Green economy

Context

The concept of the ‘green economy’ has emerged in recent years as a strategic priority for governments and intergovernmental organisations.^{[e.g. 1][2]} In Europe, it features prominently in a range of medium- and long-term EU programmes and strategies, including the Europe 2020 Strategy,^[3] the 7th Environment Action Programme,^[4] the EU Framework Programme for Research and Innovation (Horizon 2020)^[5] and sectoral policies in areas such as transport and energy.

The growing prominence of the green economy in EU policy reflects a recognition that the prevailing economic paradigm is inconsistent with Europe’s long-term development goals, encapsulated in the 2050 vision of ‘living well within the planet’s limits’.^[4] Across the world, the transition to high levels of human development has been achieved by adopting production and consumption patterns that put a disproportionate burden on the environment (Figure 1). As a result, some countries today live well, while others live within the limits of the planet. None do both.

A ‘green’ economy is essentially one in which socio-economic systems are organised in ways that enable society to live well within planetary boundaries. The concept therefore has several dimensions. The first is a focus on increasing resource efficiency: identifying the innovations and approaches that enable society to extract maximum value from resources and minimise harmful emissions and waste.

Although essential, resource efficiency alone will not guarantee that natural capital stocks are maintained for future generations or that economic activity delivers acceptable living standards and social cohesion. Efforts to enhance resource efficiency must therefore be complemented with a focus on ecosystem resilience and on people's well-being. After all, an economic model that transcends ecosystem boundaries will not be sustainable in the long term; one that cannot provide decent jobs and earnings will not be politically or socially viable.

Trends

Resource efficiency

Europe’s resource efficiency has increased in recent years, alleviating some of the environmental pressures associated with economic production. For example, EU-28 greenhouse gas emissions have decreased by 19 % since 1990 despite a 45 % increase in gross domestic product. Fossil fuel use has also declined, as have emissions of some pollutants from transport and industry. More recently, the EU’s total resource use has declined by 19 % since 2007, less waste is being generated and recycling rates have improved in nearly every country.

These trends potentially mark important progress in Europe’s efforts to reconfigure its production-consumption systems but significant problems persist. European resource use and harmful emissions remain high in absolute terms. Some of the apparent efficiency improvements may partially reflect the relocation of material extraction and manufacturing to other parts of the world. And the level of ambition of existing environmental policy may be inadequate to achieve Europe’s long-term environment and climate objectives. For example, projected greenhouse gas emissions reductions are currently insufficient to bring the EU onto a pathway towards its target of reducing emissions by 80–95 % by 2050.

Environmental resilience and people's well-being

In addition, Europe’s recent progress in reducing environmental pressures has not always been matched by improved ecosystem resilience or reduced risks to people's health and well-being. For example, although water pollution is declining, most freshwater bodies across Europe are not expected to achieve good ecological status by 2015. Similarly, Europe is not on track to meet its overall target of halting biodiversity loss by 2020, even though some more specific targets are being met. Loss of soil functions, land degradation and climate change remain major threats to ecosystem resilience, undermining flows of environmental goods and services and therefore jeopardising the social resilience of communities reliant on them.

Turning to people's health and well-being, there have been marked improvements in the quality of drinking water and bathing water and some reductions in hazardous pollutants. However, air and noise pollution continue to cause serious health impacts. In 2011, about 430 000 premature deaths in the EU were attributed to fine particulate matter (PM2.5),^[7] while exposure to environmental noise is estimated to contribute to at least 10 000 premature deaths due to coronary heart disease and strokes each year.^[8] Environmental impacts on human health and well-being are particularly pronounced in urban settings where multiple pressures coexist. Conversely, well planned urban areas providing easy access to natural, green environments can deliver substantial health and well-being benefits, including protection from the impacts of climate change.^[9]

Environmental policies are also creating socio-economic opportunities and thereby contributing to the Europe 2020 Strategy for smart, sustainable and inclusive growth. For example, employment in the environment industry sector, which produces goods and services that reduce environmental degradation and maintain natural resources, increased by 44 % between 2000 and 2011, while sectoral value added increased by 57 %. It has been one of the few economic sectors to have flourished in terms of revenues, trade and jobs since the 2008 financial crisis.

Response

The trends set out above indicate that although policy has delivered some important advances, Europe remains a long way from achieving the transition to a green economy.

In part this reflects the fact that the complex links between environmental and socio-economic systems can undermine efforts to reduce environmental pressures and related impacts. For example, technology-driven efficiency gains may be undermined by lifestyle changes or increased consumption, partly because efficiency improvements can make outputs cheaper (the rebound effect). Policies and local management efforts can be counteracted by external pressures related to global megatrends. Changing exposure patterns and human vulnerabilities, for example linked to urbanisation, can offset reductions in pressures. And the unsustainable systems of production and consumption that are responsible for many environmental pressures also provide diverse benefits, such as jobs and earnings, which can create strong incentives for sectors or communities to resist change.

The systemic, transboundary and long-term characteristics of the environmental challenges facing Europe indicate that neither environmental policies alone, nor economic and technology-driven efficiency gains will be sufficient to effect the transition to a green economy. Rather, transition will require more fundamental changes in the global production-consumption systems that meet basic demands, such as for food, mobility, energy and shelter.  

The 7th Environment Action Programme sets out four key pillars of an enabling framework for the transition to a green economy: implementation, integration, information and investments. In a green economy approach, the focus is on identifying synergies that enable economic, environmental and social objectives to be advanced concurrently.

For example, implementation of environmental regulations plays an important role in protecting ecosystems but can also contribute to enhanced resource-efficiency by incentivising companies to invest in eco-innovation. This in turn gives businesses a ‘first-mover’ advantage to export their innovations abroad, thus generating earnings and jobs. Major EU engineering companies already earn up to 40 % of revenues from their environment portfolios, and this is set to increase.^[10] Similarly, taxing environmentally damaging activities can raise revenues, allowing governments to reduce taxes on labour or reduce budget deficits. Combined with eliminating environmentally harmful subsidies, such fiscal reforms are essential in the transition to a green economy.

The green economy perspective provides a framework for integrating the environment into the policies of key economic sectors. For example, European policy on material resource use can be represented as a nested set of objectives (Figure 2). Whereas a circular economy focuses on optimising material resource flows by minimising waste, the green economy approach extends the focus to how water, energy, land and biodiversity should be managed to secure ecosystem resilience and human well-being. The green economy also addresses wider issues, such as competitiveness and unequal exposure to environmental pressures and access to green spaces.

In addition, efforts to promote a renaissance of industry in Europe^[e.g.11] could form part of an integrated approach to managing production and consumption so as to ensure that efficiency improvements are secured across the supply chain.

Figure 2: The green economy as an integrating framework for policies on material use

Expanding the environmental knowledge base can support better implementation and integration of environment and climate policy, inform investment choices, and support long-term transitions. An expanded knowledge base also enables policymakers and businesses to take decisions that fully reflect environmental limits, risks, uncertainties, benefits and costs.

At present there is a gap between available, established monitoring, data and indicators and the knowledge required to support transitions. Addressing this gap requires investment in better understanding of systems science, forward-looking information, systemic risks, and the relationship between environmental change and human well-being. Accounting systems — both physical and monetary — are also important to inform policy and investment decisions, because getting the balance right between use, protection and enhancement of natural capital requires information on the current status of stocks and flows.^[12][13]

Investment has an essential role in the transition to a green economy, in part because the systems that meet basic social needs such as water, energy and mobility rely on costly and long-lasting infrastructure. Investment choices can therefore have long-term implications for the functioning of these systems and their impacts, as well as for the viability of alternative technologies. Transitions depend in part on avoiding investments that lock in existing technologies, limit options, or hinder the development of substitutes.

Enormous amounts of capital are needed to finance infrastructure such as smart electrical grids, renewable energies, electrification of transport, and resource-efficient buildings. In addition to fiscal reforms, innovative financing mechanisms, such as the project bond initiative of the European Commission and the European Investment Bank, socially responsible investments (SRI), green bonds and sovereign wealth funds (SWF), are potential tools for supplying the needed funds.^[14]

Designing actionable, credible and feasible green economy pathways can put Europe at the frontier of science and technology. But effecting the needed transitions will demand ingenuity, creativity, courage and a greater sense of urgency.