Spatial-economic-ecological model for the assessment of sustainability policies of the Russian Federation

Transcription

1 Spatial-economic-ecological model fo the assessment of sustainability policies of the Russian Fedeation Poject D4 Desciption of a set of the sustainability indicatos coupled with the constucted model Contact No. SUST RUS Wokpackage Date of delivey Actual Date of Delivey Dissemination level Responsible Authos Status of the Document WP4 Desciption of a set of the sustainability indicatos coupled with the constucted model M18 M18 Public TML Chistophe Heyndickx, TML Victoia Alexeeva Talebi, ZEW Natalia Toudyeva, CEFIR Daft Vesion 1.0 The eseach leading to these esults has eceived funding fom the Euopean Community's Seventh Famewok Pogam (FP7/ ) unde gant ageement No

2 Table of contents 1. THE SUST-RUS PROJECT INDICATORS FOR SUSTAINABILITY INTRODUCTION INTERNATIONAL EXPERIENCE WITH SUSTAINABILITY INDICATORS THE SEARCH FOR SUSTAINABILITY INDICATORS Goss Domestic Poduct (GDP) Altenative sustainability indicatos SUMMARY CREATING A SUSTAINABILITY FRAMEWORK FOR SUST-RUS BACKGROUND OF SUSTAINABLE DEVELOPMENT IN RUSSIA CGE MODELLING AND SUSTAINABILITY INDICATORS IN A CGE FRAMEWORK REVIEW OF ENVIRONMENTAL INDICATORS CREATING AN INDICATOR FRAMEWORK FOR SUST-RUS The economic dimension of sustainability The social dimension of sustainability The envionmental dimension of sustainability REFERENCES...35 Figues Figue 1: EU SDI famewok...12 Figue 2: The PSR model...13 Figue 3 Baomete of Sustainability...14 Figue 4 Enegy intensities in GDP in fome USSR counties...16 Figue 5 Compaison of Global Enegy Intensities in Manufactuing Industies...16 Figue 6 Degee of Aggegated Pollution of the Regions of the Russian Fedeation...18 Tables Table 1: Popeties of sustainability indicatos...4 Table 2: Oveview of intenational indicatoy systems (adapted fom INDI-Link poject)...6 Table 3: OECD key indicatos...7 Table 4: Headline indicatos of EU SDI famewok...12 Table 5: Oveview of poposed secto/goods stuctue in SUST-RUS...22 Table 6: indicatos of the ISEEM model...23 Table 7: Compaing ISEEM and EU stuctual indicatos...23 Table 8: Envionmental indicatos...25 Table 9: Envionmental indicatos (continuation)...26 Table 10: Economic indicatos...29 Table 11: Social indicatos...31 Table 12: Envionmental indicatos...34

3 1. The SUST-RUS poject The objective of the SUST-RUS poject is to develop and implement fo Russia an integated spatioeconomic-ecological modelling appoach, which epesents the state-of-the-at in diffeent aeas of economic, tanspot, esouce-use and envionmental modelling, and can be used to assist policy makes in thei choice of medium and long-tem sustainability policies. The pupose of this epot is to intoduce and develop a set of sustainability indicatos associated with the model, which allows fo quantification of social, economic and envionmental effects of sustainability policies This will impove the use of the model as a tool to assess the effects of a set of impotant sustainability policy measues. Sustainability means that the needs of the pesent geneation should be met without compomising the ability of futue geneations to meet thei own needs. The EU sets the following key objectives concening sustainability 1 : 1. Envionmental potection 2. Social equity and cohesion 3. Economic pospeity 4. Meeting intenational esponsibilities The SUST-RUS modelling appoach is chaacteized by a balanced integation between social, economic and envionmental policy objectives. Theefoe, in this epot we will uncove the appopiate indicatos along these dimensions. The SUST-RUS model will allow to tackle the following issues: ational use of available natual esouces and land; diffeences in the economic development of Russian egions; efficient use of labou; envionmental impacts of tanspotation, poduction and consumption activities distibuted in space; analysis of inequality and povety in the county; influence of intenational tade and delocalization of economic activities of the EU upon the Russian economic development. 2. Indicatos fo sustainability 2.1 Intoduction The concept of sustainability indicatos Indicatos povide a diffeent type of infomation than nomal statistical data. A good indicato is a tool that expands the meaning of the attibutes that composes it and can lead to bette decisions and moe effective actions by simplifying, claifying and making infomation available to policy makes. Taditionally indicatos wee used to measue economic development. As the notion of sustainable development expanded, it became appaent that indicatos such as GDP failed to addess issues inheent in the sustainability concept and theefoe diffeent measues had to be developed. Sustainability indicatos may be viewed as toolkits to guide policy makes when choosing among vaious policy options taking sustainable development into account. They ought to build the foundation fo impoved infomation and data collection, and enable a compaative and national (o egional) specific analysis of the state of and pogess towads sustainable development. 2 1 EU-SDS: EU sustainable development stategy 2 Spangenbeg, J.H., Pfahl, S., Delle, K., 2002, Towads indicatos fo institutional sustainability: lessons fom an analysis of Agenda 21, Ecological Indicatos, 2, 2002,

4 Chaacteistics of an effective indicato An indicato is a quantitative o qualitative measue deived fom a seies of obseved facts that can eveal positions in a given aea. When evaluated at egula intevals, an indicato can point out the diections of change acoss diffeent units and though time. In the context of policy analysis, indicatos ae useful in identifying tends and dawing attention to paticula issues. They can also be helpful in setting policy pioities and in benchmaking o monitoing pefomance. Table 1: Popeties of sustainability indicatos Scientific Functional Pagmatic Measuable and quantifiable: they should adequately eflect the phenomenon intended to be measued Relevant: fo all stakeholdes involved Undestandable: should be easily undestood by stakeholdes Meaningful: appopiate to the needs of the use Clea in value: distinct indication which diection is good and which is bad Clea in content: measue in undestandable units that make sense Leading: so that they can povide infomation to act on Possible to influence: Indicatos must measue paametes that may be modified Compehensive: the indicato set should sufficiently descibe all essential aspects unde study Feasible: measuable at easonable effot and cost Coveage of the diffeent aspects of sustainability: indicatos addess economic, envionmental and social dimensions Many indicatos can be consideed but this study selects indicatos based on the following consideations: Assuing that indicatos ae epesentative Keeping the numbe of indicatos at a easonable level and stiving fo a cetain balance in tems of numbe of indicatos epesenting the vaious dimensions of sustainability Tying to avoid excessive ovelapping Assuing pacticability and feasibility; in paticula having confidence that the indicatos can be geneated within the poject. Citeia and indicato set Although the oiginal definition by the Bundtland Commission fom 1987 does not make such distinction3, sustainable development has late become peceived as a combination of thee dimensions o pillas, namely, the envionmental, economic and social dimensions. The diffeent indicatos ae theefoe classified following the thee pillas. We have economic, envionmental and social indicatos. 3 Lehtonen, M., 2004, The envionmental-social inteface of sustainable development : capabilities, social capital, institutions. Ecological Economics. 49,

5 2.2 Intenational expeience with sustainability indicatos While indicatos have been inceasingly unde study and the methods and data ange has inceased consideably ove the yeas, thee is no unifying famewok o common indicato set which is univesally accepted. Instead thee have been seveal attempts at collecting indicatos, often pushed by intenational oganizations to povide at least a tool box fo common sustainability measues. Most notably the United Nations (UNCSD) has made a vey compehensive set of indicatos which have a lage acceptance within the intenational scientific community. Since the tem sustainable development gained majo pominence in the 1987 (Budtland), the EC has made consideable effots to take up sustainability in many of its policies and act upon the ight indicato. The equiement fo envionmental consideations to be integated into all Community policies was added in the 1992 Teaty on Euopean Union (Maasticht Teaty) and einfoced in the 1997 Teaty of Amstedam. The Cadiff Euopean Council in June 1998 asked seveal Council fomations to epot on thei steps towads integation of envionmental concens into thei policies. This included a equiement to poduce indicatos to monito pogess. The fist sphee of indicatos o dimensions mentioned only 4 pioity goals: Climate change, Tanspot, Public health and Natual Resouces (2002). The list continued to expand late on, extending the pioity goals to 8 (2005) and finally 10 pioity goals (2006) and mentioning seveal depths o levels of measues diected at seveal subgoups. Additionally, membe states displayed a gowing awaeness of sustainability and stated ceating own famewoks of indicatos, focused on elements of national impotance, coinciding o at least touching on many of the common aspects of sustainability studies. The fist full epot on key sustainability indicatos of the OECD data fom 1993 and since then the initial famewok was updated egulaly. In 1997, OECD developed a glossay of envionment statistics. In 1998 the OECD launched the so-called sustainable development initiative, which culminated with a declaation fom the OECD Ministeial Council and the publication of two epots on the OECD appoach to sustainable development (OECD, 2001a, 2001b). The Council decided to extend the poject by thee yeas ( ), which included a mandate to develop ageed indicatos and incopoate these in OECD economic, social and envionmental pee eviews. Sustainable development emains one of the five pioity aeas fo the futue wok of the OECD, developing indicatos is one of the key activities. One of the well known analytical famewoks, which was adapted by the OECD is the PSR famewok (pessue-state-esponse) fo economic (human) pessues on envionment. The key indicatos of the OECD ae listed (by theme) in Table 3. The Wold Bank has taken up simila effots in developing sustainability indicatos. Howeve, the appoach hee was often moe focused on the institutional side and on the specific social and envionmental poblems of developing counties. The indicatos and famewoks used by the Wold Bank ae in many ways close to the UNCSD indicatos and expeience of the OECD. 5

6 Table 2: Oveview of intenational indicatoy systems (adapted fom INDI-Link poject) Activity Oganization Headline set Boade set Famewok Citeia scale United Nations division fo Sustainable development (UNCSD) Global Coe indicatos as guideline fo othe counties (50) 98 SDI (lage set) allow fo a moe compehensive set SDI ae placed in famewok of themes and subthemes (15 themes) SDI fulfill 3 citeia 1) elevance 2) citical 3) data eadiness OECD OECD Membe counties (30) Coe set of indicatos (18) Indicatos fo detailed envionmental pefomance Thee themes: 1) envionmental assets 2) economic assets 3) human capital 1) elevance 2) utility fo uses 3) analytical soundness 4) measuability EU SDI Euopean Union Counties 10 Pioity goals key indicatos (14) Level 2 and level 3 indicatos with boade contextual famewok SDI ae put in a famewok of 10 pioity goals linking to society, economy, govenment, envionment, 1) elevance fo pioity goup (depending on level) 2) analytical taceability 3) measuability Wold Bank Lage numbe of indicatos along 3 dimensions Economy, states and makets and global links Indicatos follow the pinciples of govening intenational statistical activities of the United Nations OECD indicatos in Table 3 ae specified by Assets and Outcome indicatos. Envionmental, Human and Economic capital is distinguished. The cuent outcome indicatos ae a mix of economic, social and quasi-envionmental (fo example uban ai pollution) indicatos. The depeciation of human capital (unemployment atio) and investment in human capital (education expenditues) ae vey close to the cuent outcome indicatos employment to population and education paticipation ates. It is unclea if an indicato like the Gini coefficient is a social o economic indicato o health should be defined as human capital. 6

7 Table 3: OECD key indicatos ENVIRONMENT ASSETS Ai Quality Wate esouces Enegy esouces Biodivesity ECONOMIC ASSETS Poduced asset R&D Financial assets HUMAN CAPITAL Stock Investment in human capital Depeciation of human capital CURRENT OUTCOME Consumption Income distibution Health Wok status Education Indicato(s) GHG emissions NOX emissions Intensity of wate use Consumption of enegy esouce Size of potected aea Volume of net capital stock Multi-facto poductivity gowth ate Net foeign assets and cuent account balance Popotion of population with seconday/tetiay education Education expenditue Rate and level of unemployment Household consumption Gini coefficient Age expectancy at bith Uban ai quality Employment to population atio Education paticipation ates 2.3 The seach fo sustainability indicatos Goss Domestic Poduct (GDP) Until today, the Goss Domestic Poduct is used as the main indicato fo economic vitality and wealth. It is the total maket value of all final goods and sevices poduced in a county in a given yea, equal to total consume, investment and govenment spendings, plus the value of expots, minus the value of impots. GDP is the cossing point of thee sides of the economy: demand, poduction and income. It is impotant to take into account that GDP will measue the value of each poduct o sevice only once: the final value. While intenationally accepted and used in all elevant economic domains, its intepetation as a pogess indicato is inceasingly put into question by eseaches, local communities, civil society, political authoities and intenational economic institutions (OECD, Wold Bank, Euopean Union). While the link between GDP gowth and welfae fom low to medium levels of poduction has been poved, the eal poblems aise when compaing developed economies on the basis of GDP. This has been stated in the theshold hypothesis of Max-Neef (1995), stating that beyond a cetain level of economic gowth, thee comes a point whee welfae does not incease anymoe and even can come to deteioate. Theefoe, gowth in GDP should not be confused with gowth in human welfae In the context of sustainability this indicato is useful as a benchmak indicato. It gives us infomation on the amount of poduction and the supply side of the economy. It is a baomete fo economic poduction, without any additional intepetation. In the context of economic modelling it is impotant to check the balance between facto incomes, value added and final demand. 7

8 The eal question in a sustainability context, howeve, emains how poduction is oganized and which esouces it employs? A fist impotant obsevation on GDP is that costs and benefits ae counted togethe. The complete tunove of the economy is added togethe, not distinguishing the good fom the bad Accoding to Stiglitz (2005) No one would look at just a fim s evenues to assess how well it was doing. Fa moe elevant is the balance sheet, which shows assets and liabilities. If counties stive to incease measued GDP, they may take actions which now, o in the futue, may actually lowe societal well-being. This is especially the case if ou metics do not take account of sustainability, if cuent consumption puts in jeopady, fo instance, futue living standads. The most obvious cases involve depletion of esouces and the degadation of the envionment. (Stiglitz et al., 2009). An impotant distinction to make is the types of goods poduced. Should cuative sectos like ecycling, waste cleaning, health sevices, law and ode maintenance be quantified in the same way? This could lead to the pevese effect that pollution is actually counted as a benefit in GDP though highe health expenditues and waste cleaning. Even wa and cime could be intepeted as motos of household and govenment expenditues. An illustation to this is povided by C. Cobb et al. (2007). A newspape headline afte the passing of huicane Katina and Rita though New Oleans, pointed at the enomous (moe than expected) gowth of GDP a few months late. A elevant shotcoming in the case of the Russian economy is that GDP does not cove tansactions in the infomal economy. The eal size of this infomal economy is unde dispute. The estimations of Byung-Yeon, Kimand, Youngho and Kang (2009) indicate it to be in the ange fom 12% - 38% of official GDP in the peiod depending on the egion of study. A elated but diffeent topic is household wok and volunteeing. Many economic activities ae suppoted by unpaid wok often occuing within the household, communities and infomal neighbohood effots. Fom a social point of view GDP is an insufficient measue as it does not take into account inequality in pesonal consumption and income. Neithe does it take into account povety. As an envionmental measue GDP has even moe sevee shotcomings as it does not take into account pollution damages, the cost of using non-enewable esouces, loss of valuable lands used fo agicultue o wate logging and deceases in biodivesity. Actually GDP completely ignoes natual esouces othe than those that ae exploited and taded on the maket. Unde the GDP metic, complete devastation of natual esouces may actually be a good thing as it will fuel domestic poduction and lead to subsequent clean-up costs late on Altenative sustainability indicatos The pevious paagaph clealy states that focusing only on maximizing poduction (GDP) is not a welfae impoving o sustainable appoach. A wide vaiety of othe appoaches wee developed to constuct new pogess indicatos. They wee applied by diffeent institutions including intenational oganizations (Wold Bank, UNDP), statistical offices (Euostat, Destatis), civil-society oganizations and campanies and independent think-tanks (the New Economics Foundation, Redefining Pogess). 8

9 The main thee appoaches wee: Adjusting the oiginal goss domestic poduct indicato to coect fo its flaws Replacing goss domestic poduct by a totally new indicato Supplementing GDP by a set of economic, social and envionmental indicatos. 1) Adjusting GDP: Distinguishing goods and bads Inceasing specificity of GDP One of the easiest adjustments in GDP is splitting up poduction of diffeent sectos. In this way we can distinguish among agicultue, esouces, industy, electicity, sevices of pivate fims, tanspot, govenment sevices to population, health secto, etc. The same distinction can be made at egional level. ISEW and GPI Seveal extensions to GDP wee poposed, and the ISEW (Indicato fo Sustainable Economic Welfae), GPI (Genuine Pogess Indicato) and Genuine savings indices ae the most notable. The ISEW (Daly and Cobb, 1989) and GPI (Cobb et al., 1995) ae vey simila indicatos. The basic idea of these indicatos is to update household/pesonal consumption expenditues into seveal categoies, distinguishing good and bad expenditues, envionmental damage, natual capital adjustments and inequality. All of these exta categoies ae valued in monetay tems. GPI essentially adds new data to the oiginal ISEW indicato, including cime, divoce, loss in leisue and dome othe topics. The amount of infomation taken into account by these indicatos can be substantial and can include commuting costs, advetising costs, health expenditues, expenditues on consume duables, infomal economy, etc. ISEW = Pesonal/household consumption expenditue - adjustment fo income inequality + sevices fom domestic labou costs of envionmental degadation- defensive pivate expenditues + nondefensive public expenditues + economic adjustments - depeciation of natual capital. GPI = Pesonal/household consumption expenditues + value of household wok + value of voluntee contibution wok - cime facto - envionmental degadation facto (esouce depletion, ozone depletion, pollution) - family beakdown facto- oveextended woke stess facto - exploding consume debt - inequality of distibution of wealth and income While GPI has found its way to the public, it is questionable that it could be used as a policy instument. The most impotant poblem of ISEW/GPI indicatos is the monetay value that is assihned to each additional categoy. The selection of citeia and the methods of assigning monetay values to them show a cetain degee of abitainess, and have indeed changed ove time and acoss studies. Othe authos have questioned the mee possibility and meits of quantifying sustainability factos in a single (monetay) unit. Additionally, calculations of GPI est on estimates and intepolations. Geen net national poduct The unsustainable development leads to a net loss in capital, especially in natual esouce capital and social capital. Geen net national poduct indicato is simila to the NDP (net domestic poduct), but substacts the depeciation of natual capital fom the index. Accoding to Solow (1993), this is an estimate of Hicksian income, which shows the maximum we can consume in the pesent peiod without educing futue consumption possibilities. Hence this fits easonably well with the notion of satisfaction of cuent needs, without compomising the possibilities of futue geneations. 9

10 The oiginal famewok fo the GNNP was developed by Hatwick (1990), who suggested deducting depeciation of all foms of natual capital (valued by the diffeence between pice and maginal cost of poviding natual capital) and changes in pollution, valued at maginal abatement costs. Howeve, thee exist many vaiations on the idea how the adjustments to natual capital should be calculated. Genuine savings Peace and Atkinson (1993) poposed a measue of weak sustainability which was an empiical application of the Hatwick ule: Genuine Savings (o adjusted savings). The indicato is used and developed by the Wold Bank. Basically it measues how much the county is investing in futue consumption. Genuine savings measues net investments in physical, natual and human capital. It ecalculates national savings by accounting fo depeciation of poduction assets, depletion of natual esouces, the value of global envionmental pollution (including loss of welfae in the fom of human sickness and health), and investments in human capital (spending on education is seen as saving athe than consumption as it inceases human capital). Genuine Savings is a fowad-looking indicato, accounting fo changes in capital stocks that will lead to futue changes in income. As it takes into account human and natual capital it povides a moe boad pictue than taditional saving ates. The Genuine Savings appoach can be usefully applied as a policy tool, e.g. to encouage esouce-ich counties to invest thei esouce ents in othe foms of capital in ode to secue a sustainable path (Dietz and Neumaye, 2006). It also daws attention to investments in human capital and good govenance. The genuine savings indicato is a useful tool but is citicized on simila gounds as ISEW and GPI. The expession of natual and physical capital in monetay values and the pefect substitution which is assumed between these foms of capital is a mayo point of comments. Thee ae seveal additional ethical aguments against the definition of human and natual capital used by the Wold Bank. Also due to the absence of data not all natual esouces ae taken into account, leaving a gap fo intepetation poblems. 2) Replacing GDP: Ecological footpint (EF) The Ecological Footpint is an accounting tool to measue how much natue a given goup of population o county is using. It is measued in land units and is based on the assumption that each human activity uses esouces and has waste flows which can be conveted to a biologically poductive aea necessay to povide these functions (Wackenagel and Rees, 1996; Wackenagel et al, 1997). The inteesting esult is that since 1988 the humankind has been consuming moe than the caying capacity of the Eath. The ecological footpint is a useful tool, but it is a athe indiect way fo calculating sustainability. Consumption of esouces is coupled with an amount of land use, which does not povide infomation on state of the economy o society. Ecological footpints tend to give low values fo developing counties and high values fo developed counties. This makes the indicato questionable fo compaisons of human development. Howeve, this tool is useful fo global monitoing of esouce usage. Its contibution to the sustainability concept is based on the fact that it highlights the issue of equity between nations, 10

11 between developing and developed societies. It has also aised awaeness of the sustainability issues and demonstated the human contibution to global changes. Human Development Index (HDI) The Human Development Index (HDI) is a composite index measuing the aveage achievements of a county in thee basic dimensions of human development (UNDP, 2004): 1) Life expectancy at bith, 2) Human capital: adult liteacy ate (with 2/3 weight) and the enolment atio (with 1/3 weight) 3) Living standad: GDP pe capita adjusted to PPP. It is a pefomance indicato in the sense that the actual values ae weighted against maximum and minimum taget values on a 0 to 1 scale. Then it is calculated as a simple aveage of the 3 dimensions. The HDI has poven its value in debates on intenal dispaities between counties and investments in human capital, howeve its focus on human welfae makes it too anthopocentic to be used as a value fo sustainability. It illustates the social and economic dimensions, but fails almost entiely to take up envionmental o ecological issues. Happy Planet Index (HPI) The Happy Planet Index, intoduced in July 2006 by the New Economics Foundation and measued fo 178 counties, is an index of human well-being and envionmental impact. The indicato shows the ecological efficiency with which the well-being is deliveed. It is based on two objective indicatos, life expectancy and ecological footpint pe capita, and one subjective indicato 'life satisfaction'. Multiplying longevity and the subjective life satisfaction, you get the 'degee to which people live long and happily in a cetain county at a given time', also called Happy Life Yeas (HLY). This is divided by the Ecological Footpint (EF). Envionmental Sustainability Index (ESI) The Envionmental Sustainability Index (ESI) is a composite index tacking a divese set of socioeconomic, envionmental, and institutional indicatos that chaacteize and influence envionmental sustainability at the national scale. The ESI coves natual esouce endowments, past and pesent pollution levels, envionmental management effots, contibutions to potection of the global commons, and a society's capacity to impove its envionmental pefomance ove time. The ESI is based on 5 building blocks envionmental systems, educing envionmental stess, educing human vulneability, social and institutional capacity and global stewadship - compising in total 21 undelying indicatos (Esty et al.,2005) The ESI coves an inteesting ange of indicatos, but thee is a complicated weighting pocess of components, which make it highly disputable. 3) Supplementing GDP by a famewok of indicatos EU Sustainable Development Stategy (SDS) The SDI famewok is based on ten themes, eflecting seven key challenges of the EU Sustainable Development Stategy (SDS), as well as the key objective of economic pospeity and guiding pinciples elated to good govenance. The themes follow a geneal tend fom the economic, to the social, and then to the envionmental and institutional dimensions. They ae futhe divided into subthemes to oganise the set in a way that eflects the opeational objectives and actions of the sustainable development stategy. Based on the policy pioities of the SDS, a hieachical theme famewok was developed. Fo gouping the altogethe about 155 SDIs, Euostat has poposed a multi-laye system with 3 levels: 11

12 Figue 1: EU SDI famewok Level 1 (headline) indicatos ae to monito the oveall objectives of the SDS. These 12 obust and well-known indicatos have a high communication value and ae available fo most EU membe states fo at least five yeas. These include fo example GDP. Level 2 indicatos ae elated to the opeational objectives of the SDS. These indicatos ae aimed at evaluation of the coe policy aeas and communication with the geneal public. They ae obust and available fo most EU membe states fo at least thee yeas. Level 3 indicatos ae elated to actions outlined in the stategy o to othe issues which ae useful to analyzing the pogess towads the SDS objectives. These indicatos ae aimed at futhe policy analysis and bette undestanding of the tends and complexity of issues associated with the theme o inte-linkages with othe themes in the famewok. They ae intended fo a moe specialized audience. Contextual indicatos eithe do not monito diectly any of the stategy s objectives o they ae not policy esponsive. They povide valuable backgound infomation on the issues having diect elevance fo sustainable development policies and ae useful fo the analysis. Table 4: Headline indicatos of EU SDI famewok Theme Economic development Social inclusion Public Health Global patneship Good Govenance Demogaphic change Climate and enegy Management of natual esouces Sustainable tanspot Sustainable consumption and poduction Headline indicato(s) (fist level) Gowth in GDP pe capita Risk of povety Healthy life yeas Official development assistance Infingement cases Vote tunout Envionment tax compaed to labou tax Employment ate of olde wokes Geenhouse gas emissions Consumption of enewables Abundance of common bids Fish stocks Enegy consumption of tanspot elative to GDP Resouce use elative to GDP (esouce poductivity) Pessue-state-esponse model The Pessue-state-esponse model (PSR) that has been poposed by OECD and the United Nations UNEP (Qian et al., 2001) shows the elationship between human activities, thei envionmental pessue and the govenment initiatives. The PSR appoach is a causal one that coves causes and effects influencing a measuable state. In this sense, thee categoies of indicatos ae distinguished. 12

13 Indicatos of envionmental pessues (Pessue) descibe on the damages oiginating fom human activities, including quality and quantity of natual esouces (emissions, mining of aw mateials, fetilize input). Indicatos of envionmental conditions (State) ae designed to descibe the status quo of the envionment and the quality and quantity of esouces and thei changes ove time (e.g., foest aea, potected aeas). Indicatos of societal esponse (Response) show to which degee society is esponding to envionmental changes and concens. This could be the numbe and kind of measues taken, the effots of implementing o the effectiveness of those measues. Responses may ange fom public (e.g., legislation, taxation, pomotion) to pivate secto activities (e.g., educed consumption, ecycling) The PSR model has poven to be a logical, compehensive tool to pictue envionmental issues fom an anthopocentic pespective. Instead of obseving a single phenomenon o poblem a causal model of causes, impacts and effects on the envionment ae geneated. Figue 2: The PSR model Howeve, the PSR model has some weaknesses. The causal effects ae simplified to linea elationships centeed on human activities. Theefoe it does not eflect the moe complex elationships in ecosystems and in envionment - economy inteactions. The PSR model highlights envionmental and economic elationships. The social component of indicatos is not adequately coveed. Baomete of sustainability The Baomete of Sustainability was developed in 1997 by Robet Pescott-Allen, in his book The Well-being of Nations. It is the only pefomance scale designed to measue human and ecosystem wellbeing togethe without submeging one in the othe. Its two axes one fo human wellbeing, the othe fo ecosystem wellbeing enable socioeconomic and envionmental indicatos to be combined independently, keeping them sepaate to allow analysis of people-ecosystem inteactions. Not aggegating these indicatos enables showing the tue situation of ecosystems and society. 13

14 Figue 3 Baomete of Sustainability The indicatos ae valued on a point system detemined by the eseache. Thee ae 5 categoies going fom bad to good with points anging fom 0-20, 20-40, etc. A set of indicatos ae used fo human wellbeing and fo ecosystem wellbeing. The limits fo the point scoe ae abitaily detemined. The main use of the Baomete is to combine indicatos enabling uses to daw boad conclusions fom an aay of confusing and contadictoy signals. The main featues of the baomete of sustainability ae the following. 1. It integates a flexible fom of pefomance scaling. Each type of indicato can be integated and a value can be attached to it. 2. The baomete explicitly states that human and biosphee health ae equally impotant fo a sustainable system. Pogess in one dimension is impossible at the cost in the othe. Thee is no tade-off between human well-being and ecosystem well-being. 3. The scaling is patially linea within cetain boundaies. This makes compaability between exteme values possible. 4. The system is simple, no difficult computations ae necessay to get fom indicato to a scaling in the baomete of sustainability. The Baomete appoach -o the Well-being appoach- is a pomising one in the sense that it is easy to undestand and to calculate and it gives an immediate tool to undestand the inteaction of ecosystem and human well-being. Moeove, it allows the inteested paties to define thei own citeia fo sustainability and thus the oveall pocess to be paticipative. The main citicism of this appoach is elated to the possible subjectivity and anking of the indicatos, which is ad andom. Questions aise on the scaling of the indicatos, especially when counties ae at the bode between scales. Also the assumption of no tade-off between human and ecosystem well-being can be citicized. 14

15 2.4 Summay Indicatos ae an essential pat of the esults handling of any model and ae a poweful tool fo intepetation of esults and policy making. The main poblem is the specification of a paticula indicato. Thee ae hundeds of indicatos that could potentially be used to measue sustainability. Deciding how many and which ones to use can be difficult. As no clea altenatives ae available, often GDP is used as a single measue of wealth and pogess. Howeve fom a sustainability point of view it is out of the question that this indicato is sufficient to measue the vast complexity of the economic, social and envionmental dimensions of development. We have seen that it can even be countepoductive, as pollution and social poblems may actually tigge a highe gowth in GDP (howeve often tempoal). Thee ae a numbe of altenatives available to GDP, but thee ae lage discussions on thei acceptability and basis fo policy development. Also it is questionable that all these indicatos could be modeled based on the SUST- RUS methodology. Theefoe ou best option is to combine togethe indicatos in economic, social and envionmental sphees and to evaluate the oveall pogess to sustainability in diffeent aeas. 3. Ceating a sustainability famewok fo SUST-RUS 3.1 Backgound of sustainable development in Russia Enegy and climate change issues The pocess of economic tansition to maket economy in Russia was accompanied by a shap decline in the goss domestic poducts (GDP) in the 1990s. Since the economic ecovey (in the peiod ), GHG emissions have been gowing at a significantly slowe pace than the economy. In 2007 GHG emissions in Russia totals to 2192,8 mln CO2 equivalent, o 108% to yealy emissions in 2000 and 66.1% in (Isael (ed), 2009). The diveging GDP and the GHG emission tends have been lagely attibuted to: shifts in the economic stuctue, in paticula towads the non-enegy intensive industies; shifts in the pimay enegy supply (inceasing shae of natual gas and nuclea enegy); a decease in population; an incease in enegy efficiency due to new investments. Howeve, Russia s enegy intensity has deceased ove this time hoizon much less than in most fome Soviet Republics, at the annual ate of oughly 3.4% and 2.7%, espectively. The Baltic States, Belaus, Kazakhstan, Kygyzstan educed enegy intensity in the ange of 5-8% pe yea duing the last 15 yeas. Of the fome Soviet Republics, Russia and Ukaine have become the most enegy intensive economies in tems of enegy intensity by the mid of 2000s (Figue 4). 15

16 Figue 4 Enegy intensities in GDP in fome USSR counties Souce: Woldbank and IFC (2008) Beyond the hoizon of the cuent economic slowdown, one of the gand challenges which ae faced by Russia is, theefoe, to cope with the low enegy efficiency and gowing GHG emissions. Low enegy intensity is endemic in evey secto of economy, including esidential secto and heavy industy. The latte has inheited an enegy-inefficient and cabon-intensive poduction plants fom the Soviet time and little has been achieved ove the last two decades (Figue 5). Figue 5 Compaison of Global Enegy Intensities in Manufactuing Industies Souce: Woldbank and IFC (2008), modified 16

17 Fo example, enegy efficiency of Russian steel poduces is well below levels that have been aleady achieved intenationally, in both developed and emeging counties. Enegy intensity of Russian steel makes is twice as high as in Fance, Italy and Poland and oughly a quate above the values in Czech Republic and Slovakia. In compaison to Chinese competitos, Russian poduces ae lagging well behind in pig ion poduction (20% above the aveage in China) and olling poduction pocess (30% above the aveage in China). The poo enegy efficiency pefomance can be tanslated into the dispopotionately high level of CO2 emissions. Global enegy-elated CO2 emissions in the ion and steel secto wee 1471 Mt CO2 in 2007, wheeas Russia emitted 110 Mt CO2 (7.5%). Hence, Russia is cuently contibuting to the global emissions level at a high ate as to the global poduction level. Russian cement poduction is also elying on the obsolete plants, using pimaily wet poduction method. In 2008, 16% of the total cement poduction was by means of the dy method. No pogess has been achieved ove the last 30 yeas in eplacing this obsolete technology. In contast, dy pocess method is used to poduce 100% of clinke in Japan, 93% in South Koea, 92% in Euope, 82% in the United States, and 50% in India and China. High pevalence of natual esouces The ealization of the sustainable development goals plays an impotant ole fo Russia due to the fact the county signed the 1992 Rio Declaation. The significance of these goals also depends on the fact that Russian natual esouce potential is consideed as a wold s natual sustainability povision. In eality, Russia still has 30% of the wold wild natue esouces (8 mill. hectaes of the Russian teitoy). The Baikal Lake obtains 20% of wold fesh wate esouces. Russia has 30% of wold foest esouces. Russia holds the wold's lagest natual gas eseves, the second lagest coal eseves, and the eighth lagest oil eseves. Russia is also the wold's lagest expote of natual gas, the second lagest oil expote and the thid lagest enegy consume. Howeve Russia is not ich enough in natual esouces to ensue a lasting high living standad to its population. Russia anks only 11th in tems of oil and gas eseves pe capita (fa behind counties in the Middle-East) and is in a need to divesify its economy towads commodity and sevice poduction. Pollution Polluted land is a seious poblem in the cities and manufactuing zones. Although, estimates of the degee of land pollution in tems of shae of the Russian Fedeation diffes fom exteme 15% (Pachomova and Richte, 1998) to a moe modeate 4% 4, all expets ae cetain that the poblem of land pollution is citical in majo Russian cities and industial teitoies: Kemeov egion, Moscow egion (including the city of Moscow), Rostov egion, Svedlosk egion, Tula egion and Chelyabinsk egion 5. 4 Aggegate estimates of pollution in the Russian Fedeation fo 2007, Institute of Global Climate and Ecology, 5 Ibid. 17

18 Figue 6 Degee of Aggegated Pollution of the Regions of the Russian Fedeation Legend: Bown colo indicates high degee of pollution; yellow colo indicates low degee of pollution; White colo those egions wee not monitoed in 2007 and Souce: Institute of Global Climate and Ecology, Russian Academy of Science, Moscow ( Due to the economic depession in the nineties thee was an essential decease in the hamful pollution. It was the esult of a decease in poduction by 40%. In 1996 the hamful ai pollution was deceased by 12,7% in compaison to 1992 (in 1997 the pollution situation was stabilized). Howeve tanspot pollution ose afte the depession. The quantity of the tanspot units doubled though the consideed peiod. As a esult 40 million Russians in 86 cities expeience ai pollution exceeding tenfold the admissible limits and moe. (Pachomova and Richte, 1998) Poo ambient ai quality linked to acidifying emissions and ozone concentation is a futhe pessing envionmental poblem in Russia: ai pollution levels exceed maximum allowable concentations in majo uban aeas, while acidifying emissions lead to suface wate acidification (e.g. in the bode aeas between Russia and Noway) and to heavy damages of foests (e.g. in Noilsk). The enegyelated emissions of NO x, SO 2, VOC and paticulates ae the main souces of ai pollution. Today aound 50% of total SO 2 emissions come fom the five lagest souces in the metallugical industy. In futue, SO 2 emissions fom the powe secto might even incease if natual gas is substituted by coal. 18

19 Unfavoable demogaphic situation Accoding to the Wold Population Data Sheet [WPDS 2004], the ate of population incease in Russia is the wold s second lowest -0.6 pecent afte -0.8 pecent in Ukaine. In addition, the WPDS pojects population changes in Russia in to be -17 pecent (declining fom 144 to 119 million). The only way fo Russia to pevent an impending demogaphic cisis is to soften estaints on intenational and inteegional migations. Infomal economy and institutions in tansition The gowth of the infomal economy in tansition counties and especially in the fome Soviet Union epublics has been paticulaly shap. While measuements ae had to make, some cuent estimates ange fom 13% to 40% of the Russian GDP. The ise of the infomal economy has gone hand in hand with ising unemployment figues, cime and geneal insecuity of institutions. The infomal economy and fomal sectos well co-exist and wokes have been epoted holding multiple jobs in both fomal and infomal sectos (Commande S, Tolstopiatenko A, 1997). Pogess in implementing sustainable development in Russia Some steps to implement sustainable development goals in policy have been made. In 1994 the Pesident of Russia signed a decee "On State stategy of the Russian Fedeation fo envionmental potection and sustainable development", whee main featues of these stategies wee outlined. The latte means gadual epoduction of the natual ecosystems to the level of the guaanteeing stability of envionment and futue povision of sustainable favoable envionmental development. Fedeal and egional authoities ae esponsible fo the pepaation of sustainable development pogams. In 1996 the State Concept on natue potection and sustainable development was adopted and published. This Concept was a esult of a wide discussion among expets, officials and politicians. This Concept was a basis of a two yea action plan on natue potection and sustainable development adopted in The sustainable development stategy is yet to be ceated and atified. Accoding to a daft of the stategy 6 system of SD indicatos is planned to be quite close to the UN CSD indicatos. Thus, in the discussion of the appopiate indicato system fo the SUST-RUS poject we could use the UN system as a efeence point of the Russian SD indicato system. Impoving enegy efficiency, educing GHG and acidifying emissions has been put on the top of political agenda ecently. Russian govenment stated intoducing a mix of stuctual policies to limit the enegy consumption and to educe GHG emissions while favoing longe-tem gowth of an economy, and safeguading competitiveness in the key industial sectos. In June 2008, Pesident Medvedev signed a decee aiming at eduction of enegy intensity by 40% by 2020 compaed with the 2007 levels. Climate Doctine of the Russian Fedeation which has been appoved in 2009 foesees futhe the eduction of natual gas use, limiting the buning of gas poduced fom oil wells, inceasing the use of enewable enegy in electicity poduction. Finally, Russia committed to educe acidifying emissions in accodance with UNECE Convention on Long-Range Tansbounday Ai Pollution / The 1994 Oslo Potocol on Futhe Reduction of Sulphu Emissions. 6 Shelekhov (Ed) (2002) Main Featues of the Sustainable Development Stategy of the Russian Fedeation, Moscow, In Russian [Основные положения стратегии устойчивого развития России /Под ред. А.М. Шелехова. М., с. 19

20 While putting it in the context of cuent envionmental pioities and needs, the next chapte eviews the highly policy-elevant envionmental indicato lists and exploes the ways on how to implement the espective indicatos into a quantitative famewok of the SUST-RUS poject. Appopiate indicatos might assist Russian policy makes in thei effots to move fom the cuent sectoal statusquo in tems of educing enegy-intensity, GH emissions and acidifying emissions. 3.2 CGE modelling and sustainability Computable geneal equilibium models (CGE) models have become a standad tool fo applied analysis of measues in vaious policy domains including fiscal policy, tade policy and envionmental policy (Böhinge 2004, Shoven and Whalley 1984, 1992, Piggot and Whalley 1985, Boges 1986, Peeia and Shoven 1988, Begman 1990, Kehoe and Kehoe 1994, Kleppe et al and Bhattachayya 1996). CGE models can incopoate seveal key sustainability indicatos in a single mico-consistent famewok, allowing fo a systematic quantitative tade-off analysis between envionmental quality, economic pefomance and income distibution. Futhemoe, the CGE modeling appoach povides an open famewok fo linkages to secto-specific models, impotant elationships to othe disciplines adopting an integated assessment appoach o the incopoation of new economic eseach stings (Böhinge and Löschel, 2004). Computable geneal equilibium models ae a class of economic models that ae based on actual economic data (mostly national account data) to pedict how the economy might eact to policy changes, technological pogess o othe changes in the initial state of the model. These models have a stong foundation in mico-economic behavio and always epesent economic agents sepaately. These agents ae at least: consumes, govenment, fims and often include specific agents such as: investos, foeign secto(s), land ownes, diffeent household types, etc. CGE models ae nealy always calibated on a yealy database of tansactions between these agents, epesented in an input-output table o a social accounting matix. A set of exogenous paametes, mostly elasticities of substitution o pice elasticities based on econometic eseach; detemine how the economy will behave in out of equilibium conditions. While notable exceptions exist, most CGE models ae calibated on 1-yea and ae used in a compaative-static mode, whee policies ae checked as altenative scenaios against a fixed backgound. Dynamics have been included in CGE models and in this case patial adjustment exists in capital flows and/o tade balance of the county/egion. The coe of a CGE model is the economic system and the tansaction between the espective agents. Howeve, CGE models ae inceasingly being used fo assessment of moe complex inteactions between envionment, ecology and social equity and thei puely economic database is eniched with social and envionmental data. Examples of these models ae the GEM-E-3 model, Woldscan, EPPA, and many of thei applications find thei way to top level decision makes and academics. This makes the compaison of these models, thei assumptions and esults an inteesting topic fo study as well. C. Böhinge and A. Löschel (2008) conclude that opeational CGE models used fo enegyeconomy-envionment (E3) analyses have a good coveage of cental economic indicatos. Envionmental indicatos such as enegy-elated emissions with diect links to economic activities ae widely coveed, wheeas indicatos with complex natual science backgound such as wate stess o biodivesity loss ae hadly epesented. Social indicatos stand out fo vey weak coveage, not at last because they ae vaguely defined o incommensuable. 20

21 The often epoted inteelatedness between the economic, social and envionmental sphee makes it hade to define the coect indicatos within ou model. Especially in CGE models that have thei oigin as a pue economic model, the distinction between social and economical may be had to make. Theefoe social can be edefined as equitable, with othe wods: the allocation of wealth, consumption and goods to diffeent egions and niches in the population. The evaluation of policies in tems of equity is much moe specified then those in tems of social indicatos. Also this boadens the intepetation of special allocation of industy, consumption, income within ou model. If we look at sustainable development fom the economic ationale allocation of scace esouces in the best possible way, the main poblem with sustainability is the ational use of natual esouces allocated in space and time. The scace esouces, such as mineals, wate, land and ecosystem sevices thus need to be distibuted in space within ou model and be tanspoted/taded with othe egions and counties. The use of most of these esouces depends upon the allocation of poduction and consumption activities. By incopoating the epesentation of geogaphically distibuted consumption and poduction pattens into the modeling famewok, it becomes possible to account fo the use of natual esouces in the economy as well as to assess the effects of sustainability policies upon diffeent egions. One could also tace the diffeences in egional economic development and analyze egional inequality in the county. The theoetical famewok fo multi-egion and multi-industy fo a coe CGE model discussed in (A. Löschel and C. Böhinge, 2008) is simila to ou plan fo implementation of SUST-RUS. Pimay factos of a egion include egional value-added in tems of capital and labou, intemediates (mateials), esouces (such as land) and fuels (oil, coal, gas). Poduction is captued by aggegate functions, whee these factos ae used, accoding to the baseline SAM matix. Final demand is given as a CES composite which distinguishes commodities, enegy and tanspot consumption. Consumes maximize utility, constained by the egional facto income. Foeign sectos (impots/expots) ae epesented by the Amington substitution elasticity, whee we assume that foeign and domestic goods ae consideed impefect substitutes. Regions inteact in tems of commodity and sevice tade, and ae subject to govenment inteventions in tems of taxation, distibution and legislation. The powe of such a model to incopoate envionmental and equity elations inceases damatically when we have additional infomation. In the case of elation with the envionment an appoach can be taken to include a database of pollution by industy, abatement costs by industy, specify emission quotas, include specific taxes and subsidies, include estimates of health damages by type of pollution, etc. An additional database holding data on household level can incease the solution sphee of the model futhe, taking into account distibutional aspects of income and possibly envionmental effects. Anothe impotant addition, usually made with espect to CGE models is a dynamic (patial adjustment) famewok, often including paametes on technological change and capital accumulation. 21