5.4 Towards a green economy

Investment factors

Demands for increased efficiency and profits require minimization of investment factors like capital, labor and material resources. Increased labor productivity is therefore a must in our current monetarist system. This means producing more with less people. Technological progress increase production and reduce prices. In other words, it stimulates growth in consumption and reduces job opportunities. This system is far too wasteful of natural resources and cannot continue. The option is “green economy”.

Green economy

(Summary of: UNEP (2011) Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication – A Synthesis for Policy Makers)

UNEP defines a green economy as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. A green economy is low carbon, resource efficient and socially inclusive. Growth in income and employment should be 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.

Green economy demands a change in investments. For example, price and production subsidies, permissive rules for externalization of costs and tax breaks for fossil fuels collectively exceed hundreds of billions of dollars every year (GSI, 2010), and this high level of subsidization can adversely affect transition to the use of renewable energies. In contrast, enabling conditions for a green economy can pave way for the success of public and private investment in greening the world’s economies, reduce other environmentally harmful subsidies; employ new market-based instruments; target public investments to “green“ key sectors; greening public procurement; and improving environmental rules and regulations as well as their enforcement.


Green economy can reduce persistent poverty in agriculture, forestry, freshwater, fisheries and energy. Sustainable forestry and ecologically friendly farming methods help conserve soil fertility and water resources in general. Green economy removes environmentally harmful or perverse subsidies through appropriate regulatory framework and green public procurement, and through stimulating investment.

Green economy maps ecological resources and puts prices on these commodities. “Ecosystem services”, such as biodiversity, contribute to human wellbeing and provide vital resources. So far these services have been economically invisible, resulting in mismanagement and loss. The ecosystem services are part of our natural capital, such as forests, soil, clean air, lakes, wetlands and rivers. The carbon cycle and its role in climate mitigation, soil fertility and its value to crop production, local microclimates for safe habitats, fisheries for proteins, are all crucial elements of a green economy.

The economics of ecosystems and biodiversity (TEEB) puts price tags on ecosystem services. This can be an advantage to the environment – or be  destructive in the sense that the value of the ecosystem service might be given a modest price tag while the profit of an enterprise is given a high value, even when the ecosystem service is paid for. If this system is not carefully thought through, it might facilitate landgrabbing by the richest multinational corporations, as less wealthy local enterprises might not be able to internalize ecosystem costs.

coalfired power plant

Green economy means transforming the energy sector away from fossil fuels over to renewable energy technologies. This may make a significant contribution to improving living standards and health in low-income areas, particularly in off-grid situations. Cost effective solutions include clean biomass and off-grid solar photovoltaics, with low operating costs and flexible, small-scale deployment options.

As a first step, Perverse subsidies must end

Estimates of fossil fuel subsidies vary widely depending on the definition of a subsidy. The OECD reports that its member states contribute $160-200bn each year to the production of coal, oil and gas.

But the International Monetary Fund (IMF) has said this neglects to account for the damage to the environment and human health for which governments carry the cost. The IMF estimates this to amount to a staggering $5.3tn a year, or $10m per minute.
Insurers worth $1.2tn tell G20 to stop funding fossil fuels by 2020

“Solar grows more rapidly than any other renewable technology. Renewables become the world’s second-largest source of power generation by 2015 (roughly half that of coal) and, by 2035, they approach coal as the primary source of global electricity” (IEA (2012) Global Energy Outlook)  |  Bloomberg: renewables set to triple by 2030 .

Green investments tend to be more employment intensive than “brown”. Eco-taxes, which raise the price of emissions and natural resource use while reducing the cost of labour have shown positive employment impacts. Improving energy efficiency in all transport modes and shifting from private transport to public or non-motorized transport would further increase employment by about 10% above business as usual.

Investments in improved energy efficiency in buildings generate million of jobs. Employment in the renewable energy sector has become substantial with millions of people worldwide working directly or indirectly in the sector. Recycling employs several million people, while sorting and processing recyclables sustains 10 times more jobs than land filling or incineration on a per metric tonne basis. In green investment scenarios, projected growth in jobs in the waste sector rises by 10% compared to current trends. To be truly green jobs they also need to match the requirements of decent work, including such aspects as a living wage, the elimination of child labour, occupational health and safety, social protection, and freedom of association.


The greening of the energy sector requires substituting investments in carbon-intensive energy sources with investments in clean energy as well as efficiency improvements. Despite the global recession, this sector is doing well. The growth is increasingly driven by non-OECD countries, whose share of global investment in renewables rose from 29% in 2007 to 40% in 2008, with Brazil, China, and India accounting for most of it. Renewable technologies are even more competitive when the societal costs of fossil fuel technologies are taken into account.


The central challenge is to decouple growth absolutely from material and energy intensity. Redesigning production systems would involve the redesigning of products to extend their useful life by making them easy to repair, recondition, remanufacture and recycle, thereby providing the basis for closed cycle manufacturing. Recycling supports the use of byproducts of the production process while also providing alternatives for substitution of inputs in manufacturing. Recycling of materials such as aluminum, for instance, requires only 5% of the energy for primary production.

21 Countries That Reduced Carbon Emissions While Growing Their GDP

Rapid urbanization exerts pressure on fresh water supply, sewage systems and public health, and often results in poor infrastructure delivery, declining environmental performance and significant costs to public health. Against this backdrop, unique opportunities exist for cities to increase energy efficiency and productivity, reduce emissions in buildings as well as waste, and promote access to key services through innovative, low-carbon transportation modalities
– saving money while enhancing productivity and social inclusion.

Promoting green cities raises efficiency and productivity. Eco-cities or green cities are typically characterized by higher density of population, housing, employment, commerce, and entertainment facilities.
Well connected and designed neighborhoods allow for effective provision of public transport and are seen as a starting point for green cities. Doubling the employment density of an urban area – and respecting decent work conditions – typically raises labour productivity by around 6%. Infrastructure, including streets, railways, water and sewage systems as well as other utilities comes at a considerably lower cost per person the higher the urban density.

Policies for greening transport follow three interlinked principles:

  • 1) avoiding or reducing trips through integration of land use and transportation planning, and localized production and consumption;
  • 2) shifting to more environmentally efficient modes such as public and non-motorized transport for passengers and to rail and water transport for freight; and
  • 3) improving vehicle and fuel technology to reduce the negative social and environmental effects from each kilometer travelled.

Policies required include land-use planning to promote compact or mass transit corridor-based cities, the regulation of fuel and vehicles, and the provision of information to aid decisions by consumers and industry. Strong economic incentives such as taxes, charges and subsidy reform can also support an increase in cleaner private vehicles as well as a shift to public and non-motorized transport.

With more than half of the green investment scenario allocated to raising energy efficiency across sectors and expanding renewable energy, including second generation biofuels, global energy intensity would be reduced by about 40% by 2030. Together with the potential carbon sequestration of green agriculture, a green investment scenario is expected to reduce the concentration of emissions to 450 ppm by 2050.

Green economy include certain key enabling conditions

  • establishing sound regulatory frameworks;
  • prioritizing government investment and spending in areas that stimulate the greening of economic sectors;
  • limiting spending in areas that deplete natural capital;
  • employing taxes and market-based instruments to shift consumer preference and promote green investment and innovation;
  • investing in capacity building and training; and
  • strengthening international governance.

Policy options for transitioning to a green economy not only exist, they are being implemented by many countries. The governments that act early to establish green economy enabling conditions will not only support the transition but will also ensure they are in the best place to take advantage of it. A regulatory framework can regulate the most harmful forms of unsustainable behavior, either by creating minimum standards or prohibiting certain activities entirely.

Many subsidies represent a significant economic and environmental cost to countries. Artificially lowering the price of goods through subsidization encourages inefficiency, waste and over use, leading to the premature scarcity of valuable finite resources or the degradation of renewable resources and ecosystems. For instance, global subsidies to fisheries have been estimated at US$ 27 billion annually, at least 60% of which have been identified as harmful, and are thought to be one of the key factors driving over-fishing. It is estimated that depleted fisheries result in lost economic benefit in the order of US$ 50 billion per year, more than half the value of global seafood trade.

When subsidization makes unsustainable activity artificially cheap or low risk, it biases the market against investment in green alternatives. By artificially lowering the cost of using fossil fuels, such subsidies deter consumers and firms from adopting energy efficiency measures that would otherwise be cost effective in the absence of any subsidies.

Banking, investment and insurance need significant changes in philosophy, culture, strategy and approach, in particular short-termism. This will be required if capital and finance is to be reallocated to accelerate the emergence of a green economy.

Green investments will also enhance new sectors and technologies that will be the main sources of economic development and growth of the future: renewable energy technologies, resource and energy efficient buildings and equipment, low-carbon public transport systems, infrastructure for fuel efficient and clean energy vehicles, and waste management and recycling facilities. Complementary investments are required in human capital, including greening-related knowledge, management, and technical skills to ensure a smooth transition to a more sustainable development pathway.

Green economy supports growth, income and jobs. The so-called “trade-off“ between economic progress and environmental sustainability is a myth, especially if one measures wealth inclusive of natural assets, and not just narrowly as produced output.

In sectors whose capital is severely depleted, such as fisheries, greening will necessitate the loss of income and jobs in the short and medium term to replenish natural stocks, but this is to prevent the permanent loss of income and jobs in these same sectors. In such cases, transitional arrangements are needed to protect workers from negative impacts on their livelihoods.

In summary, a green economy values and invests in natural capital. Ecosystem services are better conserved, leading to improved safety nets and household incomes for poor rural communities. Ecologically friendly farming methods improve yields significantly for subsistence farmers. And improvements in freshwater access and sanitation, and innovations for non-grid energy (solar electricity, biomass stoves, etc) add to the suite of green economy strategies, which can help alleviate poverty.

A green economy substitutes clean energy and low carbon technologies for fossil fuels, addressing climate change but also creating decent jobs and reducing import dependencies. New technologies promoting energy and resource efficiency provide growth opportunity in new directions, offsetting “brown economy“ job losses. Resource efficiency becomes a driving proposition – both energy and materials use – be it in better waste management, more public transportation, green buildings or less waste along the food chain.

Taxes and other market-based instruments can be used to stimulate the necessary investment and innovation for funding the transition. Pigovian taxes  are no new ideas, but could be implemented in a much larger and stricter scale. And while the scale of financing required for a green economy transition is large, it can be mobilized by smart public policy and innovative financing mechanisms.

Building local resilience

The neo-liberal economy claims that economic stability can only be achieved through economic growth. The repeated financial crises clearly demonstrate that this kind of “stability” is extremely fragile. Our new eco-economy instead emphasizes resilience. The economy must be able to resist exogenous shocks, provide security for people’s livelihoods, ensure distributional equity, impose sustainable levels of resources throughput and protect natural capital (Jackson, p.141).
A key element in building community resilience must be to reduce social inequality. Unproductive status competition increases material throughput and creates distress. According to the research group “Resolve” (Resolve 2011), liberalized market economies tend to have higher per capita carbon emissions, higher infant mortality, higher teenage pregnancies and more people saying they feel like an outsider.
The task of a sustainable economy is to provide capabilities for flourishing within ecological limits. This can happen when the changes in the economic system support social behaviors and reduce the structural incentives to unproductive status competition. A more equal society is less stressful, reduces loneliness and family breakdown, reduces the individualistic pursuit of novelty, accumulation of stuff and debt, increases savings and economic prudence and supports prosperity in the form of flourishing (Jackson, p. 156).

A sustainable economy builds local resilience and more robust societies. A globalised market based on the values of the neo-liberal economy transfers political and economic power to big multinational companies and to speculators. The local interests based on making sustainable livelihoods and resilient communities must therefore systematically and deliberately decide the terms of conducting business in the eco-economy.

In cost-benefit analyses, factors like social and environmental capital must be included. Questions must be asked whether costs are externalized or internalized. Rather than a myopic look at a limited price-tag, priorities should be given to increase social cohesion, build local competence and capacity, protect and enhance local environmental and social capital.

If the challenge for example is to secure energy for keeping houses warm, priority should be given to local solutions. The price tag by itself might indicate that drilling deep holes for geothermal energy is higher than procuring electricity through cables from a far-away place. But energy from somewhere far away increases local vulnerability, and gives the profit to far-away people. The cheap price tag has most likely unethically externalized costs, such as increased depletion of the environment. When calculating in the benefits of increased local cohesion, increased local capacity and competence – in other words increased local social as well as financial capital – in addition to a much more resilient local community and a better off environment, the real price difference might shift.


Establish limits. Natural resources must be identified and environmental limits given. There must be caps on emissions of waste as well. All companies must internalize until now externalized negative costs. This can be done through taxes on “ecological bads” like emission of carbon, while taxes on e.g. labor are minimized or removed.

Investments must be in renewable energy, energy efficiency, resources efficiency, low-carbon infrastructures and carbon sinks like forests (Jackson p. 175). Financial markets must be regulated: unscrupulous practices must be outlawed. Excessive remuneration must be reduced, and incentives for domestic saving provided. A Tobin tax on international currency transfer to reduce excessive and completely unproductive speculation must be implemented.

Trading standards should be addressed. Planned obsolescence in any product should be heavily taxed, as it encourages a wasteful and polluting throw-away society. Durability and repairability must be emphasized.

The social logic must be changed. People must be freed from materialistic consumerism as basis for social participation. Conspicuous inequality and conspicuous consumption must be reduced. This would reduce social costs, improve quality of life and reduce morbidity for all.

Creating resilient communities is vital. To build social capital, several measures can be taken. Systematic and continuous efforts to establish and maintain incentives for local interaction, provide facilities for local training and life long learning, effective local crime fighting and law enforcement must be developed. It is also important to establish, improve and develop shared public spaces, libraries, parks and “green lungs”, comfortable and enjoyable public transportation, local markets, cafes, maintenance and repair, festivals and recreation centres and other initiatives for common purposes and social participation.

Common renewable and carbon-low technology and infrastructure, climate adaptation and ecological enhancement, long-term investments, ethical, social and environmentally friendly production, reducing overall working hours and sharing of available work are tools for achieving economical as well as ecological stability.

Read more


Chapter 4 4 Ecosystems
Chapter 5 5. Green economy
5.1 Green economy games
5.2 Throughput
5.3 The eco economy
5.4 Towards a green economy
Chapter 6 6. Greener future?