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Challenges and prospects for a green economy

Why do businesses and governments need to develop a new paradigm to tackle the climate change challenge? What strategies will help an inclusive growth that promotes economic development while preserving ecosystems, and how can they be prioritized? What are the stumbling blocks in the path to greening the economy and how can they be overcome?

These were several of the stimulating questions answered by Mr. Pavan Sukhdev on December 1, 2009 in a seminar organised by the Singapore Environment Institute (SEI) and the Centre for Liveable Cities, Singapore.

Mr. Sukhdev, combines his expertise in the financial sector as Chairman of Deutsche Bank’s Global Markets Centre, Mumbai as well as his deep understanding of environmental issues. He leads UNEP’s “Green Economy Initiative” (GEI), the G8+5 commissioned report on “The Economics of Ecosystems and Biodiversity” (TEEB) and the Green Indian States Trust (GIST).

What is a green economy?

According to Mr. Sukhdev, it is easier to define a green economy by what it is not. A green economy does not consume natural capital or risk human survival.

Global energy-related emissions of CO2 will rise from 27 gigatons in 2005 to 42 gigatons in 2030, according to World Energy Outlook, 2007. This is 5 times higher than the Earth can absorb. The ecological footprint of human activities as measured by the demand on the resources of Earth’s ecosystems, already exceeds the planet’s regenerative capacity by 40%.

A green economy adopts a more sustainable path, by increasing the share of its GDP to renewable energies, clean transportation, clean technologies, green buildings, waste management, water services, sustainable agriculture and forestry. It also reduces the energy use per unit of production, as well as carbon emissions per unit of GDP, while minimizing wasteful consumption in various sectors of the economy.

What is the potential for job creation in a green economy?

A green economy has huge potential for increasing the quality and quantity of green jobs, and this can serve as a broad rule of thumb for deciding to which sectors of the economy one allocates funds.

Here are some examples:

In South Korea, the government has taken a leadership role in steering the economy towards green growth. The investment of $1.5 billion in the Four Rivers Project to clean up the rivers has created 350 thousand jobs. Such projects not only build the ecological infrastructure of an economy but also its productive natural capital which is vital for future resource generation.

There are big opportunities for increasing energy efficiency of buildings as the technology already exists. It is estimated that in the US, an investment of $100 billion over 4 years could generate 4 million new jobs. India could create 900,000 jobs by 2025 in biomass gasification.

In the US again, there are 2.3 million employed in the renewable energy sector, compared to 2 million in the oil refining sector. If the share of renewable energy in the total energy mix in the US were to increase from 5% as it is currently, to 25%, it would create a huge multiplier effect on employment without the contingent liabilities associated with carbon emissions.

If projected investments in the renewable energy sector of $630 million pan out by 2030 globally, there is potential for 20 million jobs to be created.

Why don’t we have a Green Economy yet?

A green economy is often easier said than done. There is inertia in moving away from an unsustainable growth path, as “we can’t manage what we can’t measure.” An economy’s Gross Domestic Product or GDP is a linear measure of growth, capturing only value of goods and services produced within its boundaries for a given year. It is not reflective of human or societal wellbeing or the state of ecosystems.

Mr. Sukhdev highlighted that there are two broad enabling conditions that need to be addressed. The first is the International Policy Architecture which includes development of global markets for carbon as well as ecosystem services. Policies are needed for development and transfer of technologies, and for international trade, aid, and co-ordination.

The second enabling condition is in the area of Domestic Policies. These include dismantling lopsided subsidies to fossil fuels, instituting taxes and policies that promote renewable energies, enhancing environmental legislation, promoting integrated management of fresh water, establishing policies for proper land use for urban and agricultural areas, monitoring and accounting of ecosystem services.

One example of lopsided subsidies, according to the “Global Green New Deal” report by UNEP is the US $300 billion or more that is being spent on energy subsidies across developed and developing economies, the bulk of it on fossil fuels. Removing these subsidies would actually add 0.1% to global GDP and reduce global greenhouse gas emissions by 6%

Why are the different colours of carbon important in Climate Mitigation?

A Green Economy should also take into account the source of carbon, for the purposes of climate mitigation.

Often enough, there is a lot of focus on “brown carbon” or emissions from energy use and industry. Other types of carbon should also be given weightage in mitigation efforts.

“Blue carbon” is the carbon stored in the oceans. In fact, they bind an estimated 55% of all carbon in living organisms. “Green carbon” refers to what is stored in the biomass of forests, agricultural lands and pastures. “Black carbon” is the soot generated by burning coal, biomass and biofuels, and can be reduced by adopting clean technologies.

According to the IPCC 2007, by “halting the loss of ‘green’ and ‘blue’ carbon, the world could mitigate as much as 25% of total GHG emissions, with co-benefits for biodiversity, food security and livelihoods.”

Why should a Green Economy invest in Climate Adaptation?

The UNEP TEEB study on the “Estimates of Costs and Benefits of Restoration Projects in Different Biomes,” says that economies should recognize the crucial role that ecosystems can play in climate change adaptation. Restoring ecosystem services will help deal with freshwater scarcity, natural hazards like cyclones and improve productivity of agriculture and fisheries.

Mangrove planting, for example, increases productivity by 80% in the coastal ecosystem, and brings benefits of risk management against natural disasters and resilience for local communities.

The study shows the incredible IRR range from 7% to 79% on projects that rebuild ecological infrastructure. The associated Cost Benefit ratios are 3-75 times in different ecosystems from coral reefs to rainforests to grasslands, which are significantly more than any conventional industrial project.
It makes a lot of economic sense therefore, for nations to invest in ecological infrastructure. This will prove critical in adapting to the effects of climate change, and in protecting the lives and livelihoods of millions of people.

The UNEP Report “The Global Green New Deal” suggests that “one third of the around $2.5 trillion worth of planned stimulus packages should be invested on ‘greening’ the world economy. The estimated $750 billion of green investment, equal to about one per cent of current global GDP, could trigger significant, multiple and potentially transformational returns.” However, at the end of the first half of 2009, around only 3% of committed green funds had been disbursed.

As the world emerges out of recession, we have a historical opportunity to transform economies into engines of green growth. Technologies exist. Solutions exist. As Mr. Sukhdev pointed out in the Q&A what is needed is a change in mindset to bring about the transition.

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