MODULE 1

INTRODUCTION & THE WORLD DEVELOPMENT SCENARIO

OVERVIEW

MODULE OUTLINEIntroduction

Development and the environment

Hidden costs

Resource decoupling

Resource Efficiency And Resource Consumption Increased

Need for raising resource productivity

A vicious cycle of growth

Why not grow now and clean up later

Virtuous cycle

A virtuous cycle of green growth systemic reforms

Conclusion: The idea of green growth

References

INTRODUCTIONAnalysis of the world development scenario reveals thatthe world economy has been transformed over the last25 years. Computing, communications, biotechnology,materials science and other fields are in the midst oftechnological revolutions, greatly expanding humanity’sproductive capacity.

World output has more than doubled since 1990,accompanied by rising international flows of knowledge,trade and capital, as well as by enormous structuralchanges (GCECC 2014).

Likewise, developing economies have grown inimportance with their share of global GDP rising fromjust over a quarter to more than two-fifth over thisperiod.

The number of people living in urban areas surged bytwo- third, to more than half the world’s population.

Besides, developing countries – the poorest and mostpopulous region of the world – have been at the heart ofmany of these changes. Middle-income countries’ outputhas more than tripled since 1990, and low-incomecountries’ has more than doubled. Growth acceleratednot only in large emerging economies such (as China andIndia), but also in many smaller and poorer countries inAsia, Africa and Latin America.

Considering the case of Asia and Pacific economies, forthe last two decades, the growth rates of Asian andPacific economies have been among the highest in theworld, and the positive impacts of this economicexpansion have been significant.Between 1990 and 2005, the region’s population livingin extreme poverty—on less than $1.25 per day—fellfrom 1.5 billion to 979 million (UN and ADB 2012).While during this period, economic growth has liftedmore than 660 million people out of poverty and hasraised the income levels of millions more, but growth hastoo often come at the expense of the environment.

A variety of market, policy, and institutional failures mean that theearth’s natural capital tends to be used in ways that areeconomically inefficient and wasteful, without sufficient reckoningof the true social costs of resource depletion and without adequatereinvestment in other forms of wealth.

The problem with natural resource depletion and degradationarises due to its inefficient use. This inefficiency stems partly fromthe fact that many natural resources are common property, soconsumption by one person precludes consumption by another, andit is hard to exclude potential users. Open access regimes forcommon property create incentives to use up such resources asquickly as possible.

Open access fisheries are a classic example in which catch perfisher and per vessel has been declining steadily because ofoverfishing, and continued depletion threatens the livelihood ofmore than 100 million people and the food security of many more.

Policy failures (for instance, perverse subsidies) exacerbatecommon property problems, yet substantial resources are allocatedto environmentally harmful price support schemes. Global subsidiesto fisheries are estimated at $10 billion to $30 billion and are partlyto blame for the six fold increase in the fleet capacity index between1970 and 2005 (World Bank and FAO 2009).

In Mexico, subsidies for energy used in irrigation,amounting to around 1 percent of GDP, are exacerbatingexcessive groundwater withdrawals and the depletion ofkey aquifers. India suffers from the same problem inaddition to spending some 2 per- cent of GDP on afertilizer subsidy overly weighted in favour of nitrogen;the resulting use of fertilizer is causing serious pollutionproblems.

Not only this, production and consumption processes are oftenwasteful, too. This is particularly obvious in the energy sector.Existing energy efficiency technologies can cost-effectively reduceenergy use in new buildings by at least 30 percent. In fact, makingnew buildings in China more energy efficient would reduce energycosts by more than 50 percent, while increasing construction costsby only 10 percent. Waste also plagues food production.

Some 15 to 30 percent of food produced in developing countries islost before it reaches the market due to poor storage and transportfacilities. In high-income countries, meanwhile, one third of food iswasted through losses in supermarkets and homes and “platewaste”.

Income and population growth have also stretched water supplies.Water withdrawals have tripled in the past 50 years, leading towater scarcity and groundwater depletion.

Withdrawals are projected to increase in developing countries byanother 50 percent by 2025, by which time roughly 5.5 billionpeople—two thirds of the projected global population—will live inareas facing moderate-to-severe water stress.

Growth has similarly strained ecosystems, with roughly 60 percentof ecosystem services now of lower quality than 50 years ago.Additionally, the current rate of species extinction, stemming mainlyfrom habitat loss and degradation, is 100 to 1,000 times higher thanbefore humans walked the planet. In 2008, 875 species becameextinct, and more than 17,000 others are at high risk (IUCN 2009).

Lastly, energy prices are likely to be high in the future,(GCECC 2014) because oil resources that are easy andcheap to extract and use have already been extracted,and the world is now turning toward fossil fuels that aremore expensive— and more damaging to theenvironment—such as shale gas, tar sands, oil from deepoffshore wells, or even liquefied coal.Without significant changes in energy policy, theamount of resources the world economy will have todedicate to fossil fuel extraction and energy production islikely to increase substantially, making higher energyefficiency even more desirable in the future than it istoday.

All these failures threaten the long-term sustainabilityof growth and progress made on social welfare.Moreover, despite the gains from growth, 1.3 billionpeople still do not have access to electricity, 2.6 billionstill have no access to sanitation, and 900 million lacksafe, clean drinking water.

Environmental consequences of them has seriousimplications in terms of quality of life discussed in thefollowing slides.

DEVELOPMENT AND THE ENVIRONMENT

Carbon dioxide emissions are accumulating in the atmosphere,approaching a level that will make it impossible to maintain globalmean temperature below 2°C in excess of the preindustrial level,even though the probability of irreversible environmental changes isincreasing with temperature (for example, rapid ice loss inGreenland and forest die- back in the Amazon).

Carbon dioxide is also affecting the world’s oceans. Because ofglobal warming, we have already committed to high probabilities ofcoral bleaching and mortality by the late twenty-first century, whichwill significantly harm reef ecosystems

The health damages caused by local air pollution areoften very large (UN and ADB 2012). For example, inChina, PM2.5 pollution has been linked to 1.23 millionpremature deaths in 2010 (median estimate) – or, put inmonetary terms, damages equivalent to 9.7–13.2% ofChina’s GDP. The problem is so severe that curbing localair pollution has become one of the major items on thegovernment’s policy agenda, driving plans to curb China’scoal consumption.In India, PM2.5 pollution is associated with more than627,000 premature deaths in 2010 (median estimate),equivalent to 5.5–7.5% of GDP.

The concurrent acidification of oceans, which absorbabout one quarter of the excess carbon dioxide in theatmosphere, is threatening marine food webs and couldundermine the global fishing industry and food security.

The pollution emission by the high income, middleincome and low income countries has never been equal.

The high income countries have the highest per capitaemission of CO2 followed by the middle incomecountries and then by the low income countries. Thefollowing figure makes the picture clear.

In addition to the environmental degradation, thedeveloping countries also face particular challenges.First, in the absence of strong governance, naturalresource abundance tends to foster problems such ascorruption, social strife over rents and other effects –collectively labelled the “natural resource curse” – thatlead to worse development outcomes. In practice, fastergrowth associated with mineral booms has often hadonly weak links to job creation and poverty reduction.Second, many of these countries are not saving enoughto replace the depletion of their natural assets withhuman capital, through skills development, healthimprovements and new infrastructure, for example. Insuch cases, the total stock of wealth is falling, andpresent prosperity masks the likelihood of a poorerfuture.

Third, if the rest of the world credibly commits tocurbing fossil fuel use, these resource-rich countries facethe prospect of reduced demand and lower prices forfossil fuels in the future.

It is therefore crucial that they make the most of theboom they are enjoying today to build up their humanand other capital and prepare for the transition that theywill surely have to undertake in the coming decades.

The IPCC (IPCC 2015) in its assessment report haveidentified risks faced by the developing countries invarious continents at various levels of temperature rise(table 1).

The risks range from (please see the table in theprevious slide) water stress, risks of malaria, reduction incrop and inundation of infrastructure in the small islandsin the event of the sea level rise.

Thus, the links between the economic and social pillars ofsustainable development are generally self-reinforcing. But the storyis not so simple when it comes to the economic and environmentalpillars (Fig. 2).

Economic growth causes environmental degradation—or has formuch of the past 250 years—driven by market failures andinefficient policies. As with inequality, overall environmentalperformance does not first get worse and then improve withincome. Of course, some local and visible environmental publicgoods do worsen at first and eventually improve with income—typically local air quality.

But this is not true of local pollutants with invisible or long-termimpacts (such as the accumulation of pesticides and toxic chemicalsin land and water) or global pollutants (such as greenhouse gases inthe atmosphere). These often get worse with higher income.

FIGURE 2: THREE PILLARS OFSUSTAINABLE DEVELOPMENT

It is becoming increasingly clear that our currentgrowth-fixated economies, built on the exploitation offinite resources and emission-intensive energy, are nolonger sustainable. Not only that, but in recent years thiseconomic model has not discernibly increased prosperityor wellbeing for most people nor found a way todecouple economic growth from resource consumption.

Despite remarkable economic performance in recentdecades – at least, measured in terms of GDP growth inmany countries – it has not led to greater prosperity forall.

Most economic development and growth strategiesencouraged rapid accumulation of physical, financial andhuman capital, but at the expense of excessive depletionand degradation of natural capital, which includes theendowment of natural resources and ecosystems.

By depleting the world’s stock of natural wealth – oftenirreversibly – this pattern of development and growthhas had detrimental impacts on the well- being ofcurrent generations and presents tremendous risks andchallenges for the future. The recent multiple crises aresymptomatic of this pattern.

HIDDEN COSTSAs a target for policymakers focusing on short-termeconomic gains, GDP, a measure of economic activity, isoften misused as an indicator of country’s overalldevelopment status – leading to rising hidden costs.

Firstly, the “hidden costs” of economic growth such asenvironmental degradation and resource depletion areexcluded from GDP figures – are economically significant.For example, air, water pollution and soil degradation hascost China nearly 10 percent of its GDP over the pastdecade, while the total cost of climate change isestimated to represent five percent of world GDPannually for the foreseeable future, unless action istaken.

Second, the policy focus on short-term GDP gains hasundervalued or ignored many socially-desirable, andeconomically-important activities, especially thoseactivities that take place outside markets. Theseeconomic activities include unpaid or underpaid work inthe workforce or at home, or the services provided to theeconomy by nature (ecosystem services), such aspurifying water or absorbing pollutants.

Rising GDP, while highly correlated to someimprovements in quality of life, also provides amisleading picture. The “net growth” of the socially-desirable services produced in an economy is often muchlower than statistical GDP growth.

RESOURCE DECOUPLINGAs GDP figures include “defensive expenditures” suchas the costs of dealing with crime, environmentalcleanups, pollution control, and medical treatment, theymask key trends that impact directly on quality of life andlong-term prospects for growth. While quality of life maybe improving for some sectors of the population, GDPfigures can also mask differences in quality of life.

In the context of resource productivity, decouplingrefers to the amount of materials used in relation toeconomic output. According to UNEP (UNEP 2011),“resource decoupling means reducing the rate of use of(primary) resources per unit of economic activity”.

This dematerialisation is based on using less material, energy,water and land resources for the same economic output. Resourcedecoupling leads to an increase in the efficiency with whichresources are used.

Two types of resource decoupling need to be distinguished:relative and absolute decoupling. Relative decoupling means thatmaterial consumption is increasing at a pace slower than theeconomic output.

This is a good start towards sustainable developmentbut not sufficient in the long run, as environmentalpressures continue to increase. Given that environmentalpressures are already above sustainable levels on theglobal scale, absolute decoupling must be the objective.

Absolute decoupling can be achieved when GDP growswhile material use and associated environmentalpressure decrease in absolute terms.

RESOURCE EFFICIENCY AND RESOURCE CONSUMPTION INCREASED

The world’s economy achieved a relative decoupling onthe global level; today, we extract around 40% moreeconomic value from each tonne of raw material.

However, these efficiency gains have been undermineddue to economic growth of 150% in the same period,which lead to an actual increase in materialconsumption.

Therefore, the required absolute reduction of resourceuse on the global level is still far from being achieved.

NEED FOR INCREASING RESOURCE PRODUCTIVITYAs a consequence, increased resource productivity hasto become the main feature of technological progress,with incentives for those who are more productive withscarce resources. This will stimulate our economies inmany ways, e.g. in terms of higher economic multipliereffects as well as the creation of green jobs.By turning innovations toward higher resource andenergy productivity, ecological restraints can be reducedwithout touching the economic and social sustainability.Although this is a longer term process, it can beaccelerated by a switch of economic policy from fosteringlabour productivity to fostering capital and resourceproductivity.

A VICIOUS CYCLE OF GROWTHAn excessive focus on maximizing short-term GDPgrowth is shaping an economic expansion that has liftedmany out of poverty. At the same time, persistentpoverty and inequality and resource constraints are signsof sustainable development.

Greening of Economic Growth Series: Shifting fromquantity to quality: Growth with equality, efficiency,sustainability and dynamism of a “vicious cycle” that isdriven by the exploitation of human and natural capital(the following slide).

FIGURE 3: VICIOUS CYCLE OF GROWTH

WHY NOT GROW NOW AND CLEAN LATERA “grow now, clean up later” strategy relies on thebelief that the environment being a superior commoditywill improve with the rise in incomes. However, there areserious limitations in the approach.

First, that the pollution has serious impact on the healthof the people especially the poor who are not able toprotect themselves.

Second, it is more economical to reduce or preventpollution at an early stage than to incur higher cleanercost at the later stage.

VIRTUOUS CYCLEQuality of growth: Transforming a vicious cycle ofexploitation into a virtuous cycle of investment – withpeople at the centre.

Improving the quality of growth seeks to align growthoutcomes with the objectives of sustainabledevelopment – placing the goal of improving humanwell-being within planetary boundaries at the heart ofeconomic growth strategies.

Well-being depends on meeting basic needs. Thesebasic needs can be objectively defined – including forexample, access to water, energy and food.

FIGURE 4: VIRTUOUS CYCLE OF GROWTH

A VIRTUOUS CYCLE FOR GREEN GROWTH– SYSTEMIC REFORM

Sustainable development will remain elusive while theenvironmental and social costs of economic growth are externalizedand disproportionately borne by those who have least benefited.

Price signals, which are reflective of policies, institutions,technologies, infrastructure and social preferences, must be moreclosely aligned to sustainable development objectives.

Economic growth must be driven by investment flows that promoteinclusive and sustainable development outcomes.

Even though there is upward pressure on the prices ofenergy and several kinds of commodities, green growthwill not take place automatically without makingfundamental economic transformations.

In particular, there is a need to close two gaps: (a) thetime gap between short-term costs and long-termbenefits of investments that reduce environmentalpressures; and (b) the price gap between market pricesand the economic value of ecosystem goods andservices, which reduces the incentives for resourcesavings or investment in natural capital.

CONCLUSION :THE IDEAOF GREEN GROWTH

Green growth is a matter of both economic policy and sustainabledevelopment policy. It tackles two key imperatives together: thecontinued inclusive economic growth needed by developingcountries to reduce poverty and improve wellbeing; and improvedenvironmental management needed to tackle resource scarcitiesand climate change.

When green growth began to be promoted through the 2008-9economic stimulus packages, some governments approached it froma short-term growth perspective – the potential to boost jobs andincomes through increased investment in some green (notably low-carbon) technologies.

Others approach green growth from an environmentalperspective – the potential to internalise environmentalexternalities by mainstreaming sustainable developmentrequirements into economic decision-making, notablythrough resource pricing and land use/infrastructurechoices.

Another imperative, of equity and inclusion, has morerecently been expressed, especially by developingcountries – the notion that green growth should servethose excluded by the current economic system.The informal economy is very large in many developingcountries and its potentials and hazards need to informany transition to green growth in order to deliver moreand better jobs and resilient livelihoods for poor peopleThus there is growing convergence around the notionthat the current economic system is not onlyunsustainable and inefficient in its resource use, butmoreover is inequitable in its distribution of costs andbenefits. Hence, pursuing green growth is an imperativerather than a choice.

Developing countries are the key to achieving global green growthin two major ways. Firstly, the potential economic and social impactsof environmental degradation are particularly important fordeveloping countries.

They are the most vulnerable to climate change and tend to bemore dependent than advanced economies on the exploitation ofnatural resources for economic growth.

In addition many developing countries face severe economic, socialand ecological threats from energy, food and water insecurity toclimate change and extreme weather risks. They also face risks frompremature deaths due to pollution, poor water quality and diseasesassociated with a changing climate.

All of these factors undermine their development. Secondly,although today most developing countries contribute only minorshares to global greenhouse gas (GHG) emissions compared to theOECD and major emerging economies, they will increase theiremissions if they follow conventional economic growth patterns.Increasingly, developing countries are becoming the sources ofglobal economic growth, emissions and, with these, more intensiveuse of natural resources.

REFERENCES1. GCECC (2014) Better Growth Better Climate: the New Climate

Economy Report. Washington D.C. : New Climate Economy.

2. IPCC (2015) Climate change 2014: Synthesis Report. Geneva: Inter -governmental Panel on Climate Change.

3. IUCN (International Union for Conservation of Nature). 2009.Extinction Crisis Continues Apace. Gland: IUCN.http://www.iucn.org/knowledge/news/?4143/Extinction-crisiscontinues-apace.

4. UNEP (United Nations Environnent Programme). 2011. Towards aGreen Economy: Pathways to Sustainable Development and PovertyEradication. Geneva: UNEP. http://www.unep.org/greeneconomy.

5. UN and ADB (2012) Green Growth and Resilience:Environmental Sustainability in Asia and Pacific. Bangkok:United Nations and Asian Development Bank.

6. World Bank (2012) Inclusive Green Growth: Pathways to SustainableDevelopment. Washington D.C: The World Bank.

7. World Bank and FAO (Food and Agriculture Organization).2009. “The Sunken Billions: The Economic Justification forFisheries Reform.” World Bank, Washington, DC; Food andAgricultural Organization, Rome.