Towards a green economy
resources, such as energy, forest land, soil, fish and water. Growth is thus driven by the accumulation of capital – whether physical, human or natural – through investment, also taking into account depreciation or depletion of capital stocks. The model is calibrated to reproduce the past 40-year period of 1970-2010; simulations are conducted over the next 40-year period, 2010-2050. Business-as-usual projections are verified against standard projections from other organisations, such as the United Nations Population Division, World Bank, OECD, the International Energy Agency, and the Food and Agriculture Organization.
The inclusion of natural resources as a factor of production distinguishes T21 from all other global macroeconomic models (Pollitt et al. 2010). Examples of the direct dependence of output (GDP) on natural resources are the availability of fish and forest stocks for the fisheries and forestry sectors, as well as the availability of fossil fuels to power the capital needed to catch fish and harvest timber, among others. Other natural resources and resource efficiency factors affecting GDP include water stress, waste recycle and reuse and energy prices7
being and social equity, and reducing environmental risks and ecological scarcities. Across many of these sectors, greening the economy can generate consistent and positive outcomes for increased wealth, growth in economic output, decent employment and reduced poverty.
In Part I, the report focuses on those sectors derived from natural capital – agriculture, fishing, forests and water. These sectors have a material impact on the economy as they form the basis for primary production, and because the livelihoods of the rural poor depend directly upon them. The analysis looks at the principal challenges and opportunities for bringing more sustainable and equitable management to these sectors, and reviews investment opportunities to restore and maintain the ecosystem services that underpin these sectors. In so doing, the chapters highlight several sector-specific investment opportunities and policy reforms that are of global importance as they appear replicable and scalable in the goal to transition to a green economy.
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Based on existing studies, the annual financing demand to green the global economy was estimated to be in the range US$ 1.05 to US$ 2.59 trillion. To place this demand in perspective, it is about one-tenth of total global investment per year, as measured by global Gross Capital Formation. Taking an annual level of US$ 1.3 trillion (2 per cent of global GDP) as a reference scenario, varying amounts of investment in the 10 sectors covered in this report were modelled to determine impact on growth, employment, resource use and ecological footprint. The results of the model, presented in more detail in the modelling chapter, suggest that over time investing in a green economy enhances long-term economic performance. Significantly, it does so while enhancing stocks of renewable resources, reducing environmental risks, and rebuilding capacity to generate future prosperity. These results are presented in a disaggregated form for each sector to illustrate the effects of this investment on income, employment and growth, and more comprehensively, in the modelling chapter.
1.4 Approach and structure – Towards a green economy
This report focuses on 10 key sectors considered to be driving the defining trends of the transition to a green economy. These trends include increasing human well-
7. The T21 analysis purposely ignores issues such as trade and sources of investment financing (public vs private, or domestic vs foreign). As a result, the analysis of the potential impacts of a green investment scenario at a global level are not intended to represent the possibilities for any specific country or region. Instead, the simulations are meant to stimulate further consideration and more detailed analysis by governments and other stakeholders of a transition to a green economy.
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In Part II, the report focuses on those sectors that may be characterised as “built capital”, traditionally considered the brown sectors of the economy. In these sectors – such as transportation, energy and manufacturing – the report finds large opportunities for energy and resources savings. These savings, it is argued, can be scaled up and become drivers of economic growth and employment, as well as having important equity effects in some cases. Resource efficiency is a theme that has many dimensions as it cuts across energy efficiency in manufacture and habitation, materials efficiency in manufacture, and better waste management.
Finally, after providing an in-depth overview of the modelling conducted for this report and before examining options for financing the green economy, Part III focuses on enabling conditions for ensuring a successful transition to a green economy. These include appropriate domestic fiscal measures and policy reforms, international
collaboration through trade,
finance, market infrastructure, and capacity building support. Much has been said about the potential for a green economy to be used as a pretext for imposing aid conditionalities and trade protectionism. This report argues that to be green, an economy must not only be efficient, but also fair. Fairness implies recognising global and country level equity dimensions, particularly in assuring a just transition to an economy that is low- carbon, resource efficient, and socially inclusive. These enabling conditions for a fair and just transition are described and addressed at length in the final chapters of this report before conclusions, along with the steps necessary to mobilise finance at scale for a global transition to a green economy.
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