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promotes resource and energy efficiency and lessens environmental degradation. As economic growth and investments become less dependent on liquidating environmental assets and sacrificing environmental quality, both rich and poor countries can attain more sustainable economic development.

The concept of a green economy does not replace sustainable development; but there is a growing recognition that achieving sustainability rests almost entirely on getting the economy right. Decades of creating new wealth through a “brown economy” model based on fossil fuels have not substantially addressed social marginalisation, environmental degradation and resource depletion. In addition, the world is still far from delivering on the Millennium Development Goals by 2015. The next section looks at the important linkages between the concept of a green economy and sustainable development.

A green economy and sustainable development In 2009, the UN General Assembly decided to hold a summit in Rio de Janeiro in 2012 (Rio+20) to celebrate the 20th anniversary of the first Rio Earth Summit in 1992. Two of the agenda items for Rio+20 are, “Green Economy in the Context of Sustainable Development and Poverty Eradication”, and “International Framework for Sustainable Development”. With the green economy now firmly established on the international policy agenda, it is useful to review and clarify the linkages between a green economy and sustainable development.

Most interpretations of sustainability take as their starting point the consensus reached by the World Commission on Environment and Development (WCED) in 1987, which defined sustainable development as

“development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED 1987).

Economists are generally comfortable with this broad interpretation of sustainability, as it is easily translatable into economic terms: an increase in well-being today should not result in reducing well-being tomorrow. That is, future generations should be entitled to at least the same level of economic opportunities – and thus at least the same level of economic welfare – as is available to current generations.

As a result, economic development today must ensure that future generations are left no worse off than current generations. Or, as some economists have succinctly expressed it, per capita welfare should not be declining over time (Pezzey 1989). According to this view, it is the total stock of capital employed by the economic system, including natural capital, which determines the full range of economic opportunities, and thus well-being,

available to both current and future generations (Pearce et al. 1989).

Society must decide how best to use its total capital stock today to increase current economic activities and welfare. Society must also decide how much it needs to save or accumulate for tomorrow, and ultimately, for the well-being of future generations.

However, it is not simply the aggregate stock of capital in the economy that may matter but also its composition, in particular whether current generations are using up one form of capital to meet today’s needs. For example, much of the interest in sustainable development is driven by concern that economic development may be leading to rapid accumulation of physical and human capital at the expense of excessive depletion and degradation of natural capital. The major concern is that by irreversibly depleting the world’s stock of natural wealth, today’s development path will have detrimental implications for the well-being of future generations.

One of the first economic studies to make the connection between this capital approach to sustainable development and a green economy was the 1989 book Blueprint for a Green Economy (Pearce et al. 1989). The authors argued that because today’s economies are biased towards depleting natural capital to secure growth, sustainable development is unachievable. A green economy that values environmental assets, employs pricing policies and regulatory changes to translate these values into market incentives, and adjusts the economy’s measure of GDP for environmental losses is essential to ensuring the well-being of current and future generations.

As pointed out by the Blueprint for a Green Economy authors, a major issue in the capital approach to sustainable development is whether substitution among different forms of capital – human capital, physical capital and natural capital – is possible. A strong conservationist perspective might maintain that the natural component of the total capital stock must be kept intact, as measured in physical terms. However, this may be questioned in practice, especially in the context of developing countries, if natural capital is relatively abundant while physical and human capital needs to be developed to meet other human demands. This type of substitution reflects the unfortunate reality that the creation of physical capital – for example roads, buildings and machinery – often requires the conversion of natural capital. While substitution between natural capital and other forms of capital is often inevitable, there is often room for efficiency gains. There is also a growing recognition of environmental thresholds that would constrain substitution beyond minimum levels needed for human welfare.


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