HC COOMBS POLICY FORUM

How far are we along the path to a green economy?

Guy Emerson
Guy Emerson is a doctoral candidate in the Research School of Social Sciences, Australian National University

Introduction The United Nations has declared 2012 the International Year of Sustainable Energy for All. In the lead up to this designation, the UN called upon governments, international and regional organisations to meet already established commitments in achieving sustainable development and eradicating poverty (UN 2010). Central to these sustainable development guidelines is the need re-assess the development path globally so as not to jeopardise the well being of future generations. While over the last quarter of a century the world economy has quadrupled, beneting hundreds of millions of people, 60% of the worlds major ecosystems have been degraded or used unsustainably (IMF 2006; Millennium Ecosystem Assessment 2005; UNEP 2011: 20). According to the World Wildlife Funds 2010 World Report, humanitys ecological footprint has doubled since 1966. Based on modest UN projections for population growth, consumption and climate change, by 2030 humanity will need the capacity of two Earths to absorb CO2 waste and keep up with natural resource consumption. Harvesting more sh than can be replenished and cutting more wood than can be regrown, there is an urgent need to close the gap between the ecological footprint and biocapacity (WWF 2010: 8, 9, 35). Unsurprisingly, however, not every region has an equal footprint, with enormous differences between countries, particularly those at different levels of development. While the following sections will break the analysis up into developing, developed and BRIC categories, it is to global trends towards combating environmental disaster and steps towards a global green economy that attention now turns. Global movement? Based on existing studies, the costs associated with steps towards a global green economy are estimated to be in the range US$ 1.05 to US$ 2.59 trillion. While such gures may appear daunting, to place this demand in perspective, it is about one-tenth of total global investment per year (UNEP 2011: 23). Viewed optimistically, the agreements reached on 11 December 2010, in Cancun, Mexico, at the United Nations Climate Change Conference

represented key steps forward. Outlining plans to reduce greenhouse gas emissions and assist developing nations to protect themselves from climate impacts, the Cancun Agreements saw the international community address the long-term challenge of climate change collectively. Encompassing nance, technology and capacity-buildingsupport, at Cancun developed nations agreed to a new $US100 billion Green Climate Fund that will assist developing nations in adapting to climate change, as well as promoting sustainable paths to low emission economies. While the subsequent sections of this report will examine particular regions capacity to abide by their climate targets stated at Cancun, in terms of a global agreement, consensus was reached at Cancun on the need to keep the average globaltemperature rise below two degrees Celsius. A less optimistic reading, however, would describe Cancuns success as modest. Although some initial steps have been taken towards implementing elements of the Copenhagen Accord, it remains unclear whether binding emissions commitments will be made. Towards a green economy Steps to overcome an array of market, policy, and institutional failures are at the heart of meeting the environmental challenge and moving towards a green economy. The UN argues that at the international level there are a number of opportunities to add to market infrastructure including improved trade and aid ows so as to foster greater international cooperation in addressing the ecological challenge (United Nations General Assembly 2010 in UNEP 2011: 21). In this light, the World Bank along with UNCTAD (United Nations Conference on Trade and Development) and IFAD (International Fund for Agricultural Development) have jointly proposed the Principals for Responsible Agricultural Investment and announced a global project on Ecosystem Valuation and Wealth Accounting. Both initiatives will enable a group of developing and developed nations to test this green framework and evolve a set of pilot national accounts that are better able to reect and measure sustainability concerns. 1 A central pillar of the sustainability measures is building upon natural capital through renewables. Acknowledging global market failures, much of the renewable energy technology would become highly competitive, it is argued, if externalities associated with environmental degradation were factored into the production costs of fossil fuels. Moreover, in relation to policy failures, the competitiveness of renewables would again only improve if subsidies for the production and consumption of fossil fuels were removed (such support globally totals between US$500-700 billion per year) (UNEP 2011: 204). In a UN report released in May 2011, it was determined that global energy generated by renewables could increase up to 10 times on current levels by
1

These Principles are available at http://siteresources.worldbank.org/ INTARD/214574-1111138388661/22453321/Principles_Extended.pdf)

mid-century. The Intergovernmental Panel on Climate Change suggested that renewables will most likely contribute more than 17% of the planets primary energy supply by 2030, and more than 27% by 2050. By means of assisting the transition, the UN Industrial Development Organisation has developed a regional programme with special focus on South-South in Africa, and is looking to replicate this in Latin America and Asia. Moreover, the World Bank Groups Chief Technical Specialist for Renewable Energy and Energy Efficiency noted that it is possible to rapidly, affordably and sustainably provide energy services to the poor through efficient technology and renewable fuels (Global). In scal year 2010, the Bank invested more than US$13 billion in the energy sector, the highest-ever annual amount. Moreover, since 2003, the Bank has invested about US$17 billion in low carbon investments, of which $14.2 billion were in renewable energy and energy efficiency. In Turkey, for example, a US$600 millionloan is helping to develop renewable energy through hydro, geothermal, wind and landll gas, while in Bangladesh the Rural Electrication and Renewable Energy Development Project has helped connect more than 900,000 households through grid extensions and solar home systems. Looking forward The two upcoming global conferences of note are the United Nations Climate Change Conference to take place in Durban, South Africa, later this year and the United Nations Conference on Sustainable Development (Rio+20) in Rio de Janeiro in 2012. In Durban the future of the Kyoto Protocol and perspectives for a new legally binding agreement will be an important talking point, as the Kyoto Protocols rst commitment period runs out by the end of 2012. Similarly, in Rio de Janeiro the central topics of discussion are Green Economy in the Context of Sustainable Development and Poverty Eradication, and International Environmental Governance.

Developing nations
As noted above, while the globe faces ecological and economic challenges in moving towards a green economy, not all regions are impacted upon equally. Indeed, particularly affected by environmental changes are the developing nations. Acknowledging this disparity, the UN Development Program (UNDP) argues that poverty, energy, and environment are inextricably linked; a position outlined in its Strategic Plan 2008-2013 (UNDP 2010: 7). Mainstreaming issues concerning the environment and energy into national development planning, the other three pillars of the Plan include: supporting environmental nance, addressing climate change and promoting local

action. It is to these goals and the different ecological and economic conditions facing developing nations that this section now turns. Developing realities and differing requirements The realities of climate change and the imperative for global action are particularly felt by the worlds poor. Some 14% of the population and 21% of urban dwellers in developing countries live in low elevation coastal zones that are exposed to the risks of global warming. Indeed, the livelihoods of billions from poor farmers to urban slum dwellers are threatened by a wide range of climate induced risks that affect food security, water availability, natural disasters, ecosystem stability, and human health (UNDP 2008; OECD 2008; UNEP 2011: 19). Moreover, 60% of the environmental services rendered by ecosystems such as the provision of freshwater, air and water purication, climate regulation, and pest regulation have been degraded. Climate change will only add new pressures on such ecosystems, intensifying many of these trends (UNDP 2010: 2). Accordingly, any steps towards a green economy in the Global South are very much entwined with the imperatives of sustainable development and eradicating poverty. Indicative of this nexus are global initiatives such as the Millennium Development Goals (MDGs) that have been adopted within the UN. With sustainable development ensuring that any increase in wellbeing today is not the result of reducing wellbeing tomorrow, a new developmental index now incorporates green concerns with the realities of poverty faced by the majority of worlds population. While the MDGs encompass a number of targets, in sum their top priority is to eradicate extreme poverty and hunger, including halving the proportion of people living on less than US$ 1 a day by 2015 (UNEP 2011: 20). This imperative for poverty alleviation, unsurprisingly, brings with them a number of complications in terms of sustainable development. For example, demands to keep all ecologically important factors intact can, at times, contrast with basic human needs. This balancing of conservationist and developmental needs, for example, is reected in the creation of physical capital roads, buildings and machinery which often require the conversion of natural capital. While substitution between natural and physical capital is often inevitable, there is often room for gains in efficiency (UNEP 2011: 17). Indeed, a number of sectors with green economic potential are particularly important for reducing persistent poverty; areas such as agriculture, forestry, shery, and water management. With sustainable forestry and ecologically friendly farming methods helping to conserve soil fertility and water resources, sustainable green development becomes especially critical for subsistence farming, upon which almost 1.3 billion people depend for their livelihoods (UNEP et al. 2008; UNEP 2011: 15).

Case studies conducted by the UNDP (United Nations Development Programme) demonstrate that efforts to restore and sustainably manage ecosystems can raise their productivity and simultaneously increase the cash and subsistence income they yield for poor families. Sustainable farming, shing, and grazing practices can also increase the biological stability of ecosystems, increasing their resilience to climate stresses and thereby reducing the poors vulnerability (UNDP 2010: 3). In Rwanda, for example, collaboration between the Minister of the Environment, the UNDP and UNEP (United Nations Environment Programme) raised awareness of the link between the environment and the economy among key sectors. As a result, environment-poverty linkages were successfully integrated into Rwandas development planning process and attention is now focused on strengthening local, district and national capacity for environmental management (UNDP 2010: 10). The development path for the Global South, therefore, should maintain, enhance and, where necessary, rebuild natural capital as a critical economic asset and as a source of public benets. Another key area in which environmental and developmental demands interact is forestry. According to the World Wildlife Fund 15% of total anthropogenic green house gas emissions come from deforestation (WWF 2010: 64). In Indonesia deforestation is particularly felt by the poor. The peat-lands of Riau province, Sumatra, are estimated to store 14.6 gigatons of carbon, the largest amount of carbon in Indonesia. While these soils are able to store 30 times more carbon than tropical forests, this storage capacity depends on the health of these forests. Over the last 25 years, Riau has lost four million hectares (65%) of its forest. While much of this was driven by pulpwood plantations, ironically, so too has it resulted from increases in industrial palm oil plantations. Indeed, Indonesia, along with Malaysia, now dominates global production of palm oil, accounting for 87% of global supply and distribution. While this raw material serves a variety of uses food, soaps and cosmetics so too is it increasingly used as a biofuel. The costs of such green production are highly felt by the surrounding communities, with palm oil cultivation having increased nearly eightfold over the last 20 years. With worldwide demand for palm oil expected to double by 2020 this global demand for biofuel clearly come at a local cost (WWF 2010: 59). Steps to mitigate deforestation, however, are apparent. There is now an international agreement whereby all countries that export and import forest products have a shared responsibility to undertake actions to eliminate the illegal harvesting of forest resources and associated trade (UNEP 2011: 186). So too are there a range of bilateral agreements wherein developed nations support forestry conservation in developing nations. For example, there is a US$1 billion bilateral agreement between Norway and Indonesia, as well as an Australia pledged of US$ 40 million to the Indonesian government.

Developed nations
The development-environment nexus is by no means conned to developing states. Indeed, it is now recognised that the greening of developed economies has the potential to be a new engine of growth, a net generator of jobs, and a vital strategy to eliminate persistent poverty (UNEP 2011: 15). This alignment of environmental, social and economic goals, it is suggested, has become a critical function of governments in the developed world moving towards a green economy. It is to these objectives and how the major developed nations are measuring up to their international environment obligations that this section focuses on. Policy objectives In order for economic growth and investments to become less dependent on sacricing environmental conditions, a new policy framework is required to address market failures and ecological scarcity. One of the primary means for doing so is by including environmental valuations wherein natural capital depreciation can be fully integrated into economic development policy and strategy. Another measure is for government to take an active, enabling role in the promotion of a green economy. At a national level, examples of such enabling conditions involve changes to scal policy; reform and reduction of environmentally harmful subsidies; employing new market-based instruments; targeting public investments to green key sectors; greening public procurement; and improving environmental rules and regulations as well as their enforcement. In this view, government policy plays a critical role within economies to encourage innovation and growth (UNEP 2011: 21). These policy adjustments need not be viewed as contrary to sound economic policy. In response to the 2008-9 recession, for example, a feature of the global policy response was that in efforts to boost aggregate demand and growth, a number of governments adopted expansionary policies that incorporated a scally green component. Such measures were wide ranging, including support for renewable energy, carbon capture and sequestration, energy efficiency, public transport and rail, and improving electrical grid transmission, as well as other public investments and incentives aimed at environmental protection. Of the $3.3 trillion allocated worldwide to scal stimulus over 2008-9, $522 billion was devoted to such green expenditures or tax breaks. Almost the entire global green stimulus was attributed to G20 nations, which comprise the worlds twenty largest and richest countries (Barbier 2010).2 While the large emerging market economies of Brazil, India and Russia were not involved in this stimulus for
2

Barbier, E.B. (2010b). A Global Green Recovery, the G20 and International STI Cooperation in Clean Energy STI Policy Review 1(3):1-15.

more see the section below on the BRICS South Korea allocated nearly 80% of its total expenditure to green investments, with the European Union and China allocating around 60% to 30% respectively of their total scal spending to green measures (Barbier 2010). Market mechanisms One of the primary means for government to re-calibrate national economies is through the adoption of market mechanisms so as to price environmental damage. Rather than facilitating the free use of air, water and ecosystems, the introduction of effective regulation and market-based mechanisms to contain pollution and limit the accumulation of environmental liabilities drives the economy in a more efficient direction (UNEP 2011: 22). Although the introduction of market mechanisms in the transition to a green economy is far from conned to the developed world, it is primarily from the developed world where these initiatives are being debated and implemented. Traditionally, enabling conditions have been heavily weighted towards the prevailing brown economy, which depends excessively on fossil fuels, resource depletion, and environmental degradation. For example, price and production subsidies for fossil fuels collectively exceeded US$ 650 billion in 2008. The use of market-based instruments, the creation of markets and regulatory measures, have a role to play in integrating green objectives into a new environmentally efficient allocation of resources and decisions in the economy. Indeed, greater information on the state of the environment, ecosystems, and biodiversity is essential for both private and public decision making that determines the allocation of natural capital for economic development (UNEP 2011: 18). Action to-date The Copenhagen Accord called on developed countries to provide new and additional resources for climate action. A sum of US$ 30 billion over 2010-2012, in addition to a longer-term goal of US$ 100 billion per year by 2020, were the targets outlined. The OECD (Organisation for Economic Cooperation and Development) is set to play a large role in administering these funds and continues to help countries identify and implement effective and efficient policy mixes to meet their climate commitments. This includes analysis of the broad policy mix economic instruments, regulations, and incentives for technological innovation and uptake as well as advice on how to best implement policy reforms. A snapshot of developed nations action on climate change provides mixed results. The United States, the largest emitter of CO2, faces key challenges in meeting its Copenhagen Accord targets of 17% reduction on its 2005 emissions by 2020. The legislation that was under discussion in the Senate outlined a pathway of reducing emissions below 2005 levels: 30% in 2025

and 42% in 2030 and the ultimate goal to reduce emissions 83% below 2005 by 2050.3 Following the November 2010 elections, however, it is not clear that this legislation will progress. For its part Australia, one of the largest per capita emitters, has proposed to decrease its emissions to 5-15-25% below 2000 levels. With the adoption of the most ambitious target of 25% being conditional on an ambitious global deal, it is unclear whether the target will rise above the 5% commitment. In terms of legislation, a xed carbon price will start from June 2012, with a cap and trade system to follow from 2015.

BRICS
Similar to steps taken by developed and developing nations, movement towards a green economy among the BRICS countries Brazil, Russia, India, China and South Africa appears hesitant. Not only is the rise of the BRICS changing the complexion of the global economy, but so too is it affecting the environment with their collective ecological footprint rising. Although the footprint of the OECD is by far the largest of all regions and has increased tenfold since 1961, it has not increased the most rapidly with the BRICS footprint increasing 20-fold. Moreover, although they currently have a lower per capita impact, with twice as many people living in BRICS than in the OECD, it is projected that by 2017 the two regions will have commensurable footprints (WWF 2010: 40). This nal section explores the consequences of this recalibration in the global economic and environmental setting, and explores the initiatives undertaken by the BRICS to mitigate their environmental damage. Recent developments BRICS leaders meet for the third time in Sanya, China, on 14 April 2011, under the theme of Broad Vision, Shared Prosperity. Discussing issues related to development, energy and climate change, the meeting committed to achieving the Millennium Development Goals (MDGs) and to cooperate at the upcoming UN Conference on Sustainable Development (Rio+20) so as to promote economic growth, social development and environmental protection. Attached to these declarations was also an Action Plan that committed each nation to explore the feasibility of cooperating in the eld of green economy. This will involve BRICS leaders supporting the development and use of renewable energy resources including nuclear energy as a means to address climate change. Further, on issues of climate change, leaders expressed support for the Cancun Agreements and a readiness to make concerted efforts with the rest of the international community to bring a successful conclusion to the Durban Climate Change Conference. In light
3

For complete US pledge at Copenhagen see http://unfccc.int/resource/docs/2011/sb/eng/inf01.pdf

of these commitments, attention now turns to the individual members and whether or not they are likely to achieve these targets. Brazil As host of the upcoming Rio+20 conference, Brazil is keen to lead the way in terms of meeting the challenges of climate change and promoting a green economy. In contrast to other major developing economies, Brasilia was one of the rst to set an emission target. In April 2011, Brazil presented reduction targets of 36.1% to 38.9%, a level signicantly higher than the submission to the Copenhagen Accord. While this target includes ambitious goals for reducing emissions from deforestation, it remains conditional on international nancial support. In one such agreement the Norwegian government provides Brazil with nancial support to meet its deforestation targets. At a more local level, private landowners that set aside a protected area receive a reduction in land tax. Similar local initiatives, this time in Sao Paulo state, involve local authorities providing assistance to farmers in the form of seedlings and technical assistance so as to restore forests. Russia The Russian Federations current Kyoto target is 0% below 1990 levels, while it has proposed commitments for 2020 that include a 15-25% reduction from this level. In addition, President Medvedev has called for a long-term goal of 50% reduction from 1990 levels by 2050. The range of emission reductions is conditionally based on Russias forest being included in reduction targets and that all major emitters shall take legally binding obligations. India During the Copenhagen negotiations India proposed to reduce their emissions by 20% to 25% by 2020 based in 2005 levels. While data underlying the target has not been made available, in its 11th Five-year plan the government did outline detailed targets for the electricity sector. However, as India has not provided official emission or GDP projections together with the target, Delhis future position remains uncertain. China Based on the Copenhagen Accord, the Peoples Republic of China aims to reduce its carbon dioxide emissions by 40% to 45% by 2020 compared to the 2005 levels. Similar to Delhi, however, an assessment is difficult as details on the basis of the proposed target, such as assumed emissions or GDP growth, have not been provided. Recent energy and emissions data combined with its 12th Five-year plan announced in March 2011 indicate

that China is set to not only meet its Cancun Agreement emissions intensity pledge, but is likely to go beyond it. However, at the same time, largely due to faster than expected economic growth, emissions in 2020 are likely to be higher than previous estimates. In terms of steps towards a green economy, Beijing now officially promotes a low-carbon development plan whereby cities are encouraged to reduce their energy intensity. China has reported that energy consumption per GDP decreased by more than 19% over the period 2006 to 2010, with strict energy-saving targets for provinces and companies, leading to closure of small, inefficient industrial plants. Moreover, China has been successful in introducing renewable energy and other non-fossil energy sources with the share of non-fossil energy sources having increased to 8.3% in 2010. This domestic target to increase the share of non-fossil fuels in primary energy consumption to 11.4% in 2015 is consistent with its international pledge to increase the level to 15% in 2020. South Africa Similar to other BRICS, South Africa has made its targets conditional on a strong international agreement and nancing from developed countries. It has undertaken to cut emissions between 34% by 2020 and 42% by 2025. While it is unclear which share of the target is unconditional, South Africa has provided a comprehensive study of long-term mitigation pathways and is broadly seen as relatively high pledge.
November 2011