Ecological Economics 77 (2012) 1115

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Ecological Economics
journal homepage: www.elsevier.com/locate/ecolecon

Commentary

A Commentary on UNEP's Green Economy Scenarios

Peter A. Victor a,, TIm Jackson b
a b

York University, HNES Building, 4700 Keele Street, Toronto, Ontario, Canada M3J 1P3 Guildford, Surrey, GU2 7XH, United Kingdom

A R T IC L E

IN F O

Article history: Received 10 November 2011 Received in revised form 24 February 2012 Accepted 26 February 2012 Available online 20 March 2012 Keywords: Green Growth CO2 Equity Simulation

1. Introduction 1 UNEP denes a green economy as an economy that results in improved human well-being and social equity, while signicantly reducing environmental risks and ecological scarcities' (UNEP, 2011b, p.1). In view of the state of the world's economies, the impacts they are having on environments from local to global, and the widespread incidence of social and economic injustice, the appeal of a green economy so dened is obvious. What is less obvious is how we might get there. The recent report, Towards a Green Economy. Pathways to Sustainable Development and Poverty Eradication. A Synthesis for Policy Makers (ibid), describes a set of enabling conditions for the transition to a green economy covering regulatory frameworks, government investment and spending strategies, taxation and market-based instruments, investment in capacity building, training and education, and strengthening international governance. The report claims that a green economy grows faster than a brown economy over time, while maintaining and restoring natural capital (ibid. p.i). We live in a world in which the pursuit of economic growth dened as the rate of increase in real (ination-adjusted) gross domestic product (GDP) is one of the highest priorities of governments, the private sector, and even elements of civil society, dependent as many of them are on economic growth for nancial support and basic stability. If we can move towards a green economy without undermining economic growth, it will make a difcult task
Corresponding author. Tel.: + 1 416 736 2100x22614; fax: + 1 416 736 5679. E-mail addresses: pvictor@yorku.ca (P.A. Victor), t.jackson@surrey.ac.uk (T.I. Jackson).
1 This paper offers expanded detail on an argument rst propounded by the authors in a letter to Nature (Victor and Jackson, 2011).

much easier. If the claim in the UNEP report is correct, we can continue to enjoy an ever-increasing output and consumption of goods and services, while improving social equity and reducing impacts on the environment. But can we? Is it reasonable to claim that a green economy grows faster than a brown one, or is a more radical overhaul of economic structure needed if we are to remain within the biophysical limits of the planet and improve social equity? In many respects, the simulation model, which is described in UNEP, 2011a and is the basis for the claim about green growth rates, is impressive. It consists of multiple components of the global socioeconomic, environmental and resource systems including: population, agriculture, forestry, industry, services, transportation, waste, water, and energy. Furthermore, it includes relationships among these multiple components, allowing for feedback and non-linearities, and uses empirical data to quantify relationships in the model.2 All models are simplications of the system they are designed to represent. We build them to help understand the system in question. A key issue when designing and evaluating a model and the results derived from it is whether the particular simplications are appropriate, given the purpose the model is intended to serve. As impressive as the UNEP model is, it is decient in one major respect for analysing the transition to a green economy: it treats the world as a single unit. All the data in the model are global averages. All the empirical relationships in the model are global averages. All the results are global averages. The model does not recognize differences among geographic regions or between richer and poorer nations. These differences are all lost in the global averages. This lack of differentiation is a particularly severe deciency in relation to social equity which, in an economic context, is closely related to income distribution. Average per capita incomes in the richest nations can be an order of magnitude or more greater than those in the poorest nations but these disparities are invisible in such a highly aggregated model. Income distribution simply cannot be addressed in a model of global averages. Reliance on global averages is also a problem for other issues such as forecasts of global greenhouse gas emissions. These emissions are rising at different rates in different regions so estimates of global emissions based on average global rates of increase differ markedly from global estimates based on the summation of estimates for

2 The model itself is not presented in the report in sufcient detail to allow inspection of its structure, assumptions, data and equations. The authors of UNEP (2011b) kindly provided more details in Millenium Institute (February, 2011), though not the full model description.

0921-8009/$ see front matter 2012 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2012.02.028

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P.A. Victor, T.I. Jackson / Ecological Economics 77 (2012) 1115

Table 1 A summary of results from the BAU, BAU2 and G2 Scenarios. BAU Additional investment Real GDP Annual GDP growth rate GDP per capita Annual GDP per capita growth rate Consumption per capita Population below $2/day Total employment Energy intensity Fossil fuel CO2 emissions Footprint/biocapacity CO2 intensity BAU2 Additional investment Real GDP Annual GDP growth rate GDP per capita Annual GDP per capita growth rate Consumption per capita Population below $2/day Total employment Energy intensity Fossil fuel CO2 emissions Footprint/biocapacity CO2 intensity G2 Additional investment Real GDP Annual GDP growth rate GDP per capita Annual GDP per capita growth rate Consumption per capita Population below $2/day Total employment Energy intensity Fossil fuel CO2 emissions Footprint/biocapacity CO2 intensity Unit US$bn/year US$bn/year %/year US$/person/year %/year US$/person/year % billion people Mtoe/US$bn Gt/year Ratio kg/US$ Unit US$bn/year US$bn/year %/year US$/person/year %/year US$/person/year % billion people Mtoe/US$bn Gt/year Ratio kg/US$ Unit US$bn/year US$bn/year %/year US$/person/year %/year US$/person/year % billion people Mtoe/US$bn Gt/year Ratio kg/US$ 2011 0 69,334 na 9,992 1.8% 7961 19.5% 3.2 0.18 30.6 1.5 0.44 2011 0 69,334 na 9,992 1.8% 7,961 19.5% 3.2 0.18 30.6 1.5 0.44 2011 0 69,334 na 9,992 1.8% 7,961 19.5% 3.2 0.18 30.6 1.5 0.44 2015 0 77,694 2.9% 10,737 1.8% 8264 18.3% 3.4 0.17 32.9 1.6 0.42 2015 1,535 79,306 3.4% 10,959 2.3% 8,435 17.9% 3.4 0.17 33.6 1.6 0.42 2015 1524 78,690 3.2% 10,874 2.2% 8,370 18.1% 3.4 0.17 30.7 1.5 0.39 2020 0 88,738 2.7% 11,698 1.7% 9004 16.9% 3.6 0.17 35.6 1.6 0.40 2020 1,798 92,583 3.1% 12,205 2.1% 9,394 16.2% 3.7 0.16 37.1 1.7 0.40 2020 1789 92,244 3.2% 12,156 2.2% 9,357 16.0% 3.7 0.21 30.3 1.4 0.33 2030 0 110,642 2.2% 3,512 1.3% 10,401 14.6% 4.1 0.15 40.8 1.8 0.37 2030 2,334 119,307 2.6% 14,577 1.6% 11,220 13.5% 4.2 0.15 43.8 1.8 0.37 2030 2388 122,582 2.9% 14,926 2.0% 11,488 13.2% 4.1 0.12 30.0 1.4 0.24 2050 0 151,322 1.6% 17,068 1.4% 13,138 11.4% 4.6 0.13 49.7 2.1 0.33 2050 3,377 172,049 1.8% 19,476 1.7% 14,991 9.8% 4.8 0.13 55.7 2.2 0.32 2050 3889 199,141 2.5% 22,193 2.2% 17,082 8.4% 4.9 0.07 20.0 1.2 0.10

Source: Adapted from UNEP 211b, p.514 Annual GDP growth rate and CO2 intensities are calculated from data in the table.

individual countries or regions. The upshot being that conclusions about green versus brown growth based on such a highly aggregated global model are at least premature, and more likely, seriously misleading. 2. Brown and Green Economy Projections The UNEP report (2011a) describes ve scenarios to show the impact of different levels and patterns of investment: BAUa baseline business as usual scenario that replicates history over the period 19702009, and assumes no fundamental changes in policy or external conditions going forward to 2050 (UNEP, 2011a, p.507). It is calibrated against baseline projections of several existing sectoral models. BAU1investment is increased by 1% of GDP/year compared to BAU, but current trends in resource use and energy consumption, etc. are maintained with no additional investments in renewable energy, different forms of agriculture, and reduced deforestation. The additional investment is allocated across the economy without targeting specic sectors (Ibid. p.508). BAU2same as BAU1 except that investment is increased by 2% of GDP per year compared to BAU.

G1a 1%/year increase in investment that increases resource efciency and reduces carbon intensity, allocated about equally across the various sectors. G2a 2%/year increase in investment emphasizing green investment in which a higher share of GDP is allocated to energy (both demand and supply measures) and the remainder is shared across the remaining sectors (e.g. agriculture, forestry, shery, waste, transport infrastructure) (ibid, p.508). The report makes it clear that G2 is the green investment scenario (unless otherwise stated) and so in what follows we shall focus on this green scenario, comparing it with BAU2 and BAU. Table 1 shows that real GDP and real GDP per capita grow faster in the BAU2 and G2 scenarios than in the BAU scenario. This is not surprising since in both of these scenarios it is assumed that investment rises by 2% of GDP per year, without any consideration of how the increase is funded, thereby providing a demand stimulus and an increase in production capacity as compared with the BAU scenario. Comparing the BAU2 and G2 scenarios, the economic output in 2020 is larger in the BAU2 scenario than in the G2 scenario, but beyond 2020, owing to the higher rate of economic growth, economic output in the G2 scenario begins to exceed that of the BAU2 scenario. This is the basis of the claim that a green economy grows faster than a brown economy.

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The main reason identied by the UNEP report for this result is that in the longer term, the decline of natural resources (e.g. sh stocks, forestland and fossil fuels) has a negative impact on GDP (i.e. through reduced production capacity, higher energy prices and growing emissions) (UNEP, 2011a p.515). Other adverse environmental impacts from BAU2 are mentioned but they do not seem to have been included in the simulations: additional consequences may include large-scale migration driven by resource shortages (e.g. water), faster global warming and considerable biodiversity losses (ibid. p.515). The reduced resource and environmental impacts of the G2 scenario as compared with BAU and BAU2 are, of course, extremely important and we certainly do not want to disparage efforts intended to help achieve them. However, we have several reasons for questioning the conclusion that a green economy will grow faster than a brown one. 2.1. How Green is Green? While a signicant reduction in greenhouse gas emissions climate change is only one dimension of a green economy, it is perhaps the most important. It is certainly the one that continues to attract the most attention. How does the G2 scenario fare in relation to greenhouse gas emissions? As can be seen in Table 1, the G2 scenario offers virtually no reduction in greenhouse gas emissions from fossil fuel use between 2011 and 2030. After 2030 these greenhouse gas emissions decline by only 35% relative to 2011 emissions. The IPCC's 4th Assessment Report argues that in order to achieve a 450 parts per million (ppm) stabilization target and prevent dangerous anthropogenic climate change, carbon emissions would need to peak by 2015 and then decline rapidly, so that global carbon emissions in 2050 are in the range 1550% of carbon emissions in 2000. That is a reduction of between 50% and 85% over 2000 emissions By contrast, the UNEP target amounts to a reduction of less than 17% over carbon emissions in the year 2000. More recent scientic evidence suggests that the 450 ppm stabilization target is insufcient to remain within a 2 degree global warming and this has led to calls for a 350 ppm stabilization target instead. This would certainly require a reduction in global emissions at the higher end of the 50 85% range. In summary, the emissions reductions achieved in the UNEP scenarios are woefully inadequate when compared against those required. 2.2. Investment In both the G2 and BAU2 scenarios it is assumed that global investment is increased by 2% of global GDP per year compared with the BAU scenario. Only the pattern (and not the amount) of the additional investment is said in the report to be different. the same amounts of investments are simulated (UNEP, 2011a, p.507). Yet, an increase in investment of 2%/year would only correspond to the same amounts of investment in the two scenarios if global GDP was also the same in both scenarios. But this is not so. According to Table 1, global GDP is larger in the G2 scenario in 2030 and beyond, hence the additional investment is too: US$3,889bn in 2050 in scenario G2 compared to US$3,377bn in scenario BAU2. By interpolating the values for additional investment in each scenario for the years shown in Table 1 the additional investment in the G2 scenario is about 10% higher between 2011 and 2050 than in the BAU2 scenario. 3 This strikes us as an unfair comparison of the two scenarios, since investment is one of the main drivers of economic growth. The
3 The authors of the UNEP report continue to resist the inescapable conclusion that additional investment is higher in the G2 scenario than in the BAU2 scenario. A. Bassi and D. Eaton, Correspondence, Nature, Vol. 475, 28 July 2011, p.454.

comparison would have been more balanced if the absolute levels of additional investment were the same, not the percentages. Another problem concerning the treatment of investment in the model is a neglect of the way in which the additional investment is nanced. Additional investment must be paid for, most likely through a combination of private and public debt and there are likely to be further consequences for growth, trade and distribution. These consequences are not accounted for in the UNEP model, which is acknowledged in the Technical Background Material (Bassi, 2011). An alternative approach would have been to avoid the nancing issue by examining the consequences of a re-allocation of investment rather than an increase in investment. In such circumstances no increase in funding would be required. The Technical Background Material (ibid) explores this possibility, and even provides a comparison of additional and reallocated investment. It concludes that when using the same assumptions, results of the simulations do not signicantly differ from each other for most variables (ibid p.3). But this conclusion overlooks the potential signicance of the nancing issue which only comes into play in the additional investment scenario. By neglecting this issue any comparison of scenarios involving additional investment and a re-allocation of investment remains moot. 2.3. Growth and Distribution We now come to the most important reason for questioning the conclusions of the UNEP report regarding growth rates in green and brown economies. A model that portrays the global economy as a single, undifferentiated system is essentially blind to regional, national and class differences. In Table 1, totals for additional investment, real GDP, employment and fossil fuel CO2 emissions are for the entire globe and growth rates are averages for the world, as are consumption per capita, energy intensity, and footprint/biocapacity. The enormous variation in each of these variables at sub-global levels does not come into play. When these variations are taking into account, there are signicant implications both for the changes required to reduced CO2 emissions and for intra-generational equity, as we now show. We rst distinguish between two groups of countries using the World Bank's classication and data: high income countries and low and middle income countries. 4 Interpolation of the values for the G2 scenario in Table 1 for average world GDP/capita and world GDP gives annual values to 2050. These values were used to calculate world population for each year implicit in the G2 scenario. UN (2008) provides population projections for each of the two groups of countries. Proportions obtained from this source were used to estimate the populations of high and low and middle income countries consistent with the G2 world population projection. Values for average GDP/capita in the two groups consistent with the G2 global scenario were obtained using the following equations. Let W refer to world, H to high income countries, LM to low and middle income countries, and t to year. Then: GDP
W t

GDP

W t

per capita Popn

H

W t

1
LM t

GDP

W t

GDP t per capita Popn

GDP

per capita Popn

LM t

4 Unless otherwise stated, the data in this section of the paper come from the World Development Indicators, World Bank http://data.worldbank.org/data-catalog/worlddevelopment-indicators (September 2011 version). 2007 is the latest year for which a full set of data required by the Kaya equation is available. Unless otherwise stated, monetary values are in constant 2000 US dollars to correspond as closely as possible to the UNEP report which also uses constant US dollars but with a 2010 base year. The different base year has a minimal impact on the calculated rates of change though a different deator could be more signicant.

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Dene Rt = GDP Ht per capita / GDP LMt per capita By substitution: GDP
H t

per capita GDP

W t=

  H LM Popn t Popn t =Rt

And GDP
LM t

  W H H LM per capita GDP t GDP t Popn t =Popn t

The UNEP reports are silent on changes in the distribution of income between the groups of countries in the G2 scenario (i.e. Rt). Its value was 17.2 in 2007 (based on constant US dollars), the most recent year for which data on GDP/capita and CO2 emissions were available from the World Bank database. (Implications for global CO2 emissions of changes in this value are explored below.) Eqs. (3) and (4) were used in combination with the population projections for each group of countries to estimate their annual GDP to 2050. Values for CO2 emissions and GDP for each group of countries in 2007 were obtained from the World Bank database. These were used to calculate average CO2 intensities which were adjusted to account for the use of constant 2000US$ in the World Bank GDP data and constant 2010US$ in the G2 scenario. In 2007, the average CO2 intensity of low and middle income countries was four times greater than in high income countries. These adjusted CO2 intensities were multiplied by the GDP values for each group of countries to estimate their respective CO2 emissions. A single rate of reduction in these CO2 intensities of 4.0%/year was found to yield a reduction in global CO2 emissions closely matching the G2 scenario. Table 2 shows the results of four scenarios. The differences among them are due to different assumptions about the rates at which the CO2 intensities and the gap between in GDP/capita in the two groups of countries decline. Global population and global economic growth remain as in the G2 scenario. Scenario 1 matches the reduction in global CO2 emissions in the G2 scenario. It is based on the assumption that the ratio of GDP/capita between the two groups of countries remains unchanged to 2050 with the result that the absolute gap between them rises from $41,000 in 2011 to $110,000 in 2050. This assumption is unrealistic given the expectation that middle income countries in particular will exhibit more rapid rates of growth than high income countries. To show the signicance for global CO2 emissions of a more equal distribution of income, scenario 2 maintains the same rate of reduction in CO2 intensities as in scenario 1 but assumes that the gap in GDP/capita is entirely eliminated by 2050. Under these conditions global CO2 emissions will rise by 33% compared to 2011 for the simple reason that more of the global economic growth to 2050 is concentrated in countries that have higher CO2 intensities. Scenario 3 shows that CO2 intensities would have to decline at an average rate of 5.7%/year in both groups of countries to achieve

simultaneously the 35% reduction in global CO2 emissions of the G2 scenario and close the gap in average GDP/capita. To put this in perspective, CO2 intensities in 2050 would have to be 50% lower in scenario 3 than in scenario 1 if GDP/capita is to be equalized. The connection between achieving a global environmental objective and enhancing social equity is well illustrated by the differences between these two scenarios. As noted earlier, a reduction in global CO2 emissions of only 35% by 2050 is insufcient to avoid serious increases in the risk of catastrophic climate change. Scenario 4 shows that an average annual rate of reduction in CO2 intensities of 8.6% is required to reduce global CO2 emissions by 80% if, over the same period, the gap in average GDP/capita is to close as well: $22,000 in both groups of countries, implying average annual growth rates of 3.4% in low and middle income countries and 1.9% in high income countries. These reductions in CO2 emissions are equivalent to CO2 intensities in 2050 of only 15% of their value in scenario 1, the one most similar to the G2 scenario. This comparison of scenarios further underlines the need to consider what it will take to achieve simultaneously, ambitious environmental and equity objectives demanded by a truly green economy. There are many other scenarios that can and should be considered besides those discussed here. Achieving convergence of global incomes over a longer period of time would help lessen the rate at which CO2 intensities have to decline to reduce global CO2 emissions. A slower rate of economic growth, especially in the high-income countries, where the case for increasing economic output is weakest, would also reduce the rate of reduction in CO2 intensities required to meet any specied level of reduction in global CO2 emissions. But this is the crux of the matter and it runs contrary to the conclusion that green growth is pro-growth. 3. Conclusion The UNEP report purports to show that a green economy grows faster than a brown one. We have challenged this conclusion on three main grounds. First, the CO2 reduction achieved in the key G2 scenario is sadly inadequate as a response the risk of catastrophic climate change. Second, the treatment of investment in the UNEP model unduly favors the green G2 scenario because it allows more investment than the brown BAU2 scenario with which it is compared. Also, both scenarios are silent on the crucial question of how the additional investment is to be nanced. Third, there are implicit assumptions in the G2 scenario about the distribution of global economic output between richer and poorer countries. A truly green economy is one in which social equity and environmental objectives are met. Different assumptions about the gap between rich and poor can have very different implications for the reduction in CO2 intensities. Equity and environmental targets are inextricably linked. Economic growth, social equity and

Table 2 A summary of results from the BAU, BAU2 and G2 scenarios. G2 scenario resulting in 35% reduction in GHG of 2050 1 %/ change in ratio of GDP/capita %/ change in CO2 intensity high % change in CO2 intensity low and middle) Av % change in global CO2 intensity Absolute GDP/capita duff 2011 Absolute GDP/capita duff 2050 Ratio of GDP per cap HIC:(LIC+MIC) by 2050 % change in global CO2 emissions by 2050 Source: Authors' calculations for this paper. 0.0% 4.0% 4.0% 3.7% $41,000 $110,000 17 -35% Narrowing of the income gap with the same intensity improvement as G2 scenario 2 7.0% 4.0% 4.0% 1.9% $41,000 $0 1 33% Narrowing of income gap plus intensity improvement to result in 35% reduction in GHG 3 7.0% 5.7% 5.7% 3.7% $41,000 $0 1 -35% Narrowing of income gap plus intensity improvement to result in 80% reduction in GHG 4 7.0% 8.6% 8.6% 6.6% $41,000 $0 1 -80%

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environment cannot be analyzed adequately in a global model without some regional differentiation. In summary, it is unlikely that reductions in CO2 emissions (not to mention other global environmental pressures) and signicant closure of the gap between rich and poor (as required by a truly green economy) are simultaneously possible without some curtailment of ambitions for economic growth.

References
Bassi, A., February 2011. UNEP GER Global Modeling Work. Technical Background Material, V.4. Milleniium Institute, Arlington, U.S.A. UN, 2008. World Population Prospects: The 2008 Revision, Medium projection. Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. http://esa.un.org/unpp accessed February 22, 2011. UNEP, 2011a. Towards a GREEN economy. Pathways to Sustainable Development and Poverty Eradication. A Synthesis for Policy Makers. http://www.unep.org/ greeneconomy/Portals/88/documents/ger/GER_synthesis_en.pdf (last accessed 2 January 2012). UNEP, 2011b. Modelling Global Green Investment Scenarios. Supporting the transition to a global green economy. http://www.unep.org/greeneconomy/Portals/88/ documents/ger/GER_13_Modelling.pdf (last accessed 9 November 2011). Victor, P., Jackson, T., 2011. Nature. Correspondence, Vol 472, p. 295. 28 July.

Acknowledgements The authors gratefully acknowledge research assistance provided by Eric Miller and helpful comments received from two anonymous reviewers.