2011-03-02 15:12

All across the world, the drive for higher incomes in the face of mounting environmental destruction has heightened the tension between rapid economic growth and environmental protection. The perception of a trade-off between the two goals rests on the view often held - wrongly - that environmental protection, not environmental degradation, is the obstacle to fast growth.

The reality, however, is the opposite - it will not be possible to sustain high growth in the coming years without environmental care.

The reason is that we are facing a twin crisis, economic and environmental, and the two are highly interlinked. The recent spike in food prices, the second in three years, signals in good measure, pressures on production that are exacerbated by the deleterious effects of environmental devastation and climate change. While some may dismiss the global risks of climate change as being distant, recent extreme weather events point to changes that may already be upon us.

To be clear, sustained growth has been the most powerful means to reduce poverty, especially in China, India and elsewhere in Asia. China's growth averaged 10 percent yearly for the past 25 years, lifting some 400 million people out of poverty. This growth, however, has been accompanied by its own unique challenges. For example, in a continued high-growth scenario, by 2020, the total coal consumption could increase by 1 billion tons per year.

Climate change presents the greatest threat to sustaining high growth. In the past 100 years, the world economy expanded sevenfold, the global population increased from 1.6 billion to 6.5 billion and the world lost half of its tropical forests. Consequently, atmospheric carbon dioxide levels are now 385 parts per million (ppm) and rising fast. This is close to the 450 ppm threshold beyond which it may be impossible to achieve the Cancun-agreed goal of limiting global temperature rise to 2 C.

Countries in Asia are already seeing the effects of climate change on local agriculture. Natural disasters are on the rise and it is the hydro-meteorological events, not the geological ones, that have shot up, suggesting the ominous link to global warming. In recent years China has experienced a dramatic increase in the frequency of extreme hydrological events, such as droughts and floods, which has further increased the vulnerability of agriculture. Just these past weeks, China's Shandong province, one of the country's major grain producers, has been facing a severe drought that threatens wheat production. The economic costs, including the losses caused by air pollution, water contamination and solid wastes, as well as deforestation are estimated to amount to some 3 per cent of the GNP.

Strikingly, prevention is often far cheaper than cure - whether it's curbing industrial pollution, arresting deforestation or reinforcing structures in disaster-prone areas. Why then don't governments and businesses universally favor environmental safeguards?

One reason is that when it comes to global issues, no country, rich or poor, has the economic motivation, or the political will, to confront them alone. That's because only a part of the benefits accrue to those taking action, while others can grab a free ride. And even when the gains are local, they may only appear after politicians leave office.

Second, the split between what's good for society and what drives private interest is perpetuated as many policy and business leaders still do not view the environment as integral to the growth agenda. Mainstream economics has not been helpful in this regard. Most economic projections still assume that high growth can proceed independently of environmental action.

Third, policy often worsens the situation by encouraging the waste of natural resources. Growth models are silent on subsidies purportedly used to speed growth - farm subsidies of some $150 billion a year and subsidies to fossil fuels of $650 billion a year worldwide - that encourage energy intensity, emissions and waste. Cutting these subsidies would increase economic efficiency and improve the prospects for growth.

If high growth is to continue - be it in China, India, or elsewhere - we need to fundamentally correct the belief that environmental protection hampers economic growth. Economics can be highly influential in this respect. But mainstream economics must reverse its past advice and indicate that the drive for higher incomes can succeed only by including - not excluding - environmental care in growth policies.

The author is the director-general of the Independent Evaluation Group of the World Bank.