Commentary / World

The environmental link to economic growth

WASHINGTON — The worldwide drive for higher incomes in the face of mounting environmental destruction has heightened the tension between growth and the environment.

Developing countries that want to sustain high growth, as well as industrial countries that wish to generate any kind of growth, worry that environmental investments will slow the economy. Japan, which has led on matters of the environment and climate change, also faces the question of how much more effort it can afford.

In developing countries and industrial countries alike, the perception of this tradeoff between the growth and the environment rests on the view held in many circles — wrongly — that environmental protection, not environmental degradation, is the obstacle to growth.

The reality is that it will not be possible to sustain growth without environmental care. The reason is that we face a twin crisis — economic and environmental — and the two are interlinked.

The spike in food prices, the second in three years, signals in large measure, pressures on production that are exacerbated by the deleterious effects of environmental devastation and climate change. While some may set aside the global risks of climate change as distant, extreme weather events point to changes that are already upon us.

Sustained growth is vital for the goals most nations set for themselves. It has, for instance, been a powerful means for reducing poverty in China and India recently, and in Japan and South Korea earlier. China’s growth averaged 10 percent yearly for the past 25 years, lifting some 400 million people out of poverty. Developing countries still need to grow a great deal: Even after adjusting for price differences, their average incomes are one-sixth that of rich nations.

Also to be noted is that Japan has done much to contribute to the climate agenda, such as through the ratification of the Kyoto Protocols and the promotion of biodiversity at Nagoya. The nation has been financing various international efforts. The private sector has done much to reduce emissions with improvements in energy efficiency in response to the oil shocks of the 1970s and ’80s.

These environmental investments are not in the way of growth in Japan or other industrial countries. Rather, climate change presents the greatest threat to reviving higher growth everywhere.

Atmospheric carbon dioxide levels are now 385 parts per million (ppm) and rising fast. This is close to the 450 ppm threshold beyond which it may be impossible to achieve the Cancun-agreed goal of limiting global temperature rise to 2 degrees Celsius.

Remarkably it is the hydro- meteorological events such as floods — not the geological ones such as earthquakes — that have shot up, suggesting an ominous link between the disasters and global warming. The doubling of wheat prices over the past year is partly from the collapse of production in Russia and neighboring countries linked to unprecedented heat waves and floods.

The economic costs of air pollution, water contamination, solid wastes and deforestation are some 3 percent of gross domestic product in China, India, Argentina, Turkey and elsewhere. Despite these realities, action falls short because when it comes to the global aspects, no country, rich or poor, has the economic motivation or the political will to confront them alone. That’s because only a part of the benefits accrue to those taking action, while others can grab a free ride. Even when the gains are local, they may only appear after politicians leave office. Japan can provide vital advice in areas ranging from natural disasters to energy efficiency.

The split between what’s good for society and what drives private interest is perpetuated as many still do not view the environment as integral to the growth agenda. Most economic projections still assume that high growth can proceed independently of environmental action. This must change: Unless growth scenarios that drive national planning recognize the environmental link to growth, actions will remain inadequate.

Policy often worsens the situation by encouraging the waste of natural resources. Growth models are silent on subsidies purportedly used to speed growth — farm subsidies of some $150 billion a year and subsidies to fossil fuels of $650 billion a year worldwide — that encourage energy intensity, emissions and waste. Cutting these subsidies worldwide would increase economic efficiency and improve growth prospects.

If high growth is to continue, in Brazil and India or Japan and the United States, we need to fundamentally correct the calculus that environmental protection hampers economic growth. For that, mainstream economics must reverse its mistaken advice and indicate that the drive for higher incomes can succeed only by including — not excluding — environmental care in growth policies.

Vinod Thomas is director general of Independent Evaluation at the World Bank Group. Views expressed here are his alone.

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