What is Green Economy?

For the purposes of the Green Economy Initiative, UNEP has developed a working definition of a green economy as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression, a green economy can be thought of as one which is low carbon, resource efficient and socially inclusive.

Practically speaking, a green economy is one whose growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services. These investments need to be catalyzed and supported by targeted public expenditure, policy reforms and regulation changes. This development path should maintain, enhance and, where necessary, rebuild natural capital as a critical economic asset and source of public benefits, especially for poor people whose livelihoods and security depend strongly on nature.


The global recession has brought new attention to chronic structural flaws in current economic models and assumptions. As economies struggle to recover, many are taking a closer look at the broad concept of a “Green Economy,” one that simultaneously promotes sustainability and economic growth. What would this type of economy look like, and how could we get there?

A Green Economy can be thought of as an alternative vision for growth and development; one that can generate growth and improvements in people’s lives in ways consistent with sustainable development. A Green Economy promotes a triple bottom line: sustaining and advancing economic, environmental and social well-beingThe 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. In a recent global assessment, approximately 60 percent of the world’s ecosystem services were found to be degraded or used unsustainably. The gap between the rich and poor is also increasing – between 1990 and 2005, income inequality (measured by the gap between the highest and lowest income earners) rose in more than two thirds of countries.

The persistence of poverty and degradation of the environment can be traced to a series of market and institutional failures that make the prevailing economic model far less effective than it otherwise would be in advancing sustainable development goals. These market and institutional failures are well known to economists, but little progress has been made to address them. For example, there are not sufficient mechanisms to ensure that polluters pay the full cost of their pollution. There are “missing markets” – meaning that markets do not systematically account for the inherent value of services provided by nature, like water filtration or coastal protection.

A “market economy” alone cannot provide public goods, like efficient electricity grids, sanitation or public transportation. And economic policy is often shaped by those who wield power, with strong vested interests, and rarely captures the voice and perspectives of those most at risk.

Building an Inclusive Green Economy for All
Poverty, inequality and growth — the search for new solutions
The world faces an array of converging global challenges to overcoming poverty and inequality and achieving sustainable development that are unprecedented in their scale and complexity. Ecosystem degradation and climate change, in particular, pose major threats to livelihoods and economies.

Despite significant progress over the past decade, poverty in its many dimensions remains widespread and inequality is on the rise. Globally, income poverty has fallen when measured by national averages, in large part because of rapid growth in China, India and parts of East Asia. Yet, some 1.3 billion people still live in extreme poverty earning less than US$1.25 a day and some 900 million face hunger. Worse, progress across other dimensions of poverty is very uneven and there are significant regional disparities, with even greater numbers of people experiencing simultaneous deprivations in education, health and living standards (Chen and Ravalllion 2012a; UNDP 2011).

Significantly, the distribution of poverty also is changing. The majority of people in poverty, particularly the chronic poor, are still found in rural areas, but a massive rural-urban transition is underway with growing numbers of the poor found in cities, where poverty is characterized by unsafe housing and sanitation, high cost of transport, and lack of access to energy. Further, a majority of the world’s poor now live in countries that have advanced to middle-income status, many of which have high levels of inequality and social exclusion, particularly among women (Sumner 2011). Nevertheless, significant numbers of people remain trapped in poverty in low-income countries that are more vulnerable to internal and external shocks, and where poverty is more deeply entrenched.

Concurrently, the global financial and economic crisis, rising and volatile food and fuel prices, environmental degradation and the growing impacts of climate change are leading to significant and potentially irreversible economic, social and environmental costs, and because of their vulnerability, poor and marginalized groups are being hit the hardest (UNEP 2012; UNDP 2011). These crises can be traced, in part, to market and institutional failures that characterize national economies and conventional approaches to economic growth, and that hinder equitable and sustainable development. These include issues such as externalities, under-provision of public goods, missing markets, and insecure and inequitable property rights. In the face of these systemic problems and their growing impacts, ‘business as usual’ approaches toward economic growth and development are no longer economically, socially or environmentally sustainable.[_/su_spoiler]

A new path — an inclusive green economy
The transition to an inclusive green economy will be specific to the economic, social, environmental and political context of each country — there is no ‘one size fits all’ prescription and the transition process must be country-owned and led.

There is growing recognition that transitioning to an ‘inclusive green economy’ can provide the means to address some of the systemic problems of the current economic system, and can generate more inclusive and sustainable growth by increasing the economic and social returns from investing in environmental improvement and low-carbon, climate-resilient development.

Perspectives on the definition of and approaches to ‘green economy’ are diverse and evolving. An inclusive green economy can be broadly understood as providing pathways for bringing together the social, economic and environmental objectives of sustainable development in ways that can benefit poor and vulnerable groups and reduce inequality.

Although transition strategies will need to address the particular opportunities and challenges of different national and local contexts, a number of key characteristics of an inclusive green economy can be identified (GEC 2012; OECD).

Economic

  • Supports resource-efficient, low carbon and climate-resilient growth;
  • Creates and sustains decent jobs, and expands other economic opportunities that benefit the poor, including in the informal economy;
  • Stimulates innovation and adaptation of green technologies that can benefit the poor;
  • Diversifies and enhances the resilience of local and national economies.

Social

  • Improves health and well-being, especially among the poor;
  • Promotes equity, including gender equality;
  • Builds social capital and enhances the resilience of local communities, especially among the poor.

Environmental

  • Increases productivity and efficiency of natural resources use;
  • Reduces pollution and the impact of natural hazards, and improves management of environmental risk;
  • Invest in restoring and sustaining ecosystem health and resilience.

Governance

  • Empowers citizens through access to information and justice and participation on decision-making, particularly among marginalized groups;
  • Improves transparency and accountability in the public and private sectors, including better regulation of markets.[_/su_spoiler]
How the poor can benefit from an inclusive green economy
Examples of an inclusive green economy in practice show great potential for delivering a “triple bottom line” of job-creating economic growth couples with environmental protection and social inclusion.

Economic and social progress is dependent upon the health of the environment. Environmental assets—such as fertile soils, clean water, forests and biodiversity—yield income and support livelihoods, provide safety nets for the poor, contribute to public health, and help drive economic growth.

Evidence suggests that investing in improved natural resource and environmental management in rural and urban areas—such as sustainable forestry and fisheries, reducing carbon emissions or better urban planning and infrastructure—makes strong economic sense and can generate high social rates of return (World Bank 2012; TEEB 2010; Pearce 2005; WRI 2005 and 2008). This is particularly true for the rural and urban poor who depend strongly on the environment, and who suffer the most from environmental degradation and the growing impacts from climate change.

By improving the management and value of environmental assets while reducing environmental degradation and pollution—and ensuring that the benefits are equitably distributed—an inclusive green economy can deliver low-carbon and more climate-resilient development, significantly improved resource efficiency, healthy and more resilient ecosystems, and greater economic opportunities and social justice for poor and vulnerable groups (ADB et al 2012). These green economy pathways, in turn, can improve the livelihoods, health and resilience of poor women and men.

Livelihoods. The majority of poor households depend on environmental assets for their incomes and livelihoods—particularly rural households dependent on farming, fishing, hunting and non-timber forest product collection, but also urban households involved in informal sector employment in recycling, water and energy distribution. For example, ecosystem services and other non-marketed goods have been estimated to account for between 47 and 89 percent of the so-called “GDP of the poor” (the effective GDP or total source of livelihood of poor rural households), although these contributions are largely ignored by official statistics (TEEB 2010).

However, because environmental assets are often under-valued by markets and economic systems, as well as the barriers that the poor often face such as insecure resource rights, natural resource-dependent livelihoods have provided more of a ‘safety net’ than a route out of poverty. In practice, poor households often try to reduce their natural resource dependence to escape poverty, but in the absence of reliable social protection and other means of support to help make the transition, they often are forced to migrate away, rely on remittances or turn to illegal activities. This can change if inclusive green economy strategies lead to policy and governance reforms that give poor women and men greater security of access to environmental assets, and make these environmental asset-based livelihoods more profitable and a viable path for moving out of poverty.

Health. Health is closely linked to the quality of the environment, especially for poor women and children. Up to one-fifth of the total burden of disease in developing countries, and a large proportion of childhood deaths, are associated with environmental risk factors—and preventive environmental health measures are as important and often more cost-effective than health treatment (PEP 2008). An inclusive green economy can deliver better and more equitable health outcomes by significantly reducing these environmental risk factors in rural and urban areas by: more secure access to water and agricultural land to improve nutrition; access to clean household energy to reduce exposure to indoor air pollution; access to clean water to reduce exposure to water-related diseases; improved environmental infrastructure for sanitation, drainage and waste collection; and ‘green’ urban transport to reduce chronic disease and injuries and improve equity.

Resilience. Poor and vulnerable groups are most affected by climate-related shocks. An inclusive green economy can reduce the impacts from weather changes and extreme weather events in rural and urban areas by strengthening the resilience of local communities and ecosystems, and can reduce conflict driven by natural resource scarcity and ecosystem degradation.

An inclusive green economy can generate income and employment opportunities for poor households, providing a route out of poverty—and poverty reduction can unleash the capacity of the poor to build an inclusive green economy.

Movement toward a green economy already is expanding opportunities for new products, services and technologies with the potential for generating significant revenues for national economies and new income and employment opportunities for the poor. A major review led by the International Labour Organization (ILO) and the United Nations Environment Programme (UNEP) identifies eight key sectors with the most potential: agriculture, forestry, fishing, energy, resourceintensive manufacturing, recycling, buildings and transport (ILO et al 2012). For example:

  • In the agriculture sector, investment to enable small-holder farmers to adopt greener farming practices has boosted productivity and improved access to markets, as in Uganda with organic farming.
  • Many low and middle-income countries still have significant forest areas and/or high potential for forest restoration, which will increase in value with the growth of ecosystem service markets and payment schemes such as REDD+ (Reduced Emissions from Deforestation and Forest Degradation). According to the ILO/UNEP study, international investment of US$30 billion per year into REDD+ could boost full-time employment by up to 8 million in developing countries.
  • Many low and middle-income countries are rich in ecotourism resources. Ecotourism is projected to generate revenues of US$240 billion in 2012—much of this in developing countries such as Brazil, Belize, Kenya, Gabon, Botswana, Costa Rica and Nepal (UNCTAD 2011).
  • Low-income countries with less developed infrastructure, particularly in urban areas, are well-positioned to benefit from increased investments in energy efficiency, emission-reducing technology and climate-proofed infrastructure as long as the investment climate is attractive and competitive. This has significant potential for employment creation given adequate investment in skills development and strengthening capacity of the small and medium-sized enterprises that dominate the sector.
  • Many low-income countries and poor regions in middle-income countries have abundant sources of renewable energy and can benefit from investments to harness these resources.

There are growing numbers of green technologies that can generate new income and employment opportunities for the poor, but so far few countries are benefiting. These technologies require a strong emphasis on export-led growth, and often require up-front investment in research and development and innovation capacity. Some developing countries have been making major progress, but they are few in number and primarily middle-income countries. In other cases, low-income countries can benefit by creating employment opportunities that cater to the domestic market. For example, in Bangladesh a program to distribute small solar panels to poor rural households has delivered clean electricity to over 1.2 million families, generating employment for several thousand women and some 60,000 new jobs in downstream activities (ILO et al 2012). Another example is South Africa, which is rolling out plans for distributing one million solar water heaters by 2014 (South Africa 2011).

The state can also play a role in generating “green jobs” in the rural economy through public employment schemes for landscape restoration—such as South Africa’s Working for Water and India’s Rural Employment Guarantee Scheme—and in urban areas through urban renewal programs. However, some of what are classed “green” jobs in the informal waste sector and in some small-scale natural resource management activities are jobs that poor people undertake because they have no other option. It is important not to overstate the employment potential of “green jobs” and to focus on new and decent jobs that really benefit the poor. South Africa has led the way with a Green Economy Accord to create 300,000 green jobs by 2020 in a landmark agreement involving 12 government departments, businesses and all three labor federations representing 2.5 million workers (South Africa 2011).
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Barriers to an inclusive green economy
While an inclusive green economy can benefit the poor, it is critical to assess the potential costs associated with the transition and how the poor will be impacted.

While the longer-term impacts of achieving an inclusive green economy generally will benefit the poor—the shorter term impacts of the transition can vary for poor people, low and middle-income countries and in rural and urban areas. Impacts can arise at a national level in terms of impacts on exports and government revenues, and at the household level. Poor people can be impacted both as producers and consumers, and sometimes impacts can vary from one to the other. It is important to assess these complex impacts carefully and define under what conditions a green economy can be pro-poor, rather than simply to assume that it will be equitable for low-income countries and poor producers.

Poor people and low-income countries need to be safeguarded against potential impacts and costs during the transition to an inclusive green economy.

Low-income countries are unlikely to impose such reforms on themselves, but they may be affected by global changes such as increases in biofuel demand, or trade policies that promote environmentally friendly imports or restrict environmentally damaging exports. Some of these reforms will benefit low-income countries, but there may also be some who are negatively affected and compensation or tariff exemptions will be required.

A major impact of the green economy is the rise in fossil fuel prices which may have some negative impacts on poor people, especially in the short term and if they are not addressed. Cash transfers provide an alternative to fossil fuel subsidies and can be more sustainable economically, socially and environmentally.

Price rises in fossil fuels in recent years have already hit poor consumers and producers hardest in both urban and rural areas through increased food prices, higher costs for farm inputs and general increases in the costs of living. Here again, compensation and other safeguards will be required through the welfare system. However, fossil fuel subsidies are generally not the answer as the poor typically benefit from only a small share of subsidies (except possibly in the case of subsidies for kerosene). At the same time, because the poor spend a larger proportion of their income on basic goods such as food, water and energy, they can be disproportionately affected if subsidies to these goods are removed. Cash transfers can be an effective alternative, as they can be targeted to benefit those poor population groups that are really in need, and can be used flexibly by poor households to meet priority needs. Therefore, welfare transfers and other strategies, such as redirecting funds previously spent on subsidies into education and health care, may be necessary.
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Moving forward
Robust green economies are not going to materialize if all that takes place is a ‘retrofitting’ of the prevailing economic system… one of the litmus tests will be whether it empowers and engages people every step of the way and whether it takes to heart the perspectives of poor communities and especially the interests, knowledge, and priorities of women in these communities.Nidhi Tandon, Oxfam

Evidence of movement toward a green economy is growing. Developing countries already are demonstrating examples of an inclusive green economy in practice—from small-scale interventions to major national programs and policy actions.

Accelerating the transition to an inclusive green economy requires innovations from all corners of the world, and calls for new modes of global cooperation that go beyond the two-dimensional division between ‘developed’ and ‘developing’ countries. Policy learning and experience sharing must be promoted in all directions and not just from North to South. All stakeholders have important roles to play. Governments and other stakeholders—poor and vulnerable groups and their local organizations, NGOs, the private sector, and development partners—will need to join forces and find new and innovative ways to work together to build an inclusive green economy for all. [_/su_spoiler]

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