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Decoupling Briefing for the International Panel
for Sustainable Resource Management
Contents
1. Decoupling Economic Growth from Environmental Pressures through Resource Productivity . 2
Why is development unsustainable? Is it economic growth or market failure? .................................... 2
What is Decoupling? ............................................................................................................................. 9
What is the required level of decoupling of economic growth from environmental pressures? ......... 11
Can humanity achieve significant decoupling fast enough and on a scale large enough?................. 13
Can the Economy afford to invest in Decoupling across major Environmental Pressures? .............. 16
Measuring Progress through Decoupling Indicators – How do we know if we are on track? ........... 17
2. Decoupling Economic Growth from Greenhouse Gas Emissions.............................................. 19
Multiple Benefits of Decoupling Greenhouse Gas Emissions ............................................................. 19
Costs of Inaction versus Costs of Action ............................................................................................. 20
Reducing the Costs of Action .............................................................................................................. 21
Policy Implications and Recommendations ........................................................................................ 25
3. Decoupling Economic Growth from Freshwater Extraction and Pollution ............................... 26
Multiple Benefits of Decoupling Freshwater Extraction and Pollution.............................................. 26
Costs of Inaction vs. Costs of Action ................................................................................................... 28
Reducing the Costs of Action .............................................................................................................. 29
Policy Implications and Recommendations ........................................................................................ 29
4. Decoupling Economic Growth from Waste Production ............................................................. 31
Multiple Benefits of Decoupling Waste Production ............................................................................ 31
Costs of Inaction vs. Costs of Action................................................................................................... 32
Reducing the Costs of Action .............................................................................................................. 33
Policy Implications and Recommendations ........................................................................................ 33
5. Policies to Underpin Decoupling and Address Major Social Factors that can Undermine or even
Block Progress ................................................................................................................................. 35
Internalising Externalities to Achieve Decoupling ............................................................................. 36
Taking a Portfolio Policy Approach to Underpinning Decoupling .................................................... 38
Responding to Fears of Job Losses from Decoupling and Environmental Sustainability .................. 44
Appendix 1: Selection of Supporting Resources on Decoupling ..................................................... 47
Appendix 2: Selection of International Studies on Decoupling Economic Growth from Greenhouse
Gas Emissions .................................................................................................................................. 50
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1. Decoupling Economic Growth from Environmental Pressures through
Resource Productivity1
As the opening chapter to this scoping report has outlined, there is growing evidence of the potential
to achieve significant resource productivity gains at the level of businesses, governments, institutions
and other organisations, often referred to as the micro-economic level. As outlined above, a focus on
resource productivity at the micro-economic level offers a key strategy to enable effective decoupling
of increasing profits from increasing environmental pressures and negative impacts. An
understanding of the potential of resource productivity across the economy is important however as it
demonstrates that there also is significant potential to achieve decoupling of economic growth from
environmental pressures at the macro-economic level. This provides valuable insight into how to
begin to reconcile economic growth and environmental sustainability. This is now the focus of
Chapter 2.
Why is development unsustainable? Is it economic growth or market failure?
Until the early 1970s it was a widely acknowledged that economic growth was strongly coupled with
increasing resource usage and environmental pressures and further that the trends could not be
separated to a meaningful extent. This belief was strengthened by the observation that there was an
obvious relationship between growing economic growth and increasing levels of resource usage and
pollution across the societies of the world, particularly in some extractive industry sectors such as
mining, fishing, oil and gas and forestry. Some authors from the period even proposed that economic
growth was the principle cause of rising environmental pressures and the emerging environmental
crisis. 2 They argued that, unless economic growth was curbed, reduced or even stopped, ever
increasing environmental degradation was inevitable. 3 As Jim MacNeill et al wrote in 1991 in
Beyond Interdependence,
Ever since the Club of Rome report The Limits to Growth was published in 1972, an
important part of the environmental debate has been rooted in the assumption that
environment and development are irreconcilable. The Limits to Growth assumed a set of
relationships between population, industrialisation, pollution, and depletion of natural
1
Note that Sections 2-6 of this report have been developed by Michael Smith and Karlson Hargroves, The Natural Edge Project, Griffith
University and the Australian National University, under the supervision of Professor Ernst von Weizsäcker. The content is based on
research undertaken by Michael Smith as part of his PhD, with additional research and editing by Karlson Hargroves.
2
Mishan, E.J. (1967) ‘The Costs of Economic Growth’, Staples Press, London. Mishan, E.J. (1977) ‘The Economic Growth Debates: An
Assessment’, George Allen & Unwin, London: Daly, H.E. and Cobb, J. (1989) ‘For the Common Good: Redirecting the Economy Towards
Community, the environment and a Sustainable Future’, Beacon Press, Boston, MD (UK edition 1990, Green Print, Merlin Press, London).
Douthwaite (1992) ‘The Growth Illusion’, Green Books, Devon, UK: Daly, H.E. (1996) ‘Beyond Growth: The Economics of Sustainable
Development’, Beacon Press, Boston, MA. Parris, R. (1997) ‘Development in Wonderland: The Social and Ecological Sustainability of
Economic Growth’, Issues in Global Development, no.9, February, World Vision Australia, Melbourne.
3
Ibid.
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resources that led inevitably to the collapse of world order. It gave birth to a widespread
movement advocating zero or even negative growth. 4
However even a cursory review of the literature and practice reveals that there is in fact much that
can be done to decouple business profits and overall economic growth from environmental pressures
and pollution. Despite this many business leaders, politicians and decision makers assume that
significant trade-offs between achieving sustainable development and economic growth are
inevitable. This belief has been one of the biggest barriers to achieving sustainable development.
Clearly this is important to reconcile because, slowing or halting economic growth is problematic as
it is seen by most decision makers as being required to ensure favourable conditions for business
investment, high employment and healthy revenues for governments to enable expenditure on social
and environmental initiatives. Furthermore as Dr Kenneth Ruffing, Deputy Director and Chief
Economist of the OECD Environment Directorate from 2000-2005, points out, ‘Economic growth is
a necessary, but by no means sufficient condition, for achieving most of the Millennium Development
Goals (and other poverty reduction agendas)’. Political leaders and their advisors are also very
sensitive to fluctuations in economic growth, particularly in the short to very short term. They tend to
see strong economic growth as providing an ideal environment to give them the best chance of being
re-elected, however the challenge to societies in the coming decades is that this focus on strong
economic growth in the short term at the expense of the environment is significantly undermining the
foundations for sustaining economic growth in the medium to long term.
This scoping report presents a range of evidence to demonstrate that the belief that major trade-offs
between economic growth and environmental sustainability are inevitable is in fact false. This false
assumption has meant that, in the past, corporations, businesses and political leaders have not made
the necessary investments in infrastructure, industry and policies etc to underpin a sustainable
economy, making this challenge much more difficult for the current generation. The prevalence of
false assumption has also meant that the few times historically, such as in 1972 and 1992, when there
has been global momentum to achieve a transition to sustainable development, this momentum was
rapidly lost due to global developments.5 Once the global recessions hit the economy in 1974-75 and
in 1991-3 respectively, many political and business leaders were put into a position where they were
very reluctant to invest further in sustainable development related imitative and activities since it may
further harm the rate of economic growth in the very short term. Over the last two years significant
momentum has again been achieved towards action on climate change and environmental
MacNeil, J., Winsemius, P. ,and Yakushiji, T. (1991) Beyond Interdependence: The Meshing of the World’s Economy and the Earth’s
Ecology. Oxford University Press.
5
Tremendous momentum for action on sustainable development was built up by the 1972 UN Stockholm Conference on the Human
Environment. However global recession and stagflation quickly hit in 1973 onwards and taking the world’s focus away from the
environment onto the economy. Much of that momentum for change was lost. Similarly there was significant momentum for change to
achieve sustainable development leading up to the 1992 World Summit on Environment and Development in Rio. However, again a global
economic recession hit in 1992 and again a significant amount of that momentum was lost as the perception was strong, at the time
amongst decision makers and voters, that investment and protection of the environment harmed economic growth and jobs.
4
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sustainability, due to leading efforts such as the UK Stern Review,6 IPCC 4th Assessment Report,7
and the movie ‘An Inconvenient Truth’. 8 However, much like the experience in 1972 and 1992,
momentum for sustainable development is currently being lost, and attention is being focused
elsewhere. At the time of writing, as the world’s governments attention is focused on addressing the
significant financial crisis emerging out of the US financial markets and the US sub-prime mortgage
crisis. In light of the fact that the IMF warns of a significant slowdown in the global economy in
20099 there are signs that average voters are shifting their support for action on the economy ahead of
action on the environment.10 When the world leaders meet in Copenhagen to negotiate a Post Kyoto
Framework and targets for decoupling economic growth from greenhouse gas emissions it seems
likely that they will be doing so at best during a global economic slowdown or at worst a global
economic recession. Hence in 2008 it is vitally important to again revisit the questions of
-
whether or not pursuing environmental sustainability will harm economic growth? and
-
whether or not economic growth inevitably harms the environment?
Over much of the last hundred years there has been a clear and demonstrated correlation between
increasing economic growth, resource usage and environmental pressures, however correlation does
not prove causation. Whilst some argue that environmentally unsustainable development is caused by
economic growth, many more argue that unsustainable development is caused by complex market,
information, institutional, and technological failures, failures that are enhanced by rising population
growth, especially in developing countries, and compounded by the lack of adequate international cooperation in the area.11
Complex failures of this nature include the problem of market externalities, 12 under-pricing of
physical resources and natural assets,13 lack of markets for ecosystem services,14 and the challenges
in managing public goods, summed up in 1968 by Hardin in ‘The Tragedy of the Commons’ paper.15
Economists have explained, for almost a century, 16 that environmental pollution and degradation
arises largely from the fact that the real environmental costs of development are externalised from the
6
Stern, N et al. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge.p104 Available at
www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/Sternreview.index.cfm Accessed 14 April 2007
7
IPCC (2007) Fourth Assessment Report. WG2: ‘Climate Change 2007: Impacts, Adaptation & Vulnerability’, IPCC. Available at
http://www.ipcc.ch/SPM6avr07.pdf. Accessed 14 April 2007.
8
See Transcript of An Inconvenient Truth at http://forumpolitics.com/blogs/2007/03/17/an-inconvient-truth-transcript/
9
IMF (2008) World Economic Outlook. Executive Summary. IMF. Available at
http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/09_04_08_imf_exec_sum.pdf Accessed 1 October 2008
10
See ABC News Survey finds priorities shifting from environment to economy at
http://www.abc.net.au/news/stories/2008/09/29/2376613.htm Accessed 1 October 2008
11
MacNeil, J. Winsemius, P. and Yakushiji, T., (1991) ‘Beyond Interdependence:The Meshing of the World’s Economy and the Earth’s
Ecology’. Oxford University Press.
Markandya, A., Barbier, E.B., and Pearce, D., (1989) ‘Blueprint for a Green Economy’. London: Earthscan Publications Ltd. World Bank
(2003) World Bank Development Report 2003: Sustainable Development in a Dynamic World, Oxford University Press, Oxford,
12
Aylward, B., Bishop, J., & Barbier, E.B., (1991) Guidelines for Applying Environmental Economics in Developing Countries. Gatekeeper
Series No. LEEC 91-02. London: International Institute for Environment and Development (IIED
13
Pearce, D., Barbier, E.B., & Markandya, A., (1989) Blueprint for a Green Economy. London: Earthscan Publications Ltd. p154
14
Organisation for Economic Co-operation and Development, (1994) Managing the Environment: The Role of Economic Instruments.
Paris: Organisation for Economic Co-operation and Development. p28.
15
Hardin, G. (1968) 'The Tragedy of the Commons', Science, vol 162, issue 3859, 13 December, pp1243-1248.
16
Pigou, A. (1932) ‘The Economics of Welfare’, 4th Edition, Macmillan, London.
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market, and hence not paid for at the time of undertaking.17 This is why Sir Nicholas Stern stated in
his economic review of climate change that climate change is the biggest market failure ever.18
To counter those that persist in the assumption that economic growth is the cause of environmental
degradation and that this can not be helped, one need only to point at the growing number of
governments implementing economic incentives, regulation and policy measures to address these
market failures, and the resulting decoupling. This has been shown by national and global efforts to
reduce ozone depleting chemicals and other air pollutants such as SOx and NOx emissions,
significantly reduce the use of asbestos and leaded petrol, reduce waste to landfill and restore forests
and other ecosystems. 19 These ‘success stories’ show that, with appropriate policy and economic
incentives to drive innovation, it is possible to achieve significant reductions in specific types of
pollution with negligible negative effect on economic growth, even opening up new business
opportunities.
A leading example of this has been global and regional efforts to decouple economic growth from
sulphur dioxide pollution through first the 1983 ‘Helsinki Protocol’ and the UNECE Second Sulphur
Protocol in 1994. The Second Sulphur Protocol committed nations to targets of reductions of 50 per
cent by the year 2000, 70 per cent by 2005, and 80 per cent by 2010. 20 The environmental objective
of the Second Sulphur Protocol – eventually to bring sulphur depositions in Europe within the critical
loads of receiving ecosystems – is a fundamental principle of ecological sustainability. The emission
reduction required was of the order of a factor of five, or 80%. Initial perceptions were that it would
be incredibly costly, but the arrival of cost effective low sulphur fuel and a range of supporting
technologies altered the cost situation such that the goal was attainable for significantly less cost than
anticipated, $90 per ton rather than the anticipated $1,000–1,500 per ton.21 When the costs of sulphur
to health and the environment are taken into account, this phase out has had negligible net impact on
economic growth (Figure 2.1).
17
Externalities refer to a situation where effects (harmful or beneficial) of production or consumption are imposed on others but cannot be
traced or charged back to the originator. The main characteristic of an externality is the separation between the affected individual and the
source of the effects. Because of this it is difficult to get the perpetrator to pay for the costs of the harmful effects or the beneficiaries to
reimburse those who create benefits to society. Thus, externalities are not built into the market price of a good or service and hence not
factored into many decisions by governments, businesses and individuals. Environmental pollution is a classic case of a negative
externality.
18
Stern, N et al. (2006) The Stern Review: The Economics of Climate Change , Cambridge University Press, Cambridge.
19
Smith, M. Hargroves, K (2008) ‘Cents and Sustainability: Making Sense of How to Grow Economies, Strengthen Communities and
Revive the Environment in Our Lifetime’. Earthscan. London. (Forthcoming) Available at
http://www.earthscan.co.uk/?TabId=42718&v=383365 Accessed 26 September 2008
20
UNECE (1994) The 1994 Oslo Protocol on Further Reduction of Sulphur Emissions. UNECE. Available at
http://www.unece.org/env/lrtap/sulf_h1.htm Accessed 15 August 2008
21
Hodges, H. (1997) Cost of Complying With Environmental Regulations Almost Always Less Than Advertised, Economic Policy Institute.
Available at http://www.epi.org/briefingpapers/bp69.pdf. Accessed 14 April 2007.
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Figure 2.1: Sulphur Dioxide Emissions from Energy Usage versus GDP from 1990-1998
(Source: OECD Key Environmental Indicators Report, 2004)
In this case economic growth and ecological sustainability have been quite compatible. 22 This
experience is not unique to sulphur emissions. Historically, when governments have phased in
regulation to phase out harmful chemicals, in most cases, innovation and competition has helped to
significantly bring down the costs of action. (See Table 2.1) The net economic, environmental and
social (health) benefits from reduced pollution loads have been shown to outweigh the costs of action
in most cases.23
Table 2.1: Industry original estimates of the cost of particular forms of environmental
protection versus the actual costs (in $US)
Pollutant
Initial Cost Estimate
Actual Cost Estimate
Overestimation as a
Percent of Actual
Cost
$150 million
$75 million
100%
Asbestos
(for the
manufacturing and
insulation sectors)
Ekins, P. (2000) ‘Economic Growth and Environmental Sustainability’, Chapter 10, Sustainability and Sulphur Emissions: The Case of
the UK, 1970-2010. Routledge Publishing, London, New York.
23
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008
22
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$350,000 per plant
Approx. $0 per plant
Infinite
Early 1980s: Predicted
financial catastrophe as
no ‘cheap’ alternatives
existed.
Total cost globally of
implementing the
Montreal Protocol US$235 billion in
1997.24
Less that
Catastrophe
$650-$1,200 per new
car
$40-$400 per new car
63%-2,900%
$200 million – $1
billion
$160 million
29%-1,500%
$4 billion
$250-400 million
900%-1,500%
$700 million per year
$205 million per year
241%
1989: phase out not
considered possible.
1993: phase out
considered
technologically and
economically feasible.
n/a
Landfill Leachate
Mid-1980’s: $14.8
billion
1990: $5.7 billion
159%
Sulphur Dioxide
1980s: $1,000–1,500
per ton of sulphur
dioxide.
1996: $90 per ton of
sulphur dioxide.
~750%
Surface Mining
$6-$12 per ton of coal
$0.50-41 per ton
500%-2,300%
Vinyl Chloride
$109 million per year
$20 million per year
445%
Benzene
CFCs
CFCs-Auto Air
Conditioners
Coke Oven
Emissions OSHA
1970’s
Coke Oven
Emissions
EPA 1980s
Cotton Dust
Halons
Source: Hodges, H. (1999)25
The evidence outlined here suggests that market, informational, institutional, technological design
failures and lack of international co-operation are the major causes of unsustainable development
rather than economic growth itself. These results outlined above suggest that addressing such failures
Bornman, J.F. and van der Leun, J.C. (1998) ‘Frequently asked questions’, Journal of Photochemistry and Photobiology, vol 46.
Available at http://www.gcrio.org/ozone/toc.html. Accessed 15 February 2008.
25
Hodges, H. (1997) Cost of Complying With Environmental Regulations Almost Always Less Than Advertised, Economic Policy Institute.
Available at http://www.epi.org/briefingpapers/bp69.pdf. Accessed 14 April 2007.
24
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with effective and purposeful environmental policies, global co-operation plus technological
innovation can lead to meaningful levels of decoupling of economic growth from a range of
environmental pressures. Despite this evidence still little action has been uncertaken in this area.
Much of this lack of action arises from confusion around the use of the term ‘growth’,26 as the term
growth means different things to different audiences. When businesses and governments talk about
growth they generally mean economic growth: that is, (assuming the expenditure model of measuring
GDP) the amount of economic value and monetary transactions as measured by the GDP. When
environmentalists talk about growth they are focusing on the growth of physical throughput in the
economy, or physical growth.
Economic growth and physical growth are of course not the same thing, as:
-
Economic growth, measured by in terms of GDP of a country is defined as the total market
(monetary) value of all final goods and services produced within a country in a given period
of time, usually a calendar year. It is also considered the sum of economic value added at
every stage of production (the intermediate stages) of all final goods and services produced
within a country in a given period of time.
-
Physical growth of the economy means either that it spreads over more physical area, or that
it has a larger material and energy throughput or that it has a larger stock of physical products,
buildings or infrastructure. Environmentalists dislike physical growth because it correlates
with increased environmental pressures, damage and resource depletion.
Thus, based on this understanding, it is then possible for economic growth to be decoupled from
physical growth of the economy and associated pollution. Alan AtKisson, leading sustainable
development Author, sums it up well:
The trick is in separating out two kinds of growth: so-called ‘economic growth’, on the one
hand, from growth in the amount of stuff we use and discard on the other [physical growth].
These are two very different phenomena, and they have been falsely—and dangerously—
confused for too long. Economic growth, remember, is nothing more than an increase in the
flow of money. Because GDP growth has all too often been correlated with the destruction of
nature, it’s a measurement environmentalists love to hate... Yet contrary to what many
environmentalists believe, there’s nothing inherently ‘unsustainable’ about economic
growth—as long as it gets decoupled from the flow of stuff. Money flow [value] can increase,
even as material flow [resource use and waste] decreases.27
Paul Ekins, from The Policy Studies Institute in the UK, made the same point in Environmental
Sustainability and Economic Growth: The Prospects for Green Growth namely that, ‘It is clear from
26
Philip Sutton has long promoted the clarification over the misunderstanding of the difference between economic and physical throughput
growth. See Sutton, P. (2000) ‘Is it Possible for a Green Economy to have High Economic Performance?’ Green Innovations, Melbourne:
Available at www.green-innovations.asn.au/econ-mdl.htm. Accessed 1 October 2008
27
See AtKisson Group at http://www.atkisson.com/Global/Home.html Accessed 6 July 2007
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past experience that the relationship between the economy’s value and its physical scale is variable,
and that it is possible to reduce the material intensity of GNP. This establishes the theoretical
possibility of GNP growing indefinitely in a finite material world.’28 Thus, if sufficient decoupling
can be achieved, it is possible to create a new form of economic growth that is environmentally
sustainable and can be sustained for generations to come.
What is Decoupling?
Before proceeding much further, it is important that to clarify the term decoupling. According to the
OECD:, decoupling, ‘has often been used to refer to breaking the link between the growth in
environmental pressure associated with creating economic goods and services. Decoupling occurs
when growth rate of the environmentally relevant variable is less than that of its economic variable
(e.g. GDP) over a period of time.’29
Figure 2.2 provides a stylised version by the authors of a decoupling graph developed to demonstrate
the various trends relevant to the decoupling concept. It is assumed that at the start of the time period
the relative growth rates of both economic growth and environmental pressures are correlated so that
the trend can be established. As can be seen the assumption is that economic growth continues to
increase, however the resultant environmental pressures no longer grow at comparable rates. In the
case where the growth rate of environmental pressures is less but is still rising, it is said to be
‘relatively’ decoupled, and in the case where the growth rate of environmental pressures is decreasing,
it is said to be ‘absolutely’ decoupled.
The goal is to first relatively decouple the trends and then absolutely decouple them, however it is
unreasonable to expect that the environmental pressures will reduce to zero as they will hit a lower
bound as to the minimum amount of pressure to deliver the economic growth. If this lower bound is
still higher than the environments carrying capacity then options to offset, remediate or substitute for
the damage will need to be developed and represented in the figure as ‘enhanced environmental
outcomes’. It is intended that these enhanced outcomes are coupled with the economic growth and
each contributes to the others growth.
Ekins, P. (2000) ‘Economic Growth and Environmental Sustainability: Prospects for Green Growth’, Routledge Publishing, London, New
York.
29
Organisation for Economic Co-Operation and Development (OECD) (2002) Indicators to Measure Decoupling of Environmental
Pressure and Economic Growth. OECD. Paris.
28
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Figure 2.2: Conceptual and stylised representation of a decoupling graph. Source: The Natural
Edge Project (2008)
It is important to emphasize that there is this potential for nations to compliment decoupling of
economic growth from environmental pressures with programs and initiatives to restore nature’s
ecosystems and their resilience. South Korea is a good case in point. South Korea has had high
economic growth rates for the last 30 years, yet South Korea offers one of the best examples of
reforestation to the rest of the world. When the Korean War ended, half a century ago, the
mountainous country was largely deforested. Since around 1960 the South Korean government has
invested in a major national reforestation effort utilizing village cooperatives involving hundreds of
thousands of people to dig trenches and to create terraces for supporting trees on barren mountains.
Se-Kyung Chong, researcher at the Korea Forest Research Institute, writes,
The result was a seemingly miraculous rebirth of forests from barren land. Today forests
cover 65 percent of the country, an area of roughly 6 million hectares. While driving across
South Korea in November 2000, it was gratifying for me to see the luxuriant stands of trees
on mountains that a generation ago were bare. We can reforest the earth.30
30
Chong, S.K. (2005) Anmyeon-do Recreation Forest: A Millennium of Management, cit in Durst, P et al., (2005) In Search of Excellence:
Exemplary Forest Management in Asia and the Pacific, Asia-Pacific Forestry Commission. FAO Regional Office for Asia and the Pacific.
Bangkok, pp. 251–59.
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What is the required level of decoupling of economic growth from environmental pressures?
In 2004, OECD nations agreed that the following conditions need to be satisfied to achieve
sustainable development. The following criteria therefore inform what level of decoupling of
economic growth from environmental pressures is needed to achieve sustainable development:31
-
Regeneration means that renewable resources shall be used efficiently and their use shall not be
permitted to exceed their long-term rates of natural regeneration. (Meaning that we need to
improve demand management, increase efficiency of use, and enhance production capacity of
renewable resources.)
-
Substitutability means that non-renewable resources shall be used efficiently and their use limited
to levels which can be offset by substitution by renewable resources or other forms of capital. It is
interpreted by the Authors that, substitutability then means that non-renewable resources can be
used (assuming the other three criteria are met), but must be used efficiently and when they run
out or are uneconomical they need to be able to be fully replaced by substitution by renewable
resources, hence the ability to source substitutes is the limiting factor on the use of non-renewable
resources if it the activity using the resource is to be sustained. (For example if we are to use coal
for power generation we can only use it if the other three criteria are met and to the level that it
is possible to source alternatives (that also satisfy the other three criteria) to take over once the
supply is diminished or uneconomical, such as renewable energy.)
-
Assimilation means that releases of hazardous or polluting substances to the environment shall
not exceed its assimilative capacity; concentrations shall be kept below established critical levels
necessary for the protection of human health and the environment. When assimilative capacity is
effectively zero (e.g. for hazardous substances that are persistent and/or bio-accumulative),
effectively a zero release of such substances is required to avoid their accumulation in the
environment. (For example the use of Coal in the above example would need to satisfy, for
example, emissions requirements for toxins in waterways and greenhouse gases to the
atmosphere to be able to operate sustainably. Hence to meet the criteria for instance, the
greenhouse gas emissions from coal combustion would need to be captured and sequestered
permanently.)
-
Avoiding irreversibility means that irreversible adverse effects of human activities on ecosystems
and on biogeochemical and hydrological cycles shall be avoided; the natural processes capable of
maintaining or restoring the integrity of ecosystems should be safeguarded from adverse impacts
of human activities; and the differing levels of resilience and carrying capacity of ecosystems
must be considered in order to conserve their populations of threatened, endangered and critical
species.
31
OECD (2001) Environmental Strategy for the First Decade of the 21st Century, adopted by OECD Environment Ministers 16 May 2001.
Available at http://www.oecd.org/dataoecd/33/40/1863539.pdf Accessed 5 January 2007.
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Taking these four principles as a starting point, each nation needs to assess what level of decoupling
is required to achieve sustainable development. There are many factors to consider. Firstly, a wide
range of scientific studies have shown that humanity has already in many cases overshot ecological
limits and the risks of irreversible effects taking hold over the coming decades are real. The OECD
Environmental Outlook 2030 warns that:
Without more ambitious policies, increasing pressures on the environment could cause
irreversible damage within the next few decades.32
The Secretary General of the OECD in 2008 Angel Gurría stated that:
If we want to avoid irreversible damage to our environment and the very high costs of policy
inaction, we’d better start working right away.33
Research has shown that the scale of the human economy now overwhelms many of the Earth’s
material cycles, such as the nitrogen,34 carbon,35 and water cycles.36 According to an analysis of the
world's ecosystems prepared by the United Nations, the World Bank, and the World Resources
Institute in 2000, ‘There are considerable signs that the capacity of ecosystems, the biological
engines of the planet, to produce many of the goods and services we depend on is rapidly declining’.
This evidence is also covered in detail in numerous publications such as The State of the World
reports,37 Limits to Growth - The Twenty and Thirty Year Update,38 Ekin’s Economic Growth and
Environmental Sustainability,39 And the Millennium Ecosystem Assessment.40
Therefore rapid and significant decoupling of economic growth from environmental pressures and
impacts is needed. There are a number of factors responsible for environmental impact. The most
common formula used to reflect this is the IPAT formula by Ehrlich and Commoner.41
-
I=AxPxT
where
32
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008.
33
Ibid.
34
Vitousek, P. M. (1994) ‘Beyond global warming: Ecology and global change’, Ecology, vol 75, pp 1861-1876; Vitousek, P.M. et al.
(1997) ‘Human alteration of the global nitrogen cycle: Causes and consequences’, Ecological Applications, vol. 7, pp 737-750.
35
Houghton, J.T., Filho, L.G.M., Callander, B.A., Harris, N., Kattenberg, A. and Maskell, K. (eds.) (1996) Climate Change 1995: The
Science of Climate Change, Cambridge University Press, Cambridge, p 572. Contribution of Working Group I to the Second Assessment
Report of the Intergovernmental Panel on Climate Change.
36
Postel, S., Daily, G.C. and Erlich, P.R. (1996) ‘Human Appropriation of Renewable Fresh Water’, Science, vol. 271, pp 785-788.
37
Worldwatch Institute (n.d.) State of the World reports, Worldwatch Institute. Available at http://www.worldwatch.org/taxonomy/term/38.
Accessed 12 December 2006.
38
Meadows, D.H. Meadows, D.L. and Randers, J. (2004) Limits to Growth-The 30 year Update. Earthscan/James&James, London.
39
Ekins, P. (2000) Economic Growth and Environmental Sustainability, Routledge Publishing, New York.
40
Millennium Ecosystem Assessment (2005) Ecosystems and Human Well-being: Synthesis, Island Press, Washington, DC.
41
Commoner, B. (1971) ‘The Environmental Cost of Economic Growth’ in Shurr, S. (1971) Energy, Economic Growth and the
Environment, John Hopkins University Press, Baltimore/London, pp 30-65. [It should be noted clearly though that the ’T’ for technology in
The Commoner Ehrlich equation uses the word technology in the broadest sense of the word. The variable T in the Commoner-Ehrlich
equation refers to two forms of reductions to environmental impact namely those due to economic structure (changing the composition of
output towards less damaging products, changing the production- consumption system.) and technical change (substituting less damaging
factor inputs for more damaging ones such as using renewable energy, and increasing the resource productivity)]
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-
I = Impact: the human impact on the environmental.
-
P = Population.
- A = Affluence: the number of products or services consumed per person (i.e.: for economists the
annual Gross National Product per capita.)
- T = Technology: the environmental impact per unit of product/service consumed using a
particular technology.
Using this formula enables the approximate magnitude of decoupling to be calculated. Because of
rising global population and affluence forecasts for the next 50 years, this formula shows that T,
expressed as a function of the environmental impact per unit of product or service consumed needs to
be reduced globally by at least 5-10 fold, Factor 5-10, by 2050 if economic development is to return
within the ecological limits of the Earth’s ecological life support systems. This has been the finding
of a major government study, the Netherlands Government’s Inter-ministerial Sustainable
Technology Development Programme. The programme is one of the first to both work out the scale
and speed of change required to achieve nationwide ecological and social sustainable development
over the next 50 years.
In setting a time-horizon of 50 years – two generations into the future – it was found that ten
to twenty-fold eco-efficiency improvements will be needed to achieve meaningful reductions
in environmental stress. It was also found that the benefits of incremental technological
development could not provide such improvements.
Leo Jansen, Chairman, Netherlands Inter-ministerial Sustainable Technology
Development Program, 200042
Can humanity achieve significant decoupling fast enough and on a scale large enough?
These targets may, on first impression, seem unachievable. However where governments have had
the courage in the past to address pollution with strong policy mechanisms, industry has almost
always found ways to reduce the costs of achieving decoupling. This has enabled industry and
nations to achieve decoupling targets which, at first, were thought to be too ambitious. For example,
in Massachusetts the USA government, business and R&D institutions working together, have
achieved a 70 per cent reduction in toxic chemicals pollution from 1989 to 1997 without harming
profits and economic growth.43 The following parts in this report will show that there are many other
examples of where purposeful policy, combined with effective R&D has lowered costs of and
enabled significant decoupling targets to be achieved.
42
Weaver, P., Jansen, L., van Grootveld, G., van Spiegel, E. and Vergragt, P. (2000) Sustainable Technology Development, Greenleaf
Publishing, Sheffield, UK, Foreword, p 7.
43
See The Massachusetts Toxics Use Reduction Institute at http://www.turi.org/ Accessed 24 September 2008
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There is a surprising amount of evidence to suggest that, through the latest strategies of advanced
resource productivity and design for sustainability, significant factor 5 to 10 fold levels of decoupling
can be achieved. Probably one of the most significant bodies of evidence comes from The
Netherlands’ Government Sustainable Technology Development project, described in detail in Paul
Weaver et al.’s Sustainable Technology Development. 44 It is one of the first national government
programs to investigate and describe how it is possible to decouple economic growth and
environmental damage by as much as 75-95 percent (a Factor of 4-20) over a 50-year period in many
critical sectors of the economy.
In addition to this, the examples in books like Factor 4: Doubling Wealth, Halving Resource Use,45
Natural Capitalism: The Next Industrial Revolution, 46 Cradle to Cradle, 47 and Design for
Sustainability48 show that humanity now possesses enough knowledge, understanding and skills to
achieve significant decoupling of economic growth from environmental pressures. The fact that
innovations and sustainable design strategies exist to achieve large factor 10 style reductions in
environmental pressures was acknowledged by World Bank as early as 1992. The World Bank
argued that, ‘If the environmental policies required are put in place, it is possible to reduce pollution
by factors of 10 or more in the most serious cases, even if energy consumption levels rise fivefold.
Furthermore, developing countries would find themselves better-off both economically and
environmentally’.49 This position is supported by a range of investigations including those presented
in a background paper for the World Bank’s World Development Report in 1992 that brought
together a range of impressive evidence to show that it is possible to reduce environmental pressures
in a number of major fields of concern on the scale required of a Factor of 5-10. (See Table 2.2)
Table 2.2: Relative Pollution (or Damage) Intensities of Polluting or Low-Polluting Practices
Relative pollution intensities of polluting and low-polluting practices
for selected activities and pollutants
(polluting practice = 100)
Source and type of
emissions or
environmental
damage
Index per unit of
output
Polluting
Low-polluting practices
LowPolluting
Electricity production
44
Weaver, P., Jansen, L., Van Grootveld, G., Van Spiegel, E., and Vergragt, P. (2000) Sustainable Technology Development, Greenleaf
Publishing, Sheffield, UK. Available at http://www.greenleaf-publishing.com/catalogue/std.htm. Accessed 12 December 2006.
45
von Weizsäcker, E., Lovins, A.B. and Lovins, L. H. (1997) Factor Four: Doubling Wealth, Halving Resource Use,
Earthscan/James&James, London.
46
Hawken, P., Lovins, A. B. and Lovins, L. H. (1999) Natural Capitalism: Creating the Next Industrial Revolution,
Earthscan/James&James, London. Available at www.natcap.org. Accessed 12 December 2006.
47
McDonough, W and Braungart, M (2002) Cradle to Cradle – Remaking the Way we Make Things, North Point Press.
48
Birkeland, J. (2002) Design for Sustainability: A Sourcebook of Integrated Eco-Logical Solutions, Earthscan/James&James, London.
49
Anderson, D. (1992) ‘Economic Growth and the Environment’, Background Paper for the World Bank, World Development Report 1992,
World Bank, Washington, DC.
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Particulate matter
100
< 0.1
Natural gas; clean coal technologies
Carbon monoxide
(CO)
100
< 0.1
Scrubbers; low-sulphur fuels
Sulphur dioxide (SO2)
100
0 to < 5
Low NOx combustion methods
Nitrogen oxides (NOx)
100
5 to 10
Emission control catalysts
Motor vehicles: diesel engines
Particulate matter
100
< 10
Clean fuels and particulate traps
Sulphur dioxide (SO2)
100
5
Low-sulphur fuels
Motor vehicles: gasoline engines
Lead
100
0
Unleaded and reformulated fuels; catalytic
converters
Carbon monoxide
(CO)
100
5
Unleaded and reformulated fuels; catalytic
converters
100
20
Unleaded and reformulated fuels; catalytic
converters
100
5
Unleaded and reformulated fuels; catalytic
converters
Nitrogen oxides (NOx)
Volatile organic
compounds
All fossil fuels for electricity
100
< 01
Marine pollution
100
< 10
Surface water
pollution
100
negligible
Sewerage works, effluent control
technologies
Soil erosion
100
negligible
Agro-forestry, soil erosion prevention
practices
Forestry
100
negligible
Sustainable practises
Carbon dioxide (CO2)
Renewable energy sources
Other areas of concern
Industrial effluents
100
and wastes
(Source: Anderson, D. (1992)50)
small
Effluent control technologies: waste
reduction or prevention.
Other publications go further and argue that it is possible to design buildings, 51 developments,
industrial processes 52 , agriculture 53 and waste management processes 54 to not only reduce their
negative impacts but to then achieve enhanced environmental quality, known as being ‘Restorative’.
50
Ibid.
51
Birkeland, J. (2002) Design for Sustainability: A Sourcebook of Integrated Eco-Logical Solutions, Earthscan/James&James, London.
McDonough, W. and Braungart, M. (2002) Cradle to Cradle: Remaking the Way We Make Things, North Point Press, San Francisco.
53
Benyus, J. (1997) Biomimicry: Innovation Inspired by Nature, HarperCollins, New York.
54
Hargroves, K. and Smith, M. (eds) (2006) Waste streams to value streams, in: Marinova, D., Annandale, D., and Phillimore, J. (eds)
(2006) The International Handbook on Environmental Technology Management, Edward Elgar, Northampton, MA, USA.
52
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Further evidence to support the claim that environmental pressures can be significantly decoupled
from economic growth comes from the 2002 OECD report Indicators to Measure Decoupling of
Environmental Pressure from Economic Growth.55 This report shows that, of all the areas currently
measured by environmental indicators, there is at least one OECD country that has achieved
significant decoupling. 56 OECD countries like the Netherlands have made significant progress on
decoupling economic growth from a range of environmental pressures, as shown in Figure 2.3.
Figure 2.3: Achieving decoupling in the Netherlands: 1985-2010
Source: Netherlands Environmental Assessment Agency (2004)57
Can the Economy afford to invest in Decoupling across major Environmental Pressures?
The OECD58 in 2008 published new economic modelling which looked at the economic costs of
seeking to simultaneously decouple economic growth from a range of major environmental pressures.
The OECD undertook economic modelling of the economic costs of action on the following policy
package:
- mitigating climate change to CO2 450 ppm equivalent by 2030, through implementing a
carbon price of US$25/tonne of carbon.59
55
Organisation for Economic Co-Operation and Development (OECD) (2002) Indicators to Measure Decoupling of Environmental
Pressure and Economic Growth, OECD, Paris.
56
Ibid.
57
Netherlands Environmental Assessment Agency and the National Institute for Public Health and the Environment (2005) Environmental
Balance 2004. The State of the Dutch Environment, Summary, Available at
http://www.mnp.nl/en/publications/2004/Environmental_Balance_2004.html Accessed 1 October 2008.
58
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008.
59
Application of a price on carbon across all sectors, via a carbon tax starting at USD 25 per tonne of CO2eq, which increases in real
terms by 2.4% per year. The carbon price was phased-in by region, starting in OECD countries in 2012, Brazil, India, Russia and China in
2020 and the rest of the world in 2030
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- policies to bring forward the introduction and uptake of second generation biofuels, i.e.
those using agricultural waste material or woody inputs developed on abandoned or
marginal soils, rather than competing with agricultural land use.
- ensure clean water and sanitation to 50 per cent of people who currently do not have it.
Connecting all urban dwellers with improved sanitation by 2030. For existing sewage
treatment, treatment is upgraded to the next best level in terms of removal of nitrogen
compounds.
- achieving “maximum feasible reductions” in air pollutant emissions. For instance, reduce
SOx and NOx air pollution levels to 31 and 37 per cent less in 2030 to a business as usual
baseline (and about one-third less than 2005 levels).
The OECD modelling showed that these key environmental challenges can be addressed at a cost of
just 0.5 and 2.5 per cent GDP by 2030 and 2050 respectively. This is equivalent to a reduction in
annual GDP growth of just 0.1% of world GDP in 2030. As Kenneth Ruffing, former chief economist
for the OECD Environment Directorate, writes; ‘In its recent report on the OECD Environmental
Outlook to 2030, the costs of policy inaction were found to be particularly high for water pollution,
especially in developing countries; for air pollution, as much as a few percentages of GDP in the US,
the EU and China; important in the case of unsustainable natural resource management; and for
climate change, in the range of 1 to 10 per cent of global output.’60 A range of studies now show
clearly that the costs of action on decoupling significantly less than the costs of inaction, particularly
for greenhouse gas emissions as presented in the following section.61
Measuring Progress through Decoupling Indicators – How do we know if we are on track?
Measurement matters, because, unless reliable methods and relevant indicators are used to measure
progress in the decoupling process, it will prove very difficult for governments, businesses and
communities to know if their efforts are heading in the right direction and make adjustments
accordingly to either accelerate efforts or slow them off. Measurement is also vitally important to
ensure that government and business can be held accountable for their actions and policies. The point
is not to be working endlessly towards decoupling but to achieve it to a meaningful level. It is
important, therefore, that adequate decoupling measurement frameworks are developed and used by
nations to assess progress. The OECD report published in 2002 “Indicators to Measure Decoupling
of Environmental Pressure and Economic Growth” 62 provides nations with a starting set of
See Ruffing, K (2008) ‘Decoupling Environmental Pressures from Economic Growth’. Forward in Smith, M. Hargroves, K (2008) ‘Cents
and Sustainability: Making Sense of How to Grow Economies, Strengthen Communities and Revive the Environment in Our Lifetime’.
Earthscan. London. (Forthcoming) Available at http://www.earthscan.co.uk/?TabId=42718&v=383365 Accessed 26 September 2008
61
Stern, N et al. (2006) ‘The Stern Review: The Economics of Climate Change’ , Cambridge University Press, Cambridge . Available at
www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm . Accessed 14 April 2007
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008
62
OECD Secretariat (2002) ‘Indicators to Measure Decoupling of Environmental Pressure and Economic Growth’. OECD. Paris.
60
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decoupling indicators to enable measurement and comparison of progress to achieve decoupling of
economic growth from environmental pressures.
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2. Decoupling Economic Growth from Greenhouse Gas Emissions63
The Intergovernmental Panel on Climate Change (IPCC) declared in 2007 that the debate over
whether or not climate change is human induced (mainly from the burning of fossil fuels and forests)
is over. 64 Thanks to the IPCC process, there is now broad international consensus that, to avoid
dangerous climate change, global warming needs to be kept to no more than 2 degrees Celsius above
pre-industrial levels. A 2 degree rise will not be easy to avoid as to date global temperatures have
increased an average of 0.74 degrees Celsius during the 20th century. 65 The International Energy
Agency forecasts that if policies remain unchanged, world energy demand is set to increase by over
50 percent between now and 2030.66 At the same time, the IPCC has warned since 1988 that nations
need to stabilise their concentrations of CO2 equivalent emissions, requiring significant reductions in
the order of 60 percent or more by 2050.67 In the latest 4th Assessment, the IPCC argues that the avoid
dangerous climate change global emissions need to start to decline no later than 2012-13 and that by
2020 global cuts of 25-40 per cent are needed. By 2050, at least 80 per cent cuts are needed. Hence
significant efforts are required to decouple economic growth from the impacts of greenhouse gas
emissions if we are to secure a vibrant economy and stable environment into the future. This
decoupling may prove to be the most important issue in the 21st century, one that all others are
affected by and will rely on strong results from, the true test of human ingenuity.
Multiple Benefits of Decoupling Greenhouse Gas Emissions
Whilst such decoupling targets may seem ambitious there are now numerous peer reviewed studies
showing how such reductions can technically and economically be achieved for national economies.
(See Appendix 2) In addition, the Climate Group’s 2005 report Profits Up, Carbon Down68 showed
that 43 major companies have increased their bottom line by a total of $15 Billion whilst developing
ways to reduce their greenhouse gas emissions by as much as 60%. Multinationals like IBM and
Dupont have succeeded through such measures on reducing greenhouse gas emissions by over 60%
since 1990 whilst saving over US$2 Billion each. These companies were able to decouple profits
from greenhouse gas emissions through increasing their energy productivity and focusing on
delivering a growing range of services with less energy.
63
Note that Sections 2-6 of this report have been developed by Michael Smith and Karlson Hargroves, The Natural Edge Project, Griffith
University and the Australian National University, under the supervision of Professor Ernst von Weizsäcker. The content is based on
research undertaken by Michael Smith as part of his PhD, with additional research and editing by Karlson Hargroves
64
IPCC (2007) Global climate projections, Climate Change 2007: The Physical Sciences Basis, Available at
http://ipccwg1.ucar.edu/wg1/wg1-report.html Accessed 8.01.08
65
See Chair of the Intergovernmental Panel on Climate Change (IPCC) Rajendra Pachauri’s 2007 Opening Session Speech at
http://www.un.org/webcast/climatechange/highlevel/2007/pdfs/Pachauri.pdf Accessed 24 September 2008
66
International Energy Agency (2005) ‘World Energy Outlook 2005’, Press Releases, IEA, UK. Available at
http://www.iea.org/Textbase/press/pressdetail.asp?PRESS_REL_ID=163. Accessed 3 March 2007.
67
The Climate Group (2005) Profits Up, Carbon Down, The Climate Group. Available at
www.theclimategroup.org/assets/Carbon_Down_Profit_Up.pdf. Accessed 3 March 2007.
68
The Climate Group (2005) Profits Up, Carbon Down. The Climate Group.
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Increasing energy productivity has one of the best rates of return of any investment. Studies show
that the economic multiplier from energy efficiency investments is significant. 69 Investments in
energy efficiency have a higher economic multiplier than general expenditure as energy efficiency
investments provide a return on investment. Energy efficiency investments also have a higher
economic multiplier because they reduce demand for energy and thus delay (and even in some cases
prevent) the need to invest in new energy infrastructure and maintenance. Investments in energy
efficiency also create jobs, meaning that more is spent in the local economy. Hence more of a city’s
or town’s energy dollars are being spent in a way that helps the local economy to grow. Also these
new local “green” jobs have a direct effect attracting more people to the city or town who contribute
to that local economy. It can create a virtuous cycle. Several local and state governments have
analyzed actual and projected economic development effects of energy efficiency or alternative
energy projects. Osage Municipal Utilities chose to help its customers use less energy by helping
them invest in energy efficiency. In doing so, the OMU’s Demand-Side Management Program, 70
saved its customers in this small rural town US$1.2 million annually, which is almost US$200 a year
in energy bills per household. A study of economic multipliers in Osage, Ohio, found that a $1.00
purchase of ordinary consumer goods in a local store generated $1.90 of economic activity in the
local economy. In comparison investments in energy efficiency generated $2.23.71
Costs of Inaction versus Costs of Action
The Stern Review,72 published in 2006, demonstrated that rising greenhouse gas emissions and the
resulting climate change now threatens the very economic growth which they have helped to foster.
Stern called climate change the greatest market failure ever. The Stern Review states that:
We estimate the total cost of business as usual climate change to equate to an average
reduction in global per capita consumption of 5 per cent at a minimum now and for ever.73
The Stern Review describes how the cost would increase were the model to take into account direct
impacts on the environmental and human health, the effects of positive feedbacks and the
disproportionate burden of climate change on the poor and vulnerable globally. According to Stern,
taking these three factors into account takes the cost of climate change up to as much as 20 per cent
of global GDP. The Stern Review predicts that, if fast and dramatic action is not taken on climate
change, then climate change could cause an economic recession to rival the great economic recession
of the 1930s. As the Stern Review argues, if humanity fails to rapidly mitigate climate change,
climate change will increase more rapidly due to positive feedback effects. Respected scientists like
69
Economic multipliers measure the increase in GDP for each dollar of government or business expenditure on different activities in the
economy. The economic multiplier, also known as the multiplier effect, is a measure of how much economic activity can be generated in a
community by different combinations of purchasing and investment.
70
US Department of Energy (1996) The Jobs Connection. US DOE Available at
http://www.localenergy.org/pdfs/Document%20Library/The%20Jobs%20Connection.pdf Accessed 1 June 2008
71
Ibid.
72
Stern, N et al. (2006) The Stern Review: The Economics of Climate Change , Cambridge University Press, Cambridge . Available at
www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm . Accessed 14 April 2007
73
Ibid.
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NASA’s James Hansen argue that if rapid mitigation does not occur then the feedbacks and
amplifications between environmental impacts will bring ecosystems to there “tipping points”, and
that once this occurs it will cause a global catastrophe.74 Such tipping points related to greenhouse
gas pollution occur when positive feedbacks from existing global warming lead to a jump in global
average temperatures without any additional anthropogenic greenhouse gas emissions. A number of
these positive feedbacks75 are now already occurring at a faster rate76 than scientists had previously
predicted77 increasing the risks of dangerous climate change. These include:
 The weakening of the natural ocean carbon sinks reducing the amount of greenhouse gas that
can be absorbed.78
 The weakening of the natural land carbon sinks reducing the amount of greenhouse gas that
can be absorbed and even begin to release it.79
 The release of methane80 from peat deposits, wetlands and thawing permafrost.81
 The melting of reflective sea ice which is replaced by dark heat absorbing water.
Conversely the costs of rapid action on cliamte change are relatively small compared to the costs of
inaction. Stern predicts that ‘… the costs of action – reducing greenhouse gas emissions is to avoid
the worst impacts of climate change – can be limited to around 1 percent of global GDP each year.
The investment that takes place in the next 10-20 years will have a profound effect on the climate in
the second half of this century and the next. (Inaction now) and over the coming decades could create
risks of major disruption to economic and social activity, on a scale similar to those associated with
the great wars and the economic depression of the first half of the 20th century. And it will be
difficult or impossible to reverse these changes.’82
Reducing the Costs of Action
Our Common Future, published as the report to the World Commission on Environment and
Development in 1987, was one of the first works to demonstrate that through implementing a range
74
Hansen, J., Sato,M., et al. (2007) Climate Change and Trace Gases, Phil. Trans. Royal Soc. 365: 1925-1954,
doi:10.1098/rsta.2007.2052, Available At http://pubs.giss.nasa.gov/abstracts/2007/Hansen_etal_2.html Accessed 8.01.08
75
Ibid.
76
Pearman, G. et al (2007) Evidence of Accelerated Climate Change Prepared by the Climate Adaptation Science and Policy Initiative,
The University of Melbourne for the Climate Institute. Available at
http://www.climateinstitute.org.au/images/stories/CI056_EACC_Report_v1.pdf Accessed 8.01.08
77
Pittock, B. (2006) Are Scientists Underestimating Climate Change? EOS, Transactions American Geophysical Union 87, no. 34: 340341.
78
Le Quere, C. et al (2007) Saturation of the Southern Ocean CO2 Sink Due to Recent Climate Change. Science. Volume 316, Issue
5832, pp. 1735- (2007).
79
Cox, P., Betts, R., Jones, C., Spall, S. and Totterdell, I. (2000) Acceleration of Global Warming Due to Carbon-Cycle Feedbacks in a
Coupled Climate Model, Nature, 408, pp184–187.
80
Wickland, K.P., Striegl, R.G. Neff, J.C Sachs. T. (2006) “Effects of Permafrost Melting on CO 2 and CH4 Exchange of Poorly Drained
Black Spruce Lowland.” Journal of Geophysical Research 111, no. G02011.
81
Walter, K. M., Zimov S. A., et al. (2006) Melting Lakes in Siberia Emit Greenhouse Gas, Nature 443: 71 - 75,
http://www.nature.com/news/2006/060904/full/060904-10.html Accessed 8.01.08
82
Stern, N et al. (2006) The Stern Review: The Economics of Climate Change , Cambridge University Press, Cambridge . Available at
www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm . Accessed 14 April 2007
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of proven climate change mitigation solutions economic growth could cost effectively be decoupled
from greenhouse gas emissions. As Our Common Future stated:
During the past 13 years, many industrial countries saw the energy content of growth fall
significantly as a result of increases in energy efficiency averaging 1.7 per cent annually
between 1973 and 1983. And this energy efficiency solution costs less, by savings made on the
extra primary supplies required to run traditional equipment… The costs of improving the
end-use equipment is frequently much less than the cost of building more primary supply
capacity. In Brazil, for example, it has been shown that for a discounted, total investment of
$4 Billion in more efficient end-use technologies (such as more efficient refrigerators, street
lighting, or motors) it would be feasible to defer construction of 21 gigawatts of new
electrical supply capacity, corresponding to a discounted capital savings for new supplies of
$19 Billion in the period 1986 to 2000.
Our Common Future concluded that with the right mix of policy and a carbon price signal to further
encourage, ‘the design and adoption of more energy efficient homes, industrial processes and
transportation vehicles,… (and) investments in renewables…within the next 50 years, nations have
the opportunity to produce the same levels of energy services with as little as half the primary supply
currently consumed.’
In Beyond Interdependence, MacNeill, Winsemius and Yakushiji 83 built on from Our Common
Future and brought together studies which provide further support for ambitious commitments to
decouple economic growth from greenhouse gas emissions. They stated that ‘an increasing number
of studies show that industrialised nations can make substantial reductions in greenhouse gas
emissions through energy efficiency and other measures that, at best, return a profit, and at worst,
break even.’84 The work brought together a range of studies which showed that the opportunities of
energy efficiency make it possible to achieve short term targets very cost effectively.85,86
Ten years after the publication of Our Common Future, the book Factor 4: Doubling Your Wealth
and Having Resource Usage87 lead by Ernst von Weizsäcker, was released as a report to the Club of
Rome and highlighted a significant array of case studies demonstrating that large energy productivity
gains can be made cost effectively. Building on from these significant works a 2007 study by The
MacNeill, J, Winsemius, P. and Yakushiji, T. (1991) Beyond Interdependence: The Meshing of the World’s Economy and the Earth’s
Ecology, Oxford University Press, Oxford. (MacNeill was the Secretary-General of the Brundtland Commission and co-author of Our
Common Future)
84
Goldenberg, J. Johannson, T. Reddy, A. and Williams, E. (1985) Energy for Development. Washington D.C. World Resource Institute.
D.C
85
The DPA Group, Inc (1989) Study on the Reductino of Energy-Related Greenhouse Gas Emissions. Commissioned by the Ontario
Ministery of Energy (with support from all the federal and provincial energy departments of Canada). Prepared by DPA Group Inc., in
association with CH4 International Ltd., RCG/Hagler, Bailly,Inc., Steven G. Diener and Associates Ltd., Ontario Ministry fo Energy.
Jackson, T. (1991) ‘The Least Cost Greenhouse Planning:Supply Curves for Global Warming Abatement.’Energy Policy 19
January/February 1991.
86
Johannson, T. Bodlund, B. and Williams, R. (eds) (1989) The Challenge of Choices: Technology Options for the Swedish Electricity
Sector in Electricity: Efficient End use and New Generation Technologies and Planning Implications. Lund University Press. Sweden.
87
Von Weizsäcker, E., Lovins, A.B. and Lovins, L.H. (1997) Factor 4: Doubling Wealth, Halving Resource Use, Earthscan/James&James,
London.
83
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Natural Edge Project, in partnership with the Commonwealth Scientific and Industrial Research
Organisation (CSIRO), Griffith University and the Australian National University 88 further
demonstrated this, and resulted in the release of a 600 page free access online textbook that features
existing case studies and/or designs of:
 Households rapidly retrofitted - reducing emissions by over 60 percent.i
 (Virtually) net climate neutral buildings.ii
 Net climate neutral manufactured products.iii
 Net climate positive paper and pulp mills.iv
 Food processors that can reduce emissions by 30-80 percent through energy efficiency, onsite
co-generation and/or renewable energy.v
 Supermarkets and bakeries that use 40 percent less energy than market average through
energy efficiency initiatives.vi
 Fast food retail outlets that use 40-70 percent less energy than market average through energy
efficiency and better design.vii
 Lighting,viii HVACix and motor systems,x that use at least 30-60 percent less energy than the
industry average.
 Office IT systems and servers that together use over 60 percent less energy.xi
 Public street lighting89 that is at least 50 percent more energy efficient than currently used
street lighting.
 Overseas cities that are rapidly shifting to sustainable transport patterns.xii
 Carsxiii and trucksxiv that are at least 50 percent more fuel efficient than those using the internal
combustion engine.
Another way to help reduce the costs of action is through utilising the market and price signals. Such
market based approaches do not impose a particular greenhouse gas reduction strategy on business
but rather allow business themselves to innovate to find the most cost effective ways to reduce
greenhouse gas emissions. As early as the late 1980s, Norwegian90 and Dutch91 studies showed that
increasing indirect taxes on gasoline, heating and transport fuels, whilst offsetting this with tax
reductions on income and payroll tax, would stabilise GHG emissions by 2000 at 1987 levels.
Introducing a carbon price signal gives economic value to emissions reductions and motivates action.
Direct emitters, such as electricity generators, change their fuel mix (away from coal towards natural
88
Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C., and Hargroves, S. (2007) Energy Transformed: Sustainable
Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia.’ Available at
www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 13. February 2008.
89
See ICLEI Public Street Lighting at http://www.iclei.org/index.php?id=6473. Accessed 13. February 2008.
90
Bye, B., Bye, T., and Lorentsen, L. (1989) ‘SIMEN: Studies in Industry, Environment and Energy Towards 2000.’Central Bureau of
Statistics, Discussion Paper No.44, Oslo.
91
Netherlands Central Planning Bureau in National Environmental Policy Plan of the Netherlands, Ministry of Housing, Physical Planning,
and the Environment, the Netherlands. cit. MacNeil, J, Winsemius, P. Yakushiji, T. (1991) Beyond Interdependence: The Meshing of the
World’s Economy and the Earth’s Ecology, Oxford University Press, Oxford
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gas and renewables), and introduce new technologies such as carbon capture and storage as these
become cost effective in light of a rising ‘carbon price’. With a price on carbon, energy users
including consumers and other businesses are motivated to:
 choose more energy efficient appliances and technologies, which can reduce energy use while
maintaining or improving the underlying energy service provided (such as a hot shower or
commuter travel).
 change consumption patterns over time towards products and services with lower embodied
emissions and energy. The increased attention to emissions and energy efficiency also has an
important role in supporting environmental awareness and helping to identify win-win
opportunities to reduce costs and improve the efficiency of resource use.
 Invest in carbon offset programs. Re-vegetation projects also benefit from the introduction of
the carbon signal, which provides a new revenue source for biodiversity plantings and other
‘carbon sinks’ that offset emissions.
A carbon price signal plus other smart regulations and policies can effectively decouple greenhouse
gas emissions and energy use from economic growth. In countries and states where a carbon price
signal has been used with other complimentary greenhouse policies, like Sweden and California,
USA there is already decoupling of economic growth and greenhouse gas emissions occurring.
Other cost effective ways to reduce the costs of action include investing in avoided deforestation,
sustainable transport, reducing emissions from non-CO2 greenhouse gases, increasing recycling and
investing in sustainable transport. A comprehensive approach to decoupling economic growth from
greenhouse gas emissions, which includes such measures will also achieve significant co-benefits:
such as reducing air pollution (from the transport sector), reducing waste to landfill and increasing
recycling and whilst also creating significant biodiversity and ecosystem service benefits through
protection of forests and remnant vegetation and investment in carbon offsets. Aligning greenhouse
gas reduction policies to ensure simultaneous reduction of additional environmental pressures helps
to reduce the costs of action significantly. 92 As The Stern Review states,
The world does not need to choose between averting climate change and promoting growth
and development. Changes in energy technologies and in the structure of economies have
created opportunities to decouple (economic) growth from greenhouse gas emissions. Indeed,
ignoring climate change will eventually damage economic growth. Tackling climate change is
the pro-growth strategy for the longer term, and it can be done in a way that does not cap the
aspirations for growth of rich or poor countries.93
92
Smith, M., Hargroves, K., Desha, C. and Stasinopoulos, P. (2008) Analysis of the Costs of Inaction versus the Costs of Action on
Climate Change for Australia, a submission by TNEP to the Garnaut Review. Available at
http://www.naturaledgeproject.net/Documents/TNEPSubmission.pdf Accessed 26 September 2008
93
Stern, N. (2006) The Stern Review: The Economics of Climate Change, Executive Summary Cambridge University Press, Cambridge,
p10. Available at. http://www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf. Accessed 14 April 2007
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More countries are beginning to understand that there are cost effective ways to achieve significant
decoupling of economic growth from greenhouse gas emissions. This is shown by the fact that
Iceland, New Zealand, Norway and Costa Rica have committed to becoming net climate neutral - 100
per cent decoupling of economic growth from greenhouse gas emissions - over the next 30 years
through energy efficiency, demand management, renewable energy, sustainable transport options and
carbon offsets.
Policy Implications and Recommendations
Sir Nicholas Stern has called climate change the biggest market failure ever. Hence no one single
policy is going to be adequate to underpin decoupling of economic growth from greenhouse gas
emissions. The world economy for the last two hundred years has achieved remarkable economic
growth partly because of access to cheap fossil fuels. It will take time to transition to a low carbon
energy economy. There are significant barriers for change, not just from vested interests, but from a
wide range of market, informational and institutional failures, together with the inherent complexity
of the issues. Hence international experience shows that those countries and cities which are
succeeding in decoupling economic growth from greenhouse gas emissions are not simply relying on
an emission trading scheme, or a carbon tax, or behaviour change programs, but are taking a multifaceted portfolio approach to climate change policy.
Thus, in addition to an emission trading scheme or carbon tax, decoupling economic growth from
greenhouse gas emissions is most likely to be achieved if countries implement a range of related
complimentary policy measures and programs.94 A range of publications are available which provide
an overview of policy recommendations to compliment emission trading schemes and carbon taxes to
ensure barriers are overcome and instead there are clear incentives to invest in strategies that will
reduce the costs of action.95
94
Centre for International Economics (2008) Discussion paper for the 9th National Business Leaders Forum for Sustainable Development,
reports commissioned by the Property Council and the Australian Sustainable Built Environment Council. Available at
http://www.webls.info/weblease/clientimages/nblf/National_Business_Leaders_Forum_-_Outcome_Statement.pdf. Accessed 15 June
2008.
95
Stern, N et al. (2006) The Stern Review: The Economics of Climate Change , Cambridge University Press, Cambridge
Saddler, H., Diesendorf, M. and Denniss, R. (2004) A Clean Energy Future for Australia Energy Strategies, WWF, Canberra. Available at
http://wwf.org.au/ourwork/climatechange/cleanenergyfuture/ Accessed 14 April 2007. Smith, M., Hargroves, K,, Desha, C. and
Stasinopoulos, P. (2008) Analysis of the Costs of Inaction versus the Costs of Action on Climate Change for Australia, a submission by
TNEP to the Garnaut Review. Available at http://www.naturaledgeproject.net/Documents/TNEPSubmission.pdf Accessed 26 September
2008
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3. Decoupling Economic Growth from Freshwater Extraction and Pollution96
Climate change threatens to significantly reduce water availability and lead to greater frequency of
droughts in many countries. Already one third of the world’s population lives in countries are
experiencing moderate to high levels of water shortage. According to the OECD that number could
rise to two thirds within 30 years unless serious efforts are made to decouple economic growth from
freshwater extraction and water pollution.97 The IPCC Chair Dr Pachauri has stated in 2007 that:
Glaciers in the Himalayas provide the water source for one-sixth of humanity. Their decline
threatens the water supply of billions… The gross per capita water availability in India is
projected to decline from 1820 cubic meters per year in 2001 to 1140 cubic meters per year
in 2050.98
Around the world, groundwater extracted from deep wells is the main source of drinking water for
over three billion people.99 The failure of governments to limit pumping to the sustainable yield of
aquifers means that water tables are now rapidly falling in countries that contain more than half the
world’s people, including the big three grain producers— China, India, and the United States. 100
Some experts fear that these risks of severe water shortages will lead to conflict. These facts explain
why sustainable management of freshwater resources is so critical to achieving sustainable
development as a whole. This is why the OECD Environment Directorate has established as two of
its main decoupling indicators as ‘decoupling economic growth from freshwater abstraction’ and
another to ‘measure water quality and water pollution levels’. (See Figure 4.1)
Multiple Benefits of Decoupling Freshwater Extraction and Pollution
Most nations’ water infrastructure assets total tens to hundreds of billions of dollars, at least half of
which is for urban water supply and sewerage. Demand management and improving water
productivity can significantly reduce the need for the construction of new dams, new treatment plants
and reducing the maintenance of the pipes and associated infrastructure used to deliver and remove
water. Numerous cost effective demand management and water productivity opportunities exist in
most economies due to the fact that water has been subsidized to be cheaply priced for farmers and
industry and because urban water utilities have not had incentives to encourage the efficient use of
water. Rather water utilities have simply been required to ensure supply and sell more water to
customers. Thus removing perverse subsidies and bringing in effective policies and market based
96
Note that Sections 2-6 of this report have been developed by Michael Smith and Karlson Hargroves, The Natural Edge Project, Griffith
University and the Australian National University, under the supervision of Professor Ernst von Weizsäcker. The content is based on
research undertaken by Michael Smith as part of his PhD, with additional research and editing by Karlson Hargroves.
97
OECD (2002) Sustainable Development Strategies: A Resource Book. OECD. Paris.
98
Pachauri, R. (2007) Coping with Climate Change: Is Development in India and the World Sustainable? 2007 K R Narayanan Oration,
ANU. Available At http://rspas.anu.edu.au/papers/narayanan/2007oration.pdf Accessed 16 November 2007
99
Shah, T. et al. (2007) Groundwater: A Global Assessment of Scale and Significance, in International Water Management Institute (ed.)
Water for Food, Water for Life: A Comprehensive Assessment of Water Management, Earthscan, London.
100
Shiklomanov, I. (1998) ‘Assessment of Water Resources and Water Availability in the World,’ Report for the Comprehensive
Assessment of the Freshwater Resources of the World (St. Petersburg, Russia: State Hydrological Institute, 1998), cited in Gleick, P.
(2000-2001) The World’s Water 2000–2001. Island Press, Washington DC., p. 52
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approaches which encourage greater water efficiency and water recycling can significantly help to
achieve decoupling of economic growth from freshwater use.
Most homes and commercial buildings can cost effectively reduce water usage by over 50 per cent
through improving water productivity and utilising and recycling rain and grey water. The use of
fresh water on farms has halved in Israel since 1984, while the value of production has continued to
climb. Farmers in India, Israel, Jordan, Spain and the US have shown that drip irrigation systems that
deliver water directly to crop roots can reduce water use by 30–70 per cent and raise crop yields by
20–90 per cent.12 Rice farmers in Malaysia saw a 45 per cent increase in their water productivity
through a combination of better scheduling their irrigations, shoring up canals, and sowing seeds
directly in the field rather than transplanting seedlings. In the US between 1980 and 1995 the amount
of fresh water withdrawn per American fell by 21 percent and water withdrawn per dollar of real
GDP fell by 38 percent.101 This trend is being seen worldwide in OECD countries. (See Figure 4.1)
For instance, in 1995 world freshwater withdrawals were only about half what planners had predicted
thirty years earlier by basing their predictions on historical trends.102
Figure 4.1: Freshwater abstraction per unit of GDP, 1980-1998
(Source, OECD, (2001)103
There are multiple benefits from water resource productivity improvements such as lower business
and household costs and delaying need for new and expensive water infrastructure. Greater water
productivity improvements also help rural, urban and coastal communities adapt to the likelihood of
reduced water availability this century in many parts of the world due to climate change. Also the
more efficient use of water for agriculture and cities enables more water to become available for
101
Hawken, P., Lovins, A. and Lovins, L. H. (1999) Natural Capitalism: Creating the Next Industrial Revolution, Earthscan/James&James,
London.
102
Gleick, P.H. (1998) The World’s Water 1998-1999: The Biennial Report on Freshwater Resources, Island Press, Washington, D.C.
Available at www.worldwater.org. Accessed 12 December 2006.
103
OECD Secretariat (2002) ‘Indicators to Measure Decoupling of Environmental Pressure and Economic Growth.’ OECD. Paris
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restoring environmental flows for river ecosystems and wetlands. Given that clean and freshwater
will be an increasingly prized and relatively scarce resource this century, it is also important to
improve water quality and ensure access of unpolluted clean water to all people and the environment.
The health and environmental costs of polluted water are significant.
Costs of Inaction vs. Costs of Action
Whilst it is difficult to value the costs of inaction, one US study found that the increased water and
water infrastructure costs from inaction on climate change amounted to US$950 billion over the next
100 years.104 Conversely studies show that the costs of action on demand management and water
productivity improvements can be net positive over time. In the last two decades, whole system cost
analysis has shown that water efficiency delivers far more benefits than previously imagined.
Research lead by Professor Stuart White at the University of Technology Sydney, Institute for
Sustainable Futures, indicates that in cities and towns facing water supply augmentation, investment
in water efficiency can result in water savings of greater than 30% at a unit cost that is less than
supply augmentation, yielding net present value economic benefits in excess of AUD$100m for some
capital cities.105 Studies also show that improving water productivity in rural areas also provides a
positive GDP return to the region.106
Investment to improve water quality by preventing and effectively removing water pollutants is also
economically efficient. The studies reviewed by the OECD107 show that national measures to reduce
agricultural runoff and improve storm water management – including introducing targeted measures
to reduce a variety of different pollutants such as arsenic and nitrates - results in health benefits
estimated to be in excess of US$100 million for large OECD economies. Studies on recreational
water quality improvements through sewage treatment in France, Portugal, the US and the UK and
drink water quality improvements in the US and show that the health cost benefits outweigh the costs
of policy implementation. 108 In non-OECD countries, the costs of inaction with respect to unsafe
water supply and sanitation are particularly acute. At the global level, water stress is a major issue,
with 1.1 billion people without access to a safe water supply and 2.6 billion people do not have
access to adequate sanitation facilities.109
Achieving the Millennium Development Goals (MDG) of halving the population without access to
clean water and sanitation by 2015 is expected to cost about US$10 billion per year. But this figure is
far outweighed by the costs of inaction if the MDG is not achieved, in terms of impacts on human
104
Natural Resources Defense Council (2008) The Cost of Climate Change What We'll Pay if Global Warming Continues Unchecked.
Natural Resources Defense Council. Available at http://www.nrdc.org/globalwarming/cost/contents.asp Accessed 26 September 2008
105
Professor White, Private Communication.
106
Centre for International Economics (2004) Socio-Economic Assessment of Water Efficiency Investments in the Murrumbidgee Valley.
The Pratt Water Initiative. Available at http://www.napswq.gov.au/publications/books/pratt-water/working-papers/pubs/socio-economic.pdf
Accessed 27 September 2008
107
OECD (2008) Cost of Inaction: Technical Report, OECD, Paris.
OECD (2008) Costs of Environmental Policy Inaction: Summary for Policy-makers. OECD. Paris.
108
ibid
109
WHO/UNICEF (2006) Joint Monitoring Programme for Water Supply and Sanitation. Available at www.wssinfo.org/en/welcome.html
accessed 17 August 2008.
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health and economic productivity. The cost of not meeting this MDG (cost of inaction) has been
estimated at some US$130 billion a year.110 This may seem large but many other studies have also
found the rate of return is significant and thus justifies investment.111 Globally, the World Health
Organisation (WHO) has estimated that the economic benefits of investments in meeting this target
would outweigh costs by a ratio of about 8:1.112
Reducing the Costs of Action
As explained above, improving water productivity in rural and urban regions is the most cost
effective way to achieve decoupling of economic growth from freshwater abstraction. Hence policy
changes which enable water utilities to encourage demand management and water efficiency are a
solid starting point. Such policy changes will significantly help to reduce the costs of action on
demand management and water productivity. However, there are other more challenging aspects to
achieving sustainable water resource management because the current unsustainable usage of water is
an example of the tragedy of the commons.113
Policy Implications and Recommendations
Professor Jeffrey Sachs sums up well the complex policy challenge to achieve sustainable water
resource management, explaining that:
Water is characterized by pervasive spillover effects, to use the economic jargon. Water use
by one group or region affects the water availability and security of others… When one group
withdraws some river flow for irrigation, the impact may be reduced availability of water
down stream... When a community drills boreholes for irrigation, the consequences can easily
be a reduction in flow of water to other neighboring wells or even far downstream. A
tradition of first come, first serve to the use of water can lead to massive losses for all – one
of the greatest manifestations of the tragedy of the commons. Yet simply privatizing water114
without strong protections for the poor can end up denying the weakest part of the population
the access to safe water it needs to stay alive. Privatisation of water rights may be contrary to
basic ecological good management as well, for example, through overexploitation of ground
water.115
110
Hutton, G. and Haller, L. (2004) Evaluation of the Costs and Benefits of Water and Sanitation Improvements at the Global Level, Water,
Sanitation and Health, Protection of the Human Environment, World Health Organization, Geneva.
111
Rijsberman, F. (2008) The Water Challenge. Paper prepared as one of 10 challenge papers for the Copenhagen Consensus project of
the Environmental Assessment Institute, Copenhagen, Denmark.
112
WHO, UNICEF (2005) Water for life. Making it happen. Geneva, World Health Organization.
113
For further information refer to Chapter 20 of ‘Hargroves, K. and Smith, M. (2005) The Natural Advantage of Nations: Business
Opportunities, Innovation and Governance in the 21st Century, The Natural Edge Project, Earthscan, London’.
114
von Weizsäcker, E., Young, O., and Finger, M. (2005) Limits to Privatization – How to Avoid Too Much of A Good Thing. London,
Earthscan
115
Sachs, J. (2008) Common Wealth: Economics for a Crowded Planet, Penguin Group. New York.
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A range of global116 and regional institutions117 have published extensive reports which address the
complexity of policy and institutional change needed to underpin efforts to achieve decoupling in this
area.
116
UNEP (2007) Global Environment Outlook: Environment for development (GEO-4) report. UNEP. Available At
http://www.unep.org/geo/geo4 Accessed 23.03.08
117
See OECD Environment Directorate’s Water Program at http://www.oecd.org/department/0,3355,en_2649_34311_1_1_1_1_1,00.html
Accessed 25 September 2008
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4. Decoupling Economic Growth from Waste Production118
Progress has been made in the last two decades in OECD countries to relatively decouple economic
growth from waste production. In OECD counties in the mid-1990s, approximately 64% of municipal
waste was sent to landfills, 18% for both incineration, and recycling. 119 In 2005, only 49% of
municipal waste being disposed of in landfills, 30% being recycled and 21% being incinerated or
otherwise treated.120 In 1980 America recycled only 9.6% of its municipal rubbish; today the rate
stands at 32%. A similar trend can be seen in Europe, where some countries, such as Austria and the
Netherlands, now recycle 60% or more of their municipal waste. Britain's recycling rate, at 27%, is
low, but it is improving fast, having nearly doubled in the past three years. 121 Overall Municipal
waste generation is still increasing in OECD countries, but at a slower pace since 2000, hence it has
been relatively decoupled from GDP. (See Figure 5.1)
Figure 5.1 Decoupling of OECD GDP from OECD country municipal waste generation, 1980-2030
(Source: OECD, 2008122)
Multiple Benefits of Decoupling Waste Production
Despite progress having been made, in most countries waste production is still increasing. This
creates numerous problems. Landfill space in many countries is becoming increasingly scarce.
Availability of suitable landfill options is not only a waste management issue but a political issue as
was seen in Italy in late 2007 when demonstrators clashed with riot police in Naples over the
proposed locations of rubbish dumps in surrounding areas to cope with Naples growth in waste
production, involving the throwing of firebombs, cans and other garbage at officers. 123 Waste
decomposing in landfills threatens waterways and drinking water supplies and contaminates the land
118
Note that Sections 2-6 of this report have been developed by Michael Smith and Karlson Hargroves, The Natural Edge Project, Griffith
University and the Australian National University, under the supervision of Professor Ernst von Weizsäcker. The content is based on
research undertaken by Michael Smith as part of his PhD, with additional research and editing by Karlson Hargroves.
119
OECD (2001) OECD Environmental Outlook, OECD, Paris.
120
OECD (2008) OECD Environmental Data Compendium, OECD, Paris.
121
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008
122
Ibid.
123
Demonstrators clash with riot police in Naples...over a rubbish dump, by Daily Mail Reporter, 27th September 2008, available at
http://www.dailymail.co.uk/news/article-1063399/Demonstrators-clash-riot-police-Naples--rubbish-dump.html. Accessed 05.10.08.
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with a range of chemicals, some toxic and hazardous. Waste in landfill also produces methane gas, a
recognised greenhouse gas, when municipal rubbish rots and degrades. There are significant societal
and environmental benefits from decoupling economic growth from waste production through
reducing, reusing and recycling waste. It also makes strong economic sense for business to reduce
and reuse waste as this reduces landfill and resource input costs. It also makes sense for business to
design products and processes so that waste produced can be easily recycled. As Amory Lovins states,
It is extremely profitable to wring out waste, even today when nature is valued at
approximately zero, because there is so much waste - quite an astonishing amount after
several centuries of market capitalism. In the American economy, the material that we extract
from the planet, that we mobilise for economic purposes, and process and move around and
ultimately dispose of, totals about 20 times the body weight of a person per day. So worldwide
this resource flow is in the order of a half-trillion tons per year. And what happens to it? Well,
only about 1 per cent of it ends up in durable goods; the system is about 99 per cent waste.
That’s a business opportunity.124
Some of business’s significant costs are capital and inputs, such as costs of building plants and
equipment, and the cost of acquiring raw materials, energy and water, and the costs of transportation.
It is in business’s interests to minimise these costs, and hence the amount of raw materials and other
inputs they need to create their product or provide their service. Business produces only useful
products and services or waste. It is in individual business’s interests to find markets for this ‘waste’
and/or design industrial processes so that waste is minimised and that which is produced can be used
or sold elsewhere.
Costs of Inaction vs. Costs of Action
Local government and city councils gain economic benefits from implementing recycling programs,
largely due to the reduced landfill costs. 125 A study conducted by the Technical University of
Denmark found that in 83% of cases, recycling is the most efficient method to dispose of household
waste.126 A study of municipal waste and landfill in Israel found that for 51% of the municipalities, it
would be (economically) efficient to adopt recycling, even without accounting for externality costs.
In the economic literature, when these externality costs of waste to landfill are taken into account,
recycling has been found to almost always be economically efficient.127 Examples of the costs of
externalities of waste include increased air pollution from incineration, hazardous waste leaching
from landfills into groundwater supplies, loss of public land and risks from the spread of disease.
See Amory Lovin’s Natural Capitalism Lecture at http://www.abc.net.au/science/slab/natcap/default.htm Accessed 25 September 2008
Lavee D. (2007) Is Municipal Solid Waste Recycling Economically Efficient? Environmental Management. New York
126
The Economist (2007) The Truth About Recycling. The Economist. Jun 7th 2007. Available at
http://www.sehn.org/tccThetruthaboutrecycling.html Accessed 25 September 2008
127
Lavee D. (2007) Is Municipal Solid Waste Recycling Economically Efficient? Environmental Management. New York . Available at
http://www.springerlink.com/content/r461lju585760316/fulltext.pdf accessed 25 September 2008 Brisson IE (1997) Assessing the waste
hierarchy: A social costbenefit analysis of municipal solid waste management in the European Union. Samfund, Okonomi and Miljo, 19.
AKF Forlaget, Kopenhagen
124
125
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Another significant externality from landfill is greenhouse gas pollution. The United States
Environmental Protection Agency (EPA) has concluded in favour of recycling, saying that recycling
efforts reduced the country's carbon emissions by a net 49 million metric tonnes in 2005. 128 In the
United Kingdom, the Waste and Resources Action Programme stated that Great Britain's recycling
efforts reduce CO2 emissions by 10-15 tonnes a year. 129 Recycling industries also contribute
significantly to national GDP. Recycling employs over 1.5 million employees in more than 50
countries with an annual turnover exceeding US$160 billion dollars. Recycling processes over 600
million tonnes of commodities annually. A recent international review of life-cycle analysis work on
key materials that are collected for recycling clearly demonstrated that recycling usually has more
environmental benefits and lower environmental impacts than other waste management options.
From 188 scenarios that included recycling, the overwhelming majority (83%) favoured recycling
over either landfilling or incineration. 130 Recycling can also provide considerable economic and
social (e.g. increased employment) benefits.131
Reducing the Costs of Action
There are several exciting innovations in policy, product design and process design that can help
reduce or even eliminate the amount waste being generated cost effectively. These innovations
usually involve some combination of 1) directly reducing the amount of waste generated in
producing and delivering a product or in operating an industrial process, 2) designing products such
that their reuse and recycle is cost effective and easy, 3) designing service processes such that
product take-back is cost effective and easy and 4) increasing markets for products with recycled
content. These four features enable a much greater decoupling of waste from economic growth by
reducing the costs of material inputs and enabling a market of secondary materials that are, in many
cases, cheaper than the equivalent primary materials.
Policy Implications and Recommendations
These strategies can help nations shift from simply achieving relative to absolute decoupling of
economic growth from waste production. This is acknowledged by the OECD which states that
With continuous growth in the global demand for materials and the amounts of waste
generated and disposed of, conventional waste policies alone may not be enough to improve
material efficiency and offset the waste-related environmental impacts of materials
production and use. New integrated approaches – with stronger emphasis on material
efficiency, redesign and reuse of products, waste prevention, recycling of end-of-life materials
and products and environmentally sound management of residues – could be used to
128
The Economist (2007) The Truth About Recycling. The Economist. Jun 7th 2007. Available at
http://www.sehn.org/tccThetruthaboutrecycling.html Accessed 25 September 2008
129
Ibid.
130
WRAP (Waste and Resources Action Programme) (2006) Environmental Benefits of Recycling, WRAP, Banbury, UK.
www.wrap.org.uk/applications/publications/publication_details.rm?id=698&publication=2838 .
131
US REI (2001) US Recycling Economic Information Study, A study prepared for The National Recycling
Coalition by R. W. Beck, Inc., www.epa.gov/epaoswer/non-hw/recycle/jtr/econ/rei-rw/pdf/n_report.pdf
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counterbalance the environmental impacts of waste throughout the entire life-cycle of
materials.132
The OECD 2030 Environmental Outlook133 and other publications134 provide a detailed overview of
leading examples of which such policies have been implemented to achieve greater decoupling of
economic growth from waste production. This reports overview developments in leading policy in
this area such as extended producer responsibility135. Other global institutions like the World Bank
also provide a wealth of resources to help achieve better waste management.136
132
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008
133
Ibid.
134
See OECD Environment Directorate’s Waste Portal at http://www.oecd.org/topic/0,3373,en_2649_34395_1_1_1_1_37465,00.html
Accessed 22.03.2008
135
See Organisation for Economic Co-operation and Development (OECD) website – Extended Producer Responsibility at
http://www.oecd.org/document/19/0,3343,en_2649_34281_35158227_1_1_1_1,00.html. Accessed 15 August 2008; Lindhqvist, T. (2000)
Extended Producer Responsibility in Cleaner Production: Policy Principle to Promote Environmental Improvements of Product Systems,
Doctoral Dissertation, Lund University, Lund, Sweden. Available at
http://www.iiiee.lu.se/Publication.nsf/$webAll/AE92DEB3FC71AEE0C1256C1A003E631F/$FILE/lindhqvist.pdf. Accessed 15 August 2008.
136
See World Bank’s web portal on Urban Solid Waste Management at
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTURBANDEVELOPMENT/EXTUSWM/0,,menuPK:463847~pagePK:149018~p
iPK:149093~theSitePK:463841,00.html Accessed 22 September 2008
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5. Policies to Underpin Decoupling and Address Major Social Factors that can
Undermine or even Block Progress137
History shows that successful efforts to decouple economic growth from environmental pressures
have been underpinned by effective policy which addresses a range of market, institutional and
information failures. There is no evidence in any nation that the market and economic growth, on
their own, can achieve significant and lasting decoupling of economic growth from environmental
pressures. Even urban air and water pollution have required policy intervention from government to
address these environmental pressures successfully. After the famous December 1952 smog in
London, which killed thousands of people, new regulations were put in place restricting the use of
fuels in industry and households to ensure that cleaner forms of energy were used to reduce air
pollution. These included the Clean Air Acts of 1956 and of 1968, and the City of London (Various
Powers) Act of 1954.138 Grossman and Krueger state:
Even for those dimensions of environmental quality where economic growth seems to have
been associated with improving conditions, there is no reason to believe that the process has
been an automatic one. In principle, environmental quality might improve automatically when
countries develop if they substitute cleaner technologies for dirtier ones, or if there is a very
pronounced effect on pollution of the typical patterns of structural transformation …
However, a review of the available evidence on instances of pollution abatement suggests that
the strongest link between income and pollution in fact is via an induced policy response…139
History shows that there are two major social factors that can undermine government’s efforts to
bring in such policies to underpin decoupling:
1. business and industry group opposition, media campaigns and lobbying based on fears that
environmental policies and regulation will harm businesses profit margins and competitiveness,
and
2. unions and workers opposition, media campaigns and lobbying based on fears of job losses.
There is extensive historical evidence to show this because these concerns about pollution and
environmental pressures are not new. There have been early warnings from scientists of the risks of
over fishing (1865) 140 , acid rain (1872) 141 , ecological limits and thresholds (1864) 142 , dry land
137
Note that Sections 2-6 of this report have been developed by Michael Smith and Karlson Hargroves, The Natural Edge Project, Griffith
University and the Australian National University, under the supervision of Professor Ernst von Weizsäcker. The content is based on
research undertaken by Michael Smith as part of his PhD, with additional research and editing by Karlson Hargroves
138
Wise, W (2001) Killer Smog: The World's Worst Air Pollution Disaster.Blackprint.
139
Grossman, G., Krueger, A. (1994) ‘Economic Growth and the Environment’, NBER Working Paper no. 4634, February, National Bureau
of Economic Research, Cambridge, MA. Quoted in Ekins, P. (2000) ‘Economic Growth and Environmental Sustainability’, Routledge
Publishing London, New York p190
140
Bertram, J. G. (1865) The Harvest of the Sea, John Murray, London.
141
Smith R.A. (1872) Air and Rain. Longmans Green & Co., London.
142
Marsh,G.P. (1864) Man and Nature: Or, Physical Geography as Modified by Human Action. Edited, with a new introduction, by David
Lowenthal. Foreword by William Cronon. Weyerhauser Environmental Classics Series. Seattle and London: University of Washington
Press, reprint 2003
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salinity (1864) 143, soil degradation and deforestation (~300 B.C) 144, materials like asbestos (1898) 145,
chemicals such as PCB’s (1899) 146 , benzene (1897) 147 , radiation (1896) 148 , overuse of nonrenewable resources (1909) 149, chemical intensive farming (1924) 150, human induced climate change
(1957) 151 . Reports like Late Lessons from Early Warnings: the Precautionary Principle 18962000 152 show that historically, affected business, industry groups and unions have usually fought
efforts by government to bring in necessary policies to reduce pollution and achieve decoupling.153
Hence this section will look at how governments can use smart policy mechanisms to underpin
efforts to achieve decoupling whilst also addressing the legitimate fears and concerns of businesses,
industry groups, unions and workers.
Internalising Externalities to Achieve Decoupling
As outlined in section 2, economists have explained for many decades that current unsustainable
development trajectories arise largely from the fact that the real environmental costs of development
are externalised from the market. Without these impacts included in market prices, current goods and
services are externalising the costs to be dealt with by governments. Where such market failures and
externalities exist there is a legitimate role for government to act early to ensure that these costs are
actually accounted for and offset. These issues are being widely discussed internationally. 154 As a
case in point, historically governments’ policies have kept the price of water for farmers and industry
low leading to unsustainable water usage of surface and ground freshwater, as discussed in section
4.155 Current market pricing on a range of goods and resources, doesn’t reflect the true cost to the
environment and society of production, industry, and general consumption. To achieve decoupling of
economic growth from environmental pressures these externalities will need to be internalised
wherever possible, in a manner that is fair and equitable.
Responding to Opposition from Industry to Government Policies to Underpin Decoupling
143
Bennett, D.,McPherson, D.K. (1983) A History of Salinity in Western Australia. Commonwealth Scientific and Industrial Research
Organisation. Division of Groundwater Research. Technical Memorandum 83/1,
144
Hughes, J.D (1985) Theophrastus as ecologist, Environmental Review, 4, 296-307
145
Deane, L. (1898) ‘Report on the Health of Workers in Asbestos and Other Dusty Trade’, in HM Chief Inspector of Factories and
Workshops, Annual Report for 1898, pp. 171–172, HMSO London (see also the Annual Reports for 1899 and 1900, p502).
146
Harremo, P., Gee, P., MacGarvin, M., Stirling, A., Keys, J., Wynne, B., and Vaz S.G. (2002) Late Lessons from Early Warnings: the
Precautionary Principle 1896-2000. Environmental issue report No 22 European Environment Agency. Available at
http://reports.eea.europa.eu/environmental_issue_report_2001_22/en Accessed 30 September 2008
147
Santessen, C. G. (1897) Chronische Vergiftungen Mit Steinkohlentheerbenzin: Vier Todesfalle Arch. Hyg. Bakteriol. Vol. 31, pp. 336–
376. LeNoir, Claude, (1897) On a Case of Purpura Attributed to Benzene Intoxication, Bul. Mem. Soc. Med. Hop. Vol. 3, pp. 1251–1261.
148
Edison, T. A. (1896) Effect of X-rays upon the eye, Nature Vol. 53, p. 421
149
See Proceedings of a 1908 Conference of Governors: Opening Address by the President at http://memory.loc.gov/cgibin/query/r?ammem/consrv:@field(DOCID+@lit(amrvgvg16div19)) Accessed 1 July 2008
150
Steiner, R. (1924) Spiritual Foundations for the Renewal of Agriculture. A course of eight lectures. M. Gardner (ed) (1993). Bio
Dynamic Farming and Gardening Association, USA
151
Revelle, R. Fairbridge, R. (1957) ‘Carbonates and Carbon Dioxide.’ Memoirs of the Geological Society of America 67:1: 239-95
152
Harremo, P., Gee, P., MacGarvin, M., Stirling, A., Keys, J., Wynne, B., and Vaz S.G. (2002) Late Lessons from Early Warnings: the
Precautionary Principle 1896-2000 Environmental issue report No 22 European Environment Agency. Available at
http://reports.eea.europa.eu/environmental_issue_report_2001_22/en Accessed 30 September 2008
153
Ibid.
154
World Bank (2003) World Development Report: Sustainable Development in a Dynamic. World Bank
155
Ibid.
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Business and industry groups have been historically wary of and often opposed to the introduction of
environmental policies to internalise externalities such as through emissions trading schemes or ecotaxes, because they have feared the costs of compliance would affect their international
competitiveness. This is especially true of companies who are trade exposed to companies operating
in low cost regulatory environments in developing countries. For example, a number of OECD
governments have decided not to introduce energy or carbon taxes due to strong and concerted
opposition from energy-intensive industries like steel, aluminium and cement. These industry sectors
have traditionally opposed purposeful policies on climate change such as emissions trading schemes
and a carbon tax. The realisation now being made in many of these industries is that efforts to
undermine and block progress in decoupling are actually threatening their own medium to long term
viability as these efforts could be invested in updating processes to become less emissions intensive.
Government’s today have a range of policy options to effectively respond to concerns about potential
loss of competitiveness.156 These policy options include wholesale exceptions, negotiated agreements,
and offsetting tax deductions and financial incentives for energy efficiency improvements. However,
experts have demonstrated that the most effective policy option is to compensate trade exposed large
energy using industries for a carbon tax or an emissions trading scheme through a border tax
adjustment. This means that the government would pay the exporter of say aluminium exports a
rebate to offset the increased costs in production caused by the carbon tax or emissions trading
scheme. But the rebate would only be paid at the point of export thus ensuring that all companies
producing and selling within a country would be subject to the carbon price signal. Border tax
adjustments are not a radical idea and are used in a number of countries including in the Australian
GST system and the European value added tax system. OECD studies of the effects of border tax
adjustments on the cement157 and steel industries158 show that they can lead to carbon taxes having a
negligible effect on the international competitiveness of steel and cement industries.
The EU regulatory framework on the Registration, Evaluation and Authorisation of Chemicals
(REACH) is another good example of how effective policy processes, balanced cost benefit analysis
and consultation has helped overcome businesses fears of increased environmental regulation. Before
its introduction in 2007, the REACH framework faced significant resistance from the chemical
industry, because of the expected impact of higher compliance costs on sectoral competitiveness.
Close consultations with the industry and other stakeholders, as well as extensive cost benefit impact
assessments during the policy formulation phase (now a standard feature in the EU), were crucial in
allying businesses fears and enabling the eventual adoption of REACH.159 Such consultative efforts
156
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008.
157
OECD (2003) Environmental Policy in the Steel Industry: Using Economic Instruments, OECD, Paris, available at
at www.oecd.org/dataoecd/58/20/33709359.pdf Accessed 1 October 2008
158
OECD (2005) The Competitiveness Impact of CO2 Emissions Reduction in the Cement Sector, OECD, Paris,
available at http://appli1.oecd.org/olis/2004doc.nsf/linkto/com-env-epoc-ctpa-cfa(2004)68-final Accessed 1 October 2008
159
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008
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to address competitiveness concerns about environmental policies will be vitally important to enable
the achievement of decoupling more broadly over the coming decades.
Taking a Portfolio Policy Approach to Underpinning Decoupling
The OECD’s research in this area, based on many years of experience, has found that a portfolio
policy approach utilising a variety of government mechanisms and policies (See Table 6.1) is the
most effective strategy to underpin decoupling of economic growth and environmental pressures and
ensure minimal negative effects to business competitiveness. The OECD writes that:
Significant environmental improvement can be achieved at relatively low cost to the economy
and with little negative social impact if the right mix of policies is used. The necessary
policies and technological solutions to tackle the key environmental challenges are both
available and affordable. Even for a single environmental problem, an instrument mix may be
needed given the often complex and inter-connected nature of many environmental challenges,
the often large number and variety of sources exerting pressure on the environment, and the
many market and information failures. Instrument mixes need to be carefully constructed to
ensure that they achieve a given environmental goal in an effective and economically efficient
manner, while providing consumers and producers with flexibility in how they meet the
targets, so as to enable innovation. Social or equity impacts should be addressed. Instrument
mixes should provide clear, short- and long-term policy signals to support appropriate
investment decisions. The policy instruments used in a mix should be complementary and
reinforcing, rather than duplicative or conflicting.160
A good example of effectively combining policy instruments has been the way several European
OECD nations have combined ‘feebates’161 and Germany’s Best Available Technology legislation162
with also emissions trading schemes and eco-taxes. The German Best Available Technology
legislation does not involve mandating specific technologies. Rather, the German Government
upwardly adjusts standards that industry has to meet based on the standards met by the best and most
cost effective available technologies. In theory then, whenever a new and improved technology is
created globally, German industry is expected to meet the environmental standard achieved by that
technology. Of course, regulatory practise is more flexible, ambiguous and much less instantaneous
and are subject to industry pressure. However, it has provided significant incentive for German firms
to develop new technologies that make it cheaper for them to meet the competition from the best
available technologies globally.
Feebates, very simply, combine both a fee on the most environmentally harmful brands of a certain
product, whilst providing income to governments, allowing them to provide a rebate to encourage
consumers to purchase the most environmentally benign products. Operationally feebates are very
160
161
162
Ibid. p432
von Weizsäcker, E., Lovins, A. and Lovins, H. (1997) ‘Factor Four: Doubling Wealth, Halving Resource Use’, Earthscan, London.
Braithwaite, J. and Drahos, P. (2000) ‘Global Business Regulation’, Cambridge University Press, Cambridge.
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simple. Take the example of the car. If you bought a new car, you would pay an extra fee if it were an
inefficient user of fuel, or alternatively get a rebate if it were energy-efficient. The neutral point
would be set so that fees and rebates balanced, so it becomes neither an inflationary measure nor a
disguised tax. The key benefit of feebates is that they would ensure that industry knows that there
will be clear market signals to the consumer to purchase more efficient products, thereby stimulating
innovation in this direction. But government would still need to work with industry to phase in
feebates to ensure industry has time to respond. To reduce administrative costs, feebates can be
targeted at those consumer products that have the largest ongoing environmental impacts, such as
cars and, within the home, refrigerators and washing machines.
When feebates are coupled with best available technology regulation and clear market signals, from
either emissions trading schemes or ecological taxes, this helps drive innovation and the uptake of
green technologies and processes. As Professor Michael Porter, Harvard Business School, wrote as
far back as 1991:
As other nations have pushed ahead, US trade has suffered. Germany has had perhaps the
world’s tightest regulations in stationary air-pollution control, and German companies
appear to hold a wide lead in patenting and exporting air-pollution and other environmental
technologies. As much as 70% of the air pollution-control equipment sold in the US today is
produced by foreign companies. Britain is another case in point. As its environmental
standards have lagged, Britain’s ratio of exports to imports in environmental technology has
fallen from 8:1 to 1:1 over the past decade. In contrast, the US leads in those areas in which
its regulations have been the strictest, such as pesticides and the remediation of
environmental damage. Such leads should be treasured and extended. Environmental
protection is a universal need, an area of growing expenditure in all the major national
economies and a major export industry. The strongest proof that environmental protection
does not hamper competitiveness is the economic performance of nations with the strictest
laws.163
The following table provides an overview of the range of options and approaches available to
governments to allow them to take a lead with industry, and the community, to underpin decoupling
efforts in a way that does not harm competitiveness of industry but rather helps it.
Table 6.1 Policy Instruments for Decoupling
Policy Option
Regulatory
instruments
163
Overview
e.g. bans on certain products or practices, emission standards, ambient
quality standards, technology standards, requirements for the application of
certain (“best available”) technologies, obligations for operational permits,
Porter, M. (1991) ‘Green Competitiveness’, Scientific American, 5 April.
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land use planning and zoning, etc. These can make environmental outcomes
more certain. It is important to emphasize that such regulations tend to be far
more effective if they focus on an environmental outcome, rather than, for
example, specifying the technologies to be used. This provides business with
more incentive to find the lowest cost approaches to achieve the required
environmental outcome.
Environmentallyrelated taxes
Help to ensure that prices reflect the negative environmental impacts and
costs of various products and processes not included in the market price.164
These provide a clear market signal to drive decoupling by providing a
greater economic incentive to invest in improving efficiency and cleaner
production initiatives. In the long term these provide market signals to drive
innovation in the development of new cleaner production methods. In this
case the argument is often made that if the environmental impacts and costs
are incorporated into the cost of the product then it will be too expensive.
The reality is for products that this is true the price is already too expensive.
The additional price on top of the market price that is not being paid is infact being paid by society, now and in the future, through avenues such as
real costs of environmental management, costs related to increasing damage
from natural disasters, and damage to critical environmental systems.
Tradable permit
systems
These set limits, either as a maximum ceiling for “cap and trade” schemes,
or as a minimum performance commitment for “baseline and credit”
schemes. The limits can be either in absolute terms or in relative terms, and
the permits can be denominated either in terms of rights to emit pollutants
(e.g. greenhouse gas emissions), or rights to access natural resources (e.g.
water, fish stocks). Cap and trade systems can combine a high degree of
environmental certainty with economic efficiency – their flexibility helps to
reduce the costs of abatement, while their environmental effectiveness is
high because the environmental objective is explicitly reflected in the
number of permits that are issued.
Subsidies for
environmental
improvement
Currently the majority of government subsidies go to industry practices
which harm the environment, referred to as ‘perverse subsidies’. Instead,
these subsidies could be used to encourage environmental improvement by
encouraging the diffusion of environmentally benign products, processes and
behaviours, and financing environmentally friendly infrastructure
investments along with environmental regeneration projects.
164
von Weizsäcker, E. and Jesinghaus, J.(1992) Ecological Tax Reform: Policy Proposal for Sustainable Development London: Zed
Books
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Voluntary
approaches
Governments can enter into voluntary agreements with industry whereby
industry agrees to meet certain targets and in return government will hold
back on bringing in new policy and regulation. Voluntary agreements are a
useful way to get buy-in from business and industry on the need for action,
but their environmental effectiveness has to be carefully assessed, and they
need careful monitoring and reporting. History shows that they are most
useful when used in combination with other policy instruments, or during a
phase-in period for the use of another policy instrument.
(Source: OECD, 2008)165
There is a great deal of experience in Europe of using combinations of different policy options to
respond to competitiveness concerns from business and industry. This experience is well captured in
the 2008 OECD’s Environmental Outlook 2030 publication 166 and related publications by the
OECD.167 As the 2008 OECD Environmental Outlook 2030 report stated:
(Designed well) in some cases, environmental policies may actually enhance the economic
competitiveness of targeted sectors or industries. Firms that are forced to “clean up” can
gain market advantages, either by being the first to exploit “green” markets or by moving
into new technologies that can in turn be marketed or lead to efficiency savings.
This sentiment is supported by a mounting body of evidence. Innovest’s 2004 extensive report,
Corporate Environmental Governance: a Study into the Influence of Environmental Governance and
Financial Performance, stated:
The literature review found strong evidence for the existence of a positive relationship
between environmental governance and financial performance. In 51 of the 60 studies
reviewed, a positive correlation was found between environmental governance and financial
performance ‘…results from fund, sector and company analysts are all generally positive’.168
Innovest’s extensive study clearly showed that, sector by sector, companies that are environmental
leaders are financially outperforming the laggards. 169 The research literature shows clear links
between improved environmental performance and a company’s financial results.170
165
OECD (2008) OECD Environmental Outlook to 2030. OECD. Available At
http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22.03.2008
166
Ibid.
167
OECD (2007) Business and the Environment: Policy Incentives and Corporate Responses. OECD. Paris; OECD (2007) Environmental
Innovation and Global Markets (ENV/EPOC/GSP(2007)2/FINAL).OECD. Paris; OECD (2007) Pollution Abatement and Control
Expenditures in OECD Countries (ENV/EPOC/SE(2007)).OECD. Paris; OECD (2007) Instrument Mixes for Environmental Policy. OECD.
Paris
168
Innovest Strategic Value Advisors (2004) Corporate Environmental Governance: A study into the influence of Environmental
Governance and Financial Performance. Innovest. p10
169
Ibid.
170
Hart, S., and G. Ahuja (1996) ‘Does it Pay to be Green? An Empirical Examination of the Relationship between Emission Reduction
and Firm Performance’, Business Strategy and the Environment 5: 30-37; Schaltegger, S., and F. Figge (1997) Environmental
Shareholder Value (WWZ/Sarasin Basic Research Study No. 54; Basel: WWZ); Schaltegger, S. and T. Synnestvedt (2002) ‘The Link
between “Green” and Economic Success: Environmental Management as the Crucial Trigger between Environmental and Economic
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In 2007 at the United Nations Summit on Corporate Responsibility, Goldman Sachs released a report
which found that environmental sustainability leaders outperformed the general stock market by 25
per cent over the previous two years and outperformed their same sector peers by almost 75 per cent
over the same period.171 Markets in environmental sustainable solutions are also booming (See Table
6.1)
Table 6.1: Fast growing markets
Market Growth
Investment with
environmental
and social
sustainability
criteria
Overview
Over 360 investment firms, totalling $14 Trillion plus worth of investments,
have now signed the UN Principles of Responsible Investment.172 60 banks,
have endorsed the Equator Principles (EP), an international standard of
sustainability investment for large investments.173 The EPs have become the
global standard for project finance and have transformed the funding of
major projects globally. In 2007, of the US$74.6 billion total debt tracked in
emerging markets, US$52.9 billion was subject to the EPs, representing
about 71 per cent of total project finance debt in emerging market
economies.174
Renewable Energy Since 2003, Clean Energy Technologies - solar, biofuels, geothermal, tidal
and hydropower – produced more electricity globally than the total energy
created by nuclear power plants. Global investment in renewable energies
jumped to a record $100 billion in 2006 and will likely rise to about $120
billion in 2007, according to the U.N. Environment Program.175 U.S. bank
Morgan Stanley has estimated that global sales from clean energy sources
like wind, solar and geothermal power and biofuels could grow to as much
as $1 trillion a year by 2030. 176 Cambridge Energy Research Associates
Performance’, Journal of Environmental Management 65: 339-46; Waddock, S., and S.B. Graves (1997) ‘The Corporate Social
Performance–Financial Performance Link’, Strategic Management Journal 18.4: 303-19. Wagner, M. (2001) A Review of Empirical
Studies Concerning the Relationship between Environmental and Economic Performance: What Does the Evidence Tell Us? (Lüneburg,
Germany: University of Lüneburg,Centre for Sustainability Management); Schmidheiny, S. (1992) Changing Course: A global business
perspective on development and the environment. Boston: MIT Press. Halliday, C.O, Schmidheiny, S, Watts, P, (2002) ‘Walking the
Talk:The Business Case for Sustainable Development’, World Business Council for Sustainable Development. Greenleaf Publishing;
Verschoor, C. (1999) ‘Corporate Performance is Closely Linked to a Strong Ethical Commitment’, Business and Society Review 104.4:
407; Repetto, R., and Austin, D. (2000) Pure Profit: The Financial Implications of Environmental Performance. Washington, DC: World
Resources Institute; Pfeffer, J. (1998) The Human Equation: Building Profits by Putting People First, Harvard Business School Press.
171
Baue, B. (2008) State of the World 2008. Chapter 13 Investing for Sustainability. WorldWatch Institute. Earthscan, London.
172
See UNEP FI Principles of Responsible Investment at http://www.unpri.org/ Accessed 1 October 2008
173
Ibid.
174
See Reuters (2008) Equator Principles Celebrate Five Years of Positive Environmental Impact and Improvement at
http://www.reuters.com/article/pressRelease/idUS142792+08-May-2008+BW20080508 Accessed 1 October 2008
175
Reuters (2007) $1 trillion green market seen by 2030. Environmental News Network Available at
http://www.enn.com/business/article/23958 Accessed 1 October 2008
176
Ibid.
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2008 report predicts that alternative energy investments will top $7 trillion
by 2030.177
Eco-Tourism
Beginning in 1990s, ecotourism has been growing 20% - 34% per year.178 In
2004, ecotourism/nature tourism was growing globally 3 times faster than
the tourism industry as a whole.179 According to Travel Weekly, sustainable
tourism could grow to 25% of the world’s travel market by 2012, taking the
value of the sector to approximately US$473 billion a year.180
Organic
Agriculture
With global revenue surpassing twenty-five billion dollars annually, organic
agriculture is a highly visible and rapidly growing.181
Recycling and
Remanufacturing
In the USA the re-manufacturing market is now worth almost $53 billion
dollars. The USA recycling sector is worth over $250 billion per annum. A
recent report by the Recycling Coalition Group182 found that the industry in
the US created more than 56,000 public and private sector recycling
facilities, with 1.1 million jobs, $236 billion in gross, annual sales, $37
billion in annual payroll.
Source: Compiled by The Natural Edge Project.
There are a number other ways governments can design and implement programs and policies to
effectively underpin decoupling efforts, including:
 Funding efficiency initiatives and R&D in related innovation,
 Providing better information on the risks and opportunities,
 Recycle environmental tax revenues back into affected sectors and utilising border taxes,
 Co-operating internationally to creating a level playing field,
 Providing a well planned and transparent phasing in of the policy to allow for adjustments
and ensuring a consistent whole of government approach to policy, and
 Policy co-ordination efforts to ensure that business and industry are given effective support
to ensure a cost effective transition.
177
Cambridge Energy Research Associates (CERA) (2007) Crossing the Divide:The Future of Clean Energy. CERA. Available at
http://www.cera.com/aspx/cda/client/knowledgeArea/serviceDescription.aspx?KID=199 Accessed 1 October 2008
178
Mastny, L. (2001) Treading Lightly: New Paths for International Tourism, Worldwatch Paper 159 (Washington, DC: Worldwatch
Institute, December 2001), p. 15.
179
See World Tourism Organization, press release, June 2004 cit International Eco-Tourism Society’s Eco-Tourism Factsheet at
http://www.ecotourism.org/WebModules/WebArticlesNet/articlefiles/15-NEW%20Ecotourism%20Factsheet%20Sept%2005.pdf Accessed
20th of September 2008
180
Shum, K.(2007) Green Travel: Trends in Eco-Tourism.The International Eco-Tourism Society. Lifestyles of Health and Sustainability.
Available at http://www.lohas.com/journal/ecotourism.htm Accessed 1 October 2008
181
Kristiansen, P. Taji, A. Reganold, J. (2006) Organic Agriculture:A Global Perspective. Available at
http://www.publish.csiro.au/nid/21/pid/5325.htm Accessed 1 October 2008
182
See Recycling Coalition Group at http://www.nrc-recycle.org/ Accessed 1 October 2008
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Responding to Fears of Job Losses from Decoupling and Environmental Sustainability
The other major social factor that has held back efforts to achieve decoupling has been the fear that
environmental policy and regulation would lead to avoidable job losses.
Studies show that most people still believe that higher environmental standards and tougher
environmental regulation and penalties have led to many companies fleeing to developing countries
to escape these tougher environmental regimes.183 Many believe that at the macroeconomic level,
higher environmental standards and environmental regulation has contributed to long term
unemployment. It is a common perception that environmental protection has been responsible for
plant shutdowns and layoffs in certain industry sectors such as coal mining, forestry, fishing,
chemical and manufacturing industries. It is a common belief amongst workers that they may lose
their jobs in the future as a result of environmental protection. A 1990 nationwide poll, conducted in
the USA found that 33 per cent of those polled felt themselves “likely” or “somewhat likely” to lose
their job as a consequence of environmental regulation.184
Goldstein has studied the jobs-environment debates in detail.185 In reality, at the economy wide level,
Goldstein concludes that these fears are not substantiated and that there has simply been no trade off
between jobs and the environment186. He writes that
… at the local level, in sharp contrast to the conventional wisdom, layoffs from
environmental protection have been very, very small. Even in the most extreme cases, such as
protection of forests or closing down fisheries or steps to address acid rain, job losses from
environmental protection have been minute compared to more garden-variety layoff events.187
Implemented effectively the likely economy wide effect of environmental regulation is to shift jobs
without increasing the overall level of unemployment, and even create new jobs. Globally there are
now significant numbers of people who work in the “environmental industry sector” as a result of
these regulatory changes. In fact, regulation-induced plant closings and layoffs are very rare.
Goldstein shows that in the USA, about 1,000,000 workers are laid off each year due to factors such
as import competition, shifts in demand, or corporate downsizing. In sharp contrast, annual layoffs in
manufacturing due to environmental regulation are in the order of 100 to 3000 per year.188
There is significant evidence to suggest that efforts to underpin decoupling can help create
significantly higher employment, for example ecological tax reform, done well can lead to net job
creation. This is because, according to von Weizsaeker et al, employment (a social good) is currently
taxed in a variety of ways, such as payroll taxes, whilst environmental pollution (a social bad)
183
Ibid.
Goldstein, E. (1999) The Trade Off Myth: Fact & Fiction About Jobs and The Environment. Island Press. Washington DC. P5.
185
Ibid.
186
The real economy wide effect of environmental regulation is to shift jobs without increasing the overall level of unemployment. Globally
there are now significant numbers of people who work in the “environmental industry sector”.
187
Goldstein, E. (1999) The Trade Off Myth: Fact & Fiction About Jobs and The Environment Island Press. Washington DC.p15
188
Ibid,p46.
184
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receives relatively little taxation countries.189 In 1994, DRI and other consultancies commissioned by
the European Commission modelled a scenario where all the revenues from pollution taxes were used
to reduce employer’s non-wage labour costs, such as social security payments, superfund payments,
and payroll tax. The study showed that employment in the United Kingdom would be increased by
2.2 million through such tax shifting.190
There are a number of other reasons why a strategic approach to underpinning decoupling efforts can
lead to higher jobs growth than business as usual worthy of further investigation, including: 191
-
The greater labour intensity in retrofitting the built environment, identifying and
implementing efficiencies, and investment in distributed sustainable forms of energy and
water supply,
-
the greater labour intensity of new industrial processes where the technology and the
manufacturing and operational techniques are not yet highly refined, and
-
the economically stimulating affect of bringing forward investments to achieve a more rapid
transition to sustainability which would also create new jobs.192
Whilst it has been much maligned in some countries such as the USA and Australia, there is strong
evidence that, as long as carbon tax revenue is recycled effectively, a carbon tax would have a strong
employment dividend and assist the economy to become far more energy efficient. Part of the benefit
of this derives from the relative labour intensity of the low carbon intensive sectors (services, retail,
finance, education and health). These sectors could significantly benefit from such a relative price
shift. This effect was thoroughly studied by Proops et al.193
Why then does this myth, that environmental regulation to achieve decoupling leads to job losses,
continue and lead to such opposition from business and industry? This myth persists because there
are some industries that are currently extracting resources and creating pollution at unsustainable
levels, which will need to be reduced in order to decouple economic growth from environmental
pressures to the levels required to sustain prosperity. Some industries are currently operating at such
unsustainable levels that they will need to be scaled down and their operations significantly redesigned. Workers currently working within those industries – some fisheries, some native forest
logging, destruction of rainforests for agriculture, certain types of mining – fear any reduction in
production rates will lead to them losing their jobs and livelihoods. So whilst the real economy-wide
effect of environmental regulation is to shift jobs without increasing the overall level of
189
von Weizsäcker, E. and Jesinghaus, J.(1992) Ecological Tax Reform: Policy Proposal for Sustainable Development London: Zed
Books
190
DRI, et al. (1994) Potential Benefits of Integration of Environmental and Economic Policies, Graham and Trotman and the Office for
Publications of the European Communities, Brussels.
191
Supported by the following findings: INFRAS and ECOPLAN (1996) ‘Economic Impact Analysis of Eco-tax Proposals: Comparative
Analysis of Modeling Results’, European Commission, Directorate-General XII, Brussels.
192
Sutton, P. (2000) ‘Is it Possible for a Green Economy to have High Economic Performance?’ Green Innovations, Melbourne: Available
at www.green-innovations.asn.au/econ-mdl.htm Accessed 1 October 2008
193
Proops, J., Faber, M. and Wagenhals. G. (1993) Reducing CO2 Emissions: a Comparative Input-output Study for Germany and the UK,
Springer Verlag, Berlin. Heidelberg, New York
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unemployment, this is little comfort to fishermen and woman, timber or mine workers who do not
have any other skills to do anything else. It is little comfort to regional communities whose incomes
and property values depend on the existence of such industries and the local timber mill or mining
plant. Often they are 3rd or 4th generation fishermen and woman, timber workers and miners and their
whole identify is understandably attached to that tradition. This is rarely recognised or acknowledged
by the environmental movement nor incorporated in to the design of policy responses.
Dealing with this issue may be one of the most important roles of Government in the 21st Century.
Government needs to work with industry, communities, and a range of institutions, to design ways to
provide structural adjustment and compensation packages and re-training for those workers and
businesses in the sectors and regions of the economy that will be significantly negatively affected –
such as parts of the fisheries, forests, farming, and mining sectors. Workers in regional economies
that are dependent on one main industry are understandably very concerned about anything that
would affect the future of that industry. Hence governments have a role to play in looking at
alternative sustainable futures for regional communities which have currently intrinsically
unsustainable industries. Hence a great effort is needed by governments to help these workers and
communities revise the basis of their ongoing prosperity by investigating and acting early to find and
support new more sustainable industries in these communities that would be affected by reducing the
production of and even phasing out certain unsustainable industries. Governments should work with
such communities to investigate alternative sustainable business opportunities including sustainably
managed mixed specie plantations, sustainable agriculture, eco-tourism, recycling plants, wind farms,
biofuel production. As Table 6.1 showed the markets for such sustainable products are rapidly
growing. Hence it is in towns, cities, regions and nation’s interests to help support and foster these
sustainable industries.
To conclude, there is great experience and understanding globally of how to better achieve
decoupling whilst ensuring both business competitiveness is not harmed and jobs are created overall.
There is also a great deal of experience in how to manage effectively structural adjustment processes
for communities and regions that are negatively affected by structural reform. It is important that this
knowledge is more widely understood to assist business, governments and civil society to more
effectively work together to chart a fair and just course to a sustainable future.
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Appendix 1: Selection of Supporting Resources on Decoupling194
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Compiled by Michael Smith, The Natural Edge Project, Griffith University and the Australian National University, under the supervision
of Professor Ernst von Weizsäcker.
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Appendix 2: Selection of International Studies on Decoupling Economic Growth
from Greenhouse Gas Emissions195
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Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy
Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP),
195
Compiled by Michael Smith, The Natural Edge Project, Griffith University and the Australian National University, under the supervision
of Professor Ernst von Weizsäcker.
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Australia. Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx Accessed
13 February 2008
Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press,
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i
Ibid. Lecture 9.1 http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture9_1
Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C., and Hargroves, S. (2007) Energy Transformed: Sustainable
Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. See Lectures 2.1-2.3, 5.3, 9.1 and 9.2
Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 13. February 2008.
iii
Ibid. See Lecture 5.2: Opportunities for Energy Efficiency in Manufacturing Industries at
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture5_2.
ii
iv
Ibid, Lecture 5.2.
v
Ibid. See Lecture 6.2: Opportunities for Energy Efficiency in the Food Processing and Retail Sector at
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture6_2.
vi
Ibid. See Lecture 6.2.
vii
Ibid. See Lecture 6.3: Opportunities for Energy Efficiency in the Fast Food Industry
athttp://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture6_3.
viii
Ibid. See Lecture 2.2: Opportunities for Energy Efficiency in Commercial Buildings
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture2_2.
ix
Ibid. See Lecture 2.3: Opportunities for Improving the Efficiency of HVAC Systems
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture2_3
x
Ibid. See Lecture 3.1: Opportunities for Improving the Efficiency of Motor Systems
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture3_3.
xi
Ibid. See Lecture 5.3: Opportunities for Energy Efficiency in the IT Industry and Services Sector
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture5_3.
xii
Ibid. See Lecture 8.2 at
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_1.
Ibid. See Lecture 8.2: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Passenger Vehicles at
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_2.
xiii
Ibid. See Lecture 8.3: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Trucking at
http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_3.
xiv
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