Environment & Poverty Times
Economics for the planet
Economics for the planet goes one step beyond greening the economy. Debate on the economics of nature is only now beginning, but depending on the direction it takes, we may see new models for business and government accounting emerge, new currencies expressing natural and social assets. We may even see a GDP of the poor. Time will tell. One thing is certain, we are all part of the puzzle.
Putting the global economy on a green path
By Fatma Ben Fadhl, Moustapha Kamal Gueye and Nicholas Bertrand
Global crises and linkages The cumulative effect of the financial and economic crisis has been a contraction of economic growth in many parts of the world. Falling growth has quickly translated into decline in incomes and rise in poverty. It is estimated that every 1% fall in growth in developing economies translates into an additional 20 million people consigned to poverty. The United Nations Department of Economic and Social Affairs estimates that world income per capita could drop by 3.7% in 2009. The number of people living on less than $2 a day could rise by some 100 million and those below $1 a day by 40 million. According to the International Labour Organization (ILO), the number of unemployed could rise from 190 million in 2007 to 210 million in late 2009.
As world leaders battle to counter recession and face the triple food, energy and financial crises, longer-term challenges lay ahead: these include climate change, fossil fuel depletion, and ecosystem degradation. Figure 1 shows the cause-to-effect interlinkages between the cli- mate, financial, energy and food crises, which are the rationale for a holistic approach advo- cated for by the Green Economy Initiative.
The economic crisis is indicative of flaws in patterns of growth and development over the past 50 years that have excessively relied on investment in financial capital without equal attention to investment in human and natural capital. The global Gross Domestic Product (GDP) has doubled between 1981 and 2005 while 60% of the world’s ecosystems have been degraded or exploited unsustainably according to the Millennium Assessment Synthesis report released in 2005. This is un- dermining the basis of livelihoods and wealth creation, particularly affecting the poor and most vulnerable segments of society. In low- income countries, natural capital accounts for up 26% of the wealth, compared to 2% in the richest countries. The imbalance in patterns of investment in economic, human and natural capital represents a challenge for long-term sustainable development and must be given due attention in the global effort to rebuild economies.
These challenges and contradictions will not disappear if economic growth were to resume in a business as usual manner. Once global growth resumes, the price of oil is expected
to rise to $180 a barrel. The impact will be felt especially by the poor. In 2008 rising fuel prices cost consumers in developing econo- mies $400 billion in higher energy expendi- ture and $240 billion in dearer food. The rise in food prices in 2007 is estimated to have already increased global poverty by between 130 million and 155 million people.
Consumers who do have access often pay high prices for erratic and unreliable servic- es. In 2008 the International Energy Agency (IEA) estimates that currently some 2.4 Billion people use unsustainable traditional energy sources in Africa, Asia and Latin America. The expected increase in energy prices will add to global energy poverty.
Furthermore, the IEA’s 2008 World Energy Outlook estimates that, with current prac- tices, despite the slowing down of popula- tion growth and future economic growth prospects, the number of people without access to electricity in 2030 will still be 1.4 billion. About two-thirds of this number will live in sub-Saharan Africa.
UNEP’s call for a Global Green New Deal In the wake of unprecedented economic stimulus packages a recent UNEP report released in December 2008 called for a Global Green New Deal and a subsequent Policy Brief to G20 heads of states urging them to turn the crisis into an opportunity by enabling a global green economy driven by massive job creation from a more ef- ficient use of resources, energy-efficient building and construction, widespread use of modern clean public transport, the scaling up of renewable energy, sustainable waste management as highly lucrative sectors, and sustainable agriculture that reflects the lat- est thinking in ecosystem management and biodiversity and water conservation.
The GEI seeks to make the economic case that the right mix of policy actions can stimu- late recovery and at the same time improve the sustainability of the world economy. Over the next few years, these policies hold the potential of creating millions of jobs, improving the livelihoods of the world’s poor and channel investments into dynamic economic sectors. The “Global Green New Deal” (GGND) as called for by UNEP refers to such a timely mix of polices.
A number of governments are responding to the financial crisis by stimulating their economies through public investment.
Figure 1: Interlinkages between the climate, financial, energy and food crises
By April 2009 the G20 nations had an- nounced nearly $3 trillion of fiscal stimulus packages, representing approximately 6% of their total GDP. Twelve of these major economies included “green stimulus” measures for diverse green sectors totalling over $400 billion, among which $183 billion for renewable energy (see figure 2). Green stimuli account for 6% of the total recovery packages announced – but the countries vary significantly in terms of investment and the clarity of their measures.
A world economic recovery that revives fos- sil fuel consumption will accelerate global climate change. Greenhouse gas (GHG) emissions are expected to increase by 45% to 41 gigatonnes (Gt) in 2030, with three- quarters of the rise generated by China, India and the Middle East. The IEA warns that the atmospheric concentration of GHG could double by the end of this century, and lead to an eventual global average tempera- ture increase of up to 6°C. Such a scenario is likely to cause a sea level rise between 0.26 and 0.59 meters, and severely disrupt ecosystem services. According to the Stern Review of the Economics of Climate Change, with 5-6°C warming, the world economy could sustain losses equivalent to 5-10% of global GDP. Poor countries will suffer costs in excess of 10% of GDP. Reports by the IPCC indicate that by 2020, rain-fed agricultural production in several sub-Saha- ran African countries could decline by over 50%. Changes in agricultural productivity will not only hit GDP growth expectations, but also exacerbate many of the agricultural and food security challenges already facing the world’s poorest countries. In 2007 the OECD note that across all cities worldwide, about 40 million people are exposed to a 1 in 100 year extreme coastal flooding event, and by the 2070s, the population exposed could rise to 150 million.
Investing in green sectors Responding to these challenges requires transformative change in the way resources are allocated in the economy. There is grow- ing indication that investment in the so-called green sectors could offer solutions to the myriad of environmental, economic and social challenges of today. During 2008, the United Nations Environment Programme (UNEP), the International Labour Organiza- tion (ILO), the International Organisation of Employers (IOE), and the International Trade Union Confederation (ITUC) jointly commis- sioned “Green Jobs: Towards Decent Work in a Sustainable, Low-Carbon World” which is the first comprehensive report on the emer- gence of a “green economy” and its impact on the world of work in the 21st Century.
The report showed that employment will be affected in at least four ways as the economy is oriented toward greater sustainability: Additional jobs will be created – as in the manufacturing of pollution-control devices added to existing production equipment. Some employment will be substituted – as in shifting from fossil fuels to renewables (see figure 3), or from truck manufacturing to rail car manufacturing, or from land fill- ing and waste incineration to recycling. Certain jobs may be eliminated without direct replacement – as when packaging materials are discouraged or banned and their production is discontinued. Many existing jobs (especially such as plumbers, electricians, metalworkers, and construction workers) will simply be transformed and redefined as day-to-day skill sets, work methods, and profiles are greened.
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Figure 2: Green Stimulus allocations to clean energy by Country ($bn)s
Total amount announced by the 12 economies amounts to $183.4bn. Source: New Energy Finance.
Table 1: Estimated employment in the renew- able energy sector
Solar Thermal Biomass
Renewables combined Source: UNEP/ILO/WorldWatch Institute
Building on these findings, the UNEP -led Green Economy Report due to be released at the end of 2010 aims at proving that sustainability in high impact sectors of the economy offer green opportunities for economic growth in the future as sustain- able investments in these sectors can con- tribute to rapid economic recovery in the short term and sustained economic growth over the next few decades with positive contributions to decent job creation and poverty reduction.
Throughout history, crises have always been times of quick and bold action. They have also offered opportunities for transformative change in society and their economies. The multiple food, energy, ecological, financial and economic challenges witnessed in recent years should be seized as a major opportunity to reorient investment and financing in a new set of economic, natural and human assets that can drive recovery and prosperity and address poverty over the long run by laying the foundation of a global transition towards a green economy.
Through the GEI, UNEP is committed to work with governments, civil society and the private sector to identify the most promising streams for enabling a green economy. For instance, the Green Economy Report (GER), a key component of the Initiative, will seek to make a macroeconomic case for increasing public and private investments in 12 “green sectors” (the 12 sectors are as follows: cities, buildings, finance, renewable energy, trans- port, waste management, industry, tourism, water, agriculture, forests and fisheries). The report’s main objective is to motivate and enable policymakers, business executives, and stakeholders to invest in green sectors, to be supported by necessary policy and institutional reforms.
UNEP will also assist with the reviewing of national or regional green policy initiatives to provide guidance to other countries, UNEP will also define and assess promising financial instruments that will facilitate and secure investments in green sectors.
About the authors: Fatma Ben Fadhl, Mousta- pha Kamal Gueye (PhD) and Nick Bertrand are Economics Affairs Officers at UNEP working on the Green Economy Initiative.
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