In the run-up to the Rio+20 conference in June this year, the “Green Economy” – a broad term to describe environmentally and socially sustainable economic systems – has become a kind of Holy Grail. Its popularity is understandable. Continuing uncertainty in financial markets, faltering growth in developed economies, and debt crises in the euro zone continue to haunt the global economy. The nostalgia for “business as usual” is palpable everywhere. It is easy to forget that the world of “business as usual” was a place of growth at all costs, rapidly rising carbon emissions, disappearing habitats, and fast declining resource quality.
The fundamental dilemma underlying modern society is a profound one. Untrammelled economic growth is unsustainable, while “degrowth” (décroissance in the more palatable French) is unstable – as least within the parameters of the current economic system. No wonder we are tempted by the comforting idea of a Green Economy: an economy that delivers the goods without destroying the planet. But we live in a world in which “delivering the goods” implies continuous gains in real gross domestic product (GDP). GDP growth is one of the highest priorities of governments, the private sector, and many elements of civil society, dependent as many of them are on economic growth for financial support and basic stability. So if the Green Economy can deliver GDP growth, sustainability becomes palatable – even easy.
UNEP’s recent report Towards a Green Economy attempts to define such a model, describing a set of enabling conditions for the transition to a Green Economy covering regulatory frameworks, government investment and spending strategies, taxation and market-based instruments, investment in capacity building, training and education, and international governance. But it is the claim that “a green economy grows faster than a brown economy (i.e. current economic models) over time, while maintaining and restoring natural capital” that UNEP really drives home. The Green Economy, according to UNEP, is not only growth-driven, but will lead to faster rates of growth than conventional economic models. Unfortunately, this claim rests on a number of assumptions that, upon close inspection, are unreasonable.
The first problem with the UNEP’s Green Economy is that it isn’t “green” enough. Although reducing greenhouse gas emissions is one of many environmental objectives of a Green Economy, it is perhaps the most important. To prevent “dangerous” anthropogenic climate change, according to the IPCC, the world must by 2050 reduce emissions by between 50-85% (from 2000 emissions). More recent evidence suggests that even this target is insufficient to remain within a 2 degree global warming, leading to calls for reductions by 2050 at the higher end of that 50-85% range. By contrast, the UNEP Green Economy scenario will lead to a reduction of less than 17% over 2000 emissions. This is woefully inadequate to meet climate change targets.
A further problem with the UNEP scenarios is that it allows optimistic economic forecasting to underpin even more optimistic investment calculations, leading to a feedback loop of implausible growth. As any economist knows, an economy with more investment will, other things being equal, grow faster than one with less investment. A comparison of growth rates between green and brown economies should thus be based on an assumption of equal investment in each scenario. But UNEP calculates investment as a percentage of GDP in both its green and brown scenarios. Of course, because UNEP calculates higher global GDP growth from 2030 in the green scenario, investment is also higher, which leads to even faster growth. A fairer comparison would have been to assume equal absolute levels of additional investment.
But the most important flaw with the UNEP Green Economy model is that it treats the world as a single unit. All data in the model are global averages. All empirical relationships in the model are global averages. All results are global averages. The model does not recognize differences among geographic regions or between richer and poorer nations.
This lack of differentiation is a severe deficiency when looking at social equity, which, in an economic context, is closely related to income distribution. Per capita incomes in the richest nations can be an order of magnitude or more greater than those in the poorest nations. But these disparities are invisible in such a model. Indeed, income distribution simply cannot be addressed in a model of global averages. Yet improving social equity is a declared objective of a Green Economy. When a regional dimension is added to UNEP's green scenario and a reduction in regional income inequality is included, the required reduction in greenhouse gas emissions in relation to the size of the regional economies increases significantly.
There are serious question marks hanging over UNEP’s report. The UNEP Green Economy is blessed with partisan investment advantages, unrealistic in modeling regional differences, and nowhere near green enough in its carbon targets. To claim on this basis that green growth is faster than brown growth is misleading. For that to be the case, it demands unprecedented and unrealistic improvements in technological efficiency. Yet there is no convincing proposal as to how this is to be achieved.
It is time we look at the second escape route from our dilemma: defining, designing and delivering a Green Economy in which economic stability no longer rests upon the unrealistic assumption of never-ending growth.