Prestudy summary
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This document summarizes a workshop on transitioning to a green, inclusive economy. It was organized by a Swedish think tank and funded by MISTRA, a Swedish environmental research foundation. The workshop brought together economists to discuss how a green economy differs from the current paradigm and what research is needed to support the transition. Key findings included that a transition requires a paradigm shift, not just adjustments, and that political will is needed to implement proposals from science-oriented economists for reforming institutions and incentives to align economic growth with sustainability.
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Prestudy summary
- 1. Green Economy Workshop โ A research agenda for a transition to a green, inclusive economy The workshop has been financed by MISTRA โ The Swedish Foundation of Strategical Environmental Research.
- 2. Prestudy for Mistra: The Green Economy โ minor adjustments or a paradigm shift?
- 3. THE TEAM The Swedish think tank Global Challengeโs working group on the Green Economy: โข โข โข โข โข โข โข โข Eva Alfredsson Anders Wijkman Kristina Persson Sandro Scocco Kristian Skรฅnberg Thomas Hahn Karl Hallding Magnus Lindmark
- 4. MAJOR ASSUMPTIONS โข The prevailing economic paradigm is unsustainable in ecological, social and economic terms alike. โข Business as usual represents major risks and costs, and would be untenable in the long run. โข Sustainable development will require the alignment of the economy - the most powerful engine in society โ with sustainability objectives โข The Business community is a major player; unless the incentives guiding business are conducive with sustainability a transition is not possible
- 5. OUR MISSION Inspired by Rio+20, we set out to analyze: 1. What characterises a green, inclusive economy and how does it differ from the prevailing one? 2. Scientifically oriented economists โ What can they offer? 3. The Green economy โ a minor adjustment or a paradigm change? Is a transition to a green, inclusive economy (sustainable economy) possible by adjustments within the present policy framework or are changes on a larger scale โ a paradigm shift โ required? 4. Research topics - knowledge gaps โ for a transition to a green economy?
- 6. โKey Issues for a Green Economyโ - a seminars series in 2012 and 2013 โข โข โข โข โข โข โข โข โข โข New measures for progress โ implications for policy and economics The role of energy in development and the green economy Peak Oil Postponed? How do we value Nature? The role of efficiency in the green economy: from labour productivity to a multidimensional measure of productivity Biophysical economy: understanding the boundary conditions for the green economy Towards a circular economy: driving forces, obstacles and policy challenges What do we need the financial sector for? Financial reform for a sustainable economy Transforming business for tomorrowโs world
- 8. The Green economy discourse a paradigm change Current economy Green, inclusive economy GDP growth: more economic activity the aim โBeyond GDPโ: prosperity the aim Short-termism Long-termism Maximisation of return Safeguarding of long-term incomes Shareholder value Stakeholder value: benefit to society Extraction of natural resources Management of natural resources Linear production systems Circular production systems Short-life products for sale Long-life services Efficiency measured in monetary terms (CBA) Multidimensional efficiency (e.g. multicriterion analysis, MCA)
- 9. Not confusing the means with the goals Socially sustainable development is the aim, ecological sustainability is a fundamental requirement and the economy is a tool. Social sustainability โข The overarching aim and โข A necessity for a transition to a green economy
- 10. Broad consensus among economists on a range of economic principles โข Need for long-termism, taking future generations into account โข The โpolluter pays principleโ โข Internalising externalities - Negative effects on the environment must be internalised and reflected in the price โข Competitive markets - Neither sellers nor buyers should be so large and dominant that they can exercise strong influence on market prices โข A well-functioning market requires symmetrical information, i.e. both sellers and buyers must be fully informed about the content of transactions โข The need for institutions (societal aims, rules and regulations) to reduce the difference between what is rational for the individual and what is most beneficial to society โข GDP is not a measure of prosperity, and has distinct shortcomings as an objective of economic policy
- 11. but also crucial differences โข The importance of natural capital and energy and its valuation โข The discounting of future values โข โStrongโ versus weak โsustainabilityโ definitions of sustainability โข Scientifically oriented economists believe that continued material (GDP) growth - and a further rise in the aggregate throughput of energy and material - is incompatible with sustainable development; whereas mainstream economists seem to view continued material growth, not only possible but a prerequisite for sustainability โข The primacy of the price mechanism, especially for natural resources and ecosystem services and for valuing nature โข Scientifically oriented economists are critical of the inability of current economic theory to capture and deal with non-linear phenomena โข The financial system and its role โข The principle of shareholder value vs stakeholder value
- 12. The crucial role of politics โข Economic theory itself will not lead to a transition to a green, inclusive economy โข The transition will require a robust political discourse, based on the principles of sustainability โ notably the principles of interand intergenerational equity as well as the planetary boundaries โข How can we develop a framework in politics that respects the key principles of sustainability, notably the planetary boundaries?
- 13. There is no lack of ideas and potential solutions โข A key challenge is the inadequacy of the interdisciplinary dialogue; another is the lack of political will. โข There is an urgent need for an in-depth discussion on a number of concrete proposals made by science-oriented economists for a transition to a green, inclusive economy โ and their implementation.
- 14. RESEARCH TOPICS FOR A TRANSITION TO A GREEN, INCLUSIVE ECONOMY
- 15. A green, inclusive, economy is a major challenge to the research community โข Calling into question parts of the existing economic discourse, on the basis of the conditions required for a transition to a green, inclusive economy โข Using the economy as a tool for sustainable development, i.e. developing decision support for a transition towards a green economy, based not only on neo-classical economic theory but also on natural science-oriented economics. โข Developing an interdisciplinary approach that comprises subjects like economics, ecology, biophysics, behavioural sciences, ethics and political science to develop theoretical frameworks, knowledge and solutions to address the more complex aspects of sustainable development.
- 16. Examples of research topics 1. A democratically supported transformation - How can we pave the way for a democratically supported transformation that respects the pre-conditions for sustainable development as laid down by science? 2. An institutional framework for growth that is economic, not uneconomic - How can we achieve development that boosts wealth in terms of all kinds of capital (physical, human, social and natural)? How can we create an institutional framework that ensures that growth is not uneconomic? What indicators do we use? 3. A shift from quantitative growth towards qualitative development - How can the economy be shifted in this way, with consumption affording greater marginal utility without a constant increase in the throughput of energy and materials?
- 17. 4. Truly sustainable entrepreneurship - How can regulatory systems and incentive structures be shaped in such a way as to reward the businesses that confer the greatest benefits to society - in terms of all relevant forms of capital โ physical, human, social and natural? 5. A long-term sustainable energy system - What are the prospects for achieving such a transformation? How can a system based on sun, wind, water and efficient biomass be set up and renewed? What level of net energy, or energy return on energy invested (EROEI), is required to retain current societal functions? 6. Societal functions designed to optimise welfare and development without the economy growing quantitatively. - How are employment issues managed? - How are resources and incomes distributed? - How are welfare services funded?
- 18. How do we win the war - achieving a green, inclusive economy in support of sustainable development - and not just the individual battles?
Editor's Notes
- The prevailing economic paradigm is unsustainable And it is becoming more and more clear that it is not just unsustainable from an ecological perspective, or from a social perspective but also from an economic perspective (GPI indicates that economic growth has been negative since 1978)Business as usual is not an option โ BAU represents major risks and costs, and would be untenable in the long run. Sustainable development will require the alignment of the economy - the most powerful engine in society โ with sustainability objectivesThe Business community is a major player; unless the incentives guiding business are conducive with sustainability a transition is not possible
- What characterises a green, inclusive economy and how does it differ from the prevailing one?In this table we have summarised, in heading form, some differences between our current economy and a green economy as described by UNEP and the OECD, in particular. The green economy characteristic is a wish-list and it is obvious how much it differs from the current economy.The Green economy is truly a change in political discourse. A paradigm change Achieving the goals of the green economy require that the economic frameworks and incentive structure must be radically reformed
- The Green EconomyOne central conclusion is that adopting the aims of the green economy would entail a shift of perspective in political discourse, from seeing sustainable development as an endeavour to achieve a harmonious balance between economic, social and ecological development โ as expressed by the Brundtland Report โ to a perspective in which socially sustainable development is the aim, ecological sustainability is a fundamental requirement and the economy a tool.ย The social dimension is critical.Development that is socially sustainable is not just an overarching aim. It also appears essential for success in implementing the major changes in economic frameworks and society at large that are needed to attain sustainable development in all its dimensions.
- One clear conclusion from the prestudy is that a substantial consensus exists, at the theoretical level, on a range of economic principles relevant to sustainable development. between economists schooled in the neoclassical tradition and scientifically oriented economistsThis explains a phenomenon encountered by many scientifically oriented economists: that their work is not normally subjected to criticism but, rather, met by silence on the part of traditional, neoclassically schooled economists. This relative lack of clear areas of conflict is an aspect that became obvious during the seminar series. The various researchers who were invited to comment on the lectures given by scientifically oriented economists or representatives of the โgreen economyโ were, in most cases, restrained in their criticism and seemed to agree with the analysis on most points. The conclusion is clear!We could take a giant leap towards a green economy if only we implemented what we all agree on and want to achieve
- There are however also some important differences in perspectiveOur perception is that these differences are narrowing down and shifting towards the view of the scientifically oriented economistsWe also believe that there is a need to call into question parts of the existing economic discourse, on the basis of the new conditions entailed by the aim of sustainable development.
- One aspect that was frequently stressed at the seminars is the crucial role of politics. This is an issue for further researchBut also one of the reasons why we have invited some politicians too this WS and will also use some time to discuss which steps politicians could and should take towards a green economyHowever sound economic theories may be, there is little chance of them being applied in practice unless they are supported in the political process. Problems like external effects, valuation of different types of capital, protection of biodiversity, scarcity of resources crucial to the economy (such as high-quality energy), the incentive structure relating to innovations and new technology โ these must be tackled in a political and institutional framework. Without the emergence of a robust political discourse, based on the principles of sustainable development and founded in democratic decisions, there is an inherent danger in prevailing imbalances of power and influence, along with vested interests of various types. The danger is that, as a result, the scope offered by economic theory may not develop and the prospects of sustainable development may be further eroded.
- A democratised transformationPolitics has a crucial role to play in the economic transition: whatever the issue at stake, this is clear. The fact that politics has not succeeded to date is also obvious. The challenge is how we can pave the way for a democratically supported transformation that respects the essential scientific requirements of sustainable development.ย An institutional framework for economic growthHow can we achieve development that boosts wealth in terms of all kinds of capital (physical, human, social and natural)? How can we create an institutional framework that ensures that growth is economic? ย A shift from quantitative growth towards qualitative developmentHow can the economy be shifted in this way, with consumption affording greater marginal utility without a constant increase in the throughput of energy and materials?A supportive financial systemWhat form should the financial system take to support sustainable development? In this analysis, existing proposals such as the Chicago Plan and complementary currencies should be analysed and evaluated from a sustainability perspective. Another key question concerns the financial marketโs valuation of climate and environmental risks.ย Regulations and incentives conducive to sustainable entrepreneurshipHow can regulatory systems and incentive structures be shaped in such a way as to reward the businesses that confer the greatest benefits on society (in terms of all relevant forms of capital โ physical, human, social and natural)?ย A long-term sustainable transformation of the energy systemWhat are the prospects for achieving such a transformation? How can a system based on sun, wind, water and efficient biomass be set up and renewed? What level of net energy, or energy return on energy invested (EROEI), is required to retain current societal functions?ย Societal functions designed to optimise welfare and developmentHow would the functions of our society need to be designed for such optimisation without the economy growing quantitatively, continuously and at an aggregate level โ in a โsteady-state economyโ? Specifically, in a steady-state economy:How are employment issues managed?How are resources and incomes distributed?How are welfare services funded?