Introduction to a Green Economy

Transcription

1 Introduction to a Green Economy Dr. Medrilzam Deputy Director for Forest Economy and Management Directorate for Forestry and Water Conservation National Development Planning Agency (BAPPENAS) Indonesia Green Economy Model is supported by Low Emission Capacity Building Programme (LECB) BAPPENAS, UKP4 and UNDP

2 Contents 1. Definitions 2. Worrying trends 3. Why has this happened? 4. Shift to a New Development Model 5. Green Economy Indicators 6. Methodology to measure the Green Economy

3 1. Definitions At a visionary level, a Green Economy is one that results in increased human well-being and social equity, while significantly reducing environmental risks and ecological scarcities (UNEP, 2011).

4 1. Definitions At the operational level, a Green Economy is seen as one whose growth in income and employment is driven by investments that: Reduce carbon emissions and pollution; Enhance energy and resource efficiency; Prevent the loss of biodiversity and ecosystem services (EMG, 2011).

5 1. Definitions There is no one approach to a green economy. A green economy does not favour one political perspective over another; it is relevant to all economies. In a green economy, growth in income and employment are driven by public and private investments that reduce carbon emissions and pollution, enhance resource and energy efficiency, and prevent the loss of biodiversity and ecosystem services. Moreover, these investments need to be catalyzed and supported by targeted public expenditure and policy reforms. And, a green economy recognizes natural capital as a critical economic asset.

6 1. Definitions A green economy must be inclusive and pro-poor: Focus on food security and access to water and electricity. Fair distribution of costs and benefits, focusing on poor communities. Alignment with the MDGs and post-2015 global development agenda.

7 1. Definitions A green economy must be in line with national priorities and development targets: Developing specific national strategies and action plans. Engaging a broad variety of national stakeholders. Creating knowledge and national expertise to support the shift to new production and consuption patterns.

8 1. Definitions Green Growth Economic progress that fosters environmentally sustainable, low-carbon and socially inclusive development (UN-ESCAP et al., 2010) Green growth means fostering economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies (OECD, 2011)

9 1. Definitions Circular Economy An economy that reduces the consumption of resources and the generation of wastes, and reuses and recycles wastes throughout the production, distribution and consumption processes.

10 1. Definitions Green jobs Green jobs are those jobs maintained or created in the transition process towards a green economy that are either provided by low-carbon intensive industries (enterprises) or by industries (enterprises) whose primary output function is to greening the economy (IILS, 2011)

11 1. Definitions During the last two decades, much capital was poured into property, fossil fuels and structured financial assets with embedded derivatives. However, relatively little in comparison was invested in renewable energy, energy efficiency, public transportation, sustainable agriculture, ecosystem and biodiversity protection, and land and water conservation (UNEP, 2009).

12 2. Worrying Trends: Oil Production Oil Production Source: IEA, WEO, 2010

13 2. Worrying Trends: Oil Prices Nominal Price Inflation Adjusted Price

14 2. Worrying Trends: Agriculture

15 2. Worrying Trends: Food Prices % Food Price Index Oil Price Index

16 2. Worrying Trends: Food Security % -15% 0% +15% +35%

17 Source: McKinsey and Company, Worrying Trends: Water

18 2. Worrying Trends There is increasing evidence that the economic growth of the last few decades has been achieved at the expense of natural capital. Value has been created, but stocks have been greatly depleted and costs are rising. This has led to higher vulnerability and reduced resilience.

19 Publication by Rockstrom et al. A safe operating space for humanity 2. Worrying Trends

20 2. Worrying Trends Meeting the dual goals of sustainability: High human development and low ecological impact Source: WWF Living Planet Report 2006 Meets minimum criteria for sustainability

21 3. Why has this happened? Historically, production (Y) has been calculated as a function of: Human capital (H): stock of human competencies embodied in the ability to perform labor so as to produce economic value Built Capital (K): Material goods, i.e. houses, equipment, infrastructure, food etc. Y= f (H; K)

22 3. Why has this happened? In 1957, Robert Solow proposed the inclusion of Total Factor Productivity (TFP) into the production function. TFP is the measure of the efficiency of all inputs to a production process. It is calculated as the part of total production that is not explained by the amount of inputs used. Therefore, it represents an economy s long-term technological dynamism: an essential part of economic growth. Y= f (H, K,TFP)

23 3. Why has this happened? Total investment (or share of investment of GDP) BAU investment Green investment Time

24 3. Why has this happened? GDP growth rate Business as Usual Tailing dams, environmental safety (e.g. land degradation and reclamation), resource efficiency History Present Future Time

25 3. Why has this happened? What has not been considered Environmental externalities and existing market failures. Government spending in areas that deplete natural capital. Low investment and spending in areas that stimulate a green economy. Lack of sound regulatory frameworks. Lack of international frameworks that regulate economic activity.

26 4. Shift to a New Development Model We encourage each country to consider the implementation of green economy policies in the context of sustainable development and poverty eradication, in a manner that endeavours to drive sustained, inclusive and equitable economic growth and job creation, particularly for women, youth and poor. The Future We Want, Outcome Document of the Rio+20 Conference on Sustainable Development, 2012

27 4. Shift to a New Development Model A more complete production function Y= f (N, H, K, TFP) N = natural capital (ecosystem structure) H= human capital K = built capital TFP = Total Factor Productivity

28 4. Shift to a New Development Model Labor Capital TFP Production Practices GDP (Human Economy)

29 4. Shift to a New Development Model Labor Environmental Function Ecosystem Services Capital TFP Production Practices GDP (Human Economy) Natural Capital Environmental Function Ecosystem Goods

30 4. Shift to a New Development Model Labor Environmental Function Ecosystem Services Capital TFP Production Practices GDP (Human Economy) Environmental Function Natural Capital Ecosystem Goods Genuine savings (Net change in the value of Natural Capital) Value of Ecosystem goods Inclusive economy (human health and welfare)

31 4. Shift to a New Development Model Total investment (or share of investment of GDP) BAU investment Green investment Time

32 4. Shift to a New Development Model GDP growth rate Green Economy Interventions Business as Usual History Present Future Time

33 5. Green Economy Indicators Key criteria to be fulfilled: Policy Relevance Analytical Soundness Measurability Usefulness in communication Source: OECD, 2011

34 5. Green Economy Indicators Headline indicators (OECD) - Applied to all countries; - Useful for benchmarking; - Need to be customized for policy relevance at the country level. Table 6. A set of headline indicators, as proposed by OECD (2013a) Proposed Headline Indicator Definition Strength Weakness Index of natural resource use Change in land use and coverage Carbon productivity Non-energy material productivity "Green" MFP measure Population exposure to air pollution Indicator of environmental policies Aggregated index of the changes in stocks of resources land use by category as share of total Naturalasset base + in line with SEEA concepts, will be facilitated by its implementation. + In principle, easy to communicate (index). + potential use of satellite immagery, can proxy for biodiversity Environmental and resource productivity/intensity GDP/CO2 emitted & Income/CO2 in consumption GDP / Domestic Material Consumption & GDP/Raw Material Consumption MFP adjusted for natural resource inputs and env. "bads" Share of population exposed to healththreatening levels of PM2.5 Placeholder - not yet selected + Widely used and accepted. + Data availability. + Area of major concern and policy relevance. + Policy-maker interest. + Presentation (index) + RMC can account for materials embedded in trade. + Promising way to incorporate the omitted environmental aspects into looking at productivity/efficiency. Environmental quality of life + Area of key concern and policy relevance for GG/GE and wellbeing. + Country coverage & comparability (satellite image data). + Easily interpretable thresholds. Policies and opportunities + Increasing amount of data on policies available. - Work in progress - data availability problems to be resolved (pricing, stocks and flows of resources) - discount rate issues can hide away sustainability problems - Communication - currently no single index. -Interpretation in light of different levels of development, geography and population density. - Global interactions - displacement/ leakage issue (demand side measures can help, but more data issues) -Interpretation (levels of development, resource endowment, industrial structures, substitutibility, cyclicality), - Currently environmentally meaningless aggregation (by tonnes of materials, regardless of scarcity or env. effects). - Problems of interpretation due to cyclicality, substitutibility, development. - data availability - Questions on interpretation and direct policy relevance (as in trandtional MFP). - Data availability problems to be resolved (pricing, stocks and flows of inputs and outputs). - Work in progress. - Questions on updating (satellite image data). - coverage and comparability (monitoring station data) - cannot distinguish natural causes from human-activity related causes. - Data collection on comparative policies (ongoing) is a challenge. Source: based on OECD (2013a). 39. In particular, in the case of some developing countries, there may be more suitable headliner for the quality of life such as for example access to clean water. Countries can also choose from a

35 5. Green Economy Indicators Country level indicators for Indonesia: - On top of existing indicators, (1) Green GDP, (2) GDP of the Poor and (3) Green Jobs are being developed. - These three indicators use existing statistics as well as new, including the System of Integrated Environmental and Economic Accounts (SEEA). - Additional green economy indicators should be identified to support specific sectoral policy formulation and evaluation.

36 5. Green Economy Indicators A Green Economy is defined as one that results in improved human well-being and social equity, whilst significantly reducing environmental risks and ecological scarcities. (UNEP, 2011) What this means... for Sustainable Development.. Green Economy is the best economic vehicle to achieve sustainable development at Operational Level. Growth of incomes & jobs driven by investments that - reduce carbon emissions and pollution, - increase energy and materials efficiency, - Enhance Natural Capital

37 5.1. Green Economy Indicators: Green GDP From GGKP, Mexico City, Jan 2012: Green Growth is about making growth processes (a) resource-efficient, (b) cleaner and (c) more resilient without necessarily slowing them. (Geoff Heal) Green Growth is when economic growth and environmental gain are complements not substitutes (Richard Morgenstern) As a result, Green GDP estimates the invisible economic benefits from ecosystem services, as well as accounting for depreciation of natural capital (i.e. degradation and depletion of ecosystem services).

38 5.2. Green Economy Indicators: GDP of the Poor The most significant beneficiaries of forest biodiversity and ecosystem services are rural poor communities, and the predominant economic impact of a loss or denial of these unpriced elements of their household income is to the income security and well-being of the poor. The GDP of the Poor measures the value of household incomes of rural and forest-dependent communities including economically invisible -but critical and valuableecosystem services.

39 5.2. Green Economy Indicators: GDP of the Poor TEEB (2010) proved that Ecosystems must be conserved, not destroyed, to solve Poverty Ecosystem services as a % of classical GDP : Indonesia India Brazil 21% 16% 90% 10% Ecosystem servicedependent poor people : 79% 84% 99 million 352 million 20 million Ecosystem services consumed by the poor as a % of GDP of the poor : 75% 25% 47% 89% Source: Gundimeda and Sukhdev, TEEB for National & International Policy Ecosystem services 39

40 5.3. Green Economy Indicators: Green Jobs The ILO and UNEP have jointly defined green jobs as direct employment created in different sectors of the economy and through related activities that reduces the environmental impact of those sectors and activities, and ultimately brings it down to sustainable levels. The ILO has already carried out a study on green jobs in Indonesia. This study will be used to assess the potential to create more jobs going forward, as a result of policy intervention.

41 5.4. Green Economy Indicators and BPS data

42 6. Methodology to measure the Green Economy Customized definition on GE, depending on country context and needs As a result, various models could be used to analyze it, some are static and some dynamic. Available options covering economy, environment and society: Indicators, Input-Output, Social Accounting Matrix (SAM), Geographic Information System (GIS); Econometrics, optimization, system dynamics.

43 6.1. What is the gap (opportunity) for a Green Economy model? Need to support policy formulation and evaluation to reach sustainable development systemically. Need to assess policies and investments according to their impact across sectors and actors (improving the performance of the system, rather than focusing on single indicators).

44 6.1. What is the gap (opportunity) for a Green Economy model? Existing models and methodologies are not designed to analysis the performance of the whole system. Instead, they only look at sectors. Existing models and methodologies are not designed to involve several stakeholders. Instead, they use sectoral knowledge that is not easily understandable by others.

45 6.2. What s behind the Green Economy model? A correct (although simplified) representation of reality demands careful consideration of : Policy What interventions are being examined? What are the expected impacts? Structure How is the problem being influenced by (and/or impacting) the system? Science/Knowledge What do we know about the problem? What is causing it, and how?

46 6.2.What s behind the Green Economy model? Policies Scenarios Structure Investment (e.g., capital investment in RE and EE for extra capacity and retrofits) Mandates and targets (e.g., RE and EE standards, deforestation and reforestation targets) Climate change, energy prices, conflicts, peak oil, world economic growth, etc. Subsidies (e.g., feed in tariffs for energy, tax rebates, payments for ecosystem services) Social sectors Economic sectors Environmental sectors Population Education Infrastructure (e.g. transport) Employment Income distribution Economy Society Production (GDP) Technology Households accounts Government accounts Investment (public and private) Balance and financing Government debt Balance of payment International trade Environment Land allocation and use Water demand and supply Energy demand and supply (by sector and energy source) GHG and other emissions (sources and sinks) Footprint

47 6.2. What s behind the Green Economy model? The Green Economy Model should represent reality The modeling exercise should be tailored around a set of specific issues and a geographical context. As issues and local contexts are unique, integrated models need to be customized. Model the problem, not the whole the system Model = a simplification of reality System = collection of parts that interact with one another to function as a whole

48 6.3. Policy Context Challenges and Solutions 1. Problem: studies are narrowly focused Solution: cross-sectoral model 2. Problem: results presented in reports, little flexibility to test assumptions Solution: fast simulation, with user interface 3. Problem: research organizations have agendas Solution: objective structural representation 4. Problem: policy makers have agendas Solution: broad stakeholder involvement

49 6.4. Approach - methodology The modeling work includes biophysical and economic variables for human, economic and natural capital, and can estimate: Investments (e.g. required expenditure in new capital or processes). Avoided costs (e.g., reduced fish landings from overexploitation of marine resources and coral bleaching, and resulting avoided employment losses). Added benefits (e.g., higher biodiversity and production of NTFP, ecotourism revenues and employment from forest conservation).

50 6.4. Approach - methodology GDP Fossil fuels, water, forest Supply of Natural Resources Demand of Natural Resources Resource efficiency

51 6.4. The Modeling Process 1. Definition of the problem (define the boundaries); 2. Formulation of dynamic assumptions (causes and effects); 3. Creation of a simulation model (stock and flows); 4. Validation of the model 5. Formulation and evaluation of policies

52 6.4. Methodologies: System Thinking (ST) System thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships rather than things, for seeing patterns of change rather than static 'snapshots'... Today systems thinking is needed more than ever because we are becoming overwhelmed by complexity.

53 6.4. Methodologies: System Dynamics (SD) System Dynamics is a methodology to represent and analyse complexity. It uses (1) feedbacks, (2) delays and (3) nonlinearity as its pillars. It represents systems using stocks and flows.

54 6.4 Methodological conclusions Green Economy and sustainable development modeling (at the sectoral level) work are perfectly compatible. System Dynamics is used in both cases (sectoral and integrated assessments), with customizations made at the country level.

55 6.4 Extra Opportunities and Synergies System Dynamics is a flexible methodology (not a science) and allows to model green economy indicators, including: Green GDP, GDP of the Poor and Green Jobs; Vulnerability (impact) and resilience (action, policy-driven) indicators For policy formulation and assessment; For policy monitoring & evaluation.

56 The course The course provide its participants with an opportunity to learn and practice different methods and tools for green economy policy analysis and design in support to sustainable development, in particular System Dynamics. Main textbook for System Dynamics (Module V): Sterman, J.D Business Dynamics: Systems Thinking and Modeling for a Complex World. Boston: McGraw-Hill. Main textbook for System Thinking (Module V): Probst, G. & Bassi, A.M Tackling Complexity. A Systemic Approach for Decision Makers. Greenleaf Publishing.

57 Thank you.