The high human cost of inverted logic

Business News - Saturday December 15, 2007

BY INVITATION

The high human cost of inverted logic

VINOD THOMAS

As world leaders meet in Bali to discuss Earth's rising temperatures, climate change is emerging as the central threat to our world's economic growth. The unprecedented attention to the issue is timely, but the crucial question is what national policy leaders will actually do to confront the underlying causes of climate change.

The root cause of climate change is environmental neglect, and related energy inefficiency accompanying the drive for rapid growth. Sadly, most policymakers and their economic advisers have wrongly held the view that it's environmental protection, not environmental degradation, that obstructs growth. This inverted logic comes at a high human cost.

While the world economy expanded sevenfold over the past century, global population increased from 1.6 to 6.5 billion, the world lost half the tropical forests, and carbon dioxide levels rose to 380 parts per million (from the pre-industrial 280 ppm). A rise in temperature of 0.74 degrees Celsius in the past century is causing sea levels to rise, melting glaciers and destroying biodiversity. Once CO2 levels exceed 450 ppm, the change in temperature could top the pre-industrial era by two degrees Celsius, enough to trigger massive climatic instability.

Aside from the global impact, the local damages of environmental devastation are great too. The losses in health and worker productivity from just particulate air pollution amount to 2-3% of GNP in some Asian countries. Water stress and losses from water pollution pose immediate threats to health and well-being, and such distress is on the rise. Deforestation and soil erosion are compounding the damages of natural disasters such as floods and wind storms - especially for the poorest, most likely to be in harm's way.

Along with this picture of environmental decay, there is the story of growth delivering social gains for the people. Where it has occurred, sustained growth has been the most powerful means to reduce poverty. East Asia may be the most striking example of the gains, where growth averaged more than 8% yearly for the past 25 years, and some 600 million people were lifted out of poverty. Developing countries still have to grow a great deal as their average income is still one-sixth that of rich nations.

So the question is how a country can continue to grow quickly without allowing environmental neglect to derail the process. The remarkable fact is that taking preventive measures to address the environmental concerns is a lot cheaper than waiting for the damage to occur and then trying to take curative actions - whether it's curbing water pollution or putting in adaptive reinforcement of structures in disaster-prone areas.

Why then don't governments and businesses take protective measures? One reason is that no country, rich or poor, has enough motivation to confront global problems alone. That's because only a part of the benefits go to those taking action, while others get a free ride, a dilemma compounded by competitive pressures. Even when the gains are local, they often are spread beyond the time frame of most politicians.

This split between societal gain and the private interest can only be addressed if policy leaders factor in the environment within growth policies, as well as in measures of success. And such a shift must lead to results in three areas.

First, it must lead to deep cuts in carbon emissions. Measured per person, the United States, Japan, and European nations make by far the biggest contribution to global emissions. So they carry overwhelming historic responsibility to act. Measured in total amount, the developing middle-income countries already account for half of these emissions. So they too must be part of the solution.

Second, it ought to help arrest deforestation, which accounts for a fifth of all greenhouse gas emissions, more than from all transport. It is time to open new markets for permits for emissions that can be traded, a step that would allow industrial countries to buy these permits by paying those who own the forests for conserving them. Countries of Asia, Latin America and Africa can gain financially while protecting their forests.

Third, the policy shift needs to stop encouraging the waste of natural resources, politically hard as it might be. The world spends a quarter of a trillion dollars a year on energy subsidies, draining the public purse, promoting energy waste and locking in polluting infrastructure for decades and accelerating climate change. The wastage of fresh water from subsidies and inefficiencies of use is estimated at 5% to 25% worldwide.

The global events on climate change are welcome. Yet, results on the ground require the ministers in charge of their nations' economies to see environmental safeguards as an aid, not an impediment to continued growth. Without this shift in thinking, the drive for growth alone will be self-defeating.

Vinod Thomas is the director-general of the Independent Evaluation Group, The World Bank. The views expressed are personal. He can be reached at Vthomas@worldbank.org

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