Economics For Everyone - Towards a Green Economy

The green economy is defined as an economy that aims at reducing environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. The 2011 UNEP Green Economy 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.

Feb 22, 2021 12:02 IST India Infoline News Service

"Environmentalism is not ethical values pitted against economic values. It is thoroughly economic". MIT Economist Lester Thurow wrote in The Zero-Sum Society,

The green economy is defined as an economy that aims at reducing environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. The 2011 UNEP Green Economy 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."

The term 'Green Economics' is a broad encompasses any theory that views the economy as a component of the environment in which it is based. Green economists generally take a broad and holistic approach to understanding and modeling economies, paying as much attention to the natural resources that fuel the economy as they do the way the economy itself functions. Broadly speaking, supporters of this branch of economics are concerned with the health of the natural environment and believe that actions should be taken to protect nature and encourage the positive co-existence of both humans and nature.

The UNEP 2011 Green Economy Report informs that "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." In many ways, Green Economy objectives simply support those already articulated for the broader goal of sustainable development.

Economics of Environment:

Green Economy is an evolving domain of the Environmental economics. This field of economics helps users design appropriate environmental policies and analyze the effects and merits of existing or proposed policies. The basic argument underpinning environmental economics is that there are environmental costs of economic growth that go unaccounted in the current market model. These negative externalities, like pollution and other kinds of environmental degradation, could then result in market failure. Environmental economists thus analyze the costs and benefits of specific economic policies, which also involve running theoretical tests or studies on possible economic consequences of environmental degradation.

Growth Vs. Green to Growth and Green

Green growth seeks to fuse aims to foster economic growth and development, while ensuring that natural assets are used sustainably, and continue to provide the resources and environmental services on which the growth and well-being rely (OECD, 2011). It is growth that is efficient in its use of natural resources, clean in that it minimises pollution and environmental impacts and resilient in that it accounts for natural hazards (World Bank, 2012). The prevailing economic growth model is focused on increasing GDP above all other goals. While this system has improved incomes and reduced poverty for hundreds of millions, it comes with significant and potentially irreversible social, environmental and economic costs. Poverty persists for as many as two and a half billion people, and the natural wealth of the planet is rapidly being drawn down.

For example.

Pollution and modern living seemingly go hand-in-hand, but the costs of air pollution can no longer be ignored. According to a 2012 study by the Massachusetts Institute of Technology (MIT), air pollution cost the Chinese economy $112 billion in 2005. In Hong Kong, medical bills and productivity loss due to air pollution amounted to HK$39.4 billion in 2013.

The world’s water supply is becoming increasingly scarce. According to the WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation (JMP), 2.5 billion people (roughly 36% of the world’s population) still lack access to improved sanitation facilities. 748 million people continued to get their drinking water from unsafe sources in 2012. The World Wildlife Fund cautions that by 2025, water shortages will affect about two-thirds of the world’s population. Such water shortages have a detrimental effect on agriculture. Farms are dependent on water for irrigation, so a decrease in water supply will drastically affect their productivity. Farms will have smaller yields, which means manufacturers will also have fewer raw materials to turn into products and services.

Freshwater scarcity is already a global problem, and forecasts suggest a growing gap by 2030 between annual freshwater demand and renewable supply (McKinsey and Company 2009). The outlook for improved sanitation still looks bleak for over 1.1 billion people and 844 million people still lack access to clean drinking water (World Health Organization and UNICEF 2010). According to the UNEP report, collectively, these crises are severely impacting the possibility of sustaining prosperity worldwide and achieving the Millennium Development Goals (MDGs) for reducing extreme poverty. They are also compounding persistent social problems, such as job losses, socio-economic insecurity, disease and social instability.

According to a December 2014 study that was published in Nature Climate Change, every 1°C increase in global temperatures means a 6% fall in wheat production. Falling wheat production would make it difficult for food manufacturers to produce vital foodstuffs such as cereal, bread, noodles and pasta. Plus, in order to maintain optimal yields, wheat growers would have to use chemical pesticides and fertilizers that are hazardous to both human health and the environment.

There are many more cases such as the impact of oil spill on the marine life, overall impact of pollution and ozone layer depletion.


While there is no single green growth model, and green growth strategies need to be tailored to country conditions, the following areas are identified by OECD (The Organisation for Economic Co-operation and Development (OECD))as central to monitoring progress toward green growth:

• Environmental and resource productivity and innovation;
• Natural assets (including biodiversity) and their cost-effective management;
• The environmental quality of life (including access to basic services such as clean water);
• Related green growth policies, economic opportunities and social context of green growth; and
• monitoring sustainability of overall economic developments, for example through comprehensive wealth accounting.

The green growth measurement framework gives countries flexibility to incorporate green growth into their national development plans and to monitor progress on tackling their main environmental, economic and social concerns.

Cases of Green growth strategies

A Green Economy attempts to remedy these problems through a variety of institutional reforms and regulatory, tax, and expenditure-based economic policies and tools. The transition to a Green Economy has a long way to go, but several countries are demonstrating leadership by adopting national “green growth” or “low carbon” economic strategies. And there are many examples of successful, large-scale programs that increase growth or productivity and do so in a sustainable manner. For example:

According to the UN, emissions among Kyoto Protocol countries were 22.6% lower than 1990 levels in 2012, way beyond the 5% reduction commitment. (Note: The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change, which commits its Parties by setting internationally binding emission reduction targets)

The Republic of (South)Korea has adopted a national strategy and a five-year plan for green growth for the period 2009–2013, allocating 2 per cent of its gross domestic product to investment in several green sectors such as renewable energy, energy efficiency, clean technology and water. The government has also launched the Global Green Growth Institute which aims to help countries (especially developing countries) develop green growth strategies.

In Mexico City, crippling congestion led to a major effort to promote Bus Rapid Transit (BRT), a sophisticated bus system that uses dedicated lanes on city streets. Significant public investment in the BRT has reduced commuting times and air pollution and improved access to public transit for those less able to afford private cars. This remarkable success is now being replicated in cities across Mexico and has led to investment from the federal government in urban public transit for the first time.

Namibia is managing its natural resources to generate economic, social, and environmental benefits. Local communities across the country are granted the right to use and capitalize on the benefits of using wildlife and other natural resources within the boundaries of “communal conservancies.” With an economic incentive to sustainably manage these areas, food and employment is being provided for hundreds of thousands of Namibians in rural areas. More than half of the jobs are filled by women, and wildlife populations have increased.

Google's Project Ara initiative addressed the challenge of outdated mobile phones by reinventing consumers’ smartphone usage. By breaking down a phone into replaceable parts that can be assembled and customized according to user requirements, consumers easily alter their phone with simple skills and tools. Phone repair is done more easily and inexpensively by replacing only what is broken instead of the entire phone. Google found a way to maximize a phone's lifetime usage and reduce the need to use new resources for new phones, while minimizing the amount of its generated e-waste.

In Europe, Philips, has 22 service organizations that are collecting 40% of lamps that contain mercury. The company has a recycling rate greater than 95% in the market. Philips also started to sell lighting as a service to enhance the collection of their lighting equipment. They aim to reach more customers as the company retains ownership of the lighting equipment so customers don’t have to pay for lighting upfront. In addition, Philips guarantees comprehensive environmental management pertaining to the recycling of their lighting equipment.

Road Ahead

The principal challenge is how we move towards an economic system that will benefit more people over the long run. Transitioning to a Green Economy will require a fundamental shift in thinking about growth and development, production of goods and services, and consumer habits. This transition will not happen solely because of better information on impacts, risks or good economic analysis; ultimately, it is about policies and changing the political economy of how big decisions are made. A common framework will help to bridge the experience of governments, the private sector, and civil society on reporting and measurement tools for green growth. It can contribute to aligning government and corporate information on environmental impacts and to identify obstacles to economic opportunities and growth.

Increase public awareness and the case for change. Greater visibility on the need for this transition can motivate voters and consumers - not just because of the costs but also the economic benefits generated by a Green Economy, such as new jobs and new markets. People will not adopt policies because they are green. They will do so when they believe it is in their interest.

Promote new indicators that complement GDP. According to experts, policy makers across nations should adopt a more diverse and representative set of economic indicators that focus less exclusively on growth and track the pace and progress of development.

There are three components, which are essential towards this goal.

Adopting holistic environmental management framework for related environmental problems and solutions.

Fostering a creative combination of regulation, incentives and penalties to guide consumer, industry and the marketplace.

Research and development initiatives that emphasize the utilization, as well as the development, of energy efficiency and renewable energy technology.

At the 1992 U.N. conference on Environment and Development, Rio, UNCED (United Nations Conference on Environment and Development) principle characterized sustainable development as the "right to development must be fulfilled so as to equitably meet developmental needs of present future generations." Infact it further states that "in order to achieve sustainable development, environment protection shall constitute an integral part of the development process and cannot be considered in isolation from it".

Economist Kenneth Boulding introduced the concept of a "spaceship economy". As the finite spaceship required the interdependency of the people and systems, within the limits set by the natural system and requires efficiency in our use of resources and care in our use of the environment.

Striking a balance between protection of the environment and sustainable development and maintaining economic growth is an onerous and delicate task. It is primarily at this level that the environmental problems have to be tackled. Political and social change is a part of this and as such has to be incorporated into our society to introduce policies that create conditions where more weight will be given to environmental considerations in economic activities.

The author of this articles is Prof.M.Guruprasad,Universal Business School

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