In a few weeks time world leaders will gather together for the Rio+20 Conference to discuss how to build a green economy in the context of sustainable development and poverty eradication. With the current economic crisis, this theme is a highly pertinent issue for both developed and developing countries.
It is therefore understandable that economic growth is the driving issue at Rio+20, with environmental protection and social equity coming along for the ride, so to speak. But how can the three actually be combined? Start with an economy that values what we actually want to achieve.
Defining sustainable development on three pillars: economic development, social development, and environmental protection, was an innovation. It brought together different interests and declared that none of the pillars should be compromised by any of the others.
Although sustainable development is seen as an oxymoron by those that believe that there are limits to growth, the term has succeeded by having universal appeal. The brilliant thing about the definition of sustainable development is that it is suitably vague. Sustainable development can be interpreted differently by different groups, while seemingly allowing them to agree.
The theme for this Rio+20 Conference further clarifies how sustainable development should be understood. It is first of all about economic growth. Economic growth is the ticket out of poverty. But how do we make sure that developing countries do not repeat the same mistakes of increasing environmental pressure and increasing the gap between rich and poor when growing their economy?
There are very few (if any!) countries in the world that have been able to grow the economy, protect nature and create social equity, all at the same time. Countries that have managed to grow their economy have also increased wealth and social gaps in their society. The few countries that have managed concurrent economy growth and improved social structures have done so at the expense of the environment.
For example, the Nordic countries now have some of the highest consumption levels. In our quest for economic development, it is important that we do not follow the same path as it will lead us to the same destination. The whole idea behind the Rio+20 Conference is to discuss how we can do things differently.
What would I like to see discussed in Rio? A global reform of taxes and tariffs with a major shift from taxes based on labour to taxes based on environmental damage.
Why do we tax the things we want to encourage (employment) and assign little economic value to the things that we want to protect (the environment)? Encouraging employment, whether in the public or private sector, is the best way to grow an economy and create better social cohesion. If governments collected taxes based on how much people consumed and their resulting burden on the environment, the incentives would be more aligned with sustainable development.
Make it cheaper to employ people. Allow them to provide high value services with low environmental impacts. Education, elderly care, recycling and environmental remediation are some examples. Consumption of natural resources and ecosystem services would be more expensive and we would value them more.
Labour is not a scarce commodity in this world. Global population is set to increase with an additional two billion people by 2050. In a world that is becoming more resource constrained, one thing we do not risk is labour becoming a scarce resource.
The United Nations Millennium Development Goals (MDG) set very clear goals for international development including poverty eradication. But as Mohan Munasinghe points out, the MDG will result in an increase in consumption in developing countries. To do this sustainably, rich countries need to support this by committing to Millennium Consumption Goals.
We need natural resources to cover basic needs such as food, water and homes. Shifting taxes based on consumption would therefore make these goods more expensive. But as incomes increase, goods to cover basic needs would still be affordable – even for the poorest. Consumption taxes would encourage services and discourage over-consumption of goods. A green economy would also be a service-based economy.
The shift from ‘welfare negative’ taxes such as labour taxes to welfare positive taxes is already happening. The European Union is already urging its Member States to make this shift. Several Nordic countries are leading the way by introducing high green taxes on consumption and decreasing income taxes.
One issue that could steer countries away from complete environmental tax reform are the impact on global trade and competitiveness when goods and services are priced very differently due to different taxation structures.
To this I would say: Yes, this is a big change and requires a global agreement - but that is why we have Rio+20!