10c.
Tools for approaching a sustainable economy

 

How can we turn the growth-economy so that it does not cause resource destruction and environmental damage but still contributes to the welfare of our societies and inhabitants? There are a number of economic instruments to address this question. Some of these are used by the state, the public sector, and some by the private sector.

Most important is the Ecological tax reform, also called green tax shift. This refers to the transfer of taxation on incomes (salaries) towards taxation of resource flows. The simple logic is that what is scarce has to be used carefully should be taxed, that is natural resources, while what is not limited in this sense, i.e. human work or work opportunities, should not be limited by taxation. This green tax shift has occurred in many countries but only to a limited extent. Thus fiscal economy relies on taxation of energy (fossil fuel, e.g. petrol for cars) carbon dioxide emissions, several metals, fertilizers etc, to some extent in several Nordic countries, Germany and the Netherlands. However to reduce resource flows a much more drastic reform is needed. This reform is also assumed to reduce unemployment as taxation of salaries should be drastically reduced.

Salmisaari B power plant Helsinki, Finland.

 

To distribute taxation and achieve environmental reforms in the most efficient way countries have used cap-and-trade systems. This means that a number of actors are allowed to emit a specific pollutant up to a cap. To ensure incentives for companies which can lower their pollution emission rights can be traded between themselves. Such cap-and-trade schemes have been used for different pollutant and different set of actors, especially in the United States. In Europe the best know case is the EU system for carbon dioxide emissions trading ETS (See Session 2c). The main advantage with cap-and-trade is that emissions can be limited exactly to what the environment is able to handle. However, in reality the cap is set to what the emitters or economy can afford.

Societies also use positive economic instruments, i.e. subsidies to support investments promoting sustainable development. Typical subsidies are carbon funds, which are given to support transition to a fossil fuel free economy, such as insulation of houses, green cars, energy efficiency measures, etc. Business are most often reluctant to investing, even when it is profitable, why authorities in different ways try to stimulate the companies. An illustrating case is the project “Energy Efficiency in Large Companies” by the Swedish Energy Authority. 100 large companies took part, all introduced a certified energy management system, they invested a total of 708 MSEK in a total of 1247 projects; tax reductions was only 150 MSEK and annual reduction of energy costs of 400 MSEK, and return of investments thus 1.5 years.

Color LEDsMany states have a strong economic policy to stimulate steps towards a greener business in the private sector. Investing in energy efficiencies, local production of energy and similar steps thus become increasingly profitable with higher prices for fossil energy, trade support better markets etc. Green technologies or green business have become a large sector in the economy of several countries and an important export market. Similarly we see local authorities greening their cities or towns, both for economic as well as ethical reasons, and individual households are also in the same manner greening their lives (see further Session 5c).

The World Business Council for Sustainable Development has become an important actor in promoting sustainable development in the private sector. WBCSD was formed immediately after the Rio Conference in 1992. It played a significant role during the Johannesburg meeting. WBCSD has stressed the concept of eco-efficiency, which “is achieved by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life-cycle to a level at least in line with the earth’s carrying capacity."

Companies as well as authorities promote themselves as green or socially responsible in several ways, as it turns out to be good for their business. Environmental reports are often made individually according to the tradition for each company or authority, but in addition there are standards for environmental or sustainability reporting. Best known is the GRI – Global Reporting Initiative - which covers the whole panorama of sustainability, economic, environmental and social often referred to as the triple bottom line.Global Reporting Initiative

International Organization for StandardizationCompanies as well as authorities may also become certified as environmentally or socially responsible by using an internationally established management standard. The International Organization for Standardization, ISO, has developed several standards and procedures for certification. Most important for sustainability work is the Environmental Management Systems, EMS, standard ISO 14001, and the Corporate Social Responsibility, CSR, which is a guideline ISO 26000, as well as the Energy Management Standard ISO 50001. The introduction of these standards are typical for larger companies, which in turn push their delivering partners further down in the production chain to also introduce such standards.

Adoption of management systems, most typically EMS, is part of voluntary business agreements. There are a number of such procedures between the private sector and the authorities. Adoption of such agreements typically eases the implementation of legal requirements and permits and inspections. Regulation and introduction of a number of environmental laws especially from the European Commission has played an important role in the improvement of the environmental behaviour of the European private sector.

There are also important financial mechanisms to support a change into a more sustainable economy. The large investors, including pensions funds, banks etc, increasingly choose to use sustainability measures as criteria for investing. The used criteria most often include CSR and GRI. The investors see a company that have a sound environmental profile and a good CSR as a more attractive investment object than one without. The latter may end up in trouble with authorities or the society, as well as their employees where it is working. There are thus very concrete reasons for supporting companies, which may contribute to a transition towards sustainability.

Finally one should add that the several proposals for how to manage an economy towards steady state (non-growth economy) are part of the toolbox. See Session 10b.

 

Materials for session 10c

Basic level

  1. Read chapter 11, pages 158-159: pdf Sustainable development and the concept of an ecological tax reform (231 KB) in Environmental Policy - Legal and Economic Instruments.
  2. Read pages 43 - 46: pdf Ecological tax reform (121 KB) by Svante Axelsson in A Sustainable Baltic Region, Session 8 – Ecological Economics
  3. Read chapter 11, pages 149 - 158: pdf Market based economic instruments – emission trading (231 KB) in Environmental Policy - Legal and Economic Instruments.
  4. Read chapter 4, pages 65 - 76: pdf Self-regulation and voluntary corporate initiatives (288 KB) in Environmental Policy - Legal and Economic Instruments.

Medium level (widening)

  1. Study the role of European Union regulations in pdf Development of EU environmental regulation (264 KB) . Chapter 2 in Environmental Policy - Legal and Economic Instruments.
  2. Read chapter 10, pages 137-148: pdf Economic policy instruments – Taxes and fees (218 KB) in Environmental Policy - Legal and Economic Instruments.
  3. Study the policies and roles of World Business Council for Sustainable Development.

 

Advanced level (deepening)

  1. Examine critically the concept of Green Growth, e.g. see:
    Green Business
    Green Growth in Asia and the Pacific
  2. Learn about sustainability reporting at Global Reporting

 

References

Klemmensen, B., Pedersen, S., Dirckinck-Holmfeld, K. R., Marklund, A. and L. Rydén. 2007. pdf Environmental Policy: Legal and Economic Instruments (10.81 MB) . Book 1 in a series on Environmental Management. Baltic University Press. Uppsala.

Zyclicz, T. (ed.). 1997. Ecological Economics - Markets, prices and budgets in a sustainable society. A Sustainable Baltic Region. Session 8. Baltic University Press. Uppsala.

 

Sustainable Development Course