Environment driving global economy, says Worldwatch Institute

Posted: 10 January 2008

Pioneering entrepreneurs, nongovernmental organizations, and governments around the globe are inventing the Earth's first sustainable global economy, according to State of the World 2008: Innovations for a Sustainable Economy.

In response to climate change and other environmental problems, these leaders are field-testing a remarkable array of economic innovations that offer surprising and hopeful new opportunities for long-term prosperity, finds the new report from the Worldwatch Institute.

"Once regarded as irrelevant to economic activity, environmental problems are drastically rewriting the rules for business, investors, and consumers, affecting over $100 billion in annual capital flows," say project co-directors Gary Gardner and Thomas Prugh.

Solar-rooved apartment blocks, San Diego, California. Photo: Million Solar Roofs
Solar-rooved apartment blocks, San Diego, California. Photo: Million Solar Roofs
Solar-roofed apartment blocks, San Diego, California.© Million Solar Roofs
The report describes a host of new economic opportunities that are attracting capital. An estimated $52 billion was invested in renewable energy in 2006, up 33 per cent from 2005. Preliminary estimates indicate that the figure reached $66 billion in 2007. Carbon trading is growing even more explosively, reaching an estimated $30 billion in 2006, nearly triple the amount traded in 2005.

Some of the most powerful players in today's economy have announced breakthrough environmental initiatives in the past two years, including Citigroup, Goldman Sachs, Kleiner Perkins Caufield & Byers, McKinsey & Company, and Wal-Mart. And many large companies are putting their political muscle where their investment capital is: 27 major corporations, including Alcoa, Dow Chemical, Duke Energy, General Motors, and Xerox, are actively urging the US Congress to pass legislation regulating greenhouse gas emissions - something that would have been unthinkable two years ago.

Innovative companies are also revolutionizing industrial production to meet environmental challenges, while finding that they're saving money: the chemical giant DuPont cut its greenhouse gas emissions 72 per cent below 1991 levels by 2007, saving $3 billion in the process.

Another sign of dramatic change is the 575 environmental and energy hedge funds now in existence, most of them formed in the last few years. "Clean tech" has rapidly grown to be the third largest recipient of venture capital, trailing only the Internet and biotechnology. And 54 banks, representing 85 per cent of global private project finance capacity, have endorsed the Equator Principles, a new international standard of sustainability investment.

Climate change damage

State of the World 2008 cites two major economic modelling studies that find that the damage from global climate change could equal as much as 8 per cent of global economic output by the end of this century. Citing World Bank data, the report also notes that some 39 countries experienced a decline of 5 per cent or more in wealth when accounting measures also included factors such as unsustainable forest harvesting, depletion of non-renewable resources, and damage from carbon emissions. For 10 countries, the decline ranged from 25 to 60 per cent.

To avoid economic collapse at the global level, the State of the World authors call for major reforms of government policy to steer investment away from destructive activities such as the extraction of fossil fuels and toward a new generation of environmentally sustainable industries. Specific recommendations include making prices tell the ecological truth by reducing subsidies and adopting environmental taxes.

Spinning coir rope, Sri Lanka
Spinning coir rope, Sri Lanka
A woman in Sri Lanka spins coir rope with materials and products purchased through microfinancing, a system in which very small loans help small-scale artisans and craftspeople develop markets for their wares. Photo © Worldwatch/ Zoë Chafe
"We have the tools today to steer the global economy onto a sustainable path," say project co-directors Gardner and Prugh. "The task now is to bring them together and scale them up so that they become the norm across today's economies."

The report urges a full assessment and valuation of the services that nature provides free of charge to the human economy and describes several efforts to create markets to protect biodiversity. The report cites a recent assessment that found green accounting programmes in place in at least 50 countries and identified 20 other countries that were planning to initiate such programmes.

State of the World 2008 finds growing evidence suggesting that the global economy is now destroying its own ecological base. It quotes former World Bank chief economist Nicholas Stern, author of the acclaimed Stern Review on the economics of climate change, who describes the changes now under way in Earth's atmosphere as "the greatest and widest-ranging market failure ever seen."

"Continued human progress now depends on an economic transformation that is more profound than any seen in the last century," says Worldwatch president Christopher Flavin. "We should be practising a sustainable approach to economics that takes advantage of the ability of markets to allocate scarce resources while explicitly recognizing that our economy is dependent on the broader ecosystem that contains it."

Highlights from the Report

Energy

  • Corporate R&D spending on clean energy technologies reached $9.1 billion in 2006. Venture capital and private equity investment in clean energy totalled $8.6 billion in 2006, 69 per cent above the 2005 level and 10 times the 2001 level.
  • Average auto efficiency standards will soon rise to 47 miles per gallon in Japan and 49 miles per gallon in Europe. Biofuel production has grown by 20 per cent per year since 2005.
  • Global trade of carbon allowances has increased rapidly, from 328 million tons of CO2 equivalent in 2005 to 1,131 million tons in 2006.
Industrial production
  • Innovative companies are revolutionizing production processes. Chemical giant DuPont, which is committed to sharp reductions of greenhouse gas emissions, cut emissions 72 per cent below 1991 levels by 2007 and saved $3 billion in the process.
  • EcoCover Limited of New Zealand has used biomimicry principles to develop a biodegradable mulch mat made from "upcycled" shredded waste paper bound with fish paste. The product, a substitute for black plastic sheeting, reduces the need for chemical garden care, conserves water, improves soil, and diverts fish waste and waste paper from landfills.
Agriculture
  • A 2003 Swedish study found that beef cattle raised organically on grass emit 40 per cent fewer greenhouse gases and use 85 per cent less energy to make beef than cattle fed on grain.
  • In Norway, several large salmon farms have learned that introducing "cleaner" fish into pens dramatically reduces lice and feed wastage, and that the cleaner fish can later be harvested for fishmeal; salmon production remains the same while waste drops by more than half, the incidence of disease drops, and the farm harvests two or three additional crops.
  • Smithfield announced in 2005 that it would only buy from suppliers who did not use antibiotics on their animals, and in 2007 Tyson Foods announced that the birds it sells to US grocery stores and restaurants would no longer be treated with antibiotics.
  • Wal-Mart announced that within three to five years it would be certifying that all its seafood for the North American market was raised sustainably.
Species conservation

  • An estimated 400+ "wetland banks" throughout the United States handle more than $3 billion per year in transactions, and more than 70 species banks (conservation banks) trade as much as $370 million in species credits each year.
  • China's Grain for Green programme redistributes tax revenues to farmers to keep hillsides forested; it aims to conserve watersheds and prevent floods, but also helps protect species.
Property regimes & Commons management

  • On Bali, rice farmers coordinate their use of scarce water cooperatively through social networks, resulting in a near-ideal allocation in terms of farm productivity.
  • Collectively managed community gardens are increasingly popular, with an estimated 18,000 gardens in the United States alone. Likewise, the number of farmers markets grew 150 per cent between 1994 and 2006, and today there are well over 4,000 in the United States.
Investing for sustainability

  • The Equator Principles have been endorsed by 54 signatory banks and represent over 85 per cent of global private project finance capacity. According to the UN, global venture capital and private equity investment in sustainable energy totaled $8.6 billion in 2006, up 69 per cent from $5.1 billion in 2005, with the number of deals increasing by 12 per cent.
  • There are now 575 environmental and energy hedge funds. Global "clean-tech" capital investment increased by 78 per cent in 2006 to $2.9 billion, making it the third-largest ventureinvestment category (and the third largest such sector in both China and the United States).
  • More than 300 institutional investors representing over $41 trillion in assets have signed onto the fifth iteration of the Carbon Disclosure Project, which asks 2,400 of the world's largest companies to voluntarily report their carbon emissions and management processes.
Measuring wealth and wellbeing

  • Interest in ways to promote human wellbeing is widening among policymakers, with wellbeing now a national policy goal in Australia, Canada, and the United Kingdom.