Chapter 14 Greening the Economy PDF

Greening the C H A P T E R 14 Economy...

Greening the C H A P T E R 14 Economy Chapter 14 Focus Questions Is a “green economy” possible? What economic theories provide insight into the relationship between the economy and the environment? Is protecting the environment bad for the economy? What policies can promote a transition to a green economy? Copyright © 2017. Taylor & Francis Group. All rights reserved. Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Chapter 14 Greening the Economy 375 14.1 THE GREEN ECONOMY: INTRODUCTION Economic and environmental objectives are often presented as conflicting goals. A common theme in political debates in recent years is that certain environmental regulations result in unacceptable job losses. Thus the choice is presented as being between improved environ- mental quality on one hand, and a robust economy on the other (see Box 14.1 for a recent example of this debate). But is the choice this simple? Can’t we have both sufficient environmental quality and plentiful, good jobs? In this chapter we explore the relationship between protecting the environment and economic growth.We’ll consider the research on the topic to determine if there is necessarily a tradeoff between the environment and the economy. While protecting the environment clearly involves some costs, including job losses in some sectors, econo- mists focus on whether the benefits justify these costs. Environmental regulations may also create jobs in some sectors—for example, environmental restrictions on coal plants may lead to expansion of wind power production. Thus it may be possible that at least some envi- ronmental regulations actually lead to net job gains. This is an important issue in analyzing polices to combat climate change, since, as we have seen in previous chapters, responding to climate change will require extensive changes in energy production and other sectors of the economy. Some recent policy proposals suggest that a well-designed response to current environmental and energy challenges can actually be the engine for future economic development. Companies and countries that make the investments necessary to create a low-environmental-impact society may gain a competitive advantage over those that continue to pursue business as usual. In green economy an economy addition, excessive rates of natural capital degradation can reduce that improves human well-being economic productivity, measured in traditional terms as a reduc- and social equity, while reducing tion in GDP, or in broader terms using the measures we discussed environmental impacts. in Chapter 10. Thus maintaining natural capital may be a critical factor to ensure future economic growth. A more ambitious goal is to create a new “green economy” that embodies the concept of sustainable development.The United Nations Environment Program (UNEP) has defined a green economy as: [O]ne that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression, a Copyright © 2017. Taylor & Francis Group. All rights reserved. green economy can be thought of as one which is low carbon, resource efficient and socially inclusive. [In] a green economy, 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.1 Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  376 Part IV Energy, Climate Change, Green Economy Box 14.1 that it would pose a risk of oil spills while tapping DEBATE OVER THE into a particularly dirty source of energy as much of the oil would come from Canadian tar sands, KEYSTONE XL PIPELINE which have higher carbon emissions per barrel as well as destructive local environmental impacts on forest and water ecosystems. In a 2015 letter The Keystone XL pipeline was proposed in 2008 by the to the State Department, the U.S. Environmental TransCanada Corporation to transport oil from Alberta Protection Agency warned that building the to Nebraska. For several years, the pipeline became pipeline would result in an increase in “greenhouse a divisive political issue, often presented as a choice gas emissions, over what would otherwise occur.” between job creation and environmental quality. In early 2015 both the U.S. Senate and House Proponents of the pipeline argued that it would voted to approve the pipeline, but President provide access to a new source of energy while Obama vetoed the project, citing that it would creating a significant number of jobs. According not be “a silver bullet for the economy” and to TransCanada’s CEO in 2014, the pipeline would would undermine America’s “global leadership” create 42,000 direct and indirect “ongoing, enduring on the issue of climate change. In January 2017, jobs.” While this estimate came from a 2014 President Trump reversed this veto, clearing environmental impact statement (EIS) by the U.S. the way for development of the pipeline, but Department of State, the EIS noted that the jobs economic issues such as falling oil prices, as would only last during a one-year construction well as continued local opposition still left the phase, and that only about 3,900 of these jobs would ultimate fate of the pipeline unclear. be direct construction jobs. Once the pipeline was completed, the EIS estimated that it would support Sources: http://www.politifact.com/punditfact/ just 35 permanent jobs. statements/2014/nov/16/russ-girling/transcanada-ceo-says- 42000-keystone-xl-pipeline-jo/; https://keystonepipeline-xl. In addition to the small number of permanent state.gov/; Peter Baker and Coral Davenport, “Trump Revives jobs created, opponents of the pipeline stated Keystone Pipeline Rejected by Obama,” New York Times January 24, 2017. Note that the concept of a green economy does not necessarily reject economic growth, but instead seeks to foster growth that is compatible with sustainability. It explicitly rejects the standard jobs versus the environment choice: Copyright © 2017. Taylor & Francis Group. All rights reserved. Perhaps the most widespread myth is that there is an inescapable trade-off between environmental sustainability and economic progress. There is now substantial evidence that the “greening” of economies neither inhibits wealth creation nor employment opportunities, and that there are many green sectors which show significant opportunities for investment and related growth in wealth and jobs.2 In addition to environmental sustainability, the green economy should promote social equity.Thus advocates of a green economy reject the notion that sustainability must limit the economic aspirations of the world’s developing countries. Later in the chapter we’ll discuss specific policy proposals to transition to a green econ- omy, some of which build on policies mentioned in earlier chapters, such as removing fossil fuel subsidies and internalizing externalities. We’ll also look at some empirical anal- ysis that compares the economic and environmental performance of the green economy Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Chapter 14 Greening the Economy 377 to a business-as-usual scenario. But first we discuss economic theories of the relationship between the economy and the environment. 14.2 THE RELATIONSHIP BETWEEN THE ECONOMY AND THE ENVIRONMENT We can study the relationship between the economy and the environment in both directions. We can look at how environmental protection impacts economic performance, and we can look at how economic growth impacts environmental quality. In this chapter we will con- sider both perspectives. Environmental Kuznets Curves First, let’s consider how economic growth impacts environmental quality. Specifically, as a nation gets richer over time, how will this affect its environmental quality? The answer isn’t obvious. On one hand, a richer nation is likely to use more resources, demand more energy, and produce more waste and pollution. On the other hand, a richer nation can afford to invest in renewable energy, install state- of-the-art pollution control equipment, and implement effective normal good a good for which environmental policies. total expenditures tend to increase In economic terms, it is widely accepted that environmental as income increases. quality is a normal good—meaning that people will seek to “pur- luxury good a good that people chase” more of it as their income increases. What is more debatable tend to spend a higher percentage is whether environmental quality is also a luxury good—meaning of their income on as their that spending on it increases disproportionately as income grows. incomes increase. It may be that environmental quality is a luxury good over some income levels, and merely a normal good at other income levels.3 An appealing hypothesis is that economic growth will eventually provide a nation with the resources to reduce its environmental impacts. As a 1992 paper argued: [T]here is clear evidence that, although economic growth usually leads to environmental deterioration in the early stages of the process, in the end the best—and probably the only—way to attain a decent environment in most countries is to become rich.4 This notion that environmental impacts tend to increase initially as a country becomes Copyright © 2017. Taylor & Francis Group. All rights reserved. richer, but then eventually decrease with further income gains, has become known as the environmental Kuznets curve (EKC) hypothesis.5 This hypothesis proposes that the rela- tionship between income and environmental impacts is an inverted-U shape. The concept is illustrated in Figure 14.1, based on actual data on sulfur dioxide emissions from the 1980s. We see that per-capita SO2 emissions increase with income up to a per-capita income of around $4,000. But above that income level, environmental Kuznets Curve SO2 emissions per capita decline steadily. This is an encouraging result (EKC) the theory that a country’s because the “turning point” occurs at a relatively modest income level. environmental impacts increase Thus a moderate amount of economic growth can lead to substantial in the early stages of economic SO2 emission reductions. The validity of an environmental Kuznets development but eventually curve for SO2 emissions was further tested in a 2015 paper, which decrease above a certain level of found evidence for the inverted-U relationship in 19 of 25 OECD income. countries tested, based on data from 1950–2005.6 Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  378 Part IV Energy, Climate Change, Green Economy Figure 14.1 Environmental Kuznets Curve for Sulfur Dioxide Emissions Source: Adapted from Panayotou, 1993. Note: GNP = gross national product; kg = kilogram; SO2 = sulfur dioxide. While the EKC hypothesis seems to apply to SO2, further analysis indicates that it does not apply to all environmental impacts. Perhaps most importantly, the EKC hypothesis does not match the data on carbon dioxide emissions, the primary cause of human-induced cli- mate change. Figure 14.2 illustrates this finding. Statistically, an attempt to fit an inverted-U trendline through the data for 2013 shows that there is no turning point—per-capita CO2 emissions continue to rise as per-capita income increases.7 A more sophisticated statistical analysis in 2009 tested the EKC hypothesis for carbon emissions and concluded that “despite these new [statistical] approaches, there is still no clear-cut evidence supporting the existence of the EKC for carbon emissions.”8 A 2015 analysis reached the same conclusion—that “it Copyright © 2017. Taylor & Francis Group. All rights reserved. is evident that for OECD countries rising income is associated with an increase in [CO2] emissions. No income turning points are found for the observed sample of countries.”9 Thus promoting economic growth does not appear to be a means to address the issue of global climate change. The EKC hypothesis has been tested for numerous other environmental impacts. While the theory has been supported in some analyses of municipal solid waste10 and some local air pollutants such as SO2, carbon monoxide, and nitrogen oxides,11 it does not seem to apply more broadly to other environmental impacts. A 2015 paper testing the EKC hypothesis using a dataset of 47 countries concludes that: Overall, our findings do not lend strong support to the presumed EKC-typed relationship.... At best the relationship between economic growth and environmental quality is shown to be typified by an N-shaped curve—indicating that any delinking of economic growth from environmental quality is temporal. An important policy issue arising from here is Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Chapter 14 Greening the Economy 379 that as nations (especially developing countries) continue to demand more energy to drive their growth process, adequate concern should be giving to environmental impacts of such process. The evidence in this paper suggests that it would be misleading to follow the policy of polluting first and cleaning later as espoused by proponents of EKC. It does not make much sense to “do nothing” and wait for the magic-wand of economic growth to cure environmental problems. Proactive policies and measures are required to mitigate the problem.12 The Porter Hypothesis and the Costs of Environmental Regulation Another hypothesis looks at the interaction between the economy and environment in the opposite direction. Traditional economic theory indicates that firms minimize their costs in order to remain competitive. Thus any environmental regulation imposes an additional cost to firms, and thus reduces their profits. This doesn’t mean that the benefits of environmen- tal regulations can’t outweigh these costs, but that firms will end up worse off as a result of environmental regulations. This notion was challenged in a 1995 paper that suggested that the key to competi- tiveness, whether it be for a firm or a nation, rests in continual innovation.13 Well-designed Figure 14.2 Per Capita GDP and Carbon Dioxide Emissions, 2013 35 30 CO2 Emissions per Capita (tons) 25 20 15 Copyright © 2017. Taylor & Francis Group. All rights reserved. 10 5 0 0 20000 40000 60000 80000 100000 GDP per Capita, PPP, $US Source: Carbon emissions data from Carbon Dioxide Information Analysis Center (CDIAC) and GDP data from World Bank, World Development Indicators database. Note: CO2 = carbon dioxide; GDP = gross domestic product; PPP = purchasing power parity. Data points indicate individual countries’ GDP per capita and CO2 emissions per capita in 2013. Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  380 Part IV Energy, Climate Change, Green Economy environmental regulations provide an impetus for innovation, and thus can actually lower costs and provide a competitive advantage. In short, firms can actually benefit from properly crafted environmental regulations that are more stringent (or are imposed earlier) than those faced by their competitors in other countries. By stimulating innovation, strict environmental regulations can actually enhance competitiveness.14 The idea that environmental regulation can lead to lower costs for firms has become known as the Porter hypothesis. Like the EKC hypothesis, the Porter hypothesis is contro- versial. The main reason is that it contradicts the common economic assumption that firms minimize costs. If such cost-saving innovations Porter hypothesis the theory were available, then standard economic theory would suggest that that environmental regulations firms would pursue such options without the spur of regulation. But motivate firms to identify the Porter hypothesis notes that firms may not be focused on ways cost-saving innovations that to reduce environmental impacts, thus missing potential cost-saving otherwise would not have been innovations. Regulations may make firms more aware of new technol- implemented. ogies and direct investments into new areas of research. The Porter hypothesis was never intended to apply to all envi- ronmental regulations. Obviously some regulations do impose net costs on firms, even after technological innovations are implemented. Numerous studies have explored the validity of the Porter hypothesis. Similar to the studies of the EKC hypothesis, the results are mixed. Some analyses have studied the Porter hypothesis by looking at firm-level data within a country. For example, a firm-level study in India found evidence of the Porter hypothesis among water-polluting firms. Those firms with the lowest levels of water pollution also per- formed the best economically.15 A 2015 analysis of the chemical manufacturing industry in the United States also supported the Porter hypothesis.16 The study found that those firms with stricter limits on their allowable levels of water pollution also had higher profits as a per- centage of their total sales. But other firm-level research fails to support the Porter hypothesis. A 2013 study in Sweden found that those firms with the largest investments in environmental protection tend to be less efficient than average, particularly in the highly-regulated pulp and paper industry.17 Other analyses have tested whether nations with more stringent environmental regula- tions gain an advantage in terms of international trade. The results generally don’t support the Porter hypothesis at a national level. A 2011 study based on data from over 4,000 facilities in seven developed nations found that environmental regulation does induce innovations Copyright © 2017. Taylor & Francis Group. All rights reserved. but that the net effect of regulations is still negative (i.e., they impose net costs on firms).18 Another analysis based on data from 71 countries found evidence that countries with lax environmental regulations lead to competitive advantages in some industries, particularly in the minerals sector, but not all industries.19 A 2014 paper summarizing the existing research on the Porter hypothesis at both the firm- and national-levels concludes that the: [e]mpirical research on the [Porter hypothesis] is largely inconclusive. Results are usually very context-specific and hence can only provide limited general policy conclusions— raising the question to what extent the results from a specific policy change, aimed at a particular pollutant and industry in a given country, can be generalised.20 This finding is echoed by another 2014 paper which states that “[o]ne possible reason for mixed evidence in more than 20 years of empirical research on the Porter hypothesis Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Chapter 14 Greening the Economy 381 could simply be that different types of environmental innovation with different effects on firms’ production processes are considered.”21 Yet even if the Porter hypothesis is only true in a limited number of situations, the potential for innovation to reduce compliance costs seems to be generally underestimated. In other words, in many cases firms may incur net costs as a result of environmental regulations, but these costs tend to be much lower than initially expected. Proposed environmental regulations often prompt opposition by industries on the basis of their anticipated compliance compliance costs the cost to costs and negative impacts on the economy. firms and industries of meeting A 1997 study sought instances where compliance costs estimated pollution regulations. before an environmental regulation was enacted could be compared with actual compliance costs after the law went into effect.22 A dozen such cases were found in the United States, including regulations on sulfur dioxide, CFCs, asbestos, and mining. In all cases the original, or ex ante, cost estimates were higher than actual, or ex post, compliance costs, with the original estimates at least 29 percent higher. In most cases, the ex post compliance costs were less than half the original estimates. The report concluded: The case studies reviewed in this report clearly show that environmental regulations that mandate emission reduction at the source generally cost much less than expected. It is not clear to what extent businesses overstate their expected costs for strategic reasons, or to what extent they fail to anticipate process and product technology changes when making early estimates. It is clear, however, that input substitution, innovation, and the flexibility of capital have allowed actual costs to be consistently much lower than early predictions.23 A 2000 study based on 28 regulations in the United States found that ex ante initial compliance cost estimates were too high in 14 cases, too low in three cases, and relatively accurate in the remaining cases.24 The analysis found that the tendency to overestimate com- pliance costs arises due to “unanticipated use of new technology.” Further, those regulations that provide firms with the most flexibility regarding how a regulation is met, particularly those that rely upon economic incentives, tend to result in the “most pleasant surprises on the cost side.”25 Unfortunately, more recent comprehensive analyses of the accuracy of regulatory cost estimates are not available. A 2014 paper stated that “we are sorely in need of better evi- dence” and that “it would certainly be useful to high-level decision makers to know how reliable the information they are receiving is—or at least, how reliable it has been in the Copyright © 2017. Taylor & Francis Group. All rights reserved. past.”26 A 2014 study by the U.S. EPA did compare ex ante and ex post compliance costs for five regulations, finding that “several of the case studies are suggestive of overestimation of costs ex ante.” However, the authors did not consider their results to be conclusive and that “conducting ex post analysis has proven more challenging than anticipated.”They called for better collection of data on compliance costs and further analysis on an expanded set of environmental regulations. While compliance costs seem to be lower than anticipated, this doesn’t mean that these costs are insignificant. For example, a 2014 report sponsored by an organization representing U.S. manufacturers claimed that the cumulative effect of federal regulations was to reduce GDP by about $2 trillion annually, or more than 10 percent of GDP, and that the burden of regulations fall disproportionately on small businesses.27 The report also noted that the greatest share of the federal regulatory burden was a result of environmental regulations. But the report did not consider the benefits of these regulations, and other studies, which we will discuss in detail in Section 14.4 of this chapter, estimate benefits of environmental regulations Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  382 Part IV Energy, Climate Change, Green Economy that considerably exceed costs. Also, one may question the objectivity of the analysis. For example, cost estimates for many regulations were obtained from a survey of manufacturing companies, who may have a strategic interest in overstating costs. Decoupling We have emphasized the ways in which environmental protection and the economy are linked, but it is also worthwhile to think about ways the two can be separated. In many ways, economic growth over time has been associated with an increase in environmental impacts. Consider Figure 14.3, which shows that between 1960 and 1977 global economic growth (measured using GDP) was associated with a similar upward trend in global carbon dioxide emissions. During this period, economic activity increased by a factor of 2.2 while CO2 emissions increased by a factor of 1.9. Since 1977, we see in Figure 14.4 that while global economic activity and CO2 emis- sions both increased, they were not linked as closely as in Figure 14.3. We can say that the two variables have become somewhat “decoupled” since the late 1970s. Economic activity between 1978 and 2015 increased by a factor of 2.9 while CO2 emissions increased by only a factor of 1.9. The term decoupling has been defined by the OECD as breaking the link between “environmental bads” and “economic decoupling breaking the goods.”28 We can differentiate between relative decoupling and correlation between increased absolute decoupling: economic activity and similar increases in environmental Relative decoupling: The growth rate of the environmental bad impacts. is positive but less than the economic growth rate. We would say that since the late 1970s carbon emissions and economic growth relative and absolute have become relatively decoupled. decoupling breaking the correlation between increased Absolute decoupling: The level of the environmental bad is economic activity and increases either stable or decreasing at the same time that the economy in environmental impacts; is growing. Thus absolute decoupling breaks the linkage between in absolute decoupling, an economic growth and environmental degradation. increase of economic activity is associated with a decrease in An example of absolute decoupling is shown in Figure 17.5. In the environmental impacts. United Kingdom, real GDP increased by a factor of 2.6 between 1970 and 2013. But during this same period total CO2 emissions in the exported emissions/pollution country actually decreased by more than 30 percent. Even during the Copyright © 2017. Taylor & Francis Group. All rights reserved. shifting the impacts of pollution period of rapid economic growth in the 1990s and early 2000s, CO2 to other countries by importing emissions stayed constant or decreased. This was in large part a result goods whose production of a major shift in energy sources away from coal and toward natural involves large environmental gas, resulting from discoveries of large deposits of relatively inexpensive impacts. natural gas in the British North Sea. One important proviso is that these CO2 data don’t account for “exported emissions”—emissions that are emitted in other countries to produce goods that are exported. Thus some of the decoupling efforts in developed countries have occurred merely because manufacturing has shifted to devel- oping countries. Still, the UK is not alone in absolutely decoupling carbon emissions from economic growth. Over the period 2000–2014 a total of 21 countries reduced their carbon emissions while GDP increased, including Sweden, Germany, France, the United States, and Uzbekistan.29 Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Figure 14.3 Global Real GDP and Carbon Dioxide Emissions, 1960–1977 2.5 GDP 2 CO2 1.5 1 0.5 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 Global CO2 Emissions Real Global GDP (1960=1) Source: World Bank, World Development Indicators database. Note: CO2 = carbon dioxide; GDP = gross domestic product. Figure 14.4 Global Real GDP and Carbon Dioxide Emissions, 1978–2015 3 GDP 2.5 2 CO2 1.5 Copyright © 2017. Taylor & Francis Group. All rights reserved. 1 0.5 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 Global CO2 Emissions Real Global GDP (1960=1) Sources: World Bank, World Development Indicators database; International Energy Agency, World Energy-related CO2 Emissions, March 2016. Note: CO2 = carbon dioxide; GDP = gross domestic product. Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  384 Part IV Energy, Climate Change, Green Economy Absolute Decoupling: Real GDP and Carbon Dioxide Figure 14.5 Emissions in the United Kingdom, 1970–2013 3 GDP 2.5 2 1.5 1 CO2 0.5 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 CO2 Emissions (1970=1) Real GDP (1970=1) Sources: World Bank, World Development Indicators database; U.S. Energy Information Administration, International Energy Statistics. Note: CO2 = carbon dioxide; GDP = gross domestic product. A 2011 report by the United Nations looks at the extent of global decoupling across a range of resources, including fossil fuels, minerals, and wood.30 The results suggest that a certain amount of relative decoupling has occurred in recent decades “spontaneously,” rather than as a direct result of policy intervention. This relative decoupling reflects an increase in the efficiency of production arising from technological improvements. However, some resource extraction rates exceed recent global GDP growth rates. For Copyright © 2017. Taylor & Francis Group. All rights reserved. example, extraction of iron ore, copper, and zinc grew faster than global GDP over the period 1990–2007.31 The UN report found that achieving absolute decoupling will require ambitious poli- cies. According to a business-as-usual scenario, global resource use is projected to triple by 2050. Absolute decoupling would keep global resource use constant at or below current lev- els, which has profound implications for developed and developing countries. In developed countries, resource use would need to decline by a factor of 3–5 to allow enough resource availability for developing countries to improve their living standards. Even then, the more advanced developing nations would still need to reduce their resource use by 10–20 percent in order to permit the poorest countries to somewhat increase their resource use. Thus abso- lute decoupling at the global level: [I]s only conceivable if it is accepted that sustainability-oriented innovations can result in radical technological and system change. Taken as a whole, this would be a scenario Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Chapter 14 Greening the Economy 385 of tough restraint that would require unprecedented levels of innovation.... Most politicians are likely to regard this scenario as too restrictive in terms of developmental goals such as reducing poverty and providing for the material comfort of a rapidly expanding middle class.32 More feasible is a scenario of moderate contraction and convergence, in which the resource use of developed countries declines (i.e., absolute decoupling), allowing the developing countries to increase their resource use enough to decrease global inequality. According to the UN report, in this scenario global contraction and convergence resource use still increases 40 percent by 2050—declining by a factor the concept that overall of two in developed countries but increasing by a factor of about environmental impacts or three in developing countries. Even this scenario “would require economic activity should be substantial economic structural change and massive investments in reduced at the same time that innovations for resource decoupling.”33 economic inequalities are Decoupling suggests that economic growth can be possible with- reduced. out an accompanying growth in physical throughput. However, current rates of decoupling need to increase in order to avoid a dra- throughput the total use of matic increase in resource use and pollution over the coming decades. energy and materials as both Some nations are already taking the lead with innovative policies to inputs and outputs of a process encourage decoupling (see Box 14.2 on Japan’s decoupling effort). But major decoupling on a global scale will require a degree of international cooperation not currently evident. In particular, developed countries must be willing to lower their resource use sufficiently to meet sustainability objectives and provide enough resource availability for developing countries to eradicate poverty. 14.3 INDUSTRIAL ECOLOGY Economic growth has tended to rely on the increased extraction of raw materials and an increase in waste generation. Manufacturing processes have typically been designed to mini- mize production costs, without consideration of the associated ecological costs.Transitioning to a green economy will require a reassessment of the manufacturing process so that ecolog- ical concerns are incorporated into production decisions. Traditional manufacturing is a “straight-line” process by which raw materials are trans- formed into final products, generating wastes (including waste heat) that are disposed of into the air, land, or water, as shown in Figure 14.6. These final products are eventually disposed of as they wear out, also becoming waste products. Copyright © 2017. Taylor & Francis Group. All rights reserved. Natural systems, in contrast to economic systems, typically follow a cyclical pattern, with wastes being recycled and reused. Healthy natural systems show no buildup of pollution and wastes. Inorganic elements such as water and nitrogen cycle through the environment. Dead and decayed organic materials form the basis of fertile soils from which new plant life can grow, in turn supporting industrial ecology the new animal life. Rather than creating a problem requiring a solution or application of ecological disposal, wastes become inputs at a new stage in the cycle. principles to the management of The field of industrial ecology seeks to model human man- industrial activity. ufacturing systems on the closed-loop cycles found in nature. The concept of industrial ecology is illustrated in Figure 14.7. Taking this perspective, wastes can potentially become inputs into secondary production. Recycling rates are maximized to reduce the extraction of raw materials. Even waste heat that is typically unutilized can be directed toward productive uses such as heating water or living/working spaces.34 Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  386 Part IV Energy, Climate Change, Green Economy Box 14.2 Perhaps Japan’s most successful modern decoupling DECOUPLING IN JAPAN initiative has been the Top Runner Programme (TRP). TRP searches the market for the most efficient product in a category, and makes that the Japan’s unique culture norms and geopolitical limits new minimum efficiency standard, with which all have encouraged creative and effective solutions companies must comply within four to eight years. for decoupling. Japan’s high population density As discussed in Chapter 8, standards typically create and reliance on imports for natural resources have little incentive for innovation. But the TRP program pushed Japan to decouple economic growth from motivates firms to become the industry efficiency ecological damage. In addition, Japanese culture leader, leaving other firms to catch up. has a long-standing concept of mottainai, meaning The TRP program has proven remarkably effective. In essentially that it is a shame when a resource is not 10 out of 11 product categories, the efficiency gain utilized to its full potential. was greater than initially expected. For example, In the 1980s, public concern over pollution from diesel freight vehicles were expected to achieve a incineration, landfills nearing capacity, and the 6.5 percent efficiency improvement, but instead mottainai spirit lead to numerous solid waste improved 21.7 percent. Like the Porter hypothesis, reforms, such as replacing old incinerators with the TRP program demonstrates the significant state-of-the-art facilities that decoupled dioxin potential for innovation when incentives are emissions from the voluminous waste incineration. well-designed. Japan has continued to innovate in solid waste disposal, both on the technical and policy level and Source: UNEP, 2011b. has successfully decoupled it from economic growth. Recycling rates in the United States and elsewhere have been steadily increasing in recent years, as shown in Figure 14.8. Across the entire U.S. municipal waste spectrum, about 35 percent of total wastes by weight are recycled. Another 12 percent is incinerated to generate heat or electricity. The total amount of waste sent to municipal landfills has actually declined in recent years, from about 175 million tons in 1990 down to 164 million tons in 2012.35 Figure 14.6 Straight-Line Process of Traditional Manufacturing Copyright © 2017. Taylor & Francis Group. All rights reserved. Unwanted Byproduct (pollution) Production Raw Material Final Product Waste Processes Waste Heat Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  Figure 14.7 Cyclical Production Processes of Industrial Ecology Secondary Product Secondary Production Recycling Byproducts Primary Raw Material Production Captured Heat Recycling Primary Product Space/Water Heating Figure 14.8 Recycling Rates in the United States, 1960–2012 70 Paper/ Cardboard 60 50 Recycling Rate (%) 40 Metals 30 Glass Copyright © 2017. Taylor & Francis Group. All rights reserved. 20 Tex les 10 Plas cs 0 Paper/Cardboard Glass Metals Plascs Texles Source: U.S. EPA, 2014b. Harris, Jonathan M., and Brian Roach. Environmental and Natural Resource Economics : A Contemporary Approach, Taylor & Francis Group, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/vunl/detail.action?docID=4890885. Created from vunl on 2024-10-21 07:51:44.  388 Part IV Energy, Climate Change, Green Economy The profitability of recycling depends on the demand for recycled products and the relative costs of recycled and virgin materials. One of the reasons that paper recycling rates have increased significantly over the last few decades is that it is generally cheaper to produce many paper products using recycled materials rather than virgin inputs. A 2007 study of recycling in New Zealand found that the overall recycling rate could be increased from 38 percent to 80 percent while providing society with net economic benefits.36 The study found that recycling is particularly profitable for paper, used oil, met- als, glass, and concrete. The economics of plastic recycling is mixed—while it generally makes economic sense to recycle PET (polyethylene terephthalate; recycling code #1) and HDPE (high density polyethylene; recycling code #2), it is generally not profitable to recycle PVC (polyvinyl chloride; recycling code #3) or LDPE (low density polyethylene; recycling code #4). In addition to increasing recycling rates, industrial ecology also promotes dematerialization—achieving the same economic goal with less materials use. Aluminum beverage cans, for example, contain about 30 percent less metal than they did in the 1970s, and aluminum cans themselves replaced cans made of much heavier metal used in previous decades. Achieving the same function (delivering a beverage to con- sumers) using less material benefits the supplier, as well as the environment, cutting resource use and transportation costs, and dematerialization the process of reducing wastes even if the cans aren’t recycled. achieving an economic goal through Another principle of industrial ecology is materials a decrease in the use of physical substitution—replacing a scarce, hazardous, or highly polluting materials, such as making aluminum material with a more environmentally benign substitute. Many cans with less metal. uses for copper, for example, have been replaced by plastics, opti- materials substitution changing the cal fibers, and lighter metals such as aluminum. Government materials used to produce a product, regulation has contributed to the parti