Preparations for the Rio +20 Summit - Environmental Audit Committee Contents

3  The green economy

What a green economy means  

25. One of two themes of the Rio Conference next year (paragraph 3) is the green economy. The UN Secretary General saw this as a broad agenda, seeking 'to unite under a single banner the entire suite of economic policies and modes of economic analyses of relevance to sustainable development'.[54] That approach encompasses a number of 'tracks':

  • 'Getting prices right': Taxing rather than subsidising environmental harms, valuing natural resources and internalising environmental 'externalities' in economic decision-making, and incentivising sustainable consumption.
  • Public procurement policies, to promote sustainable activities and markets.
  • 'Ecological tax reform': environmental taxation of 'bad' factors of production.
  • Public investment in sustainable infrastructure and natural capital, including in renewable energy, transport and energy efficiency.
  • Public sector support for R&D on 'environmentally sound technologies'.
  • 'Social policies to reconcile social goals with existing or proposed economic policies'.

In our separate inquiry into the green economy we are examining the approach being taken in the UK, including how that compares with what appears to be a wider green economy agenda at Rio. The UN has identified examples of measures and approaches being already developed under each of the 'tracks',[55] some of which we discuss below.

'tax reform'

26. We reported earlier this year on what the UK Government needs to do to improve its record on environmental taxation.[56] Taxation has an important role to play in helping to protect the environment by creating an incentive to move towards more sustainable behaviours. Taxation ensures at least some of the environmental cost is borne by those responsible, and can make an environmentally damaging activity economically unattractive. This is vital to the fairness element of sustainability and embeds the 'polluter pays principle' embodied in Principle 16 of the 1992 Rio Declaration.[57] We argued that there is a pressing need for Government to take a more coherent approach to environmental taxation, with a clear strategy setting out their objectives and rationale and how their impact will be evaluated.

'getting prices right'

27. 'Getting prices right' includes valuing natural resources and internalising environmental 'externalities' in economic decision-making, and incentivising sustainable consumption. The UN's Economics of Ecosystems and Biodiversity study found that a failure to account for the value that natural services provide has led to decisions that degrade the natural environment and that 'destruction of nature has now reached levels where serious social and economic costs are being felt'. It makes the case for changing the way nature is managed by using economic concepts and tools, and calls for a wider recognition of the role nature plays in human wellbeing.[58] In the UK, the National Ecosystem Assessment, published in June, put values on ecosystem services in the UK.[59] Defra's Natural Environment White Paper proposes a series of reforms to ensure that the value of nature is better reflected in economic analyses, including incorporating 'natural capital' in the UK Environmental Accounts.[60]

28. The green economy agenda should not, and indeed cannot, expect to see common policies and instruments put in place by countries with very different economies and cultures. Rio+20 might realistically allow countries to agree principles, however, such as on the need to value ecosystem services and the role of environmental taxation and regulation, rather than the specific level of such taxes or the detail of regulations.[61] But that begs the question of how countries are held to account for their progress in delivering the components of a green economy. As we have discussed above, Millennium Consumption Goals (paragraph 22) could play an important role in fostering sustainable consumption in developed countries. But to cover the breadth of green economy actions available, there is a need to find other common indicators for measuring progress, and then to find a forum for applying 'peer-group pressure [on] some of the more flagrant countries and practices that are exacerbating the world's problems'.[62]

29. One solution is to introduce 'Green-GDP' measures—those that embrace sustainable development performance rather than just economic performance.[63] Our witnesses favoured the use of measures of sustainable economic performance beyond GDP, encompassing environmental and social dimensions, which might feature in national accounts.[64] The Stiglitz Commission found a number of deficiencies in using GDP as a measure of social progress and recommended a shift of emphasis from measuring economic production to measuring people's wellbeing, encompassing income, health, education and the environment.[65] International work on the green economy also demonstrates the need to develop indicators to measure growth better. The UN Environment Programme calls for the main indicators of economic performance to be adjusted to account for the effect that consumption and production activities may be having on natural capital.[66] The OECD has set out 25 indicators aiming to reflect a multi-dimensional view of 'green growth', covering the natural asset base, environmental and resource productivity, and the environmental dimension of quality of life.[67] China is developing a 'GDP Quality Index' that captures not just economic performance but also energy and resource usage, income disparities, emissions, life expectancy and wellbeing indicators. India has committed to publish 'natural wealth' accounts.[68] Stakeholder Forum favoured a 'Green GDP' measure, perhaps based on OECD's Better Life Index,[69] with the results being used to compare countries' performance.[70] In the UK, the Prime Minister has tasked the Office for National Statistics to develop a set of national wellbeing indicators to help guide policy, measuring social progress and quality of life. [71] A draft set of indicators is expected in November 2011.

'social policies'

30. A common thread in the evidence we have taken is that a green economy should also be a fair economy.[72] Some extended that requirement, saying that people rather than business should be at its heart and that a green economy cannot rely only on the power of competition.[73] Stakeholder Forum, with others, has developed a draft set of Principles for the Green Economy, drawing on the Declarations of previous UN sustainable development conferences[74] and the 'Earth Charter'.[75] Many of their suggested 15 Principles address the social equality aspect of sustainable development.

31. The Rio+20 agenda, expressed in terms of a green economy 'in the context of sustainable development and poverty eradication', means that the green economy needs to avoid its potential disadvantages for some countries and groups of people. One risk is that environmental standards are used to increase protectionism in the trade of particular products.[76] A green economy may change the level of support that particular countries provide for their exports and home-produced goods, and care will be needed that that does not jeopardise compliance with WTO trade rules.[77] Changing to green economic activities may actually reduce growth in some developing countries, depending on the nature of their current economic activity and their capacity for adjustment. 'Getting prices right' for food and energy could, for a transitional period at least, exacerbate the poverty of some groups of people, not just in developing countries. And while there is a debate about whether a green economy would generate net additional jobs (which we are examining in our separate inquiry on the UK green economy), some countries could certainly have a worse employment outcome than others.[78] A key element to the transition to the green economy will be incentives to invest both in green jobs and the green skills necessary to equip the workforces for the change.

32. IIED emphasised the importance of local involvement in economic management:

    The language and tools of public participation, while widely accepted in many areas of development, have barely made an impact on economic and financial planning. There is much that participatory approaches can do to bring economic policies and decisions more into line with the widely shared desire for a sustainable future. Decentralising decision-making processes can also help to assure that those affected by economic decisions have a say in them.[79]

Oxfam made a similar point.[80] Such localism also, of course, offers the prospect of local communities choosing instead to emphasise economic growth and jobs. In a UK context, we are separately undertaking an inquiry into the extent that the draft National Planning Policy Framework reflects the need for sustainable development.

A fundamentally new model?

33. From questionnaires completed by individual countries and groups ahead of the Rio Conference next year, the UN has concluded that 'there is no agreement on a common definition of a green economy'.[81] Some Southern countries see the green economy as a 'Northern agenda', worried that a concept which marries environment to the economy might neglect poverty-reduction and equity.[82] It will be important, Oxfam told us, that Rio+20 backs a vision of the green economy that focuses on poverty-reduction and social equity objectives.[83] The Foundation for Democracy & Sustainable Development (FDSD) highlighted that the North/South divide over the green economy has helped polarise discussion on technology transfer and financial assistance for developing countries.[84]

34. Tom Bigg of IIED was clear that a fundamentally new model is needed for a green economy:

    You are not just talking about tinkering with efficiency measures and ways we measure progress, you are also looking at pretty fundamental drivers of the way our society functions and, if you take that to the international level, the way we co-operate with other states and the international norms and rules that are established that determine the ways that countries and businesses interact with each other.[85]

    I would advocate incremental change in order to get to a fundamentally different economy.[86]

Oxfam similarly were looking for a 'paradigm shift; a new model of growth and development'.[87] Stakeholder Forum believed that 'all the tools of economic management need to be reset to steer the economy in a more sustainable direction'.[88] We have received similar evidence in our separate green economy inquiry. Defra cautioned, however, that any Rio+20 model for the green economy will have to be agreed by 200 countries. Once agreed, it would have to be actually implemented, and that militated against some of the proposals currently being put forward.[89]

35. The green economy needs to embrace all its possible dimensions ('tracks') put forward by the UN. The Government should work to ensure that environmental taxes and regulation, and accounting for the value of ecosystem services, will be prominent in the green economy principles agreed at Rio+20. The Government should also work to ensure that those agreed principles represent a fair green economy, that fully reflects the social dimension of sustainable development and provides help to countries and groups of people disadvantaged by the transition to a green economy.

The role of the private sector

36. A long-standing debate about 'sustainability reporting' in companies' annual reports, to demonstrate their performance on sustainable development, is rising to the surface in the lead up to Rio+20. There have been many initiatives on sustainability reporting, most notably to include companies' carbon production and consumption, use of water and energy and recycling performance.[90] The latest annual report from the Carbon Disclosure Project identified a strong and increasing correlation between carbon performance and financial performance. Although it cannot prove that one is a prerequisite for the other, many companies involved in the Project point to the financial benefits of reducing their carbon footprint.[91]

37. Whatever the logic of it being in their own interests, not all companies will voluntarily go to the effort of producing sustainability information. In our recent report on carbon budgets, we recommended that the Government should introduce mandatory emissions reporting by businesses at the earliest opportunity to help aid transparency and illustrate the contributions businesses are making, and need to make, to help tackle climate change.[92] In the international arena, the Corporate Sustainability Reporting Coalition is calling for Rio+20 to agree a requirement for listed companies not only to report on sustainability but to have their sustainability reports explicitly approved annually by their shareholders.[93] Separately, the International Integrated Reporting Committee has now launched a discussion on moving beyond sustainability reporting, to report the 'commercial, social and environmental context' within which the company operates.[94] The UK Environmental Law Association wants to see Rio+20 find international consensus on environmental reporting, to bring consistency in its content and the quality of the information provided.[95] Stakeholder Forum considers that the time is ripe for creating at Rio+20 a framework convention on corporate sustainability reporting.[96]

38. IIED see an opportunity to break away from current systems, where 'innovation will need to involve many more stakeholders and industries - bottom-up, community or workplace innovations revealing pathways for reorganising society - [which] may be rooted less firmly in market contexts'.[97] But they also see the need for incentivising businesses to play their role: 'the more that profitability can be aligned with the creation of positive sustainable development outcomes, the more likely it is that business will strive to deliver these; this will require getting not just the prices right but also getting the incentives right'.[98] The Government envisages facilitating the private sector to deliver the green economy:

    Delivering green growth will rely heavily on private sector actions - through trade, innovation and investment. Enlightened business is already advanced in its own thinking about sustainability, and knows how to be green, and understands how this aids sustainable profits. Government can facilitate green growth by putting in place measures which will enable the private sector to deliver a green economy. The Secretary of State is engaging with business on this.[99]

39. The green economy is more likely to succeed if the private sector is involved. Many companies have identified that sustainable development is in their own interests. But others need to be incentivised to act in the right way, to fully address the environmental and social aspects of sustainable development. The Government should push for Rio+20 to deploy the green economy 'tracks' which could provide such incentives, including taxation and ecosystem valuation, and to agree a mandatory regime for sustainability reporting by companies. In addition, the Government should involve business in the dialogue with stakeholders and the public needed throughout the Rio+20 process (paragraphs 6, 7 and 59).

54   Progress to date and remaining gaps in the implementation of the outcomes of the major summits in the area of sustainable development, as well as an analysis of the themes of the Conference, op cit, para 44 Back

55   Objectives and themes of the UN Conference on Sustainable Development, Report of the Secretary General, UN, December 2010, paras 54-77 Back

56   Environmental Audit Committee, Sixth Report of Session 2010-12, Budget 2011 and environmental taxes, HC 878 Back

57 Back

58   The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature: A synthesis of the approach, conclusions and recommendations of TEEB, UN Environment programme, 2010 Back

59   UK National Ecosystem Assessment, June 2011. Back

60   HM Government, The Natural Choice: securing the value of nature, Cm 8082, June 2011 Back

61   Q 30 Back

62   ibid.  Back

63   Ibid.  Back

64   Q 14; Ev 22; Ev 27  Back

65   Report by the Commission on the Measurement of Economic Performance and Social Progress, 2009 ( Back

66   Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, UNEP Back

67   Towards Green Growth: Monitoring Progress - OECD Indicators, OECD, May 2011 Back

68   China's green economist stirring a shift way from GDP, Guardian website, 16 September 2011 ( Back

69   Ev 33, para 4.10 Back

70   Q 21 Back

71 Back

72   Ev w19  Back

73   ibidBack

74   Earth Summit 2012: Principles for the Green Economy, Stakeholder Forum, BioRegional and Earth Charter Initiative Back

75   Ev w88 Back

76   Progress to date and remaining gaps in the implementation of the outcomes of the major summits in the area of sustainable development, as well as an analysis of the themes of the Conference, op cit, para 55 Back

77   Trade and Green Economy, Rio+20 Issues Brief No. 1, UN, March 2011 ( Back

78   Objectives and themes of the UN Conference on Sustainable Development, op cit, paras 44-53; Q 31  Back

79   Ev 22, para 3.4 Back

80   Ev 27, para 11 Back

81   Synthesis report on best practices and lessons learned on the objectives and themes of the united Nationals Conference on sustainable development, UN, January 2011, para 60 Back

82   Ev 27; Q 63; See also Ev 22, para 6.1 Back

83   Ev 27, paras 10-11; Q 8 Back

84   Ev w19, para b7 Back

85   Q 2 Back

86   Q 7 Back

87   ibid.  Back

88   Ev 33, para 4.2 Back

89   Q 61 Back

90   In the EU, the requirement to report non-financial information is contained in the Fourth Company Law Directive, which requires companies to include information on environmental and employee matters. In the UK, the Company Act 2006 contains a provision comparable to that Directive - a requirement to disclose environmental and social information to the extent necessary to understand the development, performance or position of the company's business.  Back

91   CDP Global 500 Report 2011  Back

92   Environmental Audit Committee, Seventh Report of Session 2010-12, Carbon budgets, HC 1080, para 59  Back

93   Towards agreement on a declaration for corporate sustainability reporting at Rio+20, Corporate Sustainability Reporting Coalition, September 2011 ( Back

94   Towards integrated reporting: Communicating value in the 21st century, International Integrated Reporting Committee, September 2011 ( ) Back

95   Ev w29, paras 33-35 Back

96   Ev 33, para 3.11 Back

97   Ev 22, para 5.3 Back

98   ibid, para 5.6 Back

99   Ev 38  Back

previous page contents next page

© Parliamentary copyright 2011
Prepared 26 October 2011