THE BLOG

How Green Should Economic Growth Be?

First dilemma. When your country sells its oil, copper, or timber, it is actually swapping one asset for another: out goes a natural resource, in comes cash. Your national wealth has not changed. Now, if the cash is invested wisely, you might be better off -- rather than leaving hydrocarbons, minerals, or trees sitting idle, you would have healthier children, more educated workers, better infrastructure and so on. But does that mean that you should drill, mine or cut-down as much and as soon as possible?

Second dilemma. An investor is about to build a huge clothing factory that will employ thousands of poor people in an otherwise hopeless town where unemployment and decay have been rampant for years. These are well-paying jobs, badly-needed tax revenues and, if things go well, a shot at attracting other investors. There is a catch though: the factory's runoff will slowly but surely pollute the local river. In 30 years, its water will be foul and unusable. But that's 30 years away, and people are suffering now. Would you join a demonstration to stop the construction of the new factory?

Third dilemma. A populous developing country finds a way to quickly grow its economy. Its billion citizens begin to demand condos, cars, refrigerators, and steaks. Producing all this for them will add tons of carbon dioxide to the world's atmosphere, an atmosphere that is already too warm because citizens in rich countries have been buying condos, cars, refrigerators, and steaks for decades. In the end, the warming of the global climate will hurt everyone -- think catastrophic coastal floods, terrible droughts, and devastating storms. Should international organizations somehow try to persuade that developing country to slow down the pace of its economic growth?

Fourth dilemma. A hydropower dam could solve, once and for all, your country's perennial lack of electricity, and unleash its industrial potential. This will surely be good for the environment, because there will be less need to burn coal. Engineers are happy with the project's safety standards and bankers are lined up to finance it. But just when the bulldozers are about to move in, someone finds out that the dam's reservoir will submerge the habitat of a particular type of squirrel that cannot survive anywhere else. That species will be gone forever. What do you do?

Final dilemma. Your economy depends heavily on oil imported from far-away countries whose politics are less than stable. The oil is then used to fuel cars whose emissions ruin the air. A local entrepreneur suddenly invents a new technology to extract gas from underground rocks. The procedure sounds brutal: you drill down deep and then blast the rocks with high-pressure water and chemicals. Out comes a lot of gas that can replace the dirty oil. But you are unsure what the long-term effects of all that subterranean blasting will be. Contaminated ground water? Leaks? Earthquakes? Even the name of the excavation technique -- "fracking" -- sounds a bit scary. Do you shut it down and continue to burn foreign oil, or do you take the risk and try the new technology?

By now, you should be struggling with the economic, social, geopolitical, ecological, and technological content of those dilemmas. If so, welcome to the quest for "green growth", that is, for the right balance between material progress and environmental protection. There is much debate over where and how to strike that balance. The debate boils down to societal preferences and moral choices -- so, of course, there is little agreement. The caricature of the heartless economist and the tree-hugging environmentalist shouting past each other comes to mind. But don't throw in your intellectual towel just yet. Well before one gets to extreme dilemmas, there is a lot that can be done -- based on common sense -- to make growth greener without making it slower. There are win-wins.

To start with, governments could put order in the subsidies they give out. The prices of gasoline, electricity, water, and even food are usually subsidized -- this is true in many countries, developed and developing. Because people don't pay for the true cost of what they consume, they have less incentive to conserve -- why would you unplug your chargers at night if the electricity bill is ridiculously cheap? These price subsidies are not just inefficient but also unfair: Who drives the biggest cars and lives in the biggest houses? Certainly not the poor. Still, by some estimates, the world spends about a trillion dollars a year on this kind of giveaways.

Industries could be much faster in adopting cleaner technologies that already exist. Why aren't they? Because they don't always have to pay for the environmental damage they cause. Sure, when a giant multinational company spills oil in the coastal waters of a rich country, it is held accountable. But, in the day-to-day of business, there is plenty of pollution for which nobody pays. Think of the carbon emissions coming from the hundreds of thousands of airplanes and ships that carry the world's trade. But think also of the millions of subsistence farmers putting down one more round of pesticides, no matter how much they may hurt the environment, just to squeeze a larger crop out of their tiny plot of land.

And consumers -- meaning, us -- could change the way we behave, and what we value. Whether we laundry too much or recycle too little, these individual decisions are the result of the prices we face, the knowledge we have, and the social norms we follow. Who wants to drive a massive SUV if gasoline costs a fortune, you are aware of the car's crass carbon "footprint," and your friends would anyway think it was uncool? The same applies to our appetite for "inter-generational equity"; that is, for saving part of our natural resources for our children and their children. Is this really a priority for you, as a voter, when you have to pick one presidential candidate over another?

So, how does one get governments, industries, and people to do the right thing and go for greener growth? Surprisingly, the technical tools are known: undistorted prices, clear property rights, smart taxes, enforced regulation, markets in emission rights, community engagement, investment in research, finance for innovation, open data, public education campaigns, and so on. But, as with so many things in development, politics -- and the power of those who benefit from the status quo -- gets in the way of action, and reforms either don't happen or take a long time. And don't forget that, to be effective, many of those reforms need countries to act together, something that adds a daunting layer of complexity. That's why, over the coming years, all eyes will be on emerging economies, on whether they will lock themselves in the old ways of doing business or will seek to grow greenly from the beginning.

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