the 10 sectors covered in this report werein some cases. Resource efficiency is a theme that has modelled to determine impact on growth, employment, many dimensions as it cuts across energy efficiency in resource use and ecological footprint. The results of the manufacture and habitation, materials efficiency in model, presented in more detail in the modelling chapter, manufacture, and better waste management. suggest that over time investing in a green economy enhances long-term economic performance. Significantly,Finally, after providing an in-depth overview of the it does so while enhancing stocks of renewable resources,modelling conducted for this report and before reducing environmental risks, and rebuilding capacity to examining options for financing the green economy, generate future prosperity. These results are presented in a Part III focuses on enabling conditions for ensuring disaggregated form for each sector to illustrate the effects a successful transition to a green economy. These of this investment on income, employment and growth, include appropriate domestic fiscal measures and policy and more comprehensively, in the modelling chapter.reforms, international collaboration through trade,finance, market infrastructure, and capacity buildingsupport. Much has been said about the potential for a 1.4 Approach and structuregreen economy to be used as a pretext for imposing Towards a green economyaid conditionalities and trade protectionism. This reportargues that to be green, an economy must not only This report focuses on 10 key sectors considered to be be efficient, but also fair. Fairness implies recognising driving the defining trends of the transition to a green global and country level equity dimensions, particularly economy. These trends include increasing human well- in assuring a just transition to an economy that is low-carbon, resource efficient, and socially inclusive. These 7. The T21 analysis purposely ignores issues such as trade and sources of enabling conditions for a fair and just transition are investment financing (public vs private, or domestic vs foreign). As a result, the analysis of the potential impacts of a green investment scenario at adescribed and addressed at length in the final chapters global level are not intended to represent the possibilities for any specificof this report before conclusions, along with the steps country or region. 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Asad Naqvi and Nicolas Bertrand (in the initial stages of the Richard Piechocki (Rabobank Nederland), Lara Yacob (Robeco), project) of UNEP managed the chapter, including the handlingand Daniel Wild (Sustainable Asset Management AG) provided of peer reviews, interacting with the coordinating author oninformation for some case studies and success stories. Annie revisions, conducting supplementary research and bringing the Haakenstad, Waqas Rana, Zainab Soomar, Pratyancha Pardeshi chapter to final production. Derek Eaton reviewed and editedand Marco Portugal provided valuable help in collecting data the modelling section of the chapter. Sheng Fulai conducted and evidence. Ivo Mulder (UNEP) facilitated the coordination preliminary editing of the chapter. with investment institutions. The following individuals contributed to different sections ofWe would like to thank the many colleagues and individuals the chapter through research and writing: Sithara Atapattuwho commented on various drafts and provided suggestions (formerly with International Water Management Institute and including Ana Luca Iturriza (ILO), Charles Arden-Clarke (UNEP), now Deputy Team Leader on the Asian Development BankArab Hoballah (UNEP), Peter Gilruth (UNEP), Tessa Goverse (UNEP), project Strengthening Capacity for Climate Change AdaptationAnn Herbert (ILO), Ulrich Hoffmann (UNCTAD), Anne-Marie Izac in Sri Lanka), Andrea Bassi (Millennium Institute), Patrick Binns (CGIAR), Elwyn Grainger-Jones (IFAD), Harald Kaechele (Leibniz- (Millennium Institute), Lim Li Ching (Third World Network), Centre for Agricultural Landscape Research, ZALF), Alexander Maria Fernandez (formerly with Center for Tropical AgricultureKasterine (ITC), Rashid Kaukab (CUTS - Geneva), Kristen Kurczak (CIAT) and now with Rural Innovation, Gender and Participation, (UNEP), James Lomax (UNEP), Robert McGowan (Independent Lima, Peru), Shahrukh Rafi Khan (Professor of Economics, MountExpert), Christian Nellemann (UNEP/GRID-Arendal), Rajendra Holyoke College), Dekshika Charmini Kodituwakku (Consultant Paratian (ILO), Michaela Pfeiffer (WHO), Philip Riddell (Independent on Forestry and Environmental Management, Mandurah, Expert), Gunnar Rundgren (Independent Expert), Nadia El-Hage Australia), Rattan Lal (Carbon Sequestration Management Center, Scialabba (FAO), John D. Shilling (MI), Roland Sundstrm (IFAD), Ohio State University), Adil Najam (Director, Pardee Center for Naoufel Telahigue (IFAD), Sophia Twarog (UNCTAD), Justin the Study of the Longer-Range Future, Boston University), AsadPerrettson (Novozymes), Katja Bechtel (CropLife International), Naqvi (UNEP), Peter Neuenschwander (International Institute Dr. Babatunde Osotimehin (UNFPA), Mayumi Sakoh (World of Tropical Agriculture), Jyotsna Puri (UNEP), Manuele Tamo Society for the Protection of Animals), Morgane Danielou (Interna (International Institute of Tropical Agriculture), and Sbastientional Fertiliser Industry Association) and Ylva Stiller (Syngenta). Copyright United Nations Environment Programme, 2011 Version -- 02.11.201132 28. AgricultureContentsList of acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Key messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .361Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .381.1General background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381.2Conventional/industrial agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401.3Traditional/small farm/subsistence agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411.4The greening of agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422Challenges and opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .442.1Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442.2Opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483The case for greening agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .503.1The cost of environmental degradation resulting from agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503.2Investment priorities for greening agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513.3The benefits of greening agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573.4Modelling: Future scenarios for green agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614Getting there: Enabling conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .644.1Global policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644.2National policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654.3Economic instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664.4Capacity building and awareness-raising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 33 29. Towards a green economy List of figures Figure 1: Total average contribution to poverty reduction from growth of agricultural, remittance and non-farm incomes in selected countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Figure 2: Contribution of agriculture to GDP and public expenditure on agriculture as a proportion of agricultural GDP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Figure 3: Global trends in cereal and meat production, nitrogen and phosphorus fertiliser use, irrigation and pesticide production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Figure 4: Regional distribution of small farms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Figure 5: Distribution of population by age in more developed and less developed regions (1950-2300) . . . . 44 Figure 6: Urban and rural population trends in developing regions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Figure 7: Trends in food commodity prices, compared with trends in crude oil prices . . . . . . . . . . . . . . . . . . . 45 Figure 8: Percentage of country populations that will be water stressed in the future. . . . . . . . . . . . . . . . . . . . . . . . 46 Figure 9a-b: The makeup of total food waste . . . . . . . . . . . . . . .