STATE of the WORLD 2008 Acknowledgments

25th25th AnniversaryAnniversary EditionEdition

20082008 STATESTATE OFOF THETHE WORLDWORLD Innovations for a Sustainable EconomEconomyy

THETHE WORLDWATCHW ORLDWATCH INSTITUTE

2008 STATE OF THE WORLD Innovations for a Sustainable Economy

Other Norton/Worldwatch Books

State of the World 1984 through 2007 (an annual report on progress toward a sustainable society)

Vital Signs 1992 through 2003 and 2005 through 2007 (a report on the trends that are shaping our future)

Saving the Planet Who Will Feed China? Beyond Malthus Lester R. Brown Lester R. Brown Lester R. Brown Christopher Flavin Gary Gardner Sandra Postel Tough Choices Brian Halweil Lester R. Brown How Much Is Enough? Pillar of Sand Alan Thein Durning Fighting for Survival Sandra Postel Michael Renner Last Oasis Vanishing Borders Sandra Postel The Natural Wealth of Nations Hilary French Full House David Malin Roodman Eat Here Lester R. Brown Brian Halweil Hal Kane Life Out of Bounds Chris Bright Power Surge Inspiring Progress Christopher Flavin Gary T. Gardner Nicholas Lenssen

2008 STATE OF THE WORLD Innovations for a Sustainable Economy

A Worldwatch Institute Report on Progress Toward a Sustainable Society

Gary Gardner and Thomas Prugh, Project Directors Erik Assadourian Brian Halweil Bill Baue Tim Jackson Ricardo Bayon L. Hunter Lovins Ger Bergkamp Lisa Mastny Jason S. Calder Danielle Nierenberg Zoë Chafe Jonathan Rowe Christopher Flavin Claudia Sadoff Hilary French John Talberth Mark Halle Linda Starke, Editor

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Worldwatch Institute Board of Directors

Øystein Dahle Cathy Crain Nancy Hitz Chairman UNITED STATES UNITED STATES NORWAY James Dehlsen Akio Morishima Thomas Crain UNITED STATES JAPAN Vice Chairman and Treasurer Christopher Flavin Samuel S. Myers UNITED STATES UNITED STATES UNITED STATES

Larry Minear Robert Friese Izaak van Melle Secretary UNITED STATES THE NETHERLANDS UNITED STATES Lynne Gallagher Wren Wirth Geeta B. Aiyer UNITED STATES UNITED STATES UNITED STATES Ed Groark Emeritus: Adam Albright UNITED STATES Abderrahman Khene UNITED STATES ALGERIA Satu Hassi L. Russell Bennett FINLAND Andrew E. Rice UNITED STATES UNITED STATES Jerre Hitz UNITED STATES

Worldwatch Institute Staff

Erik Assadourian Brian Halweil Michael Renner Research Associate Senior Researcher Senior Researcher Courtney Berner Alana Herro Kimberly Rogovin Development Manager Staff Writer Development Assistant Assistant to the President Andrew Burnette Ling Li Web Manager China Fellow Lyle Rosbotham Art Director Zoë Chafe Yingling Liu Staff Researcher China Program Manager Janet Sawin Senior Researcher Robert Engelman Lisa Mastny Vice President for Programs Senior Editor James Russell Stanford Fellow Barbara Fallin Danielle Nierenberg Director of Finance and Research Associate Patricia Shyne Administration Director of Publications Thomas Prugh and Marketing Christopher Flavin Editor, World Watch President Julia Tier Darcey Rakestraw Marketing and Hilary French Communications Director Communications Associate Senior Advisor for Programs Mary Redfern Raya Widenoja Gary Gardner Foundations Manager Biofuels Program Manager Senior Researcher

Worldwatch Fellows

Chris Bright Sandra Postel Victor Vovk Senior Fellow Senior Fellow Senior Fellow Eric Martinot Payal Sampat Senior Fellow Senior Fellow Mia MacDonald Molly O’Meara Sheehan Senior Fellow Senior Fellow

Acknowledgments

This twenty-ﬁfth anniversary edition of State deserved honor. of the World is the product of a collaborative We are especially indebted to the Royal effort, involving dedicated individuals from Ministry of Foreign Affairs of the Government dozens of countries. All deserve our sincere of Norway for its third year of strong support thanks for their contributions to the book of our ﬂagship report. The Royal Ministry and to the Institute’s work. has been a leader in its support for sustainable We give special thanks to our energetic development, and we appreciate its assistance Board of Directors for their tremendous sup- in allowing us to reach key decisionmakers port and leadership: Chairman Øystein Dahle, in the developing world. We also thank the Vice Chair and Treasurer Thomas Crain, Sec- V. Kann Rasmussen Foundation, a major sup- retary Larry Minear, President Christopher porter of the Institute’s Global Economy Pro- Flavin, Adam Albright, Geeta B. Aiyer, Leo ject, of which this volume is the primary Russell Bennett, Cathy Crain, James Dehlsen, output to date. Robert Friese, Lynne Gallagher, Ed Groark, Thank you as well to the many foundations Satu Hassi, Jerre Hitz, Nancy Hitz, Akio and other institutions whose support over Morishima, Izaak van Melle, Samuel Myers, the past year made the Institute’s work pos- Wren Wirth, and Emeritus members Abder- sible, including the Blue Moon Fund, Ecos rahman Khene and Andrew E. Rice. Ag–Basel, the Energy Future Coalition and the This year we recognize in particular our Better World Fund, the German Government, Board Chair, Øystein Dahle, who has served the Richard and Rhoda Goldman Fund, The the Institute with wisdom, grace, and humor Goldman Environmental Prize, Greenpeace, for nearly two decades. Last summer Øystein the W. K. Kellogg Foundation, the Steven was honored for his work in advancing the C. Leuthold Family Foundation, the Marianist cause of sustainable economies by the King of Sharing Fund, the Natural Resources Defense Norway, who bestowed on him the Cross of Council, the Rockefeller Brothers Fund, the St. Olaf, one of Norway’s most prestigious Shared Earth Foundation, the Shenandoah awards. Øystein was nominated by the envi- Foundation, the Sierra Club, the Food and ronmental leaders of every major political Agriculture Organization of the United party in Norway, a testament to his skill in Nations, the United Nations Population Fund, appealing to a broad range of constituencies the United Nations Environment Programme, on the issue of building sustainable societies. the Wallace Genetic Foundation, Inc., the We are proud of our long association with Wallace Global Fund, the Johanette Waller- Øystein and congratulate him for this well- stein Institute, and the Winslow Foundation.

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STATE OF THE WORLD 2008 Acknowledgments

We are also grateful that the Institute’s Cobb, Aaron Cosbey, Robert Costanza, work is supported by more than 3,500 Friends Gretchen Daily, Dan Friedlander, Kevin Gal- of Worldwatch, who provide nearly one third lagher, Ian Gary, Joshua Goldstein, Raquel of the Institute’s annual budget. Their faith- Gomes, John Gowdy, Jonathan Harris, Tom ful support is indispensable to our work. Higley, Daniel Kammen, Stefano Pagiola, For our twenty-fifth anniversary edition Patricia Rosenfield, James Salzman, Astrid the Institute drew on the talents of a wide Scholz, Juliet Schor, Michael Shepard, Keith range of skilled authors from a variety of orga- Slack, Paul Stern, Sean Sweeney, Daniel Tay- nizations. We are grateful for their commit- lor, Tim Wise, and Ted Wolf. Chapter 1 ben- ment to the project amid the many pressures efited from input from Frank Ackerman, of their own work. John Talberth of Redefin- Herman Daly, Josh Farley, and Neva Good- ing Progress draws on his knowledge of yard- win; Chapter 2 from Suntara Loba; Chapter sticks for measuring sustainability to produce 4 from Sharon Afshar, Stephen Hall, and Chapter 2. Hunter Lovins applies decades of Jonny Tinsdale; Chapter 5 from Jennifer Lac- expertise in sustainable production to the quet, Miyun Park, and William Weida; Chap- analysis of cutting edge manufacturing prac- ter 7 from Katherine Hamilton, Kristen Hite, tices in Chapter 3. Tim Jackson, who has Thomas Marcello, Kyle Meng, Melanie Nak- worked at the University of Surrey and as a agawa, Annie Petsonk, Mark Trexler, and consultant to the U.K. government, explores Tomas Wyns; Chapter 8 from Josh Bishop, the conundrum of consumption in Chapter 4. Megan Cartin, Charlotte de Fraiture, John Ger Bergkamp and Claudia Sadoff, both at Dixon, Lucy Emerton, Mark Giordano, Kirk IUCN–The World Conservation Union, Hamilton, and Mark Smith; Chapter 11 from explore the world of markets and water use in Lois Arkin, Montserrat Besnard, Mabel Chapter 8, while Ricardo Bayon of Ecosystem Cañada, Nancy Chege, Diana Leafe Christian, Marketplace examines markets and biodiver- Jonathan Dawson, Scott Denman, Edie Far- sity services in Chapter 9. Jonathan Rowe well, Kirstin Henninger, Jennifer Henry, Ann reintroduces us to the important world of Karlen, A. E. Luloff, Christopher Lynch, the the commons in Chapter 10, drawing on his Can Masdeu Community, Grady and Tena affiliation with the Tomales Bay Institute. Meadows O’Rear, Graham Meltzer, Kenneth Jason Calder identifies new methods of pro- Mulder, Richard and Cheyenne Olson, Steve moting economic development in Chapter Pretl, Meghan Quinn, Angela Williams, and 12, while Bill Baue explores the world of Kierson Wise; Chapter 12 from Tage Kanno, finance for sustainability in Chapter 13. Finally, Mike McGahuey, Deepa Narayan, Chris Reij, Mark Halle of the International Institute for Tony Rinaudo, Manjunath Shankar, Jed Sustainable Development explores the chal- Shilling, George Taylor, Bob Winterbottom, lenges for trade regimes in promoting sus- and Michael Woolcock; and Chapter 13 from tainability in Chapter 14. We are also indebted Michael Liebreich. to our colleague Hilary French, whose long We also thank our energetic team of interns experience in sustainability circles helped iden- for their hard work. We acknowledge with tify several of these authors. appreciation the work of Morgan Innes on Many outside specialists provided guid- Chapter 1; Jessica Hanson on Chapter 5; ance and key information for the project. The Doug Carpenter and Stanford MAP Fellow project overall was influenced by insights from James Russell on Chapter 6; Zoe Fonseca on Ray Anderson, William Carmichael, Clifford Chapter 7; Meghan Bogaerts, Sean Charles,

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STATE OF THE WORLD 2008 Acknowledgments

Joy Chen, and Wendy Wallace on Chapter Behind the scenes, Art Director Lyle Ros- 11; and Dang Du on Chapter 12. And a spe- botham rapidly turned typescript into the cial thank you to the Institute’s Senior Editor, beautifully designed book in your hands. We Lisa Mastny, for her quick and thorough work are grateful to Lyle for bringing the volume in compiling the significant global events that into the world of two colors. We also thank appear in the book’s Year in Review timeline. Kate Mertes, who kindly stepped in on short State of the World chapters undergo a rig- notice to prepare the index. orous review that includes a day of in-house Getting the book to press is only the begin- critique and comment. We are grateful to ning of getting State of the World to readers. staff from all Institute departments who par- The Institute’s communications department, ticipated in the 2008 review. In addition, we led by Communications Director Darcey acknowledge the careful comments provided Rakestraw and assisted by Communications by reviewers from outside the Institute, whose Associate Julia Tier, works to ensure that the involvement boosts the quality of our research book’s messages reach far beyond our Wash- and writing. In particular we thank Frank ington offices. Meanwhile, Director of Pub- Ackerman, Sara Afshar, Philippe Ambrosi, lications and Marketing Patricia Shyne Josh Bishop, Ed Cain, Megan Cartin, Herman coordinates with our global publishing part- Daly, Jonathan Dawson, Charlotte de Fraiture, ners and infuses our marketing efforts with Alex Dewar, John Dixon, Dang Du, Lucy energy and creativity. Director of Finance and Emerton, Josh Farley, Zoe Fonseca, Mark Administration Barbara Fallin underpins all the Giordano, Neva Goodwin, Stephen Hall, Institute efforts through her efficient man- Katherine Hamilton, Kirk Hamilton, Kristen agement of our daily operations. And none of Hite, Tage Kanno, Anja Kollmuss, Michael our operations would be possible without our Kramer, Jennifer Lacquet, Christopher Lynch, hard-working development staff. Mary Red- Thomas Marcello, Mike McGahuey, Bill McK- fern manages our foundation relations effort ibben, Ricardo Meléndez-Ortiz, Melanie Nak- with consummate thoroughness. On the indi- agawa, Deepa Narayan, Miyun Park, Chris vidual giving side, Courtney Berner and Kim- Reij, Tony Rinaudo, Manjunath Shankar, Jed berly Rogovin apply their energy and Shilling, Mark Smith, Gordon Streeb, Daniel enthusiasm to deepening our relationships Taylor, George Taylor, Mark Trexler, William with Institute friends. Weida, Bob Winterbottom, Robert Wolfe, W. W. Norton & Company in New York Michael Woolcock, and Tomas Wyns. has published State of the World in each of its State of the World has had only one editor 25 years. We are grateful to Amy Cherry, Leo over its 25-year history. We are happy again to Wiegman, Nancy Palmquist, and Devon Zahn acknowledge the skill and hard work of Linda for their work in producing the book and Starke, whose knack for turning the language ensuring that it gets maximum exposure in of diverse authors into clear, readable prose bookstores and university classrooms across makes the book accessible to a broad audience. the United States. Linda is also a nimble manager who coordi- State of the World would have a limited nates the work of dozens of staff and non-staff international audience were it not for our contributors to meet an unmoving deadline. network of publishing partners, who provide We are grateful to Linda for her quarter-cen- advice, translation, outreach, and distribu- tury service to the book, and for meeting the tion assistance. We give special thanks to unique challenges posed by this edition. Eduardo Athayde of the Universidade Mata

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STATE OF THE WORLD 2008 Acknowledgments

Atlântica in Brazil; Soki Oda of Worldwatch as well as to our business model. And Devel- Japan; Benoit Lambert in Switzerland, who opment Associate Laura Parr ably supported also connects us to France and French-speak- the Institute’s fundraising operations and con- ing Canada; Klaus Milke of Germanwatch in tributed to internal staff development. We Germany; Jin Jiaman from the Global Envi- will miss each of them and we thank them for ronment Institute in China; Anna Bruno Ven- their contributions. Meanwhile, we welcome tre and Gianfranco Bologna of WWF Italy, Robert Engelman, our new Vice President who has spearheaded the publishing of State for Programs, who leads our research proof the World in Italy for the last 20 years; grams and provides strategic leadership on Maria Antonia Garcia for the Castilian version the issues the Institute faces; Development and Anastasia Monjas for the Catalan version Assistant Kimberly Rogovin, who supports in Spain; Yiannis Sakiotis in Greece; Kartikeya Worldwatch’s president and Development Sarabhai and Kiran Chhokar in India; Sang- Department; Web Manager Andrew Burnette, ik Kim in South Korea; Hans Lundberg and who is further developing our Web presence Ivana Kildsgaard of Worldwatch Norden in and our Internet strategy; and Research Asso- Sweden; George Cheng in Taiwan; Yesim ciate Raya Widenoja, the new leader of our Erkan in Turkey; Tuomas Seppa in Finland; biofuels research. Marcin Gerwin in Poland; Anna Ignatieva in We close by noting with gratitude the Russia; Milan Misic in Serbia, and Jonathan tremendous contributions made by Herman Sinclair Wilson, Michael Fell, Rob West, Daly over the past half-century in reshaping Gudrun Freese, and Alison Kuznets of Earth- economic thought to embrace environmental scan in the United Kingdom. concerns. A pioneer in the field of ecological Our readers are ably served by the cus- economics and a former member of the Insti- tomer service team at Direct Answer, Inc. We tute’s Board of Directors, Herman’s thinking are grateful to Katie Rogers, Ginger Franklin, was a major inspiration as we undertook this Katie Gilroy, Lolita Harris, Cheryl Marshall, project on innovations for a sustainable econ- Valerie Proctor, Ronnie Hergett, Marta omy. We are grateful for his many decades of Augustyn, Heather Cranford, Rosey Heath, intellectual leadership. Our deep hope is that Sharon Hackett, and Karen Piontkowski for his clear vision—of economies that operate providing first-rate customer service and ful- within ecological boundaries to advance gen- filling our customers’ orders. uine human development—will become the We would also like to acknowledge the dominant path of economic progress in this valuable service of several staff members who unfolding century. have moved on to new challenges this year. We are especially grateful for Vice President Geor- Gary Gardner and Thomas Prugh gia Sullivan’s work to strengthen the Institute’s Project Directors communications, marketing, and fundraising capabilities over the past two years. During the same period, Suzanne Hunt put the Institute Worldwatch Institute on the biofuels research map with her pio- 1776 Massachusetts Ave., N.W. neering study of the field. Web Manager Steve Washington, DC 20036 Conklin brought the Institute into the virtual [email protected] world, a boon to dissemination of our research www.worldwatch.org

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Contents

Acknowledgments vii SPECIAL SECTION: List of Boxes, Tables, and Figures xii PAYING FOR NATURE’S SERVICES

Foreword xv 7 Improving Carbon Markets 91 Dan Esty, Yale University Zoë Chafe and Hilary French

Preface xix 8 Water in a Sustainable Economy 107 Christopher Flavin Ger Bergkamp and ClaudiaW.Sadoff President, Worldwatch Institute 9 Banking on Biodiversity 123 State of the World: xxiii Ricardo Bayon A Year in Review Lisa Mastny 10 The Parallel Economy of 1 Seeding the Sustainable the Commons 138 Economy 3 Jonathan Rowe Gary Gardner and Thomas Prugh 11 Engaging Communities for a 2 A New Bottom Line for Progress 18 Sustainable World 151 John Talberth Erik Assadourian

3 Rethinking Production 32 12 Mobilizing Human Energy 166 L. Hunter Lovins Jason S. Calder

4 The Challenge of Sustainable 13 Investing for Sustainability 180 Lifestyles 45 Bill Baue Tim Jackson 14 New Approaches to Trade 5 Meat and Seafood: The Global Governance 196 Diet’s Most Costly Ingredients 61 Mark Halle Brian Halweil and Danielle Nierenberg

6 Building a Low-Carbon Notes 211 Economy 75 Christopher Flavin Index 255

List of Boxes,Tables,and Figures

Boxes 1 Seeding the Sustainable Economy 1–1 Conceptual Reform in Key Sectors 10 2 A New Bottom Line for Progress 2–1 Gross Domestic Product: Blind to Economic, Social, and Environmental Crises 20 3 Rethinking Production 3–1 The Robot Versus the Hair Dryer 37 3–2 Biomimicry and Carpets 41 6 Building a Low-Carbon Economy 6–1 What About Nuclear Power? 81 7 Improving Carbon Markets 7–1 North American Carbon Trading Systems under Development 95 7–2 Who Gets Permission to Emit? 97 7–3 Carbon Neutrality—Not a Neutral Term 103 8 Water in a Sustainable Economy 8–1 Water as Capital 113 8–2 Total Economic Value 114 8–3 The Dublin Principles 115 8–4 Water Pricing and Water Prices 118 9 Banking on Biodiversity 9–1 The Escalating Problem of Biodiversity Loss 125 9–2 The Evolution of a Wetland Banker 128 9–3 Perverse Incentives on Endangered Species 131 10 The Parallel Economy of the Commons 10–1 Property: A Social Construct 140 10–2 Trusting Commons 148 11 Engaging Communities for a Sustainable World 11–1 What Is a Community? 152 11–2 Preparing for the Long Emergency 159 11–3 Dockside Green: Developers Taking the Lead 163

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STATE OF THE WORLD 2008 List of Boxes,Tables, and Figures

12 Mobilizing Human Energy 12–1 Reshaping the Development Agenda in the 1990s 169 12–2 Common Critiques of Community-based Development 170 12–3 Basic Principles of Seed-Scale 173 12–4 Common Ways to Scale Up Successful Programs 175 13 Investing for Sustainability 13–1 Deﬁnition and Scope of Investing for Sustainability 181 13–2 Importing Sustainability to China 188–89 13–3 Hedge Funds Marry Ecology with Economics 189 13–4 TXU Buyout Is History’s Biggest—and Greenest 190 14 New Approaches to Trade Governance 14–1 Good Governance 197 14–2 Multidimensional Problems 208

Tables 1 Seeding the Sustainable Economy 1–1 Net Worth Per Person, by Country Income Group, 2000 9 2 A New Bottom Line for Progress 2–1 Sustainable Development Objectives and Macroeconomic Indicators 23 2–2 Genuine Progress Indicator Components and Values, United States, 2004 24 2–3 Sustainable Development Objectives and Microeconomic Indicators 28 4 The Challenge of Sustainable Lifestyles 4–1 Population and Carbon Dioxide Emissions, Selected Countries, 2004 47 5 Meat and Seafood: The Global Diet’s Most Costly Ingredients 5–1 Meat and Seafood Consumption in Top Five Countries or Regions, 2005, and Increase since 1961 63 6 Building a Low-Carbon Economy 6–1 Global Energy Use and Carbon Emissions in 2006 and in 2050 Under Two Scenarios 77 6–2 Energy-Related Carbon Emissions, Selected Countries, 2006 78 6–3 Estimates of Potential Contribution of Renewable Energy Resources 83 7 Improving Carbon Markets 7–1 Carbon Transactions, Selected Markets, 2005 and 2006 93 7–2 Selected Clean Development Mechanism and Joint Implementation Projects 101–02 8 Water in a Sustainable Economy 8–1 Water Use by Sector 109 8–2 Selected Examples of Payments for Watershed Services 120

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STATE OF THE WORLD 2008 List of Boxes,Tables, and Figures

9 Banking on Biodiversity 9–1 Examples of Legal Requirements for Biodiversity Offsets 123 11 Engaging Communities for a Sustainable World 11–1 How Selected Communities Model Sustainability 153 13 Investing for Sustainability 13–1 The World of Sustainability Investments 181 13–2 Socially Responsible Investments, by Region, Mid-2000s 183

Figures 2 A New Bottom Line for Progress 2–1 World Indicator Trends, 1970–2005 19 3 Rethinking Production 3–1 Waves of Innovation 43 4 The Challenge of Sustainable Lifestyles 4–1 Carbon Intensity of GDP, 1990–2004 48 4–2 Subjective Well-being and Per Capita Income, 2000 51 4–3 Domain Satisfaction by Social Group, England 55 5 Meat and Seafood: The Global Diet’s Most Costly Ingredients 5–1 World Meat Production and Seafood Harvest, 1950–2006 62 6 Building a Low-Carbon Economy 6–1 Atmospheric Concentration of Carbon Dioxide, 1744–2004 76 6–2 Estimates of Available Energy Resources Using Today’s Technology 82 6–3 Global Investment in Renewable Energy, 2000–06 85 6–4 Electricity Use Per Capita, California and Rest of the United States 89 7 Improving Carbon Markets 7–1 Average Price of EU Emissions Contracts, 2005–07 96 7–2 Distribution of CDM Credits Expected 2002–12, for All Projects in Pipeline 99 7–3 Sources of CDM Credits Expected 2002–12, for All Projects 100 8 Water in a Sustainable Economy 8–1 Physical and Economic Water Scarcity 108 12 Mobilizing Human Energy 12–1 Farmer-managed Tree Regeneration in Galma Village, Niger, 1975 and 2003 167 13 Investing for Sustainability 13–1 Venture Capital and Private Equity Investment, 2000–06 191

Units of measure throughout this book are metric unless common usage dictates otherwise.

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Foreword Daniel C. Esty Hillhouse Professor of Environmental Law & Policy,Yale University Director of the Center for the Environment and Business at Yale Director of the Yale Center for Environmental Law and Policy

State of the World 2008 makes it clear that our company’s high-efﬁciency locomotives and planet and every individual on it face sub- jet engines, wind turbines, solar power tech- stantial environmental challenges. From the nologies, water purification systems, and buildup of greenhouse gas emissions in the cleaner coal electric generating equipment. atmosphere to significant water shortages This is not because he is a “do gooder” but and a wide range of pollution and natural because he believes that these markets offer the resource management issues, the road to a prospect of high growth and high margins. sustainable economy is full of potholes. But Similarly, Andrew Liveris, CEO of Dow, there are signs of hope. As documented a company that I have worked with, wants his throughout this volume, the pace and scale of top managers to drive innovation and Dow environmental innovation is extraordinary. revenues by having the company lead the Most notably, there has been a sea change way toward a world of sustainable chem- in business attitudes toward the environ- istry, solutions to climate change, and ment over the last several years. Companies progress on such environmental problems large and small, in manufacturing and in ser- as water availability. vices, in the old economies of the United Action at the business-environmental inter- States and Europe as well as the emerging face is, of course, not limited to the United economic powerhouses of the developing States. In Norway, REC has emerged as a world, have come to recognize that the envi- leading producer of photovoltaic panels with ronment is more than regulations to follow, a market capitalization in excess of $17 bil- costs to bear, and risks to manage. As soci- lion. Japan-based Toyota has become the ety steps up to a wide range of pollution fastest-growing and most profitable control and natural resource management automaker in the world by putting fuel econ- challenges—and commits substantial omy and environmental sensitivity at the resources to ﬁnding solutions—there will be heart of its strategy. Grupo Nueva, a Chilean significant market opportunities for those forest products company, is building its busi- who can bring solutions to bear. ness by putting environmental commitment A number of CEOs are remaking their into everything the company does. companies around this emerging “cleantech” In addition, hundreds of small cleantech opportunity. At General Electric, for example, companies have been launched worldwide CEO Jeff Immelt launched an “ecomagina- in the past several years. From solar power tion” campaign designed to promote the businesses like Ausra and Solarec to geo-

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STATE OF THE WORLD 2008 Foreword thermal energy producers such as Altarock to that will draw the most talented people into cellulosic ethanol technology developers such the quest for environmental solutions. Entre- as Range and Coskata, environmental inno- preneurs who recognize the opportunity for vation is being pushed in hundreds of direc- a big payday put in long hours and motivate tions. More than $100 billion in venture a team of people to put in extra effort. capital, private equity, corporate research There is still a critical role for government and development funding, and government and regulations. But the Environmental Pro- support for technology development was tection Agency and state-level regulators as invested in environmental start-up ventures well as environmental ministries around the over the past year. world need to shift from doing technology In parallel with the business world’s new development to establishing incentives in the environmental focus lies an important policy marketplace that promote innovation and story centered on innovation as the key to that draw in the private sector. In particular, environmental progress and a sustainable they need to put a price on causing environ- economy. A fundamentally changed envi- mental harms so that those who offer ways to ronmental trajectory requires substantial tech- eliminate pollution and cut down on nonre- nological breakthroughs. newable resource use will be rewarded. How do we promote environment-related Two parallel trends in the environmental innovation? The answer is increasingly appar- arena promise to further an innovation ent: private-sector investment guided by care- emphasis. First, the move to market-based fully structured market-based incentives. mechanisms and away from “command and A technology development process that control” regulation dramatically shifts the depends on a few thousand government offi- focus of the private sector. Under the tradi- cials setting standards and defining “best tional environmental protection model, where available technologies” cannot possibly government not only sets the standards but explore or even imagine all the ideas that also dictates the particular technology that need to be funded and tested. It makes more needs to be deployed, companies have little sense to shift the burden of action to the incentive to innovate. They simply follow the business community so that companies have guidelines and regulations provided. Under an incentive to think broadly about oppor- an economic-incentive-based approach, in tunities for progress. And the private sector contrast, as companies (and the individuals has a much larger scale of capital available to who buy their products) find themselves pay- devote to technology development. The funding a price for every increment of harm caused ing required amounts to hundreds of billions or natural resource consumed, a strong incen- of dollars—not the hundreds of millions of tive emerges to figure out ways to reduce dollars that government might spend. these payments. Thus, the shift toward a seri- The private sector is also better positioned ous commitment to the Polluter Pays Prin- to take the requisite risks to produce tech- ciple offers the prospect of sharpening the nology breakthroughs. Venture capitalists do incentive at every level in society for energy not blink at the prospect of only 1 project in conservation, improved resource productiv- 10 paying off. That kind of success ratio in ity, and innovation. government would be entirely unacceptable. The second broad trend that supports a In addition, the business community is in a shift toward an innovation-centered envi- better position to reward success in a way ronmental policy approach emerges from

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STATE OF THE WORLD 2008 Foreword the opportunities of the Information Age to in projects or approaches that are not pro- tailor economic incentives with greater pre- ducing good results. cision. Historically, it has been extremely It is easy to be a pessimist in the face of the difficult and expensive to track individual daunting environmental challenges that every emitters or natural resource consumers. But one of us faces. But the prospect of environ- in our digital era, sensors, data collection mental innovation makes me an optimist, at technologies, and information management least over the longer term. systems are increasingly cheap and easy to Progress, of course, depends on redou- deploy. It is possible to keep track of emis- bling the business community’s focus on sions and resource use on a much more the environment. The logic of making the reﬁned basis. The acid rain allowance trading environment a core element of corporate program of the Clean Air Act of 1990, for strategy seems straightforward. No com- instance, depends on sulfur dioxide emis- pany or industry today can afford to ignore sions monitors being placed in each power energy costs, pollution issues, and other plant in the United States. Similar monitor- environmental challenges. Those that do ing and measurement technologies are now risk competitive disadvantage. And CEOs available to track emissions from every who take these challenges seriously are often smokestack, factory, and business in the finding ways to innovate that translate into country and from every car’s tailpipe as well. reduced costs (eco-efficiency), better man- Why not send a car pollution bill at the end aged risks, new lines of revenue, and of each month to every driver? There is no strengthened brand loyalty. better way to motivate car owners to demand Continued environmental progress will more fuel-efficient and less-polluting cars require smart government policies. Moving than to have them pay for the harms that companies toward a sustainable trajectory their vehicles individually cause. will happen faster with clear economic incen- Information technologies can also be used tives. But individual consumers must also be to identify and disseminate “best practices” in made to understand the part they play in terms of technologies and policies. Advanced polluting and consuming nonrenewable nat- information management systems make it ural resources. much easier to benchmark performance, track In blazing a path toward a world of sus- trends, spot problems, and identify which tainable economies, State of the World 2008 environmental interventions are effective. highlights the importance of innovation. This Governments, companies, communities, and volume shows the next steps that must be individual families can then focus on repli- taken in the business world, in the policy cating successful strategies and not investing community, and by every one of us.

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Preface Christopher Flavin President, Worldwatch Institute

In his groundbreaking study on the eco- replacing those that had grown scarce and nomics of climate change, former World Bank new technologies allowing unexpected gains chief economist Nicholas Stern describes the in everything from agricultural production to changes now under way in Earth’s atmos- energy use. At the same time, colonial expan- phere as “the greatest and widest-ranging sion and migration opened up little used market failure ever seen.” It is an economic resources in the Americas and other parts of failure that the global economy is not pre- the globe. By the twentieth century, eco- pared to cope with and that most of today’s nomic growth had become the primary goal economic analysis is not able to understand. of most governments and their economic It is ironic that it is the very triumph of advisors: rising incomes helped bring many market economics that is now challenging people out of poverty, while creating oppor- the basic tenets that have helped make it so tunities across the economic spectrum. successful. Conventional economics relies on That economic model has lasted a long markets—large numbers of buyers and sell- time, but it will not survive the twenty-first ers—rather than planners to determine the century. In a physically constrained world, most efficient allocation of resources. The material growth cannot continue indefinitely, price mechanism and profit motive have been and when that growth is exponential—and enormously successful in spurring techno- involves mega-countries like China and logical change and meeting human needs, India—the limits are reached more abruptly bringing adequate nutrition, clean water, and catastrophically than even the best sci- housing, transportation, and myriad other entists are able to predict. From falling water goods and services to billions of people. Mar- tables to soaring oil prices and collapsing ket capitalism has, in the words of Daniel fisheries, the ecological systems that underpin Yergin, reached the “commanding heights” the global economy are under extraordinary of the modern world, leaving communism stress. Economists who thought they could and other competing theories in the ash heap analyze the economic world as if it were sep- of history. arate from the physical world may have a Early economic thinkers such as Thomas hard time finding work in the years ahead. Malthus had a sense of the biophysical limits Continued human progress—both mate- in which the economy of their day operated. rial and spiritual—now depends on an eco- But the Industrial Revolution at the end of nomic transformation that is more profound the eighteenth century allowed many of these than any seen in the last century. A world of limits to be overcome—with new materials limits will require a shift from the unfettered

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STATE OF THE WORLD 2008 Preface conventional economics that prevailed then ing climate scientists and their most effective to the emerging field of sustainable eco- evangelist, Al Gore. nomics, which embraces many of the princi- Emblematic of the innovative proposals ples of market economics, including its ability emerging on an almost daily basis is one to allocate scarce resources, while at the same announced just as we were going to press: time explicitly recognizing that the human Virginia Tech has teamed up with a private economy is but a part of the larger global investor, Hannon Armstrong, to put $100 ecosystem that contains it. This new field of million a year into improving the energy effi- sustainable economics goes on to analyze the ciency of Washington area buildings. As with economic limits imposed by the physical hundreds of similar announcements, this one world, and proposes a range of innovative involves a creative combination of private ideas for bringing the economy into balance capital, nonprofit expertise, and supportive with the global ecosystem. government policies. The focus of State of the World 2008 is on Innovative ideas and big money are a pow- the innovations that will be needed to make erful combination—and the sums now mov- a sustainable economy possible. To do that, ing in a green direction are eye-popping. we have recruited an unusually thoughtful Citigroup announced plans in May 2007 to group of expert authors who have written invest $50 billion to address climate change on topics ranging from new approaches to over the next decade. And Goldman Sachs industrial production to new measures of invested $1.5 billion in renewable energy in economic progress, microfinance, and the 2006, exceeding its initial commitment by 50 development of markets for carbon emissions percent. Global investment in new energy and protection of biodiversity. The book technologies is estimated at $71 billion in includes scores of exciting examples of pio- 2006, up 43 percent from the previous year. neering business ventures in fields like solar Both in China and the United States, “clean energy, venture capitalists who are financing technology” is now the third largest sector for the creation of environmental businesses, and venture capital investment. More momen- communities that are mobilizing to spur sus- tous still are innovations such as China’s new tainable innovation at the local level. These renewable energy law and Europe’s carbon diverse initiatives create new economic mod- emissions trading system, which ensure that els and business practices that foster these kinds of investments will continue to economies that meet people’s needs while flow for many years to come. protecting the planet. Shifting from the conventional economic We come away from this project with a paradigm to one based on ecological or sus- strong sense that something large, perhaps tainable economics will require years of even revolutionary, is struggling to be born change on many levels—from classroom the- as business leaders, investors, politicians, and ory to business practice and government pol- the general public create the architecture of icy. Pricing goods and services so that sustainable economics. Indeed, it is breath- environmental costs and benefits are counted taking to see how much innovation has been is one key measure—easy in principle but unleashed by the wave of concern about cli- often difficult for people or politicians to mate change that has broken across the world accept. And creative ways must be found to in the past year, culminating in the awarding knock down the barriers to change—for of the Nobel Peace Prize to the world’s lead- example, changing electric utility regulations

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STATE OF THE WORLD 2008 Preface so that saving energy is at least as profitable approaches to agriculture, health care, and as building new power plants. education in poor rural communities. Sustainable economics will need to meet There is a great deal to be admired—and human as well as planetary needs if it is to pre- valued—about market economics in today’s vail. Proponents of market economics and ever-smaller world. With so much to do in globalization often point to the 300 million such a short time, efficient allocation of people who have escaped from poverty since resources and motivating people to action 1990—most of them in China and India. are more important than ever. But twenty-first This still leaves more than a billion desperately century economics must be grounded in a poor people in today’s world, and the devel- more realistic understanding of the physical oping countries that have not yet benefited and biological world on which we depend. As from the immense growth in the global econ- Albert Einstein once said, “We can’t solve omy over the past century are determined to problems by using the same kind of thinking close this gap in the decades ahead. It is we used when we created them.” This sen- therefore gratifying to see that the same kinds tence should be posted on the walls of eco- of innovation—from $100 laptops to drip nomics classrooms, corporate boardrooms, irrigation—that is going into environmental and the grand halls where the world’s legis- improvement is also delivering new lators make public policy.

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State of the World: A Year in Review Compiled by Lisa Mastny

This timeline covers some significant Timeline events were selected to increase announcements and reports from October awareness of the connections between peo- 2006 through September 2007. It is a mix of ple and the environment. An online version progress, setbacks, and missed steps around of the timeline with links to Internet the world that are affecting environmental resources is available at www.worldwatch quality and social welfare. .org/features/timeline.

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BIODIVERSITY MARINE ECOSYSTEMS WWF warns that birds FORESTS UN report says the number are headed toward a WWF says two thirds of of low-oxygen “dead zones” major extinction due to forests in the Congo River in the world’s oceans and climate change, with Basin, the second largest seas has increased from 149 some populations already tropical forest, could disappear to some 200 in the past two showing declines of up within 50 years if exploitation years, endangering ﬁsh stocks. to 90 percent. continues at current rates.

ATMOSPHERE FORESTS Scientists say unusually Brazil says the rate of CLIMATE NATURAL DISASTERS low temperatures have Amazon deforestation Australian researchers Officials report that the led to record ozone loss has slowed to about half report that global carbon US wildfire season set an over Antarctica, helping to the level of the previous dioxide emissions have all-time record in 2006, push the “ozone hole” to year—the second lowest more than doubled since with more than 96,000 a near-record 28 million rate since recordkeeping 1990 and the rate of wildfires burning a total of square kilometers. began in 1988. increase is accelerating. nearly 4 million hectares.

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NATURAL DISASTERS MARINE ECOSYSTEMS BIODIVERSITY World Bank estimates that Scientists project that Scientists declare the the 360 reported disasters at today’s rates of baiji, a rare Yangtze River in 2005 killed more than withdrawal, all currently dolphin and one of the 90,000 people, affected ﬁshed species of wild oldest species, effectively more than 150 million, seafood could collapse— extinct—the ﬁrst loss of and caused record experiencing 90-percent a large aquatic mammal damages of $159 billion. depletion—by 2050. in 50 years.

HEALTH CLIMATE FORESTS WHO reports that urban The Stern Review, a Brazil creates the world’s air pollution causes some detailed report on the largest tropical rainforest 2 million premature economics of climate preserve—a 15-million- deaths annually, more change, warns unabated hectare area in the state of than half of which are in global warming could Pará—to protect the Amazon developing countries. cause damages worth 5 to from logging and agriculture. 20 percent of global GDP.

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BIODIVERSITY CLIMATE Study reports elephant ENERGY IPCC reports unequivocal poaching is at its highest The United States and Brazil proof that Earth is warming level in two decades announce a new partnership and conﬁrms that human and illegal ivory trade is to boost research and pro- activities are behind increased ﬂourishing, threatening duction of ethanol, paving atmospheric greenhouse gas to undermine global the way for broader global concentrations since 1750. conservation efforts. trade in biofuels.

ENERGY CLIMATE SECURITY Report says global Governments of the WATER Scientists move the hand wind energy markets 27-member European Report says the Yangtze, of the “Doomsday Clock,” exceeded expectations Union approve a new Mekong, Salween, indicating vulnerability to in 2006, with a record target to cut collective Ganges, and Indus are nuclear and other threats, 32-percent increase greenhouse gas among the 10 rivers at from seven to ﬁve min- in growth bringing emissions by 20 percent greatest risk as a result of utes to midnight, the ﬁrst global capacity to from the 1990 level climate change, pollution, change since 2002. 74,223 megawatts. by 2020. dams, and other threats.

JANUARY FEBRUARY MARCH 2007 2 46810 12 14 16 18 20 22 24 26 28 30 246810 12 14 16 18 20 22 24 26 28 246810 12 14 16 18 20 22 24 26 28 30

FORESTS ENERGY TOXICS UN warns that Indonesia’s In a world ﬁrst,Australia Melamine-tainted gluten rainforest is being destroyed mandates a nationwide imports from China trigger up to 30 percent faster phaseout of incandescent the deaths of thousands than previously thought, light bulbs by 2010, hop- of US dogs and cats, and orangutan populations ing to reduce greenhouse spurring a nationwide could be extinct within gas emissions by 4 million pet-food recall. three decades. tons by 2012.

CLIMATE TOXICS ENERGY An alliance of major US Study ﬁnds that exposure The US government corporations and NGOs while in the womb to approves the ﬁrst new issues a landmark call for chemicals in everyday site permit for a nuclear the federal government plastics and pesticides power plant in 30 years, a to enact strong legislation may alter human gene sign of renewed interest to reduce greenhouse functions and increase in nuclear energy in the gas emissions. risk of obesity and country. disease.

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BIODIVERSITY SECURITY CLIMATE US ofﬁcials remove the The UN Security Council In a landmark recognition of bald eagle from protection holds its ﬁrst debate on the climate change, President under the Endangered impact of climate change on George W. Bush directs Species Act as numbers in security, triggering questions federal agencies to develop the lower 48 states reach about the Council’s authority regulations limiting greenhouse some 9,789 pairs, up from in addressing the issue. gas emissions from vehicles. only 417 in 1963.

POVERTY HEALTH ENERGY World Bank reports that Scientists link the rising UN reports that investments the number of people premature birth rate in in renewable energy reached living on less than $1 the United States with a record $100 billion in a day fell 18.4 percent increased use of pesticides 2006, spurred by climate between 2000 and and fertilizers containing change concerns, greater 2004, to an estimated nitrates, which can government support, and 985 million. contaminate surface water. high oil prices.

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POLLUTION ENERGY BIODIVERSITY European ofﬁcials sign First solar-powered boat UN panel adds Ecuador’s law requiring that to cross the Atlantic Galapagos Islands to the all heavy-oil tankers arrives in New York after list of World Heritage entering European ports a ﬁve-month trip to sites in danger, as the be double-hulled, in demonstrate the feasibility islands are threatened by response to recent of clean energy vessels on invasive species, growing disastrous oil spills the open seas. tourism, and immigration. in the region.

WATER MARINE ECOSYSTEMS CLIMATE Report on China’s Yangtze More than 20 nations agree At the G-8 summit, the River says that 10 percent of to restrict the practice of world’s eight largest the waterway is in “critical dragging heavy nets along the industrial nations agree to condition” and 30 percent seaﬂoor in the South Paciﬁc, “substantial” greenhouse of its major tributaries are an area with a quarter of gas emissions cuts by 2050, “seriously polluted.” the world’s oceans. though no mandatory targets are set.

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CLIMATE ENERGY BIODIVERSITY Researchers say glaciers Spanish biofuels developers US scientists warn that two and ice caps now contribute select Kansas as the site of thirds of polar bears could be about 60 percent of the ice the ﬁrst US cellulosic ethanol extinct in 50 years as Arctic melt into the oceans and that plant, slated to produce fuel sea ice shrinks, and they the rate has been accelerating from corn stalks, switchgrass, consider adding the species to over the past decade. and other woody biomass. the Endangered Species List.

AGRICULTURE BIODIVERSITY TOXICS CLIMATE Study says organic Four slaughtered Toy giant Mattel Scientists report that farming can yield up to mountain gorillas are recalls millions of toys Arctic sea ice has three times as much found in the DR of manufactured in China thinned by half since food as conventional Congo’s Virunga National after high levels of lead 2001, with large areas farming in developing Park, renewing fears are found in the items, of ice now only one countries, refuting claims about threats to the rare prompting consumer meter thick as the that organics cannot species from poachers concern about Chinese- ocean and atmosphere feed the world. and rebel groups. made products. continue to warm.

JULY A UGUST SEPTEMBER See page 211 for sources.

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CLIMATE NATURAL DISASTERS WASTE CEOs of 153 companies China experiences “once- Coca-Cola announces commit to greater action in-a-century” rains and goal of recycling or on climate change and ﬂoods as millions of people reusing 100 percent call on governments to in the southwest, center, of the PET plastic develop measures for and east are displaced over bottles it uses in the the post-2012 Kyoto a period of weeks. United States. Protocol period.

ENERGY TOXICS BIODIVERSITY Earthquake in Japan causes Survey reports that asthma IUCN adds 188 species to leakages at a nuclear rates among the 25,000 its Red List of threatened power plant, raising alarm rescue and recovery workers species, which includes about the risks of nuclear who responded to the 2001 one in four mammals, power and putting the World Trade Center disaster one in eight birds, a third country’s nuclear plans are 12 times the normal of amphibians, and 70 in disarray. adult rate. percent of assessed plants.

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2008 STATE OF THE WORLD Innovations for a Sustainable Economy

CHAPTER 1

Seeding the Sustainable Economy Gary Gardner and Thomas Prugh

To critique the dominant economic system average temperature of Earth is “heading of the twentieth century would seem a fool’s for levels not experienced for millions of errand, given the unprecedented comfort, years,” and the Arctic Ocean could be ice- convenience, and opportunity delivered by free during the summer as early as 2020. the world economy over the past 100 years. • Nearly one in six species of European mam- Global economic output surged some 18- mals is threatened with extinction, and all fold between 1900 and 2000 (and reached currently ﬁshed marine species could col- $66 trillion in 2006). Life expectancy leaped lapse by 2050. ahead—in the United States, from 47 to • The number of oxygen-depleted dead nearly 76 years—as killer diseases such as zones in the world’s oceans has increased pneumonia and tuberculosis were largely from 149 to 200 in the past two years, tamed. And labor-saving machines from trac- threatening ﬁsh stocks. tors to backhoes virtually eliminated toil in • Urban air pollution causes 2 million pre- wealthy countries, while cars, aircraft, com- mature deaths each year, mostly in devel- puters, and cell phones opened up stimulat- oping countries. ing work and lifestyle options. The wonders • The decline of bees, bats, and other vital of the system appear self-evident.1 pollinators across North America is jeop- Yet for all its successes, other signals sug- ardizing agricultural crops and ecosystems. gest that the conventional economic system • The notion of an approaching peak in the is in serious trouble and in need of transfor- world’s production of oil, the most impor- mation. Consider the following side effects of tant primary source of energy, has gone modern economic activity that made head- from an alarming speculation to essentially lines in the past 18 months: conventional wisdom; the mainstream • Atmospheric carbon dioxide levels are at World Energy Council recently predicted their highest level in 650,000 years, the that the peak would arrive within 15 years.2

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These and other environmental conse- waste” cities, environmental taxes, cap-and- quences of the push for economic growth trade carbon markets, car-sharing companies, threaten the stability of the global economy. maturing markets for solar and wind power, Add to this list the social impacts of modern microﬁnance, socially responsible investment, economic life—2.5 billion people living on $2 land tenure rights for women, product take- a day or less and, among the wealthy, the back laws, and other innovations discussed in rapid advance of obesity and related diseases— this book. Scaled up and replicated across and the need to rethink the purpose and func- the world, these and other experiments could tioning of modern economies is clear.3 form the basis of economies that meet the Even in business circles the sense that needs of all people at the least cost to the nat- something is wrong with modern economies ural environment. is palpable. An annual assessment of the most significant risks to the world’s economies An Outdated Economic commissioned by the business-sponsored World Economic Forum found that many of Blueprint the 23 diverse risks were nonexistent at the The world is very different, physically and global level a quarter-century ago. These philosophically, from the one that Adam include environmental risks such as climate Smith, David Ricardo, and other early econ- change and the strain on freshwater supplies; omists knew—different in ways that make social risks, including the spread of new infec- key features of conventional economics dys- tious diseases in developing countries and functional for the twenty-first century. chronic diseases in industrial nations; and Humanity’s relationship to the natural world, risks associated with innovations like nano- the understanding of the sources of wealth technology. Beyond being new and serious, and the purpose of economies, and the evo- what is most striking is that half of the 23 are lution of markets, governments, and indi- economic in nature or driven by the activities viduals as economic actors—all these of modern economies. In other words, dimensions of economic activity have changed national economies, and the global economy so much over the last 200 years that they of which they are a part, are becoming their signal the close of one economic era and the own worst enemies.4 need for a new economic beginning. But if economies built according to the In Smith and Ricardo’s time, nature was conventional model are increasingly self- perceived as a huge and seemingly inex- destructive, a new kind of economy—a sus- haustible resource: global population was tainable economy—is struggling to be born. roughly 1 billion—one seventh the size Where the conventional economy depends of today’s—and extractive and production largely on fossil fuels, is built around use- technologies were far less powerful and and-dispose materials practices, and tolerates environmentally invasive. A society’s extreme poverty even amid stunning wealth, environmental impact was relatively small the evolving sustainable economy seeks to and local, and resources like oceans, forests, operate within environmental boundaries and and the atmosphere appeared to be essen- serve poor and rich alike. tially infinite.5 The emergence of the sustainable economy At the same time, humanity’s perception is visible in a burst of creative experimentation of itself was changing, at least in the West. The involving design for remanufacture, “zero- discoveries of Enlightenment-era scientists

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suggested that the universe operated accord- Earth’s capacity to support the human race ing to an unchanging set of physical laws sustainably, according to the Global Foot- whose unmasking could help humans under- print Network. (See Chapter 2.) For rich stand and take control of the physical world. countries, the overshoot is especially high. Once the Swiss mathematician Daniel Industrial economies today survive by dip- Bernoulli, for example, worked out key ideas ping ever more deeply into reserves of of the physics of flight in 1738, it was only a forests, groundwater, atmospheric space, matter of time before humans claimed the air and other natural resources—practices that for themselves. After eons of helpless suffer- cannot continue indefinitely.8 ing from the effects of plagues, famines, storms, and other wildcards of nature, this The assumed independence of growing sense of human prowess—along with a seemingly inexhaustible resource economic activity from nature, always endowment—encouraged the conviction that illusory, is simply no longer credible. humanity’s story could now be written largely independent of nature.6 These changing circumstances demand This radically new worldview became the upending of some fundamental economic entrenched within economics, and even late notions. With the Industrial Revolution, for in the twentieth century most economic text- instance, factories, machines, financing, and books gave little attention to nature’s capac- other forms of created capital replaced land ity to absorb wastes or to the valuable as the principal drivers of wealth production. economic role of “nature’s services”—natural Factories and funding remain important functions from crop pollination to climate today, but resource scarcity has made “natural regulation. One Nobel economist in the capital” an increasingly vital consideration in 1970s made the claim (since recanted) that economic advance. Declines in oceanic fish “the world can, in effect, get along without catch, for example, are often caused by the natural resources.” Even as growth in popu- growing scarcity of fish stocks (natural capi- lation and technological power in the last tal) rather than by a lack of fishing boats century raised concerns about resource (created capital). (See Chapter 5.) Modern scarcity, economists predicted confidently fishing practices now overpower nature’s fish that price signals from free markets would endowment: a 2006 study showed that the prompt more-efficient production and con- populations of 29 percent of oceanic species sumption or that human effort would pro- fished in 2003 had collapsed (meaning that duce or discover substitutes. Nature would catch had fallen to 10 percent or less of their not be a roadblock to human progress.7 peak abundance). Similar losses of natural But the assumed independence of eco- capital are found at the regional level for nomic activity from nature, always illusory, forests, water, and other key resources.9 is simply no longer credible. Global popu- A second outdated tenet is that growth lation has expanded more than sixfold since ought to be the primary goal of an economy. 1800 and the gross world product more This remains the central operating assumption than 58-fold since 1820 (the first year for in finance ministries, stock markets, and shop- which nineteenth-century data are avail- ping malls worldwide despite the clear threat able). As a result, humanity’s impact on the to natural capital, because rapidly growing planet—its “ecological footprint”—exceeds populations and the creation of consumer-

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driven economies have made growth seem itive collective outcomes. This is a powerful indispensable. But growth (making an econ- idea, but it has overshadowed the equally omy bigger) is not always consistent with important communitarian dimension of development (making it better): the nearly human societies—a dimension with deep fivefold expansion of global economic output roots in evolutionary history. People are moti- per person between 1900 and 2000 caused the vated not only by self-interest but also by greatest environmental degradation in human the desire to participate in a larger commu- history and coincided with the stubborn per- nity, as with volunteer work or in response to sistence of mass poverty.10 local or national disasters. Recognizing the strong communitarian impulse of human Markets do little to provide public goods beings, as sustainable economics does, offers such as parks and mass transportation. a fuller and more realistic understanding of humans as economic actors. A third shaky axiom of conventional economic thinking is that markets are always Ballooning Liabilities superior to government spending and policies as economic tools. Markets are adept at Conventional economies in the twentieth generating vast quantities of private goods, century churned out cornucopian prosperity but some of these—such as the dozens of and opportunity for people in dozens of redundant breakfast cereal choices—are of countries. But as the century wore on, trou- dubious social value. At the same time, mar- bling numbers began to appear in environ- kets do little to provide public goods such as mental and societal balance sheets, suggesting parks and mass transportation. And although that what is called “economic growth” entails they help to allocate scarce resources “effi- significant losses—of species, healthy ecosys- ciently” across different products and modes tems, and a stable climate, for instance. Today, of production, according to Tufts University the alarming liabilities of modern economies economist Neva Goodwin, “the very defin- threaten to undermine economic stability ition of efficiency contains an acceptance of worldwide. Three issues—climate change, inequality.” In economics, efficiency means ecosystem degradation, and wealth inequal- allocating every resource to its highest value ity—illustrate the self-subversion of economies use, where value is defined mainly by pur- and economic activity today. chasing power, so “a market works efficiently Climate change. The hidden story behind when the rich get a lot of what they want and the headline-grabbing drama of climate the poor get just as much as they can pay change—melting glaciers, rising sea levels, for.” Markets thus do little to ensure a just and hundred-year storms—is the costs distribution of goods: those with the great- inflicted by global warming. The Intergov- est wealth get the most, no matter that 40 ernmental Panel on Climate Change, the percent of the global population lives in international scientific body charged with wrenching poverty.11 assessing the issue, reported in 2007 that the Finally, humans themselves differ sharply cost of curbing climate change through reduc- from the model of “economic man” held by tions in greenhouse gas emissions would run early economists. The celebrated insight of about 0.1 percent of gross world product Adam Smith was that the “invisible hand” annually. An independent review in 2006 leads self-interested individual actions to pos- conducted by Nicholas Stern, head of the

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Government Economic Service in the United a prudent investment necessary to address Kingdom, came to a more sobering conclu- what the Stern report calls “the greatest and sion: the cost of mitigation would be around widest-ranging market failure ever seen.”14 1 percent of gross world product. One per- Ecosystem degradation. In 2005, a com- cent in 2007 would have represented $650 prehensive report entitled the Millennium billion, equivalent to the cost of the Viet Ecosystem Assessment documented the extent Nam War (in 2007 dollars). This cost is steep, of global ecosystem destruction in the last but it would be spread over many countries half of the twentieth century. It concluded that each year.12 human activity had changed the world’s Whatever the cost of action, it is a bargain ecosystems, largely for the worse, more rapidly compared with the cost of doing nothing. during those 50 years than during any period The Stern Report concluded that inaction in recorded human history. Species extinc- on climate change could dampen global eco- tion rates, on the rise since the Industrial Rev- nomic output by anywhere from 5 to 20 per- olution, increased to at least 50–500 times the cent every year over the course of this century, natural rate. Some 20 percent of the world’s the upper limit likely being closer to the final coral reefs were lost and another 20 percent tally. It noted that heat waves like the one in were degraded. And more than half of the 2003 in Europe, which killed 35,000 people increase in atmospheric carbon dioxide levels, and caused agricultural losses of $15 billion, which stand some 36 percent above their will be commonplace in a few decades. And 1750 levels, has occurred since 1959. The hurricane wind speeds in the United States, web of life weakened as ecosystems became which are projected to increase 5–10 per- less resilient and less stable.15 cent because of rising sea temperatures, would The report made an effort to measure the double annual hurricane damage costs. The drag that ecosystem destruction has already report’s low estimate reflects estimated mar- had on economies. Citing World Bank data, ket costs, while the 20 percent estimate sums it noted that in 2001 some 39 countries expe- market costs, nonmarket health and envi- rienced a decline of 5 percent or more in ronmental costs, and an equity weighting wealth (measured as net savings) once unsus- factor that accounts for the fact that poor tainable forest harvesting, depletion of non- countries will bear a disproportionate burden renewable mineral and energy sources, and of the total.13 damage from carbon emissions were taken The Stern Report’s findings were largely into account. For 10 countries, the decline echoed in a survey of climate research by the ranged from 25 to 60 percent. And these Global Development and Environment Insti- estimates were conservative because they tute (GDAE) at Tufts University, which noted ignored fisheries depletion, atmospheric pol- that two major modeling efforts estimated lution, degradation of freshwater sources, annual climate damages by the end of this and loss of noncommercial forests, all of century at 8 percent or more of world out- which carry their own economic costs.16 put. Business as usual would lead to declin- Comprehensive data on the economic ing agricultural yields later in this century, as value of ecosystem services are scarce, but the well as more immediate damage to water picture emerging from research over the last supplies, human health, and essential natural decade suggests that these services are of ecosystems. The Stern and GDAE assess- major, though often hidden, economic ments suggest that early preventive action is importance. A 1997 study conservatively

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STATE OF THE WORLD 2008 Seeding the Sustainable Economy estimated the total global value of 17 ecosys- basis, dwarfing the total growth of the pre- tem services to be at least as large as the vious 19 centuries. Yet extreme deprivation combined annual output of the world’s became and remains the norm for a huge economies. A follow-up 2002 study esti- share of humanity: even now, as noted ear- mated that current rates of habitat conversion lier, some 40 percent of people worldwide cost the world’s economies some $250 bil- survive on $2 or less per day. One in every lion, year in and year out. And a 2006 set of eight people in the world was chronically case studies from Europe documents how hungry in 2001–03, while one in five lacked biodiversity losses—of assets from crayfish access to clean water and two in five lacked to peatbogs to agricultural land—lead to the adequate sanitation.19 loss of ecosystem services, with clear eco- Meanwhile, those at or near the economic nomic costs. Plantation forests in Portugal, pinnacle are fabulously wealthy. The gulf for example, have been associated with a between the richest and poorest is now almost fourfold increase in burnt area from forest incomprehensible: the U.N. Development fires between 1975 and 2003. Those losses Programme reported in 2006 that the com- totaled some 137 million euros in 2001, bined income of the world’s 500 richest peo- roughly 10 percent of the total economic ple was about the same as the income of the value of the country’s forests that year.17 world’s poorest 416 million people—imagine Despite early indications of their enor- a tiny village somewhere in South America mous economic value, ecosystems continue to with as much wealth as the rest of the conti- be lost. A lack of hard data regarding the nent. While income inequality worldwide has actual value of the services of particular ecosys- lessened slightly since the Chinese economic tems hampers the incorporation of value into surge began, China’s course of development business and government decisionmaking. could not spread to Africa, South Asia, and In addition, even when a value can be cred- other impoverished regions without cata- ibly estimated, it is often an externality—a cost strophic environmental ramifications.20 or benefit accruing to society at large, rather If inequality is measured in terms of net than to the individuals or companies respon- assets (a fuller measure of wealth than sible—so there is little incentive for those income), the skewing is even greater. (See actors to care for the species or ecosystem in Table 1–1, which uses household data to question. And finally, the net value of con- derive per capita wealth.) A 2006 United verting an ecosystem may be artificially Nations University study found that in 2000 skewed by subsidies, tax breaks, and other the richest 2 percent of adults globally owned government-sponsored incentives for the con- more than half of the world’s household version. These market failures are common assets—that is, financial assets such as invest- drivers of the huge environmental losses of the ments, plus physical assets such as a home, past half-century documented by the Mil- minus debt—while the poorest 50 percent lennium Ecosystem Assessment.18 controlled only about 1 percent. The United Poverty amid affluence. Economic activ- States had the highest average net worth per ity in the last century generated enough household, at $143,857, while India had the wealth, in principle, to have made extreme lowest, at $6,500.21 poverty obsolete. Global economic output Inequity can dampen development increased more than 18-fold between 1900 prospects. The World Bank’s World Devel- and 2000 and nearly fivefold on a per person opment Report 2006 noted that when some

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blind spots of the conventional Table 1–1. Net Worth Per Person, economic worldview. At least by Country Income Group, 2000 seven key areas of revisionist think- Net Worth Share of World Share of ing—scale, growth versus devel- Country per Net Worth World opment, prices, nature’s Group Person per Person Population contributions, the precautionary (dollars in principle, the commons, and purchasing power parity) (percent) (percent) women—are influencing economic theory and helping to turn High-income OECD* 113,675 64 15 economic activity in more-sus- High-income non-OECD* 91,748 3 1 tainable directions. (See Box 1–1 Upper middle-income 21,442 9 11 on the connections between these Lower middle-income 12,436 16 33 ideas and the issues discussed in Low-income 5,485 8 40 the rest of State of the World 2008.) World 26,421 100 100 Adjust economic scale. The economy’s scale is its physical *Organisation for Economic Co-operation and Development. size—the sheer volume of its Source: See endnote 21. energy and materials ﬂows—relative to its host, the ecosystem. An people lack access to markets for credit, analogy might be a baby growing in its land, or jobs, resources likely do not flow to mother’s womb; it is a subsystem of the where they can do the most good for an mother, totally contained by and dependent economy. A hard-working peasant might upon her. Birth marks the point at which the generate more wealth for the economy than baby has reached the limit of the mother’s a less talented shopkeeper, but the shop- ability to host it. Further growth in the womb keeper, being wealthier and better con- makes both baby and mother worse off. nected, is more likely to obtain credit or Similarly, the global economy depends title to land. Multiply the example across completely on nature for raw materials, energy many victims of economic discrimination and stocks, and indispensable services such as many input markets, and the losses of wealth water and air puriﬁcation, soil fertility, and to an economy could be sizable. And once waste absorption. When the economy reaches these inequities are set, they tend to be rein- a certain size, further growth makes both sys- forced by institutions and social arrange- tem and subsystem worse off, not better. In ments that favor the interests of the wealthy, the language of economists, growth has which can lock in inequality—and under- become “uneconomic.” At the extreme, an performing economies—for generations.22 economy that tries to grow beyond a size the biosphere can support will simply destroy it. Conceptual Reform in So there must be a limit on the size of the economy; its physical growth cannot go on Economics: Seven Big Ideas forever.23 As understanding of humanity’s interactions Positive signs are beginning to emerge of with nature evolved and economic liabilities concrete efforts to restrain the economy’s expanded, reformist economists have devel- physical size. In February 2007, for instance, oped “corrective lenses” to shed light on the the leaders of more than 90 international

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corporations, including General Electric, Box 1–1. Conceptual Reform Volvo, and Air France, called on govern- in Key Sectors ments to set uniform international goals for The conceptual reforms discussed in this reductions in emissions of the greenhouse chapter are reshaping economics in a variety gases that cause climate change. The initiative of ways that are described throughout this addresses one key dimension of scale: green- book. The key idea of the global economy's house gas emissions, which are too large for scale, for instance, is integral to the new yard- the global ecosystem to handle. On the gov- sticks used by economists and others to ernment side, the entry into force of the assess human well-being and sustainability (Chapter 2). Economic scale also comes up Kyoto Protocol in 2005 and the launch of the indirectly when considering how to boost European cap-and-trade system that same resource efficiency, reform food production, year are part of a landmark attempt to com- build a low-carbon economy, and reform the mit the world to the goal of slowing the rate global trading system (Chapters 3, 5, 6, 7, and of greenhouse gas emissions.24 14). For example, huge livestock-raising and fish farming operations today create environ- Meanwhile, many businesses are finding mental and social problems unknown to ear- ways to “dematerialize” economic activity, lier, small-scale efforts. which can also reduce an economy’s physical The role of prices in telling the ecological size. The movie rental firm Netflix, for exam- truth and nature’s contributions to the econ- ple, began to offer its movies online in 2007, omy are a key part of discussions on carbon reducing the need for packaging, stores, and markets, water, and biodiversity (Chapters 7, 8, and 9). The contrast between economic trips to a rental store. Waste minimization is growth and true development is explored in another strategy to shrink physical flows chapters on new economic measures, through an economy. The Interface carpet consumption, and communities designed for company in the United States has adopted a sustainability (Chapters 2, 4, and 11). Is it really “Mission Zero” waste minimization goal, “progress,” for instance, when cities are transformed into sprawling metropolises, family aiming “to eliminate any negative impact our farms are turned into agribusinesses, and rain- company may have on the environment by forests become monoculture tree plantations, the year 2020.” The company reports clear as Chapter 2 asks? progress: manufacturing waste sent to land- The precautionary principle informs much fills has fallen by 70 percent since the mid- of the discussion of ways to make production 1990s, which the company says has saved safe and sustainable (Chapter 3). And issues of resource ownership and the property some $336 million in disposal costs.25 rights regimes that are suitable for a sustain- Waste minimization can be promoted able economy are part of any discussion of through governments as well. In New “the commons” (Chapter 10). Zealand, for example, some 70 percent of The value of women’s contributions to local councils have declared a zero-waste-to- economies is increasingly acknowledged both in community-driven development programs landfills goal for their communities. The town and in the expanding field of microfinance of Opotiki, the first in the nation to set such (Chapters 12 and 13). Women-centered grass- a goal, has diverted 90 percent of its waste roots development can improve the health of away from landfills each year since 1999, children and mothers, for instance, and even according to Zero Waste New Zealand. overturn centuries-old practices like child Spurred by national waste minimization leg- marriage, in the process releasing untapped skills and energy for economic development. islation and using tools like extended producer responsibility laws—which require compa-

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STATE OF THE WORLD 2008 Seeding the Sustainable Economy nies to take back their worn products or pack- of millions of families in microfinance and aging—most communities expect to meet aims to extend its work to 175 million of the their goals by 2020.26 world’s poorest families by 2015. While Shift from growth to development. What’s comprehensive studies on the impact of an economy for? The conventional answer microcredit are yet to be done, initial has long been: to produce ever-greater quan- research suggests that something valuable tities of goods and services. But as just dis- is being produced.28 cussed, this goal is untenable in this “full The need to focus on well-being applies to world,” so the growth mandate is giving way wealthy people as well. A large body of in some quarters to a new focus on devel- research conducted over the past 30 years opment. Development is ultimately about suggests that after a certain point, wealth improving human well-being—meeting fun- does not generally increase happiness. (See damental human needs for food and shelter, Chapter 4.) Landmark studies done in the security, good health, strong relationships, 1990s showed, for example, that self- and the opportunity to achieve individual reported levels of happiness in Japan were no potential. Much of conventional economic greater in 1987 than in 1958, despite a five- activity is indifferent to this well-being focus: fold increase in real income. Even in China, the $1.2 trillion spent on the world’s mili- where real incomes grew by 2.5 times taries in 2006, plus the billions spent on between 1994 and 2005, the share of peo- emergency room visits, police, security sys- ple saying they were satisfied fell about 15 tems, hazardous-waste site cleanups, litiga- percentage points during this period, and tion, and other “defensive” measures, are the share saying they were dissatisfied rose by all major contributions to economic growth, about as much. When economic growth no even though they may have contributed lit- longer makes people any happier, it is beyond tle or nothing to actually improving peo- pointless—it is self-destructive.29 ple’s well-being. 27 Efforts to advance human well-being To be sure, improving well-being can within prosperous populations involve a wide involve growth: offering access to food and range of initiatives, including campaigns for shelter for all, especially the desperately poor, healthy eating, work leave for new parents, will require economic expansion in some shortened workweeks, and encouragement locales. And whether growth is involved or of exercise. Promotion of cycling, for exam- not, the poor need serious economic atten- ple, is on the rise, with recent initiatives in tion to advance their well-being. Initiatives Australia, France, Taiwan, the United King- from the Millennium Development Goals dom, and the United States. Cycling and to grassroots campaigns led by End Poverty walking offer major health and environmen- Now and other nongovernmental groups tal benefits, and they can be cost-effective: as suggest a growing global consciousness the share of trips made by cycling, walking, around the need to help the poorest. And ini- and public transport rises, the share of the tiatives like microcredit seem to offer sig- economy needed for transportation falls. nificant promise for the poor to increase While promoting cycling may seem quixotic, their claim to a country’s economic pie some European cities are inspiring models: in through provision of very small loans to the Amsterdam, for instance, some 27 percent of poor to build microbusinesses. The Micro- all urban trips are made by bike, compared credit Summit Campaign has involved tens with less than 1 percent in the United States.30

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Some businesses are stepping up to the Governments are finding imaginative ways well-being challenge as well, by providing to include such costs, typically through taxes discounted gym memberships or by extend- or fees. Ecotaxes, which in countries that ing commuter subsidies to employees who belong to the Organisation for Economic bike or walk to work. The Sprint Corpora- Co-operation and Development provided tion went a step further, designing exercise 6–7 percent of tax revenues between 1994 into its new headquarters. To encourage and 2004, often involve shifting levies away walking, its corporate campus was built with from things valued by society, such as work, parking lots and food courts located far from to undesirable things like pollution. Ger- offices, and with elevators deliberately many, for example, increased taxes on energy designed to be slow—in order to encourage from 1999 through 2002 and reduced taxes the use of stairs.31 on labor, resulting in lower emissions of car- Interest in ways to promote human well- bon and the creation of 250,000 new jobs being is widening among policymakers as through 2003. Or consider feebates—a com- well. Well-being is now a national policy goal bination of fees and rebates—that subsidize in Australia, Canada, and the United King- the cleanest products or practices via a tax on dom. And for the last 35 years, the Himalayan the dirtiest ones. Sweden charged power kingdom of Bhutan has made “gross national plants a fee in the early 1990s for their emis- happiness,” not economic growth per se, its sions of nitrogen oxide—a principal cause of official goal. (See Chapter 2.) Government acid rain—and redistributed the revenues to policies there aim less at boosting raw gross the least polluting plants, providing a strong domestic product (GDP) numbers than at incentive for plants to reduce emissions. This raising educational levels and reducing led to a 34-percent reduction in the offend- poverty while preserving the country’s envi- ing emissions in 1992 compared with 1990.33 ronment and its cultural traditions.32 Another example of a green tax is “con- Make prices tell the ecological truth. gestion pricing” of automobiles entering Reformist economists have borrowed a prin- urban centers. These charges are meant to ciple from their conventional colleagues— raise the cost of driving, especially at peak “get the prices right”—and applied it to the hours, inducing people to shift to less-pol- effort to build sustainable economies. Envi- luting public transportation. In Stockholm, a ronmental costs often go unrecognized by six-month congestion tax trial saw traffic lev- markets, as when costs created by carbon els fall an average 22 percent, personal injuries emissions are not included in the price of drop 5–10 percent, and ridership on public gasoline or electricity. These costs do not dis- transportation increase some 4.5 percent. appear, however, but are shouldered by The trial was expensive, but the city esti- bystanders, such as the poor in developing mates that if adopted permanently, the charge countries who pay to rebuild homes ruined by would produce 1.90 kronor of benefits for the storms or rising seas generated by climate every krona invested, largely because of change. Any economist will acknowledge that shorter travel times, increased road safety, this sort of classic market failure sends dis- and health and environmental benefits.34 torted signals about the costs of economic Account for nature’s contributions. activity and thus makes it difficult or impos- Nature is a ready storehouse of the raw mate- sible to achieve an efficient marketplace—the rials of civilization—food, fiber, fuel, miner- Holy Grail of conventional economics. als—and the collective annual value of these

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STATE OF THE WORLD 2008 Seeding the Sustainable Economy goods is in the trillions. But the global ecosys- before you leap, Más vale prevenir que lamen- tem also provides many services that are the tar (Better to prevent than lament)—embod- indispensable substrate of economies, includ- ied in public policy. It is commonly defined ing air and water purification, mitigation of this way: “where an activity raises threats of droughts and floods, soil generation and soil serious or irreversible harm to the environ- fertility renewal, waste detoxification and ment or human health, precautionary mea- breakdown, pollination, seed dispersal, nutri- sures should be taken even if some ent cycling and movement, pest control, bio- cause-and-effect relationships are not fully diversity maintenance, shoreline erosion established scientifically.” Put more plainly, protection, protection from solar ultraviolet traditional risk analysts ask, How much envi- rays, partial climate stabilization, and mod- ronmental harm will be allowed? Precau- eration of weather extremes.35 tionists prefer the question, How little harm Far from being free, the value of ecosystem is possible? If safe alternatives to a product or services is sobering. For instance, honeybees’ substance exist, they argue, why use a prod- work as pollinators is worth up to $19 billion uct with even a small, highly uncertain risk?38 a year in the United States alone. Farmers around the world spend $30–40 billion annu- In Mexico, water users pay into a ally on pesticides to control crop pests, but the pests’ natural enemies eliminate at least as fund that is used to protect upstream large a share of the pest population—in fact, watersheds from exploitation. perhaps far more—and without them, expenditures on chemicals would be far higher.36 The principle reflects an understanding Fortunately, nature’s contributions are that the modern economy is highly complex, increasingly being factored into economic globally integrated, and capable of deploying decisionmaking through administrative and immense technological powers, all of which market mechanisms. In Costa Rica, landown- create an irreducible level of potentially dan- ers receive payments for preserving forests gerous uncertainty. Critics charge that the and their biodiversity, with the money com- precautionary principle will stifle innovation, ing from fuel taxes and the sale of “environ- because unknown dangers by definition can- mental credits” to businesses. In Mexico, not be prevented. But precautionists note water users pay into a fund that is used to pro- that a set of clues can help investigators deter- tect upstream watersheds from exploitation, mine if an innovation is likely to pose a dan- thereby helping to preserve water quality; ger. If a new product or technology is likely nearly 1 million hectares are protected under to generate irreversible consequences, harm- the program. In the state of Victoria in Aus- ful persistent wastes, or a large-scale impact, tralia, landowners can bid competitively for it becomes a candidate for serious investiga- government payments to conserve biodiver- tion regarding its potential for harm.39 sity and achieve other environmental benefits. Today, precaution is increasingly embraced (See Chapter 9.) These programs all assign as public policy. The 1991 Maastricht Treaty prices to valuable natural services that have that created the European Union established historically been taken as free—and there- this as the guiding principle for environ- fore have been widely abused and degraded.37 mental policy. In 1998, the Danish Envi- Apply the precautionary principle. The ronment Agency banned phthalates, a precautionary principle is folk wisdom—Look softener, from plastic toys because of its con-

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STATE OF THE WORLD 2008 Seeding the Sustainable Economy nection to reproductive abnormalities in ani- other parties. Global examples include the mals, even though no danger to humans had atmosphere and open-ocean fisheries; regional been documented. Similarly, in 1999 the examples include aquifers and irrigation sys- Los Angeles School Board chose to ban tems. Unless there are agreed-upon and chemical pesticides in favor of a safer alter- enforceable rules to control access (property native, integrated pest management. And in rights systems), such resources are vulnerable 2003 San Francisco led U.S. cities in adopt- to rampant exploitation and overuse. In fact, ing precaution as official policy.40 this is precisely what often happens in open The precautionary principle may evolve access systems, in which anyone can use the further to cover cases where unforeseen prob- resource with no restrictions—the very sce- lems arise even after new products or nario that can give rise to the tragedy of the processes have been deemed safe. In those commons. The global atmosphere is only one cases, another mechanism—the surety bond— vivid example of this; anyone can use it as a free could mitigate the damage or compensate dumping place for greenhouse gas emissions.43 victims. A company wishing to introduce a An often-overlooked alternative to private new product would be required to deposit an or government ownership is group property appropriate sum, keyed to the best estimate systems, which assign the rights to a group of potential future damages, in an interest- that can deny access to nonmembers. For bearing escrow account. The money would centuries there has been common manage- circulate and support other economic activ- ment of irrigation works, forests, and pas- ity, just as other deposited funds do, and tureland in Spain, Switzerland, Japan, and would be returned (plus interest) when the the Philippines, for instance. (See Chapter firm could show that the damage had not 10.) Now the practice is being revitalized in occurred or was less severe than estimated.41 other situations. The European Union cap- Revitalize commons management. and-trade scheme for controlling greenhouse Human societies have evolved a wide range gas emissions, for example, is based on the of institutions for the long-term manage- principles that the atmosphere is commonly ment of natural resources, but today it is not held by all and that access to its carbon- unusual to hear it argued—especially in dis- absorption capacity should come at a price— cussions of the so-called tragedy of the com- ideally and ultimately, a price high enough to mons (see Chapter 10)—that private property hold carbon emissions to sustainable rates. 44 is the only workable arrangement or that In Capitalism 3.0, Peter Barnes of the central government control is necessary. But Tomales Bay Institute proposes that com- some resources (such as the atmosphere) mons management systems be used as an arguably ought to belong to everyone or are alternative to government and private own- difficult or impossible to privatize. In any ership of resources such as the atmosphere, case, privatization is no guarantee against the oceans, and great forests. Trusts would mismanagement or abuse. And government govern access to these commons, within sus- controls, while workable in some instances, tainable limits, and would charge fees to those have been shown to be inferior to private or granted access. Revenues earned from the user-group-sponsored systems in others.42 fees, in Barnes’s vision, would be used to The most difficult challenge is posed by maintain the commons, with surpluses resources that are accessible to all and whose returned as dividends to the commons own- use by one party reduces the availability to ers—all citizens. And because people would

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STATE OF THE WORLD 2008 Seeding the Sustainable Economy have a financial stake in a healthy commons, cent of the world’s food production today, yet they would follow with interest the trusts’ they own less than 15 percent of the land in management of them.45 developing countries. Creative solutions Barnes and his colleagues at the Institute include the Grameen Bank’s initiative to set monitor commons management on a smaller eligibility rules for housing loans that require scale in their “report to owners” entitled that titles to land and houses be in the name Commons Rising. For instance, they cite a of wives as well as husbands. Thus in a divorce 40,000-member food cooperative in Wash- a wife is legally entitled to her share of the ington state that formed a trust to buy criti- couple’s assets.49 cal farmland and thus prevent its Beyond issues of formal discrimination, “development” as a housing tract. The trust women could be better supported in the is designed to manage the property as farm- often-disproportionate roles they play in child land for generations to come. Another exam- care, elder care, volunteer work, and other ple is efforts to resist the increasing unpaid labor, which account for a substantial “enclosure” of the information commons— share of all economic activity. The Canadian attempts to privatize all intellectual property government, for example, estimates that and thereby profit from it; responses such as unpaid work is worth 31–41 percent of GDP. the Creative Commons licensing scheme have Some governments in industrial countries— sprung up to allow creative works to be shared where the single breadwinner is no longer the and modified freely without charge.46 norm and where paid and unpaid work are Value women. “Most poor people are often closely intertwined—are examining how women and most women are poor,” noted a to take women’s unpaid work into account in 1994 U.N. report, yet “almost all low-income policy development. By providing liberal women are economically active.” This is still parental leave, giving workplaces incentives to true, and it follows that ensuring economic offer day care, changing the tax structure to opportunity and equality for women is likely benefit those caring for aging parents, and to give economies a major shot in the arm. other similar benefits, governments are work- Gender bias in everything from asset owner- ing to support the social and economic value ship to wage rates to credit access dampens of women’s unpaid work.50 economic activity.47 Most fundamentally, women typically are Innovation Revolutionaries not paid equally for equal work. Women’s wages in manufacturing as a percentage of Some analysts believe the innovations fueling men’s wages, for example, are 78 percent in sustainable economies are spawning the sixth Costa Rica, 66 percent in Egypt, 60 percent major wave of industrial innovation since the in Japan, and 91 percent in Sweden and start of the Industrial Revolution. (See Chap- Myanmar. Many countries have passed some ter 3.) From the steam engine in the first version of an Equal Pay Act, but discrepan- wave to biotechnology and information net- cies between men and women persist: the works in the fifth, surges of innovation have United States, for instance, passed its Equal accelerated the rates at which natural capital Pay Act in 1963, but women still earn only could be converted to human-made capital, 77¢ for every dollar earned by men.48 thereby ushering in new eras of material pros- Women also often lack access to land and perity throughout the industrial era. The credit. Women are responsible for 60–80 per- sixth wave, which taps green chemistry, bio-

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mimicry, industrial ecology, and other sus- bulbs in 2007, which would roughly double tainability innovations, offers the promise of U.S. sales of these energy-efficient products. breakthroughs in using natural wealth effi- Other firms seem to be trying but are con- ciently, wisely, and equitably. And because it strained by the pressures of corporate gover- takes advantage of social and institutional nance. British Petroleum has taken steps to innovations as well—not just technological remake itself as an energy company rather ones—this new wave provides leadership roles than an oil company. Its BP Alternative for consumers and nongovernmental groups, Energy business is set to invest $8 billion in businesses, and governments.51 solar, wind, and hydrogen power over the Consider first the role of consumers. Using next decade. But BP cannot abandon its their market muscle, consumers are already petroleum business wholesale in the near helping to drive interest in green products of term without sacrificing the high returns that all kinds. Sales of Toyota’s hybrid vehicles, for shareholders expect from today’s lucrative example, jumped from 18,000 in 1998 to oil market. Not surprisingly, its planned 312,500 in 2006 and now number more investment in BP Alternative Energy repre- than 1 million worldwide. Sales of compact sents just 5 percent of its average annual cap- fluorescent lightbulbs (CFLs) in the United ital investments.53 States alone totaled 100 million in 2005. A key constituency with the power to And purchases of organic foods worldwide reshape economies is investors, because cap- jumped by 43 percent between 2002 and ital invested today shapes industries for years 2005, to $43 billion. Impressive as the growth and even decades to come. Socially respon- in green products has been, sales constitute sible investments, project financing governed just a small share of the consumption of each by the Equator Principles, and microfinance product line—U.S. sales of CFLs accounted can help advance sustainability values. (See for only 5 percent of lightbulb sales in 2007, Chapter 13.) So can venture capital (VC) and organic agriculture is practiced on less investments, the funds that seed many new, than 1 percent of global agricultural land. innovative businesses built on great ideas that Given that consumption accounts for a large can transform societies. share of the GDP of most economies—in Venture capital has looked favorably on the the United States in 2006 it was 70 per- “cleantech” sector—those businesses in the cent—consumers are barely tapping their fields of energy, agriculture, water, and waste power to swing economies in a sustainable disposal that use innovative technologies or direction. They need help.52 practices to deliver the services people want in a clean way. The field is booming: in 2006, VC cleantech investments in North America Using their market muscle, consumers jumped 78 percent over 2005 levels to are already helping to drive interest in become the third-largest VC investment cat- green products of all kinds. egory, with 11 percent of all venture investments. Cleantech now gets more of these Businesses can provide assistance—and investments than the medical devices, increase profitability—by meeting consumer telecommunications, and semiconductor sec- demand for green products. Wal-Mart has tors, and trails only software and biotech. taken a leadership role regarding CFLs, for Venture capital is growing in other regions example, setting a sales goal of 100 million as well, especially in China. There, clean-

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STATE OF THE WORLD 2008 Seeding the Sustainable Economy tech VC investments increased some 147 Jakarta, Beijing, Mexico City, and Guayaquil percent between 2005 and 2006 and and are under development in dozens of accounted for some 19 percent of all VC other cities.56 investment in the country.54 BRT provides perhaps the best example of Perhaps the greatest boost to sustainabil- how good government is indispensable to ity initiatives can be given by governments, achieving sustainability—and indeed ought to which can shape markets and design non- be in the forefront of the movement. Gov- market policies for sustainability. In Sweden, ernments not only can launch initiatives such the government is using its regulatory and as BRT themselves, they can shape the rules market-shaping powers to move the country for markets to ensure that the energy and rapidly away from fossil fuels. In 2006 a gov- creativity of business is harnessed for sus- ernment commission recommended that by tainable ends. And as the embodiment (ide- 2020 the use of oil in road transport be cut ally) of the collective will, values, and priorities by 40–50 percent, that industry reduce its of the societies that give them legitimacy, consumption of oil by 25–40 percent, and governments must step up and take on those that heating oil use be eliminated entirely. necessary tasks that civil society and the pri- While the commission envisioned many gov- vate sector cannot or will not do adequately ernment/private initiatives to achieve these or competently—to look after the well-being goals, government leadership is critical, of society as a whole. through dozens of initiatives ranging from With business, civil society, and govern- research on energy efﬁciency to promotion of ment all showing serious interest in sustain- affordable train service and tax incentives for ability in dozens of countries worldwide, the biofuels production.55 chances of creating sustainable economies At the municipal level, many cities are appear better than ever. As the vulnerabilities introducing bus rapid transit (BRT), an inno- of conventional economies continue to be vative system of expedited bus lanes and load- revealed, and as sustainability innovations ing systems pioneered by the government of proliferate and scale up, the prognosis is Curitiba, Brazil. Municipal governments have hopeful. Societies worldwide stand poised to discovered in BRT a remarkably efﬁcient mass rewrite the ongoing human drama of eco- transit option that is far cheaper than under- nomics with a new chapter: the sustainable ground metro systems. As a result, BRT sys- wealth of nations. tems have been built in Quito, Bogotá,

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CHAPTER 2

A New Bottom Line for Progress John Talberth

The way societies have defined and mea- through the ages and remains a fundamental sured progress has had a profound influence justification for today’s progress mantra: eco- on world history. Inspired by the idea of nomic globalization and consumerism. While progress, humanity has eradicated infectious this notion of progress is largely inconsistent diseases, achieved explosive growth in agri- with religious, moral, and economic frame- cultural productivity, more than doubled life works common in Eastern and indigenous expectancy, explored the origins of the uni- cultures, economists Rondo Cameron and verse, and vastly increased the amount and Larry Neal point out that “nearly every nation variety of information, goods, and services in the world has now accepted the need to available for modern life. To be sure, progress adjust its own economic policy and struc- has had its darker side. The evolution of ture to the demands of the emerging global weaponry from spears to atom bombs may be marketplace.” Under economic globaliza- considered progress, but only in the most tion, progress is judged by how well nations cynical sense. Likewise, transformation of implement policies to grow the scale and vibrant cities to sprawl, family farms to scope of market economic activity, improve agribusiness, and rainforest to monoculture efficiency of factors of production, remove tree plantations may only constitute progress regulatory barriers, and both specialize and for the minute fraction of humanity who integrate with the rest of the world. While have—often brutally—positioned themselves gross domestic product (GDP) is the best-rec- to benefit from mass exploitation of both ognized measure of overall economic per- human and natural capital.1 formance, many other metrics related to In the West, faith in the linear evolution of economic openness, productivity, tariffs, history framed how progress was viewed income, and privatization are equally influ-

Dr. John Talberth is Director of the Sustainability Indicators Program at Redeﬁning Progress.

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ential. This chapter describes the shortcom- all declines in well-being that stem from loss ings of traditional metrics and provides an of community, culture, and environment.3 overview of new indicators designed to cap- It is beyond dispute, for example, that ture the environmental and social dimen- GDP fails as a true measure of societal wel- sions of progress.2 fare. While it measures the economic value of consumption, GDP says nothing about Economic Globalization overall quality of life. In 1906, economist Irving Fischer coined the term “psychic and Genuine Progress: income” to describe the true benefit of all A Growing Disparity socioeconomic activity. Goods and services are valued not for themselves, Fischer argued, Undoubtedly, economic globalization has but in proportion to the psychic enjoyment gone well by many standards. The era of derived from them. Higher levels of con- globalization has been accompanied by sig- sumption may or may not have anything to nificant improvements in key indicators such do with a higher quality of life if such con- as the human development index, life sumption is detrimental to personal health, to expectancy, cereal yields, and dissemination of others, or to the environment.4 critical information technologies. (See Figure GDP gives no indication of sustainability 2–1.) Nonetheless, there is widespread recog- because it fails to account for depletion of nition that globalization indicators are increas- either human or natural capital. It is oblivi- ingly irrelevant and out of touch with the ous to the extinction of local economic sys- great environmental and humanitarian disas- tems and knowledge; to disappearing forests, ters unfolding on the planet, that they mask wetlands, or farmland; to the depletion of gross inequities in the distribution of oil, minerals, or groundwater; to the deaths, resources, and that they fail to register over- displacements, and destruction caused by war and natural disasters. (See Box 2–1.) And it Figure 2–1. World Indicator Trends, 1970–2005 fails to register costs of pollution and the non- 300 Source: IMF, UNDP, World Bank market benefits associ- Mobile Phones Index ated with volunteer 250 work, parenting, and ecosystem services pro- 00)

1 200 vided by nature. GDP = is also flawed because Computers Index it counts war spending 150 Cereal Yield Index as improving welfare e even though theoreti- 100 HDI Country Averag

Index (Year 2000 cally, at best, all such spending really does is 50 GWP Index keep existing welfare from deteriorating.5 0 1970 1980 1990 2000 2010 Per capita income and trade numbers are

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umes but lose count- Box 2–1. Gross Domestic Product: less jobs that are Blind to Economic, Social, and Environmental Crises exported to “more effi- The most tragic humanitarian and natural disasters of the past five cient” regions, become years have been largely unnoticed by GDP accounts. (See figure.) In more vulnerable as its Sudan, for example, the per capita GDP has risen 23 percent in this economy becomes decade, yet 600,000 people were acutely at risk of famine from a pro- more specialized, and longed drought in 2001. And more than 400,000 people were killed lose a large degree of there and some 2.5 million displaced by alleged genocide in Darfur its economic self-deter- between 2003 and 2007. Similarly, in Sri Lanka the tsunami that killed mination as ownership at least 36,000 people and devastated coastal infrastructure in 2004 did not affect the steady rise in the nation’s GDP.In the 2003 to 2005 and control over eco- period, the United States spent over $1.4 trillion on defense ($188 bil- nomic decisionmaking lion on the war in Iraq) and suffered great losses from Hurricane Kat- gets displaced to dis- rina, yet the GDP there continued to rise. Income inequality in 2005 tant corporate offices.6 reached its highest level since 1928, with the top 300,000 Americans Traditional micro- earning the same as the bottom 150 million. economic indicators for businesses and institu- 130 tions are becoming obsolete as well. A 00

1 company’s stock price = 120 might rise on news of Sudan successful downsizing, outsourcing, or merg- 110 Sri Lanka ers, but tens of thousands of people could be laid off despite United States 100 obscene CEO salaries and an ever greater Per Capita GDP Index, 2000 concentration of market power. In agricul- 90 2000 2001 2002 2003 2004 2005 ture, global conglomerates have become very adept at also increasingly suspect macroeconomic indi- improving the efficiency of food production cators. Rising per capita income says nothing when measured by output per dollar. At the about the distribution of that income—it same time, the amount of food per hectare may drop for the majority, rise for a handful has dropped relative to what used to be pro- at the top, and still show an overall gain. duced on smaller, supposedly less efficient Indeed, while per capita income soared by 9 farms—creating food deserts in some of the percent in the United States in 2005, the world’s most productive agricultural regions. increase all went to the wealthiest 10 percent And finally, at the personal level, measur- of the population. The bottom 90 percent ing economic progress by the size of salaries, experienced a 0.6-percent decline. Similarly, stock portfolios, or houses or by the number a nation may have rapidly growing trade vol- of SUVs, plasma televisions, computers, or

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STATE OF THE WORLD 2008 A New Bottom Line for Progress clothes someone owns fails to acknowledge improvements in well-being rather than by the empty side of materialism. A rapidly expansion of the scale and scope of market emerging field called “hedonics” combines economic activity. We need to measure eco- economics and psychology in an attempt to nomic progress by how little we can con- better understand what triggers “feelings of sume and achieve a high quality of life rather pleasure or pain, of interest and boredom, of than how fast we can add to the mountains joy and sorrow, and of satisfaction and dis- of throwaway artifacts bursting the seams of satisfaction,” as the authors of Well-being: landfills. We need to measure progress by The Foundation of Hedonic Psychology put it. how quickly we can build a renewable energy An increasingly large and robust body of platform, meet basic human needs, discour- hedonics research confirms what people know age wasteful consumption, and invest in rather intuitively: beyond a certain threshold, more than deplete natural and cultural capital. We material wealth is a poor substitute for com- need an economic system that replaces bru- munity cohesion, healthy relationships, a tal and wasteful competition between nations, sense of purpose, connection with nature, businesses, and individuals with one that and other dimensions of human happiness. In binds us together in cooperative frameworks his recent book Deep Economy, Bill McKibben for solving civilization’s most urgent prob- provides an excellent overview of findings lems. We need an economic system that is from this emerging field. One remarkable firmly ensconced within Earth’s ecological finding is that above an income of roughly limits and guided by our spiritual and ethical $10,000 per person, the correlation between traditions. We need an economic system that happiness and income no longer exists. (See is diverse, adaptable, and resilient. All these also Chapter 4.)7 objectives can be grouped under the rubric of According to the World Bank, economic sustainable development—the new bottom indicators serve three basic functions: they line for progress in the twenty-first century. provide a measure of wealth, they help shape In 1987 the World Commission on Envi- development policies, and they inform citizens ronment and Development defined sustain- on how their economies are being managed able development as meeting “the needs of so that they can make appropriate political the present without compromising the abil- choices and thereby exert control over their ity of future generations to meet their own governments. To accomplish all this, clearly needs.” Since then, there has been a prolif- some new indicators are needed.8 eration of frameworks giving substance to this basic definition by specifying goals, objec- Sustainable Development: tives, standards, and indicators of sustainable development for societies as a whole, for The New Bottom Line broad economic sectors, and for individual In response to the grim realities of climate institutions. In The Sustainability Revolution, change, resource depletion, collapsing ecosys- Andres Edwards suggests seven themes or tems, economic vulnerability, and other con- objectives common to all frameworks: stew- verging crises of the twenty-first century, a ardship, respect for limits, interdependence, consensus is emerging among scientists, gov- economic restructuring, fair distribution, ernments, and civil society about the need for intergenerational perspective, and nature as a a rapid but manageable transition to an eco- model and teacher.9 nomic system where progress is measured by Each framework is accompanied by a

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STATE OF THE WORLD 2008 A New Bottom Line for Progress unique blend of indicators for measuring of which is the genuine progress indicator progress or lack thereof in advancing these (GPI) and its variants. objectives. The remainder of this chapter The GPI is designed to measure sustain- considers a range of these new indicators, able welfare and thus replace GDP as a which can be subdivided into two broad cat- nation’s most important yardstick of eco- egories and two broad types. The basic cat- nomic progress. It adjusts a nation’s personal egories are macro-level indicators developed consumption expenditures upward to account for economies as a whole and micro-level for the benefits of nonmarket activities such indicators for institutions or businesses. The as volunteering and parenting and down- two major types include aggregates or “head- ward to account for costs associated with line indicators” (which attempt to combine income inequality, environmental degrada- individual indicators into a single numerical tion, and international debt. The GPI has index) and specific, single-issue indicators. been reviewed extensively in the scientific lit- Given past misuses of single indices such as erature and found to offer the greatest poten- GDP, most sustainability practitioners rec- tial for measuring national sustainable ognize the need for a suite of indicators bal- development performance.10 anced across economic, environmental, and Redefining Progress has done a break- social domains. down of GPI contributions and deductions for the United States in 2004. (See Table A Macroeconomic View 2–2.) These calculations show the GPI at $4.4 trillion, compared with a GDP of nearly Table 2–1 provides a sample of important $10.8 trillion, implying that well over half of macroeconomic indicators responsive to chal- the economic activity in the United States that lenges of sustainable development in the year was unsustainable and did not contribute twenty-first century. Each indicator is linked to genuine progress.11 to one of five macroeconomic objectives com- GPI accounts for the United States and mon to popular sustainable development many other countries show the gap between frameworks: GPI and GDP widening since the mid- to late • promoting genuine progress based on mul- 1970s. Economists call this divergence the tiple dimensions of human well-being, “threshold effect.” It implies that after a par- • fostering a rapid transition to a renewable ticular threshold, environmental and social energy platform, benefits of economic growth are more than • equitable distribution of both resources offset by rising environmental and social costs. and opportunity, Before that point is reached, genuine progress • protecting and restoring natural capital, generally rises with GDP.12 and Despite its theoretical validity, the GPI • economic localization. and other green accounting systems have yet Since the late 1980s, researchers have to be formally adopted by national govern- been working to develop substitutes for GDP ments as replacements for GDP—perhaps that address the costs and benefits of eco- because the news they communicate is so nomic activity on environmental and social sobering. In early 2007, the Chinese gov- dimensions of well-being. Collectively, these ernment abandoned its efforts to develop a indicators are known as “green” GDP green GDP; preliminary results of the project accounting systems, the most comprehensive showed pollution-adjusted growth rates to be

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Table 2–1. Sustainable Development Objectives and Macroeconomic Indicators

Economic Objective Sample Indicators and Description Desired Direction of Effect

Genuine human Genuine progress indicator (+) Aggregate index of sustainable economic welfare progress Happy planet index (+) Aggregate index of well-being based on life satisfaction, life expectancy, and ecological footprint Well-being index (+) Aggregate index of well-being based on health, wealth, knowledge, community, and equity Human development index (+) Aggregate index of well-being based on income, life expectancy, and education

Renewable energy Carbon footprint (–) Provides spatial and intensity measures of life cycle platform carbon emissions Energy return on investment Ratio between energy a resource provides and the (+) amount of energy required to produce it Energy intensity (–) Energy used per unit of economic output

Social equity Index of representational Measures consistency between ethnic composition equity (–) of elected ofﬁcials and that of the general population; zero indicates “perfect” consistency GINI coefﬁcient (–) Measures extent to which an income distribution deviates from an equitable distribution; zero indicating “perfect” equity Legal rights index (+) Measures degree to which collateral and bank- ruptcy laws protect rights of borrowers and lenders, scale of 0 to 10. Access to improved water Percent of population with access to improved and sanitation (+) water and sanitation services

Protect and restore Ecological footprint (–) Ecologically productive land and ocean area appro- natural capital priated by consumption activities Genuine savings (+) Net investment in human-built and natural capital stocks adjusted for environmental quality changes Environmental sustainability Weighted average of 21 separate environmental index (+) sustainability indicators

Economic Local employment and income Direct, indirect, and induced local economic activity localization multiplier effect (+) generated by a given expenditure Ogive index of economic Measures how well actual industrial structure diversity (–) matches an ideal structure; zero indicates “perfect” diversity Miles to market (–) Average distance a group of products travels before ﬁnal sale

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STATE OF THE WORLD 2008 A New Bottom Line for Progress nearly zero in some provinces. Table 2–2. Genuine Progress Indicator Nonetheless, there are dozens Components and Values, United States, 2004 of encouraging pilot programs implemented by national gov- Component Amount ernments and nongovernmen- (billion dollars) tal organizations (NGOs) to Contributions apply various green accounting Weighted personal consumption expenditures systems.13 (adjusted for inequality) + 6,318.4 A recent global assessment Value of housework and parenting + 2,542.2 Value of higher education + 828.0 found green accounting pro- Value of volunteer work + 131.3 grams in place in at least 50 Services of consumer durables + 743.7 countries and identified at least Services of streets and highways + 111.6 20 others that were planning Net capital investment (positive in 2004, to initiate such programs soon. so included in contributions) + 388.8 Broader GPI applications that Total positive contributions to the GPI $11,064.0 consider factors such as social Deductions equity or the value of nonmar- Cost of crime – $34.2 ket time uses are thus far rele- Loss of leisure time – 401.9 gated to academic institutions Costs of unemployment and underemployment – 177.0 or NGOs such as Canada’s Cost of consumer durable purchases – 1089.9 Cost of commuting – 522.6 Pembina Institute, which cal- Cost of household pollution abatement – 21.3 culates an Alberta GPI and uses Cost of auto accidents – 175.2 it to inform policy debates over Cost of water pollution – 119.7 economic diversification, trade, Cost of air pollution – 40.0 transportation, taxes, and many Cost of noise pollution – 18.2 Loss of wetlands – 53.3 other economic, social, and Loss of farmland – 263.9 environmental issues.14 Loss of primary forest cover – 50.6 Other macroeconomic indi- Depletion of nonrenewable resources – 1,761.3 cators have been created to sup- Carbon emissions damage – 1,182.8 plement GDP with information Cost of ozone depletion – 478.9 Net foreign borrowing (positive in 2004, on overall well-being. One so included in deductions) – 254.0 example is the happy planet Total negative deductions to the GPI $6,644.8 index (HPI), first published by the New Economics Founda- Genuine progress indicator 2004 $4,419.2 tion and Friends of the Earth in Gross domestic product 2004 $10,760.0 2006. The authors note that the HPI “measures the eco- Source: See endnote 11. logical efficiency with which, country by country, people achieve long and happy lives.” The basic for- first HPI assessment found Central America mula is to multiply a country’s self-reported to be the region with the highest average life satisfaction index (determined through score due to its relatively long life expectancy, surveys) by its average life expectancy and high satisfaction scores, and an ecological then divide by its ecological footprint. The footprint below its globally equitable share.15

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HPI data provide further corroboration of is quite complex. For example, communities the threshold effect. Countries classified by that want to assess their carbon footprints the United Nations as medium human devel- almost universally fail to consider carbon opment fare better than either low or high emissions associated with imports of either development countries. An independent sta- intermediate inputs or final consumer goods tistical analysis of HPI and per capita income from other regions or land use activities like values for 157 countries found the two ris- logging or urban growth that reduce carbon ing together up to a threshold, then diverg- sequestration capacity. ing after that. The HPI authors concluded Nonetheless, carbon footprint analysis is a that “well-being does not rely on high lev- useful way to monitor progress toward greater els of consuming.”16 use of renewable energy as well as to identify As with the green GDP, well-being indices firm policy targets. For example, to stabilize have yet to gain official prominence—with carbon dioxide concentrations in the atmos- one notable exception. Since 1972 the gov- phere at 450 parts per million, various mod- ernment of Bhutan has been using the con- els suggest that global emissions must be cept of gross national happiness (GNH) as a reduced by 50 percent in 2050 and 80 per- sustainable development framework. Accord- cent by century’s end. (See Chapter 6.) Com- ing to Prime Minster Lyonpo Jigmi Y Thin- bining this reduction target with various ley, GHN is “based on the premise that true projections of growth in gross world product development of human society takes place (GWP) allows calculation of the required car- when material and spiritual development bon footprint of all economic processes occur side by side to complement and rein- needed to achieve this goal. Even under the force each other.” The four pillars of GHN are most pessimistic GWP growth scenario of equity, preservation of cultural values, con- 1.1 percent a year, the required footprint servation of the natural environment, and reduction is on the order of 93 percent— establishment of good governance. Recently, from 2.88 ounces of carbon per dollar today a major international conference in Bhutan to just 0.16 ounces by 2100.18 was held to explore GHN in more depth, Social equity, another macroeconomic including ways to put it into operation as a objective, has two key dimensions: equitable replacement measure for GDP.17 distribution of resources and equitable access On the second macroeconomic objective, to health care, education, economic oppor- the transition to renewable energy, there are tunities, representation, cultural amenities, dozens of useful metrics such as energy inten- natural areas, and everything else considered sity (which measures conservation) or energy essential to a good quality of life. Quantita- return on investment (which is critical for tive equity measures already inform policy evaluating the feasibility of renewable energy debates over taxes, affordable housing, living investments). But the most ubiquitous mea- wages, diversity, and location of public ser- sure in use is the carbon footprint, which is vices, and their use is on the rise. One com- expressed in three basic ways: emissions in mon way to measure social equity is to tons of carbon, the area of Earth’s surface compare the distribution of resources or needed to sequester those emissions, and car- access with some ideal distribution described bon intensity or emissions per unit of eco- as fair or equitable. The index of representa- nomic output. A zero carbon footprint is an tional equity (IRE) and the GINI coefficient often-stated policy goal. But measuring this are two permutations. The IRE compares

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STATE OF THE WORLD 2008 A New Bottom Line for Progress the ethnic or racial composition of elected sustain current consumption patterns and officials, corporate management, or any other absorb wastes with what is available on a representative body with that of the general renewable basis. When the footprint exceeds population of the relevant jurisdiction. It biological capacity, the world is engaged in measures the degree of deviation, so values unsustainable ecological overshoot and deplet- close to zero indicate more equitable repre- ing natural capital. The most recent accounts sentation if it is assumed that leaders should published by the Global Footprint Network reflect the diversity of the populations they find that “our footprint exceeds the world’s represent. The GINI coefficient measures ability to regenerate by about 25%,” implying the deviation between the actual income dis- that we need 1.25 Earths to sustain present tribution of a given nation or community patterns of consumption. While there remain and a “fair” distribution, where different some theoretical and computational chal- income brackets earn a proportional share lenges to resolve, EFA has nonetheless gained of national income.19 status as one of the world’s most ubiquitous Concerning the fourth objective, in A and widely used sustainability metrics. Accord- Short History of Progress Canadian novelist ing to the Secretariat of the U.N. Convention Ronald Wright succinctly notes: “If civiliza- on Biological Diversity, EFA “provides a valu- tion is to survive, it must live on the inter- able form of ecological accounting that can be est, not the capital, of nature.” Nature’s used to assess current ecological demand and interest is the flow of goods and services supply, set policy targets, and monitor success received from stocks of natural capital. These in achieving them.”21 stocks include wild areas, healthy soils, Economic localization, the fifth objec- genetic diversity, and the various atmos- tive, is the process by which a region, county, pheric, terrestrial, and aquatic sinks for wastes city, or even neighborhood frees itself from inherited from the last generation. Natural an overdependence on the global economy capital yields goods such as foods, medi- and invests in its own resources to produce cines, organic fertilizers, and raw materials for a significant portion of the goods, services, countless manufacturing processes as well food, and energy it consumes from its local as ecosystem services such as controlling endowment of financial, natural, and human floods, recycling wastes, building soils, and capital. Localization is gaining new traction keeping atmospheric gases in balance free of as a response to the looming crises over peak charge. When natural capital is lost or oil and climate change, since the global dis- degraded, the flow of goods and services is tribution system for goods is almost exclu- compromised or eliminated entirely, just as sively based on cheap fossil fuels. The World when decimation of human capital stocks Bank acknowledges that localization “will destroys a community’s ability to provide be one of the most important new trends in shelter, communications, water supply, or the 21st century.”22 energy. As such, nondepletion of natural Economic multipliers and measures of eco- capital stocks and ecosystem service flows is nomic diversity such as the Ogive index are a prerequisite for sustainability.20 useful indicators of localization since they The ecological footprint is perhaps the show how well a community is rebuilding best known measure of natural capital deple- its manufacturing base and creating linkages tion. Ecological footprint analysis (EFA) com- between multiple sectors. Another indicator pares the surface area of Earth needed to of increasing importance and use is “miles to

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market,” which for an individual good or between consumers and producers caused by group of goods measures the distance traveled supply chains that now span the globe. Con- (including components) from source to mar- sumers tend to know very little about the ket. The most popular variant is food miles— labor or environmental practices of corpora- a concept that illustrates the wide-ranging tions that produce goods they consume. This benefits associated with locally grown foods, lack of accountability has contributed to a such as freshness, reduced carbon emissions, “race to the bottom” in which corporations higher economic multiplier effects, and the choose locations that impose the least regu- absence of resource-intensive packaging, latory burden on their operations. Forced preservatives, and refrigeration.23 relocation of entire communities, sweatshops, contamination of water supplies, collapsing Five Microeconomic fisheries, and tropical deforestation are among the results. Objectives The burgeoning new movement to inde- Some of the most innovative sustainability pendently certify goods as humanely and sus- initiatives are being undertaken at the insti- tainably produced is a direct response to these tutional level by businesses, schools, and practices. A key indicator is the degree to NGOs. To measure effectiveness, a wide which institutions procure goods and ser- range of micro-level metrics are being vices from certified sources. Some well-known deployed and used as benchmarks of orga- companies are using certification to influ- nizational success. Table 2–3 provides a small ence practices further down the supply chain. sample of these. For example, Unilever’s policy is to buy 100 Increasingly, sustainability metrics are being percent of its fish from sustainable sources. To reported side by side with more-traditional achieve this goal, the company helped design financial indicators to satisfy investor and and now promotes Marine Stewardship stakeholder demand for accountability with Council certification by its suppliers. (See respect to important environmental, social, Chapter 5.)25 and economic impacts. Accountability itself is Other certification or sustainability rating a proven force for change. As Andrew Savitz systems evaluate a company’s overall opera- and Karl Weber note in The Triple Bottom tions, not just the products or services they Line, such metrics have become a “key driver” provide. The Global Reporting Initiative of progress toward sustainable business.24 (GRI) has become the world’s leading bench- Like macro indicators, institutional sus- mark for measuring, monitoring, and report- tainability metrics can be grouped by objec- ing corporate sustainability efforts. Currently, tives common to popular sustainability the GRI includes 146 indicators drawn from frameworks: economic, social, and environmental domains • certification of products, operations, and and 33 “aspects” within these domains, such supply chains; as biodiversity, relations between labor and • zero waste; management, and investment and procure- • eco-efficiency; ment practices.26 • workplace well-being; and A conspicuous manifestation of unsus- • community vitality. tainable operations is a big waste stream in the Certification is a response to a pernicious form of air emissions, water pollutants, and effect of globalization: the disassociation refuse. Thus, a second key sustainability objec-

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Table 2–3. Sustainable Development Objectives and Microeconomic Indicators

Economic Objective Sample Indicators and Description Desired Direction of Effect

Sustainability Percent certified (+) Percent of goods, services, and materials procured certification from certified sources Sustainability reporting Degree of consistency with Global Reporting compliance (+) Initiative (GRI) or similar standards Pacific sustainability index PSI score based on environmental, economic, and score (+) social criteria for relevant sector Zero waste Recycling rate (+) Percent of waste stream recycled Emissions (–) Air and water emissions including greenhouse gases total and per unit output Longevity (+) Useful product life Eco-efficiency Recycled content (+) Percent of materials used as inputs that are recycled Intensity (–) Energy, water, and materials use per unit output Facility rating (+) Level of LEED certification for buildings and facilities

Workplace Job satisfaction (+) Average scores from employee satisfaction surveys well-being Turnover rate (–) Percent of employees voluntarily or involuntarily leaving organization each year by category Commuting (–) Employee vehicle miles traveled

Community vitality Local procurement (+) Proportion of spending on goods and services provided by locally owned businesses Local economic impact (+) Direct, indirect, and induced economic impact of local expenditures Community support (+) Value of cash and in-kind goods and services donated for public beneﬁt Living wage ratio (+) Ratio of wage rate paid to living wage for relevant employment categories tive is “zero waste.” Recycling rates and emis- should save money. For decades, 3M has sions of air and water pollutants, including monitored all aspects of the waste stream greenhouse gases (GHGs), are common indi- and urged its employees to develop innova- cators linked to zero waste strategies. Once tive waste reduction programs. The com- adopted, regularly published, and used to set pany now reports cumulative reduction of targets, such indicators often drive substan- over 2.2 billion pounds of pollutants. Emis- tial changes in business practices. sions of volatile organic compounds have One of the longest running zero waste ini- dropped from over 70,000 tons per year in tiatives is 3M’s Pollution Prevention Pays 1988 to less than 6,000 tons today. 3M esti- program, based on the notion that waste is mates it has saved at least $1 billion by a sign of inefficiency and that its elimination reusing the waste stream and avoiding expen-

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STATE OF THE WORLD 2008 A New Bottom Line for Progress sive pollution mitigation measures.27 tal Design’s Green Building Rating System, Carbon neutrality is another zero waste which is used to certify home, schools, or strategy, and offsets are one tool that com- commercial buildings as silver, gold, or plat- panies are using to get there. (See Chapter 7.) inum based on green design features that For example, Green Mountain Coffee Roast- conserve electricity, water, and waste ers has monitored both its carbon emissions throughout the entire life cycle—from con- and the amount of offsets since 2003. In struction to demolition.30 2005, the company reported 9,823 tons of The World Health Organization identi- GHG emissions and an equal amount of off- fies meaningful and satisfying work, open sets in the form of investments in wind and decisionmaking, worker health and safety, methane capture projects.28 and just compensation as key aspects of sus- Another important indicator related to tainable workplace environments. Workplace zero waste is product longevity, often mea- satisfaction, turnover rates, and health and sured by useful product life. Products safety factors such as commuting distances are designed with longevity and upgradability in common indicators of workplace well-being— mind substantially reduce the flow of refuse another sustainable development objective— to landfills. Additional longevity indicators and ones that are driving change. The work listed in the Electronic Product Environ- satisfaction of full-time staff at Finland’s mental Assessment Tool framework include Turku Polytechnic has been monitored since availability of extended warranties, upgrad- 2000. In a Web-based questionnaire, respon- ability with common tools, modular design, dents are asked to assess on a scale of one to and availability of replacement parts.29 five their satisfaction with work, features of the Eco-efficiency, a third microeconomic job, the working community, their supervi- objective, is about reducing the amount of sor’s performance, recognition of their knowl- water, energy, chemicals, and raw materials edge and skills, and the organization’s used per unit output. Eco-efficiency is moti- operations. The aggregate employee satis- vated not only by environmental concerns faction score rose steadily from 3.30 to 3.78 but by the prospects of significant financial between 2000 and 2004. Problem areas savings in the form of reduced energy and uncovered by the surveys included collabo- water bills, less money spent on raw materi- ration and communication, which motivated als, and fewer regulatory hurtles. Swiss-based the school to publish a weekly electronic ST Microelectronics cut electricity use by newsletter for personnel.31 28 percent and water use by 45 percent in In 2004 and 2005, Mountain Equipment 2003 and reported saving $133 million. Co-op (MEC) in Canada undertook com- DuPont committed to a policy of keeping prehensive employee engagement surveys energy use flat no matter how much pro- with Hewitt Associates. They asked for duction increased, which reportedly saved responses to such statements as “our people over $2 billion in the past decade. The com- practices create a positive work environment pany Advanced Micro Devices tracks “kilo- for me” and monitored the percent of watt hours per manufacturing index” and employees in agreement. MEC’s overall reports a 60-percent reduction from 2.17 Hewitt engagement score was quite low—48 in 1999 to 0.86 in 2005. One way to mon- percent in 2004—and as a result the firm itor eco-efficiency for facilities as a whole is undertook a wide range of improvement the Leadership in Energy and Environmen- measures such as a continuing education assis-

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STATE OF THE WORLD 2008 A New Bottom Line for Progress tance, an upgraded maternity leave policy, Fostering the extension of employee assistance programs, and increased accountability of senior staff. New Bottom Line MEC’s engagement score rose to 63 percent How does the world move away from tradi- after the indicator was put in use.32 tional measures such as GDP, trade volume, A final sustainability objective to consider or factor efficiency? Encouraging the wider is community vitality. Institutions committed use of newer macroeconomic measures to sustainable development universally rec- requires political pressure on international, ognize that they must contribute to the vital- national, and local governments. While there ity of the communities in which they operate. are many examples of alternative indicators While in-kind and cash donations are com- used in research settings, clearly adaptation mon, fundamental changes to business prac- is slow and civil society leadership is key. As tices are increasingly important. One example one step in the right direction, in November is raising the share of goods and services pro- 2007 the European Commission, the Organ- cured from the local community rather than isation for Economic Co-operation and imported from afar. Local procurement can be Development, and several NGOs held a con- a critical tool for regeneration of communities ference in Brussels entitled “Beyond GDP: hard hit by globalization. For example, the Measuring Progress, True Wealth, and the London-based Overseas Development Insti- Well-Being of Nations.” Key objectives of the tute is working with South African tourism meeting included clarifying what indices are companies and associations to promote local most appropriate to measure progress and procurement as a way to fight poverty and how these can best be integrated into deci- other social ills plaguing rural villages.33 sionmaking.35 Paying living wages is another funda- Civil society can also participate in legal mental way for institutions to promote com- and administrative processes to enforce poli- munity vitality. Living wages take into cies already in effect. For example, interna- account the cost of living at the local level tional finance agencies such as the World and seek to provide a wage that fulfills the Bank are obliged to use benefit-cost analy- basic needs of workers and their families. sis (BCA) to evaluate the feasibility of infra- Monitoring wages paid in relation to a liv- structure development projects such as roads, ing wage is a way to identify where adjust- oil pipelines, ports, and dams. As the Bank ments need to be made. An exemplary acknowledges, BCA “is a technique intended example of this kind of monitoring is the to improve the quality of public policy deci- international pharmaceutical corporation sions. It uses as a metric a monetary measure Novartis. The company works with local of the aggregate change in individual well- NGOs to identify a “basic needs basket” for being resulting from a policy decision.” Typ- a worker and family and to quantify the basically, traditional economic measures like ket in local currencies. Using a methodology GDP are used as a proxy for well-being—a developed by Businesses for Social Respon- clearly erroneous practice—so there are sibility, Novartis then calculates market-spe- opportunities to change such practices to cific living wages and compares those with be more in line with policy by using substi- actual wages paid. By early 2006, the com- tutes like the genuine progress indicator in pany had aligned the pay of all 93,000 these contexts.36 employees with living wage levels.34 Market forces are already fostering greater

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use of sustainable development indicators at tools. For example, a simple carbon tax would the micro level. In their recent book Green to automatically stimulate widespread use of Gold, Daniel Esty and Andrew Winston of carbon footprint analysis. Yale University evaluated the stock perfor- More direct approaches are legal require- mance of “Waveriders,” a subset of companies ments for simple disclosure. As documented they consider leaders in sustainability report- in this chapter, the mere reporting of sus- ing and initiatives. They found that Waverid- tainability metrics like recycling rates, energy ers “significantly outperformed the market” and water intensity, and living wage ratios is over the past 10 years, and they make a com- a key driver of change. Where sufficient pub- pelling case as to why maintaining credible lic interest is present, it is reasonable to expect sustainability metrics is a proven strategy for communities to insist on such disclosures as business success in the new century. Nonethe- part of annual reports, tax returns, and per- less, there is still a great deal that governments mit applications. One prominent example of can do at all levels to tip the scales in favor of the impact of such practices is U.S. Superfund responsible Waverider-type companies.37 legislation, which requires companies to report One obvious strategy is sustainable pro- annually on the amount of hazardous chem- curement policies. Given the immense icals within each of their facilities. As Savitz resources under their control, governments at and Weber note in The Triple Bottom Line, all levels can insist that companies they do “companies suddenly faced with the simple business with do not just give lip service to disclosure requirement immediately began sustainable development but demonstrate to take dramatic, unprecedented steps to progress toward it through the GRI and redesign their processes to eliminate the need other credible indicator systems. Another for these chemicals at all.” The result was a 59- emerging strategy is the cultivation of markets percent reduction in the amount of hazardous for environmental goods and services through chemicals stored on-site by U.S. companies, payments for ecosystem services and other the most dramatic voluntary environmental market-based approaches. (See Chapter 9.) improvement in history—“all because of a Governments can use their regulatory pow- simple disclosure requirement.”38 ers to create markets for flood control, pol- Innovations like these need to be acknowl- lination, biodiversity, water purification, and edged and publicized, so that one good mea- carbon sequestration services of healthy sure leads to another. No one indicator can ecosystems by requiring offsets for urban capture all the components of sustainable development projects, power plants, or indus- development. Instead, governments should trialized agriculture or forestry operations. back a suite of creative indicator initiatives, Such markets would stimulate landholders giving the world a better and more holistic to monitor both the stocks of natural capital portrait of progress being made in the twenty- under their care and the economic value of first century toward both happy people and the ecosystem services those stocks gener- a happy planet. ate. Taxes and subsidies are other important

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CHAPTER 3

Rethinking Production

L. Hunter Lovins

In 1999, executives at DuPont boldly pledged must be radically rethought in this sustain- to reduce the company’s greenhouse gas ability century. Over the past 100 years, the (GHG) emissions 65 percent below their way humans made and sold goods and ser- 1990 levels by 2010 as part of a company- vices took a heavy toll. Now, smart companies wide strategy to lighten its environmental recognize the need to move beyond busi- impact. The plan, in part, was to diversify ness as usual to meet people’s needs in sus- the product line—shedding divisions such as tainable ways. nylon and pharmaceuticals to focus on mate- Every year the world digs up, puts through rials that reduce greenhouse gases, such as various resource crunching processes, and Tyvek house wraps for energy efficiency. The then throws away over a half-trillion tons of plan worked: by 2007 DuPont had cut emis- stuff. Less than 1 percent of the materials is sions 72 percent below 1991 levels, reduced embodied in a product and still there six its global energy use 7 percent, and, in the months after sale. All of the rest is waste. process, saved itself $3 billion. DuPont now This pattern of production and the con- plans to go beyond mere efficiency improve- sumption it engenders now threaten every ments to make products that mimic nature, ecosystem on Earth. In March 2005, U.N. including plant-based chemicals like Bio- Secretary-General Kofi Annan observed that PDO that can replace petroleum in poly- “the very basis for life on earth is declining at mers, detergents, cosmetics, and antifreeze.1 an alarming rate.”2 DuPont’s actions—and similar ones in By the time most human artifacts have dozens of other firms—reflect a recognition been designed but before they have been that the way goods and services are produced built, 80–90 percent of their lifecycle eco-

L. Hunter Lovins is president and founder of Natural Capitalism Solutions and a professor of business at the Presidio School of Management.

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STATE OF THE WORLD 2008 Rethinking Production nomic and ecological costs have already The Solid Foundation become inevitable. For example, this book you are holding, the seat in which you are sit- of Eco-efficiency ting, the airplane in which you may be fly- The ability to produce cheap goods and ship ing, the terminal at which you will land, the them around the planet derived in part from vehicle in which you will continue your trip abundant supplies of cheap energy. Using are all the result of myriad choices made by this inexpensive oil, gas, and coal has polluted policymakers, designers, engineers, crafts- the planet and dangerously warmed the cli- people, marketers, distributors, and so on. mate. In a carbon-constrained world, sur- Each step represents opportunities to deliver vival depends on finding ways to produce the idea, the part, or the production process goods and services in dramatically more in ways that use more or fewer resources energy-efficient ways. and result in a superior or suboptimal end- The concept of making things using fewer result. Thinking in a more holistic way and resources is far from new, but it remains the choosing more wisely at each step can reduce cornerstone in producing goods and services the impacts of these choices on the planet more sustainably. Critics such as William and its inhabitants.3 McDonough disparage eco-efficiency as sim- This is the foundation of Natural Capital- ply doing less bad, but therefore still bad. ism, the framework of sustainability that Greater resource productivity alone will not describes how to meet needs in ways that deliver a sustainable society, but the criti- achieve durable competitive advantage, solve cism misses the significance of using as few most of the environmental and many of the resources as possible. The foundation of a social challenges facing the planet at a profit, building is far from sufficient to house a and ensure a higher quality of life for all peo- family, but without a solid underpinning no ple. It is based on three principles: structure can long stand. Without eco-effi- • Buy the time that is urgently needed to ciency, no system of production can be said deal with the growing challenges facing to be sustainable.5 the planet by using all resources far more More important, however, given the chal- productively. lenges facing the world, is the fact that using • Redesign how we make all products and less stuff buys the critical time necessary to provide services, using such approaches as solve such daunting problems as climate biomimcry and cradle to cradle. change and to develop and implement pro- • Manage all institutions to be restorative of duction methods that meet humanity’s needs human and natural capital.4 in ways that do not cause more problems. The good news is that meeting human Eco-efficiency is the easiest component of needs while using less stuff can be more prof- the transition to sustainability to implement. itable and can deliver a higher standard of liv- It is increasingly profitable, and psychologi- ing than continuing with current practices. cally it is far more familiar to industrial engi- Combined with efforts to lower consumption neers than are such concepts as biomimicry (see Chapter 4), practices that raise resource or the human dimensions of implementing efficiency, circulate materials rather than dump the changes necessary. It is therefore a great them, and imitate nature offer a new model place to start. of prosperity for an environmentally degraded It is now cost-effective to increase the effi- and poverty-stricken planet. ciency with which the world’s resources are

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STATE OF THE WORLD 2008 Rethinking Production used by at least fourfold—dubbed “Factor society. It maintains initiatives in sustainable Four” in a 1997 book. The European Union value chains, capacity building, water, and has already adopted this as the basis for sus- energy use in buildings. WBCSD conducts tainable development policy and practice. sector-specific studies on how to reduce Some countries like Australia have set this resource use in such areas as cement, electric and even greater efficiency as a desirable utilities, mining and minerals, mobility, tires, national goal. The Environment Ministers and forestry. The group is led by an executive of the Organisation for Economic Co-oper- committee featuring leaders of such compa- ation and Development, the government of nies as Toyota, DuPont, Unilever, Lafarge, Sweden, and various industrial and academic and Royal Dutch Shell.8 leaders in Europe, Japan, and elsewhere have Member companies have implemented gone even further, adopting Factor Ten profitable resource productivity to lower their improvements as their goal. The World Busi- costs and reduce their environmental foot- ness Council for Sustainable Development print. For example, AngloAmerican/ Mondi (WBCSD) and the U.N. Environment Pro- South Africa increased the production capac- gramme have called for Factor Twenty, which ity of one of its pulp mills by 25 percent. involves increasing efficiency 20-fold. There This enabled it to accommodate a 40-percent is growing evidence that even such ambi- increase in timber supply from more than tious goals are feasible and achievable in the 2,800 small growers, while increasing the marketplace. They may, in fact, offer even efficiency of using waste wood to power the greater profits.6 plant, decreasing the use of bleach chemicals, One of the foremost proponents of eco- and reducing the use of coal from 562 to 234 efficiency is the World Business Council for tons per day—all while significantly cutting Sustainable Development, which introduced costs. The measures achieved reductions in: this term to the world right before the 1992 • 2,177 tons of sulfur dioxide—a 50-per- Earth Summit in Rio de Janeiro. WBCSD cent reduction; defines eco-efficiency as: • 509 tons of nitrogen oxide (NOX)—a 35- • reduction in the material intensity of goods percent reduction;

or services, • 297,121 tons of carbon dioxide (CO2)—a • reduction in the energy intensity of goods 50-percent reduction; and or services, • total sulfur emissions—down approxi- • reduced dispersion of toxic materials, mately 60 percent. • improved recyclability, Energy-efﬁcient technologies also reduced • maximum use of renewable resources, water consumption and purchased energy. • greater durability of products, and These enabled the pulp mill to use 44 percent • increased service intensity of goods and less purchased energy in 2005 than in 2003. services.7 During 2005, one mill cut its energy and WBCSD is a CEO-led network of more water costs by 27 percent.9 than 200 companies promoting market-ori- Increasingly, companies are implement- ented sustainable development and greater ing eco-efﬁciency to drive their innovation resource productivity. It enables its members and enhance their competitiveness. STMicro- to share knowledge, experiences, and best electronics (ST), a Swiss-based $8.7-billion practices on energy and climate, develop- semiconductor company, set a goal of zero net ment, ecosystems, and the role of business in GHG emissions by 2010 while increasing

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STATE OF THE WORLD 2008 Rethinking Production production 40-fold. ST’s GHG emissions 2013. It estimated that the impact would be were traced to facility energy use (45 percent), the equivalent of removing 213,000 trucks industrial process (perfluorocarbon and sul- from the road and saving about 324,000 fur hexafluoride) emissions (35 percent), and tons of coal and 77 million gallons of diesel transportation (15 percent). The company fuel a year.14 undertook to reduce on-site emissions by Reducing packaging in the company’s Kid investing in cogeneration (efficient combined Connection line of toys let Wal-Mart use heat and electricity production) and fuel cells 427 fewer containers to ship the same num- (efficient electricity production).10 ber of items, saving $2.4 million in shipping By 2010 cogeneration sources should costs, 3,800 trees, and 1,300 barrels of oil supply 55 percent of ST’s electricity, with annually. The company estimates that a sim- another 15 percent coming from fuel switch- ilar effort globally could save nearly $11 bil- ing to renewable energy. ST will reduce the lion. Wal-Mart’s supply chain alone could need for energy supply through improved save $3.4 billon.15 efficiency and implement various projects to sequester carbon. This commitment has Companies are implementing eco- improved profitability. During the 1990s its energy efficiency projects averaged a two- efficiency to drive their innovation year payback—a nearly 71 percent after-tax and enhance their competitiveness. rate of return.11 Making and delivering on this promise Wal-Mart has pledged to implement an has also driven ST’s corporate innovation “Ethical Supplier Initiative” and is seeking and increased its market share, taking the more long-term and sustainable partnerships company from the twelfth to the sixth largest with the factories that supply its stores. One microchip maker by 2004. By the time ST such program in a candy factory in Brazil meets its commitment, it expects to have that lacked a system for processing, recycling, saved almost $1 billion.12 and disposing of waste enabled the factory to What is true in microchip manufacturing install a waste management program, which holds true in consumer retailing as well: in turn let the supplier generate $6,500 a things can be done more efficiently. In Octo- year in new profits.16 ber 2005, Wal-Mart, the world’s largest Wal-Mart is working with suppliers to retailer, announced a corporate commitment design more-efficient products to offer to its to cut greenhouse gas emissions and reduce customers. A partnership with the Eco-mag- waste, pledging to be supplied 100 percent by ination program of General Electric (GE) renewable energy, to create zero waste, and will produce light-emitting diodes (LEDs). to sell products that sustain resources and LED lights last longer, produce less heat, the environment.13 contain no mercury, and use significantly less To achieve this, Wal-Mart is working with energy than other bulbs. Lighting accounts its 60,000 plus suppliers to help them learn for about one third of Wal-Mart’s electricity how to produce “affordable sustainability, use. Since 2004 Wal-Mart has invested about and become more sustainable businesses in $17 million in developing LED lighting sys- their own right.” The company began by tems for its own refrigerator cases in more reducing waste, announcing a goal of a 5- than 500 stores. It projects that this will save percent reduction in overall packaging by about $3.8 million a year and reduce the

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company’s CO2 emissions by 65 million cipline of Six Sigma. But once the invention pounds. Wal-Mart’s purchase will be suffi- is conceived, lean manufacturing enables a ciently large that it will bring GE’s produc- company to deliver exceptional quality, tion costs for LED lighting down to levels squeeze out waste, and scale up production competitive with ordinary lamps.17 to efficiently deliver a predictable product. The company is also taking a closer look Lean manufacturing, as implemented by at how some of the products on its shelves are Toyota, features an almost manic dedication made, in line with WBCSD’s emphasis on to reducing the “seven wastes” as a way to reducing the dispersion of toxic chemicals as enhance customer satisfaction. It identifies one component of eco-efficiency. At the any part of an operation that does not con- March 2007 quarterly meeting of senior man- tribute to customer satisfaction as waste, agement and major suppliers of Wal-Mart, specifically targeting product design, sup- CEO Lee Scott indicated that the company plier networks, and factory management. It would begin phasing phthalates out of the seeks to eliminate the production of more plastics used in children’s toys. By July, Wal- items than are demanded by the customer, Mart announced that it would no longer ship the movement of people or machines, any infants’ toys containing these endrocrine-dis- idle time of people or machines, the move- rupting compounds.18 ment of material or product, inefficient pro- A number of frameworks aim to help com- cessing (see Box 3–1), excess inventory of panies use resources more efficiently. Lean input or product, and the need to rework or manufacturing arose from the Toyota Pro- throw out anything.20 duction System and was popularized in the As lean manufacturing caught on in the 1996 book Lean Thinking by James Womack United States, it was logical that it would be and Dan Jones. It emphasizes reduction in combined with clean production, which is process variability as a way to identify and what the U.S. Environmental Protection eliminate inefficiencies that reduce quality. Agency, the Chicago Manufacturing Center Waste is eliminated as a byproduct of enhanc- (CMC), and others did. ing the smoothness of the process. Similarly, CMC sponsored the GreenPlants Sus- the Six Sigma system trademarked by tainable Leadership Program to help a group Motorola and fanatically implemented by of Chicago area manufacturers implement hundreds of companies seeks to cut waste lean, clean, more-sustainable production, in by eliminating any variability in the produc- order to enhance the competitiveness of man- tion of items.19 ufacturing companies threatened by foreign These two systems are valuable approaches, companies. Working with Natural Capital- but management needs to understand their ism Solutions, the program helps local man- limits. Manufacturers have found that both ufacturers implement more-sustainable have the drawback of inhibiting creativity. production techniques as the basis for retain- The mental model that seeks to eliminate ing globally competitive manufacturers in any defect or deviation from a given standard the Chicago area. The 84 CMC clients sur- is inimical to the sort of intellectual curiosity, veyed in fiscal 2004 reported that they hired tolerance for ambiguity, spirit of experimen- 194 people for newly created jobs, saved 527 tation, and appetite for risk that characterizes jobs, and did not lay off anyone due to great invention. Many companies now insu- improvements.21 late their creative staff from the salutary dis- PortionPac Chemical Corporation is using

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shipped in steel pails and multigallon drums Box 3–1.The Robot Versus that were then discarded. Many cleaning for- the Hair Dryer mulations being used were extremely haz- A Wall Street Journal article exploring why Toy- ardous, and few janitors understood how to ota was outcompeting Detroit and its suppli- apply the solutions correctly. To address these ers stated that the Japanese manufacturer was problems, PortionPac Chemical Corporation able to “produce vehicles with one-third the was founded in 1964 to eliminate the water defects of mass-produced cars using half the and instead ship small plastic packets of con- factory space, half the capital, and half the centrated, portion-controlled solutions. Por- engineering time. Elements of lean tionPac helped Boeing reduce costs and production, such as ‘just-in-time’ shipments of supplies, are familiar to most U.S. manufactur- simplify its cleaning process by reducing a ers. But adapting the whole Toyota system, thousand different brands of cleaning prod- and the cultural changes that go with it, has ucts to just 10, with PortionPac products as proven difficult for many American 3 of those 10.22 companies.” PortionPac has gained market share The article tells one of the classic Toyota because of its sustainability campaign. It has stories of an engineer making wasteful also shifted its business model to sell cus- reliance on expensive high technology look silly. Painting processes are one of the auto tomers the service of a cleaner facility, in industry’s more polluting activities. addition to selling chemicals that others can Armed with a $12 dryer from a use. In 1999, the company helped schools in discount store, Mr. Oba proved to engineers Tacoma, Washington, save 627,000 hours from Michigan’s Summit Polymers Inc. that of labor, including moving drums around, their $280,000 investment in sleek robots and $102,000 in chemical purchases by and a paint oven to bake the dashboard implementing this system. Now more than vents they produce actually was undermining quality and pushing up costs. The fancy 7,000 schools have signed on to Portion- equipment took up to 90 minutes to dry Pac’s set cost fee, which includes the clean- the paint and in the bargain caused quality ing products the schools need plus proper flaws because parts gathered dust as they education on how to clean, proper mixing, crept along a conveyor. and safe usage. PortionPac works with cor- Mr. Oba’s hair dryer did the job in less rectional facilities, schools, hotels, hospitals, than three minutes. Chastened, Summit’s and industrial plants to limit the number of engineers replaced their paint system with 23 some $150 spray guns and a few light bulbs products and ensure proper usage. for drying and integrated the painting into The company has also helped such clients the final assembly process. Family-owned as Cornell University earn Leadership in Summit cut its defect rate to less than 60 Environmental and Energy Design (LEED) per million parts from 3,000 per million. certification from the U.S. Green Building Council by using PortionPac’s Green Source: See endnote 20. Seal–certified products. Dale Walters, Gen- eral Manager of Facilities Operations at Cor- CMC’s program to develop sustainable clean- nell, notes that “over time, Cornell saved ing systems. The cleaning industry has tradi- costs by using the right amount of product tionally wasted energy in manufacturing, and going from twenty cleaning products shipping, and disposing of cleaning formula- to four. It also reduced safety risks involved tions that were 90 percent water; these were with handling chemicals. When we sought to

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STATE OF THE WORLD 2008 Rethinking Production create LEED certified buildings, we worked stitute labor for energy. And he pointed out with PortionPac to establish a green house- that such work could be conducted in small keeping strategy.” Walters reports that “Por- workshops around the country where the tionPac products reduced chemical waste products that needed rebuilding were through both the proper use of cleaning located—something like car repair shops that chemicals and the sheer reduction of pack- are located in every village. This sort of job aging (small packets versus large jugs or plas- creation would address both unemployment tic containers). PortionPac products are a and resource waste.26 main component of our sustainable cleaning In the early 1990s Walter Stahel, by then strategy.” By helping organizations find bet- widely recognized in Europe as a founder of ter ways to motivate their janitors and clean the new sustainability movement, proposed their facilities, while reducing the use of that sustainability rests on five pillars, each of chemicals, PortionPac is winning contracts which is essential for the survival of humans and expanding its business.24 on Earth. None of these pillars is a higher priority, he observed, or subject to tradeoffs. Sta- Cradle to Cradle: hel’s pillars roughly mirror the history of the sustainability movement. Extending a Product’s Life The first pillar is the conservation of nature “Cradle to cradle” is a concept introduced by as the underpinning of a prosperous economy. Walter Stahel more than 25 years ago in This involves the need to preserve intact Europe. In 1976, as Director of a project on ecosystems as the basis of all life-support sys- product life extension at Battelle research tems. It applies to such planetary systems as laboratories in Geneva, Stahel embarked on a stable climate or the ability of the oceans to a program to return products to useful lives. support life, as well as to local carrying capac- He analyzed cars and buildings on micro- ities and the ability of regions to assimilate economic and macroeconomic bases and con- waste. The second pillar is the need to pre- cluded that every extension of product life serve individual health and safety that may be saved enormous amounts of resources in con- jeopardized by economic activities. This seeks trast with turning virgin material into a new to limit toxicity and pollution by such things product, and it also substituted the use of peo- as heavy metals and endocrine disruptors. ple for the expenditure of energy.25 The first two pillars form the domain of the Stahel found that 75 percent of industrial original environmental movement. They are energy use was due to the mining or pro- characterized by command-and-control leg- duction of such basic materials as steel and islation and by minimalist compliance by cement, while only about 25 percent was industry. They tend to be dominated by tech- used to make the materials into finished goods nical experts and agency bureaucrats. This like machines or buildings. The converse rela- approach to protecting the environment costs tionship held for human labor: three times as money and created the belief that environ- much labor was used to convert materials mental protection, actually the basis of into higher value-added products as in the durable prosperity, is incompatible with eco- original mining. He suggested that increasing nomic success. the kinds of businesses that recondition old The third pillar adds resource productiv- equipment as opposed to those that convert ity, innovation, and entrepreneurship to the virgin resources into new goods would sub- sustainability approach. It assumes a Factor

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Ten increase in efficiency as the way to fore- were revolutionizing production. There was stall such threats as climate change and the an apparent abundance of nature and its loss of ecosystems. This is the approach of services. Profit-maximizing capitalists “econ- eco-efficiency in industrial as well as devel- omized on their scarce resource” (people) oping countries. and substituted the use of natural resources Stahel argues that implementing the first and ecosystem services (the ability to spew three pillars is the basis of a sustainable econ- pollution into the air that everyone breathes omy. But, he says, “a sustainable economy is and pour wastes into rivers) to drive profits. only part of the objective to reach a sustain- From this the modern world was born. This able society. A distinct border-line exists there- transformation enabled a Lancashire weaver fore after these first three pillars, which to spin 200 times as much fabric on the separates techno-economic issues from soci- new machines as his predecessor did on a etal ones. The coming ‘Quest for a Sustain- spinning wheel.29 able Society’ must be much broader and The Holy Grail of prosperity was believed include social and cultural issues.” 27 to be labor productivity, and indeed still today Thus the fourth pillar adds social ecology people believe that increasing labor produc- to the mix. This is the first element of the tivity will increase well-being—as if the goal human dimension of sustainability and of the economy is one person doing all the includes, in Stahel’s words, “peace and human work and everyone else out of work. But in rights, dignity and democracy, employment today’s world of relative scarcity, the tables are and social integration, security and safety, turned. About 10,000 more people arrive the constructive integration of female and on Earth every hour, and every major ecosys- male attitudes. Key words here are: the com- tem is in peril. Greater use of ecosystem ser- mons, ‘prisoners’ dilemma’, sharing and car- vices impoverishes everyone, and people need ing, barter economy.” 28 work. Yet the whole mental model of how to The fifth pillar Stahel calls cultural ecology. run the economy is based on the 200-year-old This encompasses how different cultures view perception of the basis of prosperity: penal- the concept of sustainability and how to ize the use of people, subsidize the use of achieve it. It includes attitudes toward risk- resources, and increase labor productivity.30 taking and a sense of national heritage. For Stahel describes how in 1993, as U.S. example, American engineers may see a good companies faced hard times, the corporate business case for eliminating waste, but the world made heroes of such restructurers as Japanese have an almost visceral distaste for Al Dunlap and Jack Welch. Dunlap, in the waste. It offends them. The fifth pillar name of “creating shareholder value” gained includes the critical aspects of corporate cul- the nickname Chainsaw Al: in 20 months as ture, whereby, for example, in 1995 DuPont CEO of Scott Paper, he devastated the 115- called for 100-percent yield rather than zero year-old company by terminating 11,000 waste. This pillar also considers the human people—35 percent of the labor force— part of the equation, such as whether people including 71 percent of the staff at corporate should be retrained rather than fired. headquarters. He, of course, made enor- The First Industrial Revolution, the fore- mous personal gain. His counterpart at GE, runner of modern manufacturing, arose at a dubbed Neutron Jack Welch, cut GE time in history when there were relatively few employment from 380,000 to 208,000.31 skilled people to run the new machines that The logic of capitalism, the greatest known

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STATE OF THE WORLD 2008 Rethinking Production system in human history for the creation of Benyus, author of the groundbreaking book wealth, has not changed. But the relative Biomimicry, asks the simple question, How scarcities have. In today’s world, the recipe for would nature do business? She points out prosperity is to encourage, as Stahel has out- that nature delivers a wide array of products lined, the use of people and to penalize the and services, but very differently from the way use of resources. humans do. Nature, for example, runs on Stahel describes how, also in the early sunlight, not high flows of fossil energy. It 1990s, Honda used its workers to maintain manufactures everything at room tempera- and repair its own machines rather than suf- ture, next to something that is alive. It makes fer layoffs that would damage worker morale very dangerous substances, as anyone who has and lead to work stoppages. Increasingly, been in proximity to a rattlesnake knows well, European and Japanese policymakers are con- but nothing like nuclear waste, which remains sidering the approach of tax shifting: elimi- deadly for millennia. It creates no waste, nating taxes on employment and income, using the output of all processes as the input things people want more of, and replacing to some other process. Nature shops locally them with taxes on pollution and depletion and creates beauty. Buckminster Fuller once of resources, things the world wants less of.32 pointed out that “When I am working on a Stahel cautions that of the five pillars, problem I never think about beauty. I only social and cultural ecology are the weakest think about how to solve the problem. But underpinnings. To the extent that the social when I have finished, if the solution is not fabric breaks down, the other pillars soon beautiful, I know it is wrong.” 34 collapse. The current focus on eco-efficiency, The discipline of biomimicry takes nature’s clean production, green products, and the use best ideas as a mentor and then imitates these of technology to implement sustainability are designs and processes to solve human prob- necessary, but it is equally important to con- lems. Dozens of leading industrial compa- sider the human dimension, including such nies—from Interface Carpets and AT&T to issues as meaningful employment, sustain- 3M, Hughes Aircraft, Arup Engineers, able development, and enabling people to DuPont, General Electric, Herman Miller, achieve their full potential. Nike, Royal Dutch Shell, Patagonia, SC John- Sustainability, Stahel notes, has little appli- son, and many more—use the principles of cation in the short term. Its value is as a biomimicry to drive innovation, design supe- vision. He tells the story of the three stone- rior products, and implement production cutters who are asked what they are doing. processes that cost less and work better. (See One says that he is putting in his eight hours. Box 3–2.)35 The second replies that he is cutting this Biomimicry invites innovators to turn to limestone into blocks. The third answers that the natural world for inspiration, then eval- he is building a cathedral. Sustainability, says uate the resulting design for adaptiveness in Stahel, is the cathedral we are all creating.33 the manufacturing process, the packaging, all the way through to shipping, distribu- Following Nature’s Lead tion, and take-back decisions. It ensures that the energy used, production methods chosen, Biomimicry, the conscious emulation of life’s chemical processing, and distribution are part genius, is an even more profound approach of a whole system that reduces materials use, to making manufacturing sustainable. Janine is clean and benign by design, and eliminates

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Box 3–2. Biomimicry and Carpets

Industrialist Ray Anderson, chair of the billion- they came and lay them randomly, the more ran- dollar-a-year carpet company Interface, tells the dom the better—like a floor of leaves.The user story of the creation of his product Entropy. David can replace individual damaged tiles without the Oakey, the head product designer of Interface, “sore thumb effect” that comes with precision sent his design team into the forest with the perfection and uniformity and can rotate tiles just instruction to find out how nature would design like tires on cars in order to extend useful life. floor covering.“And don’t come back,” he in- Moreover, dye lots now merged indistinguishably, structed,“with leaf designs—that’s not what I which means sellers do not have to maintain an mean. Come back with nature’s design principles.” inventory of individual dye lots waiting to be used. So the team spent a day in the forest, studying Yet one wonders: could there be more to the forest floor and streambeds until they finally explain the success of entropy? Perhaps there is. realized that it is total chaos there: no two things A speaker on an environment lecture circuit are alike, no two sticks, no two stones, no two begins every speech by having her audience close anything....Yet there is a pleasant orderliness in their eyes and picture that ideal comfort zone of this chaos. peace and repose, of solitude, creativity, security— They returned to the studio and designed a car- that perfect place of comfort. She then asks, how pet tile such that no two tiles have the same face many of you were somewhere indoors? Almost design. All are similar but all are different. Inter- no one ever raises their hand. This quality has a face introduced the product into marketplace as name, biophilia—humans gravitate to nature for Entropy, and in 18 months the design was at the the perfect comfort zone. top of best-seller list. This was faster than any And somehow, subliminally, Entropy seems to other product in the company’s history. How bring the outdoors indoors. That is its real appeal. different is that from the prevailing industrial Entropy is made with recycled content in a paradigm of every mass-produced item? A typical climate-neutral factory; 82 of Interface’s products industrial product must be cookie-cutter the same. are now designed on the principle of no two The advantages of Entropy were astonishing: alike.These represent 52 percent of Interface’s almost no waste and off quality in production. sales. Using principles like waste minimization The designers could not find defects in the delib- and biomimicry has enabled Interface to bring

erate imperfection of having no two tiles alike. the company’s CO2 emissions to roughly 10 per- Installers could put the carpet in quickly without cent of their 1996 levels. having to take time to get the pile net all running uniformly. They could take tiles from the box as Source: See endnote 35. the costs that last century’s technologies duced by previously unemployed people.37 imposed on society and the living world.36 The product uses waste to improve soil EcoCover Limited of New Zealand used productivity, conserve soil moisture, and cut the concept that in nature there is no waste— water use. It cuts the use of chemical fertil- the output of all processes is food for some izers, pesticides, and herbicides that conta- other process—to develop an organically cer- minate soil and groundwater. It reduces tified, biodegradable mulch mat to substi- weeds; increases plant growth, quality, and tute for black plastic sheeting used in yield; and keeps paper and fish waste out of agriculture to prevent moisture loss and weed landfills. The cover is left in the soil as growth. Using shredded waste paper that improved organic and nutrient content. This would otherwise have gone to landfill, bound is not recycling. It is “upcycling” waste back together with fish waste, the material is pro- into productive soil.38

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The humble abalone sits in the Pacific streamlining current production systems such Ocean and in seawater and creates an inner as the Global Body Line and Set Parts System lining immediately next to its body that is to greatly improve both productivity and twice as strong as the best ceramics that energy efficiency. By 2009, the plant is humans can make using very high tempera- expected to achieve an annual CO2 reduction ture kilns. The overlapping brick-like struc- effect of 35 percent.42 ture of the seashell makes it very hard to The practice of using nature as model, crack, protecting the abalone from sea otters measure, and mentor lies at the heart of the and the like. Dr. Jeffrey Brinker’s research change in the industrial mental model that will group at Sandia Labs found out that the iri- be essential if humans are to survive. Nature descent mother-of-pearl lining of the abalone runs a very rigorous, 3.8-billion-year-old test- self-assembles at the molecular level when ing laboratory in which products that do not the animal excretes a protein that causes sea work are recalled by the manufacturer. As water to deposit out the building blocks of the Janine Benyus says: “Failures are fossils, and abalone’s beautiful shell.39 what surrounds us is the secret to survival.”43 The researchers mimicked the manufac- The First Industrial Revolution was based turing process of the mollusk to create min- on brute force manufacturing processes that eral/polymer layered structures that are inefficiently heat, beat, and treat massive optically clear but almost unbreakable. This amounts of raw materials to produce a throw- evaporation-induced, low-temperature away society. The next Industrial Revolution process enables the liquid building blocks to will rise upon the elegant emulation of life’s self-assemble and harden into complex genius, a survival strategy for the human race, “nano-laminate” structures. The bio-com- and a path to a sustainable future. “The more posite materials can be used as coatings to our world looks and functions like the natural toughen windshields, airplane bodies, or world,” Benyus notes, “the more likely we are anything that needs to be lightweight but to endure on this home that is ours, but not fracture-resistant.40 ours alone.” 44 Companies are using biomimicry to match not only the form of natural products but also Riding the New Wave the function of larger ecosystems. In July 2007, Toyota Motor Corporation announced of Innovation plans to increase the sustainability of its pro- Business success in a time of technological duction operations. The Tsutsumi Prius pro- transformation demands innovation. Since duction plant will add a 2-megawatt solar the First Industrial Revolution, there have electric array. It will also paint some of its exte- been at least six waves of innovation (see Fig- rior walls and other surfaces with a photo-cat- ure 3–1), each shifting the technologies that alytic paint that breaks down airborne NOX underpin economic prosperity. In the late and sulfur oxides. This will do as much to 1700s textiles, iron mongering, water-power, clean the air as surrounding the plant with and mechanization enabled modern com- 2,000 poplar trees would have.41 merce to develop.45 The plant’s impressive biomimicry pro- The second wave saw the introduction of gram is coupled with a strong foundation of steam power, trains, and steel. In the 1900s, eco-efﬁciency. The plant is installing innov- electricity, chemicals, and cars began to dom- ative assembly-line technology and further inate. By the middle of the twentieth century

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Figure 3–1. Waves of Innovation

Source: Natural Edge 6th Wave

5th Wave Sustainability Radical resource productivity 4th Wave Whole system design Biomimicry 3rd Wave Green chemistry Iron Industrial ecology Water power Renewable energy Innovation Mechanization 2nd Wave Green nanotechnology Te xtiles Commerce Petrochemicals Digital networks Electricity 1st Wave Steam power Electronics Biotechnology Chemicals Railroad Aviation Software Internal information Steel Space Cotton combustion engine technology 1785 1845 1900 1950 1990 2020 it was petrochemicals and the space race, however, is often the first step to real change. along with electronics. The most recent wave A little less than a year after the campaign’s of innovation brought computers and ushered launch, Immelt announced that his green- in the digital or information age. As the badged products had doubled in sales over the Industrial Revolution plays out and prior two years, with back orders for $50 bil- economies move beyond iPods, older indus- lion more, blowing away his initial prediction tries will suffer dislocations unless they join the of $12 billion in sales by 2010. Over the increasing number of companies implement- same time frame, the rest of GE products ing the array of sustainable technologies that had increased in sales only 20 percent. GE also are making up the next wave of innovation.46 announced that it had reduced its GHG emis- Perhaps the tipping point in corporate sions by 4 percent in 2006, dwarfing its 2012 movement to greener production came when target of 1 percent.48 General Electric announced Eco-magination. Companies that increase resource pro- As part of the initiative, GE board chairman ductivity and implement sustainable produc- Jeffrey Immelt promised to double the com- tion strategies such as biomimicry and cradle pany’s investment in environmental tech- to cradle, especially in the context of a broader nologies to $1.5 billion by 2010. He also whole-system corporate sustainability strategy, announced that GE would reduce the com- improve every aspect of shareholder value. pany’s greenhouse gas emissions 1 percent by What constitutes shareholder value? What 2012; without action, emissions would have enhances it? risen 40 percent. Immelt stated: “We believe Traditionally, the “bottom line” measured we can help improve the environment and whether a company was profitable. More make money doing it.”47 recently, a company’s profits and stock value Critics charged that GE was greenwashing, had to increase over the next quarter or the simply labeling some of its existing products firm was considered unworthy of investment. as green and changing very little. Hypocrisy, This highly questionable metric is so incom-

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STATE OF THE WORLD 2008 Rethinking Production patible with management of an enterprise for • increased market share and product differ- long-term value that even the Financial entiation; Accounting Standards Board has undertaken • ability to attract and retain the best talent; to rewrite financial reporting to encourage • increased employee productivity and health; alternatives to such short-sighted behavior. • improved communication, creativity, and (See also Chapter 2.)49 morale in the workplace; Sustainability advocates have urged com- • improved value chain management; and panies to manage a “triple bottom line”: • better stakeholder relations. achieve profit but also protect people and The validity of this management approach the planet. While this is a tempting formula- is borne out by a recent report from Goldman tion, it has had the effect of bolting concern Sachs, which found that companies that are for the environment and social well-being leaders in environmental, social, and good onto companies as cost centers that reduce the governance policies have outperformed the traditional measure of profit. A much more MSCI world index of stocks by 25 percent useful approach is that of the “integrated since 2005. Seventy-two percent of the com- bottom line.” This recognizes that profit is a panies on the list outperformed their indus- valid metric, but only one of many that give try peers.51 a company enduring value.50 It is daunting to realize that achieving a Other aspects of shareholder value include sustainable society will require changing how enhanced financial performance from energy we manufacture and deliver all our products and materials cost savings in industrial and services. But the evidence increasingly processes, facilities design and management, shows that companies taking a leadership fleet management, and operations. Reduced role in using resources more efficiently, in risk is another key point to consider, tied to redesigning how they make products, and in insurance access and cost containment, legal managing their operations to enhance peo- compliance, reduced exposure to increased ple and intact ecosystems have found a bet- carbon regulations and price, and reduced ter way to make a bigger profit. Solving the shareholder activism. Finally, core business challenges of implementing a transition to a value is enhanced through: sustainable society can unleash the biggest • sector performance leadership; economic boom since the space race. There • greater access to capital; has never been a greater opportunity for • first-mover advantage; entrepreneurs to do well by doing good and • improved corporate governance; for communities to enhance energy security, • the ability to drive innovation and retain improve the quality of life, and enable peo- competitive advantage; ple to join the transition to a more sustain- • enhanced reputation and brand develop- able future. ment;

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CHAPTER 4

The Challenge of Sustainable Lifestyles Tim Jackson

In a small apartment in the sprawling suburbs his wife’s part-time nursing, the family lives of Mumbai, the financial capital of India, 35- reasonably well on just over 1 million rupees year-old George Varkey wakes at dawn to ($24,000) a year, well above the average the sound of his newborn baby’s uneven household income in India of $3,000 a year.2 breathing. Already the apartment is hot and George and his family are part of a rapidly humid, the air stirred rather than cooled by growing consumer market—India’s “bird of small electric fans. His wife, Binnie, is prepar- gold.” In the last two decades, household ing breakfast. His elderly parents, four-year- income has roughly doubled. In the next old son, and younger brother are all still in two decades, average incomes are expected to bed. George is keen to be ready early. Today triple. By 2025 India will be the fifth largest a news team from the BBC in London is consumer market in the world, surpassing coming to visit.1 even Germany in terms of overall spending. George’s apartment has three rooms and On a per capita basis, however, India will a tiny kitchen. The modern apartment block still be poor. Each person will still spend on has running water and electric power. There average less than 50,000 rupees, a little over is a small fridge in the kitchen and a TV in $1,000, a year. Yet in only 20 years the share every other room. The family’s latest acqui- of the population classified as “deprived” will sition is a DVD player. Outside is George’s be more than halved—from 54 percent today Suzuki sedan, essential to his small advertis- to 22 percent by 2025. And this is in spite of ing business. He takes home 55,000 rupees the fact that by then India will nearly have (a little under $1,200) a month. Together passed China to become the most populous with his brother’s earnings as a mechanic and nation on Earth.3

Dr. Tim Jackson is Professor of Sustainable Development at the University of Surrey in the United Kingdom.

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Someone who might benefit from this eration of Indians see hope in the future.4 economic “miracle” is 26-year-old Vidya Justifying that hope will not be easy. For Shedge, another participant in the BBC pro- George’s family, life has clearly improved gram. Vidya lives with 10 members of her since his parents’ generation. And yet his family in a single room in the considerably standard of living—measured in conventional poorer outskirts of Mumbai. There is no run- terms—is modest at best. Vidya’s family has ning water, no fridge, and no DVD player. a massive hill to climb. Eleven people living But they do now have electricity—enough to in one small room with a combined income burn three incandescent lightbulbs and a of $16 a day is a level of poverty long con- couple of fans during the hottest part of the signed to history in the West. So how is it day. Vidya’s ambition is to save enough from going to be possible for George, Vidya, 1 her 7,500 rupees ($160) a month job in a billion other Indians, and great numbers of bank to afford a car. She, too, is looking for- Chinese (not to mention people in Africa, ward to her visit from the BBC. They want Latin America, and the rest of Southeast Asia) to talk to her about “carbon footprints.” to achieve the standard of living taken for Perhaps surprisingly, both George and granted in the United States—and still “solve Vidya already know something about climate the problem” of climate change? change. They understand that human activ- How can a world of finite resources and ities are responsible for global warming. fragile environmental constraints possibly George has even discussed what his household support the expectations of 9 billion people can do to reduce their carbon emissions. in 2050 to live the lifestyle exemplified for so Every room in the apartment has energy- long by the affluent West? That is the chal- efficient lightbulbs. A little more surprisingly, lenge that guides and frames this chapter.5 and in spite of believing that the industrial world must lead the way, both George and The Math of Sustainability Vidya are relatively optimistic that something can be done to halt climate change. Broadly speaking, the impact of human soci- A recent international survey confirms ety on the environment is determined by the these counterintuitive findings. In June 2007 number of people on the planet and the way the HSBC Bank published a Climate Confi- in which they live. The math of the relation- dence Index. People in India showed the ship between lifestyle and environment is highest level of concern about climate pretty straightforward. It was set out several change—60 percent of respondents placed it decades ago by Paul Ehrlich of Stanford Uni- at the top of their list of concerns—the high- versity and has been explored in detail in est commitment to change (alongside Brazil), many other places since. In essence, the les- and the highest level of optimism that soci- son is simple. Reducing the overall impact that ety will solve this problem. Skepticism and people have on the environment can happen intransigence, it seems, are mainly the domain in only a limited number of ways: changing of industrial nations. The United States and lifestyles, improving the efficiency of tech- the United Kingdom scored lowest on com- nology, or reducing the number of people on mitment. France and the United Kingdom the planet.6 scored lowest on optimism. India’s optimism The question of population is clearly crit- in finding solutions is driven in particular by ical. Population is one of the factors that the younger age groups. A whole new gen- “scales” humanity’s impact on the planet.

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Another is the expectations and Table 4–1. Population and Carbon Dioxide aspirations of the increasing pop- Emissions, Selected Countries, 2004 ulation. This chapter focuses primarily on the latter. But a simple Country CO2 Emissions example based on George and or Region Population Emissions per Person Vidya’s carbon footprints helps (million) (million tons) (tons of CO2 ) illustrate the relationship. United States 294 5,815 19.8 In George’s household, the China 1,303 4,762 3.7 carbon footprint is around 2.7 Russia 144 1,553 10.8 tons of carbon dioxide (tCO ) per Japan 128 1,271 10.0 2 India 1,080 1,103 1.0 person. In Vidya’s, it is less than Germany 83 839 10.2 a fifth of this, under 0.5 tCO2 per United Kingdom 60 542 9.1 person. (The average carbon foot- France 62 386 6.2 Bangladesh 139 35 0.3 print in India is 1 tCO2 per person.) The difference is mainly due European Union (15 countries) 386 3,317 8.6 to the different level and pattern of consumption in the two house- World 6,352 26,930 4.2 holds, since the efficiency of technology providing goods and Source: See endnote 7. services is pretty much the same. Basically, George’s household enjoys a much on the planet are appropriating more than higher standard of living in conventional their fair share of “environmental space.” Yet terms. If India’s 1 billion people all lived as this lifestyle is increasingly what the rest of the George does now, that country would have world aspires to.8 moved from fifth place in the list of carbon Much is made of efficiency improvements. emitters in 2004 to third, below only the And some relative improvements in the car- United States and China. (See Table 4–1.) bon intensity of growth are evident in some Their personal carbon footprints would still countries. (See Figure 4–1.) But these gains be low by western standards, however.7 are slow at best, and in China they have been The technological efficiency of providing reversed in recent years. This is one reason goods and services is higher in the European that China’s carbon dioxide emissions recently Union (EU) and the United States than it is surpassed those of the United States. Across in India. All other things being equal, then, the world as a whole, greenhouse gas emis- this should lower the carbon footprint in sions grew by 80 percent between 1970 and industrial nations. So huge regional dispari- 2004 and could double again by 2030.9 ties in per capita footprint are almost entirely In summary, any gains in technological due to the pattern and level of consump- efficiency are simply being swamped by the tion—to differences in lifestyle. sheer scale of rising aspirations and an increas- Clearly, western nations have been the key ing population. If everyone in the world lived driver of climate change so far. Between 1950 the way Americans do, annual global CO2 and 2000, the United States was responsible emissions would be 125 gigatons—almost for 212 gigatons of carbon dioxide, whereas five times the current level—by the middle of India was responsible for less than 10 percent the century. In stark contrast, the Intergov- as much. So it is clear that the richest people ernmental Panel on Climate Change has esti-

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product (GDP) has Figure 4–1. Carbon Intensity of GDP, 1990–2004 become one of the 1.5 principal policy objec- Source: IEA tives in almost every country. Rising GDP 1.2 symbolizes a robust and thriving economy, China more spending power, 0.9 richer and fuller lives, United States increased family secu- per dollar GDP (ppp) 2 0.6 rity, greater choice, and World India more public spending. The rise of India’s “bird 0.3 EU15 of gold,” its consumer

kilograms of CO class, is heralded in 0.0 ﬁnancial markets with 1990 1992 1994 1996 1998 20002002 2004 huge delight. China’s vigorous economy has mated that the world needs to reduce global led to an equally striking sense of market emissions by as much as 80 percent over optimism.11 1990 levels by 2050 if “dangerous anthro- Economics has remained almost willfully pogenic climate change” is to be averted. silent, however, on the question of why peo- This would mean getting global emissions ple value particular goods and services at all. below 5 gigatons and reducing the average The “utilitarian” model has become so widely carbon footprint to well under 1 ton per per- accepted that most modern economic text- son, lower than it now is on average in India.10 books barely even discuss its origins or ques- This challenge clearly calls for an exami- tion its authenticity. The most that economists nation of assumptions about the way people can say about people’s desires is what they live. What is it that drives and frames people’s infer from patterns of expenditure. If the aspirations for the “good life”? What lies demand for a particular automobile or house- behind the runaway aspirations that seem so hold appliance or electronic device is high, it unstoppable in the West and are rapidly seems clear that consumers, in general, pre- becoming the object of desire in every other fer that brand over others. Their reasons for nation? this remain opaque within economics.12 Fortunately, other areas of research—such The “Science of Desire” as consumer psychology, marketing, and “motivation research”—have developed a In the conventional economic view, con- somewhat richer body of knowledge. This sumption is the route to human well-being. “science of desire” has mainly been dedi- The more people have, the better off they are cated to helping producers, retailers, mar- deemed to be. Increasing consumption leads keters, and advertisers design and sell products to improved well-being, it is claimed. that consumers will buy. Little of the research This view goes a long way toward explain- concerns itself explicitly with the environ- ing why the pursuit of the gross domestic mental or social impacts of consumption.

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Indeed, some of it is downright antithetical sumer society, this striving has materialistic to sustainability. But its insights are extremely outcomes. It is almost as though people are valuable for a proper understanding of con- trying to hold their existential anxiety at bay sumer motivation.13 by shopping.16 For a start, it is immediately clear that At a recent Consumer Forum organized consumption goes way beyond just satisfying for the Sustainable Consumption Round- physical or physiological needs for food, shel- table in the United Kingdom, people were ter, and so on. Material goods are deeply asked to talk about their hopes and fears implicated in individuals’ psychological and for the next decade or so. They spoke about social lives. People create and maintain iden- their desire to do well for their children and tities using material things. “Identity,” claim grandchildren. There was a strong wish to consumer researchers Yiannis Gabriel and live in safe, sociable communities. People Tim Lang, “is the Rome to which all theories expressed spontaneous concern about oth- of consumption lead.” People narrate the ers, about poverty in the developing world, story of their lives through stuff. They cement and—without being told the interests of the relationships to others with consumer arte- sponsors—about the environment: climate facts. They use consumption practices to change, resource scarcity, recycling. Shot show their allegiance to certain social groups through these expressions of concern, how- and to distinguish themselves from others.14 ever, like a light relief, were recurrent, per- It may seem strange at first to find that sim- sistently materialist themes: big houses, fast ple stuff can have such power over emotional cars, and holidays in the sun. Getting on and social lives. And yet this ability of human and getting away pervades narratives of beings to imbue raw stuff with symbolic lifestyle success.17 meaning has been identified by anthropolo- This deep reliance on material goods for gists in every society for which records exist. social functioning is not unique to the west- Matter matters to people. And not just in ern world. George and Vidya also say they material ways. The symbolic role of mere want to see a good future for their children. stuff is borne out in countless familiar exam- They want to do well and be seen to do well ples: a wedding dress, a child’s first teddy among their peers. Just below the surface, bear, a rose-covered cottage by the sea. The these aspirations are cashed out in broadly “evocative power” of material things facilitates western terms. Vidya’s overriding ambition is a range of complex, deeply ingrained “social to afford a car. For the first time in their conversations” about status, identity, social lives, George and Binnie are planning a hol- cohesion, and the pursuit of personal and iday outside India. Getting on and getting cultural meaning.15 away means as much there as it does in Lon- Material possessions bring hope in times of don, Paris, New York, and Sydney.18 trouble and offer the prospect of a better Very similar values and views are clearly world in the future. In a secular society, con- discernible in China, Latin America, and sumerism even offers some substitute for reli- even parts of Africa. The consumer society gious consolation. Recent psychological is now in effect a global society—one in experiments have shown that when people which, to be sure, there are still “islands of become more aware of their own mortality, prosperity, oceans of poverty,” as Indian they strive to enhance their self-esteem and ecologist Madhav Gadjil puts it. But one in protect their cultural worldview. In a con- which the evocative power of material goods

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles increasingly creates the social world and increased at all—in fact, it has declined since provides the dominant arbiter of personal the mid-1970s. In Japan, there has been lit- and societal progress.19 tle change in life satisfaction over several decades. In the United Kingdom, the per- The Paradox of Well-being centage reporting themselves very happy dropped from 52 in 1957 to 36 today.22 In the conventional view, the recipe for Some key aspects of people’s well-being, far progress is simple: the more people consume, from improving, appear to have declined in the happier they will be. A close look at what western nations. Rates of depression have motivates consumers uncovers a whole range been doubling every decade in North Amer- of factors—family, friendship, health, peer ica. Fifteen percent of Americans age 35 have approval, community, purpose—known to already experienced a major depression. Forty have a strong correlation with reported hap- years ago, the ﬁgure was only 2 percent. One piness. In other words, people really do con- third of people in the United States now expe- sume in the belief that it will deliver friends, rience serious mental illness at some point in community, purpose, and so on. But there is their lives, and almost half of these will suffer a paradox at work here that at one level is from a severe, disabling depression. During any tragic. People have a good grasp of the things single year, about 6 percent of the population that make them happy but a poor grasp of how will suffer from clinical depression; suicide is to achieve these things. The assumption that now the third most common cause of death more and more consumption will deliver more among young adults in North America.23 and more well-being turns out to be wrong.20 Teasing out the underlying causes of this Using data collected in the World Values unhappiness is not particularly easy. But there Survey, Ronald Inglehart and Hans-Dieter are two fairly compelling sets of data sug- Klingemann examined the hypothesis that gesting that consumerism itself is partly to happiness (or life satisfaction) is linked to blame. The ﬁrst set suggests a negative cor- income growth. The good news is that the relation between materialistic attitudes and equation just about works for George and subjective well-being. Philosopher Alain de Vidya. There is an increasing trend in life Boton has shown how an unequal society satisfaction at lower levels of income. (See Fig- leads to high levels of “status anxiety” in its ure 4–2.) The bad news is that the relation- citizens. Psychologist Tim Kasser and his col- ship will begin to diminish as their incomes leagues have shown how people with more rise further. Across most industrial countries materialistic attitudes—people who define there is at best only a weak correlation and measure their own worth through money between increased income and reported hap- and material possessions—report lower levels piness. And in countries with average incomes of happiness. Striving for self-esteem through in excess of $15,000, there is virtually no material wealth appears to be a kind of “zero- correlation between increased income and sum game” in which the constant need for improved life satisfaction.21 betterment and approval only serves to The same paradox is found within indi- entrench people in an almost neurotic spiral vidual nations over time. Real income per of consumption.24 head has tripled in the United States since A second, equally compelling set of evi- 1950, but the percentage of people reporting dence relates rising unhappiness to the under- themselves to be very happy has barely mining of certain key institutions. Subjective

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Figure 4–2. Subjective Well-being and Per Capita Income, 2000

100 Source: : Inglehart and Klingemann Iceland Netherlands Switzerland N. Ireland Denmark Sweden 90 Ireland Norway Puerto Rico Finland New Belgium United Zealand Australia Colombia Britain Italy States Taiwan Canada South Korea France Argentina 80 Philippines Brazil Venezuela Japan Mexico Uruguay Austria Ghana Spain China Chile Nigeria Dom. Rep. Bangla- Pakistan Poland Czech Portugal desh Republic India Turkey 70 Slovenia Satisfied with Life as a Whole South Africa Slovakia Croatia Hungary

Macedonia 60 Peru y and Percent Azerbaijan Latvia

Georgia Estonia 50 Lithuania Romania Bulgaria Armenia Mean of Percent Happ 40 Russia

Ukraine Belarus Moldova 30 10005000 9000 13000 17000 21000 25000 GNP per Person (ppp estimates, 1995 dollars) well-being depends critically on family stabil- In the middle of the twentieth century, more ity, friendship, and strength of community. But than half of all Americans believed that peo- these aspects of life have suffered in the con- ple were “moral and honest.” By 2000 the sumer society. Family breakdown, for exam- proportion had fallen to little over a quarter. ple, has increased by almost 400 percent in the Participation in social and community activi- United Kingdom since 1950. The percentage ties declined markedly over the same period.25 of Americans reporting their marriages as In other words, there appears to be a cor- “very happy” declined signiﬁcantly over just relation between rising consumption and the 20 years during the latter part of the last cen- erosion of things that make people happy— tury. People’s trust and sense of community particularly social relationships. This correla- have fallen dramatically over the last 50 years. tion does not necessarily mean, of course,

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles that one thing “causes” the other. But in hályi has offered a scientific basis for the practice, as described later, there are some hypothesis that people’s lives can be more sat- pretty compelling reasons to take seriously the isfying when they are engaged in activities that idea that the structures and institutions that are both purposive and materially light.27 are needed to maintain growth simultane- Sociologist Amitai Etzioni has identified ously erode social relationships. As economist three kinds of people pursue simplicity. Richard Layard describes it: consumption “Downshifters” are those who, having achieved growth has “brought some increase in hap- a given level of wealth, make a conscious choice piness, even in rich countries. But this extra to reduce their income; they then moderate happiness has been cancelled out by greater their lifestyle so they can spend more time misery coming from less harmonious social with family or pursuing community or personal relationships.”26 interests. “Strong simplifiers” are those who One tragic result of this elusive search for give up highly paid, high-status jobs altogether happiness is that industrial societies are clos- and accept radically simpler lifestyles. The most ing off options for other people, both now radical contingent are the “dedicated, holistic and in the future, to lead fulfilling lives— simplifiers,” who embrace radical change and without even being able to show reward for adjust their entire lives around an ethical vision it in the here and now. of simplicity, sometimes motivated by spiritual or religious ideals.28 Live Better by Some of these initiatives, such as the Find- horn community in northern Scotland, Consuming Less? emerged initially as spiritual communities, The paradox of well-being begs the ques- attempting to create space in which to reclaim tion, Why do people continue to consume? the contemplative dimension of living that Why not earn less, spend less, and have more used to be captured by religious institutions. time for families and friends? Couldn’t peo- Findhorn’s character as an eco-village devel- ple live better—and more equitably—this oped more recently, building on principles of way and at the same time reduce humanity’s justice and respect for nature. Another mod- impact on the environment? ern example is Plum Village, the “mindful- This idea has provided the motivation for ness” community established by an exiled numerous initiatives aimed at living more Vietnamese monk, Thich Nhat Hahn, in the simply. “Voluntary simplicity” is at one level Dordogne area of France, which now provides an entire philosophy for life. It draws exten- a retreat for at least 2,000 people. At one sively on the teachings of Mahatma Gandhi, level these initiatives are modern equivalents who encouraged people to “live simply, that of more traditional religious communities like others might simply live.” In 1936, a student those of the Amish in North America or Bud- of Gandhi’s described voluntary simplicity dhist monasteries in Thailand, which every in terms of an “avoidance of exterior clutter” young male is expected to spend some time in and the “deliberate organisation of life for a before going out into professional life.29 purpose.” Former Stanford scientist Duane Not all networks have this explicit spiritual Elgin picked up this theme of a way of life that character, however. The Simplicity Forum, for is “outwardly simple, yet inwardly rich” as the example, launched in North America in 2001 basis for revisioning human progress. More is a loose secular network of “simplicity lead- recently, psychologist Mihály Csíkszentmi- ers” who are committed to “achieving and

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honoring simple, just and sustainable ways of threats of peak oil and climate change. life.” Downshifting Downunder is an even Launched in September 2006 in the small more recent initiative, started following an town of Totnes in southwest England, the international conference on downshifting in U.K. network expanded to over 20 towns Sydney in 2005; its aim is to “catalyze and co- and cities in only a year. In the United States, ordinate a downshifting movement in Aus- 400 cities have signed the U.S. Mayors Cli- tralia that will significantly impact mate Protection Agreement, which pledges to sustainability and social capital.”30 meet the Kyoto Protocol targets on reducing

The downshifting movement now has a CO2 emissions, in spite of the federal gov- surprising allegiance across a number of indus- ernment’s refusal to ratify the protocol.34 trial economies. A recent survey in Australia It is important not to get too carried away found that 23 percent of respondents had with this evidence. Simple living communities engaged in some form of downshifting in remain marginal. The religious basis for them the preceding five years. A staggering 83 per- does not appeal to everyone, and the secular cent felt that Australians are too materialistic. versions seem less resistant to the incursions An earlier study in the United States found of consumerism. Downshifting Downunder that 28 percent of those surveyed had taken generated a flurry of activity in Australia for six some steps to simplify and 62 percent months or so, for instance, but barely func- expressed a willingness to do so. Very similar tions as a working network only two years results have been found in Europe.31 later. Some of these initiatives depend heav- Research on the success of these initia- ily on individuals having sufficient personal tives is quite limited, but existing studies assets to provide the economic security needed show that simplifiers really have less materi- to pursue a simpler lifestyle. Finally, it is clear alistic values and show greater respect for the that forced or involuntary simplicity is quite environment and for others. More impor- another story. Subjective well-being plum- tant, simplifiers appear to show a small but sig- meted in the “transition economies” (former nificant increase in subjective well-being. Soviet states) during the 1990s.35 Consuming less, voluntarily, can improve As the evidence on global consumerism well-being—completely contrary to the con- makes abundantly clear, mainstream conventional model.32 sumer values show little sign of slowing down The backlash against consumerism bears the pace of material and environmental profli- witness to an emerging counterculture that gacy. Existing attempts to live better by con- recognizes the limits of the consumer society suming less remain marginal at best. So the and is looking for something beyond it. Buy question remains, Why do people continue to Nothing Day every November—dedicated consume, knowing the social and environ- to persuading people to resist consumerism— mental consequences, even beyond the point is now an international phenomenon. In at which it adds to their satisfaction? 2006 there were initiatives on the streets in almost 30 countries and in scores of cities, Competing for Status— including, for the first time, a demonstration on the streets of Mumbai.33 and for Survival Equally striking is the rise of the Transition Is the urge to consume somehow “natural,” Towns concept—towns and cities that have hardwired through evolution? Certainly, the declared unilateral action against the twin desire for comfort, a decent home, good

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles relationships with friends and family, doing vations are almost inextricably entwined in well in the community, and perhaps broad- the language and imagery of sexual desire. ening horizons through experience appear to The fact that material things play a role in be very widespread. The emerging field of creating and maintaining desire is central evolutionary psychology suggests that human here. As a respondent in the study remarked: desires do indeed have their roots in ances- “No one’s gonna spot you across the other tral origins.36 side of a crowded room and say: ‘Wow! Nice Genetic succession depends on two critical personality!’”39 factors: surviving long enough to reach repro- Survival itself is mediated by social status. ductive age and finding a mate. So human This is most graphically illustrated by the nature is conditioned by the need to get the plight of India’s 170 million Dalits. Literally material, social, and sexual resources required translated, Dalits means “the broken peo- for these tasks. In particular, argues evolu- ple,” and life at the bottom of India’s caste tionary psychology, people are predisposed to system is tough. Infant mortality and under- “position” themselves constantly in relation to nourishment are high; literacy, access to health the opposite sex and against their sexual com- care, and life expectancy are all significantly petitors. As a (male) reviewer of one book on lower than the national average. Workers in evolutionary psychology noted with some the stone trade—almost exclusively Dalits— glee: “Animals and plants invented sex to fend can have a life expectancy as low as 30 years, off parasitic infection. Now look where it has compared with a national average of 62.40 got us. Men want BMWs, power and money This effect is by no means confined to in order to pair-bond with women who are poorer countries. Recent evidence has shown blonde, youthful and narrow-waisted.”37 how closely health and well-being are related To make matters worse, this fundamen- to social status in industrial countries. A fas- tal element of sexual competition never cinating example of this was revealed by the abates. People adapt to any given level of sat- U.K. government’s research on life satisfac- isfaction and continually expand their aspi- tion across different “life domains.” (See rations. This response may be conditioned by Figure 4–3.) Poorer people reported lower the fact that everyone else is engaged in the life satisfaction in almost all domains. One same unending struggle. There is an evolu- notable exception was higher satisfaction tionary advantage in never being satisfied. with their community. People employed in But the result is that people find themselves higher-status jobs pay a price, it seems, in condemned to run faster and faster, like the terms of social relationships. Being poor Red Queen in Lewis Carroll’s novel Through may have some limited advantages in this one the Looking Glass, just to maintain their posi- area. On the whole, however, inequality tion in the race.38 favors the rich. Though it might undermine The idea that consumerism may have social relationships, reduce overall well- something to do with sex has a clear reso- being, and even corrupt values in patho- nance with common wisdom. Advertisers logical ways, the evidence suggests that being and media executives are extraordinarily cre- better off really does pay in terms of indi- ative in using sex and sexual imagery to sell vidual well-being.41 their products. In a recent study of people’s The problem for society is threefold. First, behavior in three completely different cul- at the aggregate level, this intense status com- tures, researchers found that consumer moti- petition leads to less happy societies. Unequal

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles societies systematically Figure 4–3. Domain Satisfaction by Social Group, England report higher levels of “distress” than more Source: Defra equal ones. Second, Relationships this mechanism for achieving happiness Accommodation appears to have no end- Standard of living point. There is no getting off the “hedonic Local area treadmill” of rising Day-to-day income and increasing activities consumption. Third, Health the environmental and Leisure AB resource implications of C this unproductive “race Control D to the top” are quite Achievement E simply unsustainable. of goals Taken together with Future financial security the vast inequalities— the “oceans of pov- Community erty”—that still persist -15 -10 -5 0 5 10 across the world, these Percentage difference from overall average three problems repre- Key (examples of occupations in each social group) sent an enormous chal- AB: doctor, lawyer, accountant, teacher, nurse, police officer lenge to consumerism. C: junior manager, student, clerical worker, foreperson, plumber But they also begin to D: manual worker, shop worker, apprentice point toward the E: casual laborer, unemployed importance of social structure in determining whether or not soci- tive advantages to the species. An important ety is sustainable.42 lesson from evolutionary psychology is that the balance between selfish and cooperative behav- The “Iron Cage” iors depends critically on the kind of society they occur in.43 of Consumerism Social behavior can exist—to some Left to their own devices, it seems, there is not extent—in all societies. In very competitive much hope that people will spontaneously societies, self-serving behavior tends to be behave sustainably. As evolutionary biologist more successful than cooperation. But in a Richard Dawkins has concluded, sustainabil- society characterized by cooperation, altruis- ity just “doesn’t come naturally” to human- tic behaviors tend to be favored over selfish kind. But it is a mistake to assume that ones. In other words, the balance between evolutionary motivations are all selfish. Evo- altruism and selfishness is not hardwired in lution does not preclude moral, social, and people at all. It depends critically on social altruistic behaviors. Social behaviors evolved conditions: rules, regulations, cultural norms in humans precisely because they offer selec- and expectations, government itself, and the

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set of institutions that frame and constrain the tently poorly paid; private investment capital social world.44 is written down at high discount rates, mak- So there are some searching questions to ing long-term costs invisible; success is ask about the balance of the institutions that counted in terms of material status; children characterize modern society. Do they pro- are becoming a “shopping generation”— mote competition or cooperation? Do they hooked on brand, celebrity, and status.46 reward self-serving behavior or people who At one level, the task facing sustainability sacrifice their own gain to serve others? What is as old as the hills: balancing individual free- signals do government, schools, the media, doms against the social good. This relies cru- and religious and community institutions cially on being able to make prudent choices, send out to people? Which behaviors are sup- at the individual and the social level, between ported by public investment and infrastruc- the present and the future. Rampant indi- ture and which are discouraged? vidualistic behavior that seeks short-term Increasingly, it seems, the institutions of gratification ends up undermining well-being consumer society encourage individualism not just for the individual but for society as and competition and discourage social behav- a whole. So the task for sustainability— ior. Examples are legion: private transport is indeed, for any society—is to devise mecha- encouraged through incentives over public nisms that prevent this “undermining of transport; motorists are given priority over well-being” and preserve the balance between pedestrians; energy supply is subsidized and present desires and future needs. protected, while demand management is Oxford economic historian Avner Offer often chaotic and expensive; waste disposal is addresses exactly this task in The Challenge of cheap, economically and behaviorally, while Affluence. Unaided, argues Offer, individual recycling demands time and effort. These choices tend to be irredeemably myopic. Peo- kinds of asymmetry represent an “infrastruc- ple favor today too much over tomorrow, in ture of consumption” that sends all the wrong ways that—to an economist—are entirely signals, penalizing pro-environmental behav- inexplicable under any rational rate of dis- ior, making it all but impossible even for counting of the future. Offer’s unique con- highly motivated people to act sustainably tribution is to suggest that this fallibility has without personal sacrifice.45 (or in the past had) a social solution. And that solution is precisely what affluence is in the 47 Increasingly, it seems, the institutions process of eroding. To avoid trading away long-term well- of consumer society encourage being for the sake of momentary pleasures, individualism and competition and society has evolved a whole set of “commit- discourage social behavior. ment devices”: social and institutional “mechanisms” that constrain people’s choices in Equally important are the subtle but dam- ways that moderate the balance of choice aging signals sent by government, regula- away from the present and in favor of the tory frameworks, financial institutions, the future. Savings accounts, marriage, norms media, and education systems. Salaries in for social behavior, government itself in some business are higher than those in the public sense—all these can be regarded as examples sector, particularly at the top; nurses and of mechanisms that make it a little easier for those in the caring professions are consis- people to curtail their evolutionary appetites

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles for immediate arousal and protect their own suasion, and seduced by novelty: consumers future interests. And, indeed, the interests are like children in a candy store, knowing of affected others. that sugar is bad to eat, but unable to resist The “challenge” Offer addresses is that the temptation. This is a system in which affluence is eroding and undermining these no one is free. People are trapped by their commitment devices. The increase in family own desires. Companies are driven by the breakdown and the decline in trust have need to create value for shareholders, to already been noted. Parenthood has been maximize profits. Nature and structure com- placed under increased financial and social bine to lock people firmly into the “iron pressure in industrial countries. And in terms cage” of consumerism.50 of economic commitment, it is telling that savings rates fell worldwide in the second Living Well— half of the last century, declining by 5–10 percentage points across the United States and and Within Limits Europe. Meanwhile, consumer debt has Put simply, sustainability is about living well, soared, rising from $1 trillion to $2.5 trillion within certain limits. For this to happen, in the United States alone between 1995 and across a global population approaching 7 2007. The role of government itself has been billion and expected to reach 9 billion by increasingly “hollowed out” as politicians on 2050, people’s patterns of consumption have both left and right sought to bolster eco- to change.51 nomic output and free up the “invisible hand” Achieving this is a colossal task. But it is not of the market.48 an impossible one. A proper understanding of The drivers behind these trends are com- the relationship between individual desires plex, but a key responsibility, argues Offer, and the social good is vital here. As noted ear- lies with the relentless stream of novelty lier, consuming comes naturally to inherent in consumption growth. Evidence humankind. Restraint does not. Change seems to bear this out. “Accelerating the requires a supportive social environment. rate of innovation is a top priority for tech- People are torn constantly between self- nology managers,” notes the U.S.-based enhancement and self-transcendence. There Industrial Research Institute. The rate of is little individuals can do to shift their under- innovation is driven in turn by the structural lying nature. But the balance between self- reliance of businesses and the economy on serving and social behaviors is malleable at the growing consumption. Novelty keeps peo- social level. In one social context, selfishness ple buying more stuff. Buying more stuff will imprison us, impoverish people’s lives, keeps the economy going. The continuing and may ultimately destroy the living envi- expansion of the market into new areas and ronment. In another, the common good will the continuing allegiance of consumers prevails and people’s lives will be richer, more appear to be vital to this process—even as satisfying, and more fulfilling. they erode commitment devices and under- There is clear evidence of an appetite for mine well-being.49 change. During an 18-month project, the The end result is a society “locked in” to Sustainable Consumption Roundtable in the consumption growth by forces outside the United Kingdom identified a strong desire for control of individuals. Lured by humanity’s collective action. I Will If You Will—the title evolutionary roots, bombarded with per- of the Roundtable report—was a common

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles theme emerging from a range of social ple of this is the role of a “social cost of car- research. This effect is not confined to the bon” in providing incentives for investments United Kingdom. The evidence on down- in low-carbon technologies and behaviors. shifting and simplicity, reactions against con- The Stern Review on the economics of cli- sumerism, the high levels of commitment to mate change suggests that this cost might change (even in developing countries) found be as high as $85 per ton of CO2. There is no in the HSBC survey, a rising interest in alter- doubt that internalizing this cost in market natives to consumerism: all these are real, prices and investment decisions would have demonstrable effects. But good intentions a major influence on reducing carbon emis- are not enough, and they will continue to be sions. The review also cast doubt on prevail- undermined unless physical infrastructure, ing discounting practices, suggesting that institutions, and social structures change.52 zero or even negative discount rates might be Who is capable of influencing these wider appropriate when looking at projects with structures? Ultimately, of course, all sections long-term impacts on the environment.54 of society must take responsibility for change. But the role of government is not confined Government, business, and consumers all to fiscal frameworks. The way energy indus- have some role to play; the media, commu- tries are regulated, for instance, has a pro- nity groups, religious institutions, and tradi- found effect on the incentives for demand tional wisdom are all essential influences on management and energy service companies. the social environment. But without strong Product policy can have a significant influence leadership from government, change will be on access to durable, efficient products that impossible. Individuals are too exposed to minimize environmental harm. Recent EU social signals and status competition. Busi- legislation, for example, has already led to pro- nesses operate in competitive markets. A tran- gressive improvements in the efficiency of sition from self-interest to social behaviors energy-consuming appliances. Australia requires changes in underlying structures— pledged early in 2007 to outlaw incandescent changes that strengthen commitment and lightbulbs before 2010. The 27 EU nations encourage social behavior. Government is have now followed that example. Surveying the principal agent in protecting the social evidence of policy successes, the Sustainable good. A new vision of governance that Consumption Roundtable found that pro- embraces this role is critical. gressive standards, clearly signaled to manu- Two or three key tasks are vital here. In facturers in advance, are a particularly effective the first place, policies need to support an instrument for moving toward more-sus- infrastructure of sustainability: access to reli- tainable consumption.55 able public transport, recycling facilities, The influence of government on social energy efficiency services, maintenance and norms and expectations is, at first sight, less repair, re-engineering and reuse. Systematic obvious. Policymakers are uncomfortable biases against these facilities have to be dis- with the idea that they have a role in influ- mantled and policies to encourage them encing people’s values. But the truth is that brought into place.53 governments intervene constantly in the social The second key task lies in establishing context. Myriad different signals are sent out, fiscal and institutional frameworks that send for example, by the way education is struc- consistent signals to businesses and consumers tured, by the importance accorded to eco- about sustainable consumption. A core exam- nomic indicators, by guidelines for public

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles sector performance, by public procurement At an international conference in 2006, policies, by the impact of planning guide- the World Health Organization stopped short lines on public and social spaces, by the influ- of banning advertising to children, but Scan- ence of wage policy on the work-life balance, dinavian nations have taken a more proactive by the impact of employment policy on eco- stance. In Sweden, TV advertising to chil- nomic mobility (and hence on family struc- dren under 12 is banned. Norway, too, has ture and stability), by the effect of trading restrictions on children’s advertising, and the standards on consumer behavior, by the Consumer Ombudsman has an educational degree of regulation of advertising and the role in Norwegian schools. Recent advertis- media, and by the support offered to coming guidelines in Norway include a ban on munity initiatives and faith groups. In all advertising cars as “green,” “clean,” or “envi- these arenas, policy shapes and helps create the ronmentally friendly.” Although a Norwe- social world. gian plan to develop anti-consumption adverts As this chapter suggests, the drift of these failed to attract funding in the United Nations, influences over the last few decades has been the nongovernmental group Adbusters, based away from encouraging commitment and in in Vancouver, Canada, remains a focus of favor of encouraging consumption. But there resistance to commercial advertising. Perhaps are some striking counterexamples: places most striking of all, São Paulo, Brazil, the where strenuous efforts have been made to fourth largest city in the world, has recently rein in consumerism and focus more specifi- become the first city outside socialist cally on well-being. Several nations, includ- economies to ban outdoor advertising.58 ing the United Kingdom, Canada, and China, have begun to develop “well-being accounts”—new ways of measuring national Australia pledged early in 2007 to outlaw progress alongside or in place of the GDP. incandescent lightbulbs before 2010. (See Chapter 2.) In late 2007, the Organisa- tion for Economic Co-operation and Devel- Religious leadership has declined sub- opment, the European Commission, and stantially in industrial countries. But tradi- several nongovernmental groups cohosted a tional wisdom is still an important influence major international conference, “Beyond on the debate about living well. In less sec- GDP,” designed to look at more effective ular societies, religion plays a number of measures of social progress.56 roles. It warns against material excess; it pro- A crucial arena for action lies in advertis- vides a social and spiritual context for self- ing, particularly ads directed at children. transcendence, altruism, and other-regarding Global advertising expenditures now amount behavior; and it offers a space for contem- to $605 billion (with the United States alone plation in which to make sense of people’s accounting for $292 billion). The figure is lives in deeper and more meaningful ways growing at the rate of 5–6 percent a year, than those provided by the fleeting consola- with online advertising growing faster than tions of consumerism. any other sector, at between 30 percent and One thing is clear: if a part of the function 40 percent a year. The impact of this, par- of consumerism is to deliver hope—as indi- ticularly on children, is pernicious. Market- cated earlier—then countering consumerism ing pressure has been linked explicitly to means building new avenues of hope that rising childhood obesity.57 are less reliant on material goods. In countries

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STATE OF THE WORLD 2008 The Challenge of Sustainable Lifestyles where religious institutions are still strong, this In the ﬁnal analysis, the consumer society task is much easier. In Southeast Asia, for offers neither a durable sense of meaning in example, in response to the economic crisis of people’s lives nor any consolation for losses. the mid-1990s, the King of Thailand revived The erosion of religious participation in the the traditional concept of the Sufficiency West offers one more example of crumbling Economy, built on Buddhist principles, and commitment devices. The examples in this provided a much-needed frame of reference chapter bear testament to the desire for to help countless microenterprises in rural change and the visionary courage of individ- villages survive the economic shocks of the uals, communities, and a handful of political recession and build a sustainable future in leaders prepared to initiate that change. Mil- its aftermath. In the mountain Kingdom of lions of people have already discovered that Bhutan, progress is being reconceived in part treading more lightly allows them to breathe as a spiritual endeavor. In many Islamic more easily. And it offers a new creative space nations, the framework for moral restraint is for social change—a place where family, already in place. From a western perspective, friendship, community, and a renewed sense this framework is often seen as oppressive of of meaning and purpose are possible. individual freedoms, particularly for women. A sustainable world is not an impover- But Islam—and other religious traditions— ished world but one that is prosperous in are important sources of understanding the different ways. The challenge for the twenty- limits of relying on human nature to protect ﬁrst century is to create that world. the public good.59

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CHAPTER 5

Meat and Seafood: The Global Diet’s Most Costly Ingredients Brian Halweil and Danielle Nierenberg

Walk into any kitchen around the world and ure 5–1 and Table 5–1.)1 there’s a good chance that meat or seafood For people living in wealthy nations, sit neatly at the center of the meal. This is seafood is an increasingly popular health especially true at any top restaurant in New food option; with its high levels of fatty acids York, Rio, or Beijing. But billions of people and trace minerals, nutritionists recognize all over the world have hamburgers or pork seafood as essential to the development and chops or fish fingers with their families at maintenance of good neurological function, home every night. Even the poorest people not to mention a reduced risk of cancer, often spend their extra income on some odd heart disease, and other debilitating condi- cuts of meat or fish bones for soup. In fact, tions. In poorer nations in Asia, Africa, and meat and seafood are the two most rapidly Latin America, people are also eating more growing ingredients in the global diet. Yet in fish if they can afford it. And Chinese con- terms of resource use, these are also two of sumers now eat roughly five times as much the most costly. seafood per person as they did in 1961, while In 2006 farmers produced an estimated total fish consumption in China has increased 276 million tons of chicken, pork, beef, and more than 10-fold. For more than a billion other meat—four times as much as in 1961. people, mostly in Asia, fish now supply 30 On average, each person eats twice as much percent of their protein, versus just 6 percent meat as back then, about 43 kilograms. And worldwide.2 the fishing industry harvested about 141 The good news is that there are methods million tons of seafood globally in 2005, of raising beef, pork, and chicken that do not the last year for which data are available. create mountains of toxic manure and con- That was eight times as much as in 1950, sume huge amounts of grain and water, as well with each person on average eating four as techniques for catching fish that do not end times as much seafood as before. (See Fig- up destroying coral reefs and ensnaring

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breeding and farm Figure 5–1. World Meat Production and structure and with the Seafood Harvest, 1950–2006 rise of corporate 300 agribusiness. Before Source: FAO World War II, cattle were raised on the open 250 range, eating a grass- based diet. Chickens— 200 raised mostly for their eggs, not meat—were 150 Meat allowed to forage outdoors for grass and Million Tons 100 Seafood insects. Pigs, while usually enclosed in open 50 air pens, were given sufficient space to nest and 0 root, as well as access 1950 1960 19701980 1990 2000 2010 to fresh air and sunlight. And the manure these animals produced seabirds and turtles. These innovations will be was used efficiently to fertilize crops.3 much cheaper in terms of energy and resource But starting in the 1930s farmers began use as well as health impacts. But the price that raising chickens for meat as well as eggs. consumers pay at the store or market will Researchers developed new, higher-efficiency likely rise. Rethinking how fish and meat are feed for these meat chickens, now called broil- produced will mean that consumers in indus- ers. Then scientists discovered that adding trial countries will have to eat fewer of these antibiotics to feed caused these birds—and products—surf-and-turf dinners for execu- other farm animals—to gain weight quicker. tives may become a thing of the past, as will Since the 1950s, the time it takes to raise cheap fast-food meals of fried fish and ham- broiler chickens decreased by half, from 84 to burgers that have become a dinnertime staple 45 days. Today broilers eat less than half as for busy families. Eating less of these foods much feed and reach a weight of 2 kilograms now, however, is a sort of investment in the in about one third as much time. By the future, since it will mean saving family farms, 1960s, pigs and cows were also being raised improving rangeland, reducing water pollu- in feedlots and confined animal feeding oper- tion, and—in the case of wild fish—preserv- ations—indoor enclosures that can hold thou- ing a catch that is increasingly scarce. sands of animals.4 In the case of fishing, the technologies Changing Production Methods were different but the broad changes in the industry were largely the same. Fishing fleets How did the meat and seafood that people eat became larger, more powerful, and better at change so dramatically? Industrial meat pro- extracting fish from ever more remote corners duction took off in the early twentieth cen- of the ocean. Boats now depend on devices tury with a series of changes in animal such as sonar technology, satellite navigation

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trawlers and other industrial fish- Table 5–1. Meat and Seafood Consumption ing techniques, current produc- inTop Five Countries or Regions, 2005, and Increase since 1961 tion methods are endangering people’s health while also threat- Country Meat Seafood ening the long-term stability of (kilograms (kilograms the land, oceans, and genetic diver- per (increase per (increase sity that sustain production itself. person) since 1961) person) since 1961) In one particularly ironic case, China 55.5 14.6-fold 25.8 5.4-fold producing meat in midwestern Japan 44.3 5.9-fold 66.5 1.4-fold factory farms may actually be European Union 91.0 1.7-fold 26.5 1.5-fold reducing the fish harvest from one United States 123.5 1.4-fold 23.2 1.8-fold of the most productive U.S. fish- India 6.0 1.6-fold 4.9 2.6-fold eries. The fertilizers used to grow World 42 1.8-fold 23.5 1.8-fold corn for animal feed run off into surface water and eventually make Source: See endnote 1. their way down into the Gulf of Mexico, where they have created systems, depth sensors, and detailed maps of a “dead zone” the size of New Jersey. The the ocean floor. Enormous nets made out of nitrogen-based fertilizers encourage algae synthetic fibers and huge winches give boats blooms that rob other ocean life of oxygen. access to previously unreachable deep-sea This area produces some $662 million worth areas where fish gather and spawn. Some of seafood each year, nearly one fifth of the fishing boats in the Atlantic Ocean use spot- entire fishing yield from the United States. ter planes, while in the Pacific fishers use heli- And although there is only anecdotal evi- copters to seek out schools of prized fish and dence of a decline in fisheries harvests in the scoop them up in huge quantities. These Gulf, experience from other less severe dead technologies are part of the reason that the zones around the world shows that catches wild fish catch holds steady at about 70 mil- can drop precipitously.6 lion tons even though scientists estimate that Emerging concerns about these two food the fishing industry has eliminated 90 percent sources—including avian flu and other new of the large fish in the ocean.5 diseases in the case of meat and outright When these practices first emerged in fish- depletion and contamination in the case of ing ports and rural farming areas, they might seafood—are prompting consumers, fishers, have seemed like a good idea—more seafood farmers, and agribusiness to search for bet- harvested by bigger boats and fewer fishers; ter alternatives. more meat on a more reliable schedule at a lower price. Agribusiness executives saw prof- Going Back to Nature its jump. Politicians supported the shift in the interest of competing better with other Part of the reason that livestock and fish nations, having more abundant food sup- farms have become ecological disasters is that plies, and in some cases lowering food prices. they have moved away from mimicking the But these lower prices were an illusion. By environment in which animals exist naturally. raising meat in factory farms and grabbing fish Decades ago, before the big jump in pro- and other seafood from the ocean with huge duction, livestock played a symbiotic role on

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most farms—grazing on cropland before or much better at spotting and treating sick and after production and providing essential fer- injured animals and at preventing potential tilizer in the form of manure. Fish ponds pandemics like avian flu.9 occupied a similar place on most farms, feed- Of course, going back to a more tradi- ing off of agricultural waste and helping to tional way of raising meat and fish is not enrich soil. But once farmers removed live- completely practical. Many people who used stock and fish production from the land, the to farm have moved away from the country- need for inputs jumped and the manure began side, and farms are bigger and more concen- to pile up.7 trated than they once were, all of which makes In places as diverse as the Philippines and it hard to return to a more integrated form Iowa, some farmers are going back to more of production. But meat and seafood farmers traditional methods of farm animal produc- around the world are mixing a dose of old- tion. Outside Manila, for example, innovative time practices with certain lessons from mod- farmers have learned from the centuries-long ern ecology and showing that they can raise practice of raising livestock and fish together. just as much food, while greatly reducing By rearing hogs, chickens, and tilapia and by the harm caused by their farms. growing rice, these farmers have created a self- For years, for example, the pig industry sustaining system: the manure from the hogs has said that gestation crates—concrete stalls and chickens fertilizes the algae in ponds that do not allow pigs to move much, turn needed for both tilapia and rice to grow. And around, or act in other natural ways—are the in central Iowa, pig farmers are remodeling most economical way of meeting demand for “conventional” concrete sheds for raising pork products. But recent Iowa State Uni- pigs into open areas with deep bedding and versity research that compared the costs of rais- outdoor access and raising heritage pig breeds, ing sows (female pigs) in gestation crates and like Berkshires and Tamworths. These breeds alternative structures found otherwise. Instead are more used to living outdoors, and because of confining pigs in crowded factory farms, the they are allowed to forage, their meat is tastier researchers reared sows in group hoop and healthier than factory-farmed pork.8 houses—pens that allow the animals to nest in straw and walk around freely. A two-year study found that sows in hoop houses had more live Outside Manila, innovative farmers have births than those in confinement facilities. learned from the centuries-long practice Researchers also found that group housing of raising livestock and fish together. could reduce production costs by as much as 11 percent compared with gestation crates. These farms produce very little waste, pro- Pigs are not only very social creatures, but vide a diversity of food, and give farmers a when allowed to nest together they can bet- much needed sense of both food and eco- ter control their own temperatures, which nomic security if prices for meat or fish fluc- can improve overall health and performance, tuate. The farms also cut down on veterinary the researchers claimed.10 costs: Animals that are raised outdoors rarely This type of mangement-intensive farming suffer from the respiratory ailments and other will also create more jobs. According to agri- illnesses common in factory farms. And cultural economist William Weida, one reason because farmers raising grass-fed animals have factory farms claim that they are profitable is fewer of them than factory farms do, they are that they need fewer people to take care of the

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animals. But recent evidence indicates that cent of all seafood eaten around the world. when animals are well cared for they per- Industry analysts suspect this share will be well form better. Smithfield, for example, the above half in the next few years. But much like world’s largest pork producer, found at one the move to concentrated factory farms for of its hog farms in Mexico that productivity meat, fish farming has been transformed from increased when they had more people tend- its ancient roots of efficiently reusing veg- ing the pigs. These practices are part of a etable scrapes, weeds, and manure to raise a much wider movement toward humanely few carp or catfish.13 raised and environmentally sustainable prod- The closely confined fish on industrial ucts from animals that were raised on grass.11 farms require massive inputs of feed, energy, Raising cattle, cows, pigs, and chickens— and biocides to control disease, while also and raising fewer of them—in more natural generating large amounts of manure. Today, environments also has some significant ben- fish farmers raising tuna, salmon, striped bass, efits for what is likely the most pressing envi- shrimp, and other carnivores consume con- ronmental issue today: climate change. siderably more fish—anchovy, herring, Researchers at the University of Wales are capelin, and whiting—in the form of feed looking at how introducing different than they produce. In 1948, only 7.7 percent grasses—which are what ruminants are meant of total marine catch was reduced to fish- to eat—into cattle diets can help reduce the meal and fish oil. Now about 37 percent of methane emissions from belching, flatulent global landings are reduced to feed, elimi- cows. While the diet fed to cattle and dairy nating an important historical and future cows on factory farms encourages them to source of human sustenance.14 gain weight quickly, it also leads to a variety Understandably, farmers raise carnivorous of digestive problems. Scientists believe that fish like salmon, tuna, and cod in large open- more-digestible feed will reduce these prob- ocean pens because of the high prices these lems and thus help curb methane emissions. fish command. Only a shift in taste by con- Not surprisingly, some of the grasses found sumers will help push farmers toward raising commonly in U.K. pastures and meadows— more-efficient species like carp and catfish as including white clover, rye, and a flower well as shellfish. In the short term, however, called bird’s foot trefoil—are highly fish farmers are at least starting to move—in digestible. And a Swedish study in 2003 line with the urgings of various concerned cit- found that beef cattle raised organically on izens’ groups—in a better direction.15 grass emit 40 percent less greenhouse gases Consider salmon, the first species to be and use 85 percent less energy making beef raised in fish farms on a large scale. Several than cattle raised on grain.12 decades of production in nations like Chile, While improving meat farming largely Norway, and the United States have shown means moving animals out of grain-focused that such farms also lead to large amounts of feedlots and back onto the land, the simplest coastal pollution from waste and excess feed, way to reform fish farming is by moving back the use of antibiotics and other chemicals down the food chain toward species that do to control disease, and the occasional escape not require as much fish feed. As seafood of millions of salmon into nearby waters, producers have begun farming fish to com- where they often spread disease to remaining pensate for the depletion of wild fish stocks, wild salmon.16 farmed fish have grown to account for 40 per- In response, the National Environmental

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Trust and other conservation groups, fishing In Norway, several large farms have found organizations, and marine scientists launched that introducing cleaner fish—a species that the Pure Salmon Campaign. The group has cleans parasites and leftover food off other eight primary areas—such as waste, disease, fish—into salmon pens dramatically reduces and escapes—that they encourage salmon lice (the major disease of farmed salmon, farms to address. In particular, the campaign which also has been spreading to and deci- has been lobbying for a move toward closed- mating wild salmon throughout the world) container farms, so that water can be reused and feed wastage (as the cleaner fish scavenge and any pollution from the fish can be treated what the salmon miss) and that the cleaner and kept out of the surrounding waters. And fish can later be harvested to turn into fish- they have started lobbying the world’s largest meal. Salmon production remains the same salmon farming companies—including while waste drops by more than half, the Marine Harvest, which controls more than 20 incidence of disease drops, and the farm har- percent of global production—with a com- vests two or three additional crops.19 bination of shareholder resolutions and direct Because oysters, clams, scallops, mussels, negotiations with corporate boards. Most and other shellfish eat algae and can help fil- recently, they helped convince Marine Har- ter and reduce excess nutrients that run into vest’s largest shareholder (an avid angler for the water and promote algae blooms, coastal wild salmon) of the importance of closed-con- communities around the world are using tainer farms.17 shellfish farms to remove nutrients from bays, rivers, and coastal waterways. Studies have In many densely populated Asian nations, shown that enhancing shellfish beds is a cheaper way to remove nitrogen from the where demand for seafood is growing water than sewage treatment plants. This fastest, fish farming is a natural addition allows sunlight to reach the bay bottom so to existing rice farming operations. that grasses and the other bases of the food chain thrive. “By providing these three ser- But what about the high feed require- vices—filtration, stabilization and habita- ments in salmon, shrimp, and other carnivo- tion—oysters engineered the ecosystem,” rous fish farms? Borrowing principles from wrote shellfish expert Rowan Jacobsen in A ancient fish farms that raised several species of Geography of Oysters when describing the his- carp that each fed on a different plant or that toric role of oysters in places like the Chesa- combined ducks, fish, snails, and other organ- peake Bay on the east coast or Puget Sound isms that fed off each other, integrated farms in the west.20 can reduce feed requirements and waste while A return to oyster farming could not only generating more edible seafood than a fish result in lots of new jobs and shellfish to eat. monoculture does. While large-scale appli- It might actually be the best way to restore cations are still relatively few and far between, inland estuaries, coral reefs, and coastal ecosys- raising salmon with bottom-feeding fish, mus- tems damaged by pollution, including the sels, sea urchins, or algae can help eliminate more than 200 large dead zones that have most nitrogen “leakage” from the salmon, been caused by excess nutrient runoff. More- while also producing other harvestable crops. over, the metal cages that hold the shellfish (Mussels actually grow 50 percent faster near in these operations function as artificial reefs. salmon pens.)18 Fishers have learned that striped bass, shad,

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and other species congregate around them.21 omy, and produce profits for each farm in the In many densely populated Asian nations, range of $2,000 a year—twice the average where demand for seafood is growing fastest, income per person.23 fish farming is a natural addition to existing rice farming operations. This isn’t new. Arche- A Change in Incentives ological evidence shows that Chinese farmers have been raising fish in rice paddies for nearly For governments interested in being ahead of 3,000 years. Vegetable scraps and crop the pack in promoting ecological meat and residues are fed to fish, which in turn produce seafood farms, the biggest priority is chang- waste that is used to fertilize the fields. Farm- ing the major financial incentives they give to ers can also use fewer pesticides and herbi- farmers and fishers. Right now, most subsidies cides, since fish help control pests by keep farming and fishing mired in the status consuming the larvae and eating weeds and quo of destructive production. For instance, algae that compete with rice for nutrients. governments give farmers nearly $300 billion (Fish farming also helps to control malaria, each year to grow a handful of commodities since fish eat mosquito larvae.) like corn and soybeans, which not only Farmers practicing rice-field culture in encourages chemical use and discourages Bangladesh have managed to reduce pro- diversity on the farm—since farms get paid duction costs by 10 percent, and the average based on how much of these crops they har- farm income has increased by 16 percent in vest—it also brings down the prices of these just three years, buoyed by sales of fish fry and crops and turns corn and soybeans into a fingerlings as well as of fish that farmers do very cheap way to fatten animals.24 not eat. One hectare of rice field typically pro- The Washington-based Environmental duces between 250 and 1,500 kilograms of Working Group reports that direct subsidies fish. Thousands of rural Bangladeshis have for livestock between 1995 and 2005 totaled already adopted this form of affordable aqua- $2.9 billion in the United States alone. Dur- culture. And researchers suggest that farming the same time, corn and soybean pro- ers could quickly adapt this integrated system ducers—who provide, in effect, the fuel for on about 40,000 hectares, generating confined animal feeding operations—received 10,000–60,000 tons of fish, worth roughly approximately $50 billion and $13 billion $40 million a year.22 respectively.25 Such benefits are not restricted to Asia. A The estimated $30–40 billion in fisheries recent project that focused on increasing pro- subsidies each year goes mainly to low-inter- duction at several hundred small-scale fish est loans to replace old boats with more pow- farms in Cameroon found that basic techni- erful, newer ones, to fishing port development, cal assistance—including regularity of feeding, and to payoffs from wealthy nations that wish proper stocking densities, and a harvest sched- to gain access to the fishing grounds of poorer ule—boosted production from 498 kilograms countries. As one historic analysis of fisheries to 2,525 kilograms of fish per hectare and subsidies noted, “in the 1950s and 1960s, increased cash returns 16-fold. The the more boat-building subsidies you gave, the researchers estimated that in areas with good more fish you got.” But since more than two market access, similar investments could add thirds of ocean fisheries are now fully 5,300 tons of fresh fish to the food supply, put exploited, continued subsidies mean that too an additional $50 million into the local econ- many fishers are going after too few fish.26

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STATE OF THE WORLD 2008 Meat and Seafood:The Global Diet’s Most Costly Ingredients

As Daniel Pauly of the Sea Around Us about 10 percent of the catch in profits. In Project at the University of British Columbia other words, the subsidies are the only reason notes, the public pays for these subsidies with fishers are still using the technique.29 tax dollars and is rewarded with cheaper fish Or consider subsidies in many develop- only in the short term. As in agriculture, the ing nations that either directly or indirectly wealthiest nations and the largest boats reap favor raising exotic breeds of animals. The most of the benefits: the United States, the Farm Animal Genetic Resources Division of European Union, and Japan account for the U.N. Food and Agriculture Organiza- 75–85 percent of fisheries subsidies.27 tion reports that subsidies for veterinary drugs can encourage raising animals that are not In both farming and fishing, subsidy suited to particular climates or that have resis- reform does not have to mean fewer tance to certain pests. But if these subsidies were removed and replaced with compensa- jobs and less food. tion for farmers who raised their animals out- Because this support structure favors larger, doors on grass or who worked to conserve less diverse, more capital-intensive opera- rare breeds, the environmental and public tions, the prevailing policy actually discour- health benefits could be wide-ranging.30 ages more diverse and humane livestock farms In both farming and fishing, subsidy and less destructive fishing operations. reform does not have to mean fewer jobs Subsidies have proved particularly resis- and less food. Redirecting subsidies that go tant to reform as the recipients have amassed to the largest operations can actually create political clout on a par with the payouts they more jobs, since small livestock farms and receive. But a first approach would be to go fishing vessels both employ more people per after the most egregious subsidies, includ- unit of food harvested. A study in Norway ing fuel subsidies for fishing fleets. Ships that found that small-scale fisheries generate five have to travel farther to find fish gobble up times as many jobs per unit of landed value tremendous amounts of energy keeping the as large-scale ones. Small-scale fishers are also fish cool on the long trips back to shore. In likely to use more selective and less destruc- 2000, fisheries around the world burned tive fishing practices—catching tuna with about 13 billion gallons of fuel to catch 80 handlines, for instance, instead of long lines million tons of fish. In other words, the that snag sharks and seabirds or using passive world’s fleets use about 12.5 times as much traps to only catch certain fish instead of energy to catch fish as the fish provide to dragging, which kills everything in the net.31 those who eat them.28 And despite the fears of farmers and gov- Consider bottom trawling. Dragging a ernments that eliminating subsidies would net across the ocean bottom has been likened destroy agriculture, farmers and agribusiness to clearcutting a forest in search of squirrels can actually thrive with zero subsidies. In and chipmunks. Such fishing is energy-inten- New Zealand, in 1984 a newly elected gov- sive and destroys habitat, including sensitive ernment stopped paying farmers for growing deep-sea areas that can harbor future popu- crops and raising animals. It was a shock to lations of fish. Governments still give bottom rural communities. But instead of destroying trawlers about $152 million in subsidies. That them, production of milk quadrupled.32 is about 25 percent of the total value of the Without subsidies for fuel and grain, New boats’ catch, even though this fleet only yields Zealand dairy farms have turned to nurturing

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the nation’s abundant pasture. Farmers shifted reefs, mangroves, and other ocean ecosys- away from Jersey cows, with milk rich in but- tems, yielding other benefits to society. Del- terfat, to larger Friesians, which provide more egates at the 2002 World Summit on protein-rich milk. A “Kiwi cross” of the two Sustainable Development and the 2003 World breeds resulted in a higher-protein milk in a Parks Congress called for the establishment more compact, hardier animal. Today, cows of a global system of marine protected areas, in New Zealand cost less to feed and yield and scientists estimate that making just 20 more milk solids, making them more prof- percent of the oceans off-limits to fishing itable. Sheep farmers also responded, reduc- would be sufficient. Today only 1 percent of ing their huge herds of mostly small and fatty the world’s ocean area is currently protected.36 lambs, importing breeds from Finland and Denmark to improve the fertility of their Embracing the Ethical ewes, and producing larger, leaner lambs that were both less expensive to raise and more Governments and policymakers can shift pol- appealing to health-conscious consumers.33 icy and enact regulations on food, but it is In other cases, subsidies can help jumpstart consumers and big buyers who can rapidly a completely different regulation of the reshape the market and make the most impact oceans. Some maritime nations, including by voting with their food dollars. From farm- Belgium, Canada, China, Germany, New friendly companies like Niman Ranch and Zealand, and the United Kingdom, are begin- Heritage Foods U.S.A. to major corpora- ning to shift their fisheries subsidies toward tions like Whole Foods, and even Smithfield establishing marine reserves in which a swath Foods, business is starting to meet consumer of ocean is made off-limits to any fishing.34 demand for safe, humane, and sustainable In contrast to the current system, which meat production. The same is happening in regulates fish species by species and which sets the seafood supply chain—from fishing coop- sometimes controversial limits on how much eratives whose members are returning to less of each can be caught in a given time, marine destructive artisanal methods to large super- reserves do not require expensive data col- market chains that are marketing sustainable lection programs in order to gain a detailed seafood as the healthier choice. understanding of the fish stock. Nature man- There are two sides to this innovation—a ages itself; the entire ecosystem gets protec- move by the food industry to embrace eco- tion rather than just one species, and fish logically sustainable food and label it as such have a safe place to get big, spawn, and pro- and a reciprocal response from shoppers who duce young fish that migrate out of the pre- seek out this choice. In some cases consumers serve. Evidence shows that fish populations help set the relationship in motion. Heritage recover rapidly in such reserves and that and rare breeds of livestock are coming back nearby fish catches and sizes increase drain vogue because of their unique qualities: matically after a reserve is set up.35 healthier meat, milk, and eggs and better fla- A recent study estimated that establish- vor. More sustainable fish also are often the ing reserves for all the world’s major fish- ones that have a lower risk of mercury cont- eries would cost $5–19 billion each year and amination, because they tend to be lower on create about 1 million jobs. Beyond increas- the marine food chain. ing the fish catch, these reserves make ideal These markets for ethical meat and seafood centers for tourism and help restore coral cannot grow without clear labels and certifi-

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STATE OF THE WORLD 2008 Meat and Seafood:The Global Diet’s Most Costly Ingredients cation programs that ensure that one farmer United States. Another U.S. firm, CleanFish, or fisher is different from another—and that specializes in finding a market for seafood consumers are really getting what they pay for. caught by smaller-scale fishers around the In the case of seafood, the impetus for such world, whose artisanal techniques are less certification actually came from Unilever, the likely than large-scale fishing fleets to harm the Dutch food and consumer products giant. In marine environment (and the quality of the the 1990s, Unilever—then the world’s largest fish flesh).39 seafood buyer—faced considerable pressure In contrast to certification through the from its customers and from environmental MSC, an expensive process that can take groups to rethink its seafood purchases. But some time and begins in response to requests the company needed some guidance on which from fisheries, EcoFish and CleanFish seek species to avoid and which to favor.37 out seafood supplies from around the world Working with WWF, Unilever helped cre- and then assess whether they meet certain ate the Marine Stewardship Council (MSC) standards. This has allowed the two firms to in 1997 to certify fish populations as sus- offer a wider range of seafood—including tainable and to provide direction for the farmed seafood—and to offer products years nascent sustainable seafood market. The before they receive MSC certification. MSC is now supported by at least 100 cor- EcoFish recently received an investment grant porate, environmental, and consumer orga- that it hopes will allow its sales to grow five- nizations in more than 20 nations, all of fold in the next three years, to $15–20 mil- whom have a stake in the future of the global lion. EcoFish products are now available in seafood supply. Certified fisheries can use 243 branches of Loblaws, Canada’s largest the group’s “Fish Forever” ecolabel, signi- seafood retailer.40 fying that their product was caught using These innovations in sales pitch have a environmentally sound, economical, and way of being contagious, particularly when socially responsible management practices. they involve big players in the market. In More than 300 seafood products bearing June 2007 Tyson Foods—one of the largest the MSC blue ecolabel are available in super- meat processors in the world—decided to markets in nearly 30 nations.38 quit doing something that has been a hallmark Certain seafood companies are beginning of industrial animal agriculture since the to base their entire business on “the story 1950s. The company announced that the behind the fish”—how it was raised, caught, birds it sells to grocery stores and restaurants and processed—just as many supermarkets all over the country would no longer be and agribusinesses now capitalize on rising treated with antibiotics. This move was not global interest in organic produce, grass-fed altogether altruistic or even based on health beef, and other “environmentally friendly” concerns about antibiotics resistance. Instead, food choices. Consider EcoFish, a distributor Tyson was reacting to consumer demand for based in the state of New Hampshire. antibiotic-free meat products.41 Founded in 1999 as the only company in Once one major industry player makes the world whose sole mission was to identify the shift, its competitors often must do the and market seafood originating from envi- same or risk losing business. In early 2006, ronmentally sustainable fisheries, EcoFish’s Darden Restaurants—parent company of products are now found in more than 1,000 Red Lobster, the top seafood restaurant chain stores and 150 restaurants throughout the in the United States, with 1,300 locations—

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STATE OF THE WORLD 2008 Meat and Seafood:The Global Diet’s Most Costly Ingredients announced plans to certify all its farm-raised torically sustained its members, decided to shrimp “to ensure it is grown in a sustainable promote “old fashioned” hook lines that way, with minimal impacts on the environ- mean considerably less bycatch and fish that ment.” And Wal-Mart, the world’s largest are less likely to get damaged, so that their retail store and the largest food seller in the texture and taste are usually superior.45 United States, announced that within three In other cases, like Alaska’s wild salmon to five years it would be certifying that all its fishery or wild shrimp harvesters off Viet seafood for the North American market was Nam’s coast, fishers are forming coopera- raised sustainably. Critics suggest the stan- tives to manage a given fishery collectively and dards could be stiffer, and implementation is perhaps even to cut down on the total catch. far from assured.42 When it is their own survival at stake, they are Other big companies are also jumping on proving to be quite innovative. And just as the natural, organic, or humanely raised band- seafood companies are beginning to see fish wagon, partly for economic reasons. Smith- as a form of wildlife rather than just a com- field announced in 2005 that it would only modity, fishers are making a similar shift in buy from suppliers who did not use antibiotics mindset, adopting a marketing strategy that on their animals. Burger King—the second treats the fish as a higher-value product rather largest fast-food company—has said that it will than a low-cost raw material for processing.46 try to buy animals that are given more living space. Natural foods giant Whole Foods will Moving Down the introduce labeling criteria in 2008 that give consumers detailed information about how Industrial Food Chain the meat on their plates was raised, treated, For the poor, whose diets might be confined and slaughtered.43 to starchy staple crops, meat and seafood Consumers are also looking to connect bring both increased status and added nutri- directly with livestock producers. A few years tion. For the wealthy, a meal is not complete ago it was hard for consumers to find farms unless it includes chicken, pork, or beef, while where they could buy grass-fed and pasture- health-conscious consumers often replace the raised eggs, meat, and milk. Today there are traditional meat serving with tuna, sword- more than 800 U.S. and Canadian farms listed fish, or some other seafood. But consumers on the Web site Eatwild.com, an organization need to rethink their relationship with all that promotes grass-raised animal products.44 these foods in order to keep them on the Fishing communities are a growing ally menus in fine restaurants as well as on the in this movement. Fishers are often the first plates of people in the developing world. to know that a given fish supply is endan- Under this new food paradigm, people gered. So it is not surprising that fishers are will need to reconsider the place of meat in using the newfound consumer awareness their diets. Raising animals outdoors on grass about the state of the world’s fisheries to will necessarily mean that there are fewer of redefine their own role. In some cases this them to eat, and higher prices for sustainably means returning to older fishing techniques and humanely raised meat will mean shifting that are less destructive and that help preserve this from the center of each meal. The same the quality of the seafood. The Cape Cod is true for seafood. Fish, especially the big, Commercial Hook Fishermen’s Association, carnivorous species, will not be as readily faced with depletion of the cod stock that his- available, and consumers will have to eat

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fewer of them and more of certain other pork, and chicken from animals raised on a fish. Chefs, large food buyers, and consumers natural diet of grass is healthier for people, for will need to explore less well known fish the animals, and for the environment. species and choose seafood that is lower on Many of the innovations that will reduce the marine food chain. the ecological burden of meat and seafood can Many consumers are giving up meat alto- also help make these foods more available to gether as the health and environmental ben- poorer communities. Adding fish ponds to efits of doing so become clearer. And it is rice paddies and coastal agriculture is an easy becoming easier to obtain meat alternatives. way to boost a farmer’s income and dietary Researchers at the Vrije University of Ams- options. Setting up no-fish zones around terdam, for example, are developing alterna- coral reefs and spawning grounds boosts the tive meats based on peas and other legumes fish catch for both rich and poor fishers. And that are highly nutritious, extremely eco- while cows or pigs bred for industrial-scale nomical, easy to prepare, and—perhaps most production may not thrive in poor areas important—tasty. And consumer perception where farmers cannot provide feed and vet- of these products has been positive, espe- erinary inputs, hardier, indigenous breeds cially when people learn more about how may be the best hope for adding milk and their meat is raised and the ecological impact eggs to the local diet. of raising animals in a densely populated Rather than burden consumers with nation like the Netherlands.47 lengthy lists of “good” and “bad” food, a group called Slow Food International has tried to give seafood lovers, as a start, some Slow Food offers an alternative to basic rules of thumb that depend on a more fast-food culture by celebrating regional holistic understanding of what is happening cuisines, distinct crop varieties, and in the oceans. With a membership that forgotten food traditions. includes 100,000 people in more than 80 nations, Slow Food offers an alternative to While the growth of industrial meat and fast-food culture by celebrating regional seafood production is likely inevitable in the cuisines, distinct crop varieties, and forgotten developing world, livestock producers and food traditions.48 fishers everywhere have an opportunity to The organization held a meeting in 2007 improve meat and seafood. When it comes to called Slow Fish that brought together small- producing meat, eggs, milk, and seafood, scale fishers, chefs, and seafood companies to bigger does not necessarily mean better—or suggest how people could continue enjoying even more profitable. seafood without compromising responsibility. For both meat and seafood, eating lower on Participants called for support of “small-scale the food chain generally reduces the harm inshore fishing and ancient methods of fish- done by these products. In the case of fish, the ing, processing and preserving which are sus- smaller, herbivorous species (shellfish, tainable and produce outstanding products anchovies, catfish, and tilapia) are less endan- that form part of our cultural identity.” They gered and fished in a less destructive way than urged people to eat fish lower on the food the larger, carnivorous species (tuna, sword- chain—such as the smaller, spinier fish that fish, and shark). For meat, eating fewer animal have long been part of Mediterranean cui- products in general and eating eggs, beef, sine—and to support traditional, low-impact

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STATE OF THE WORLD 2008 Meat and Seafood:The Global Diet’s Most Costly Ingredients types of fish farming, such as oyster farming dines, squids, and other species the tuna eat, and low-density freshwater pool systems.49 we would open up a substantial supply of In Peru, several marine scientists have protein that could feed millions more.”52 taken this message to heart and have launched In Japan, recent reductions in tuna catch a campaign to change the image of the quotas and soaring prices have prompted anchoveta from something that only poor sushi chefs and home cooks in this fish-lov- people eat to a fish that could be turned into ing nation to search for substitutes. The a gourmet item consumed by connoisseurs. Japanese consume about three quarters of The Peruvian anchovy accounts for about the world’s annual tuna catch. As the New one tenth of the wild fish netted around the York Times reported in the summer of 2007, globe each year. And yet nearly all of these Tadashi Yamagata, vice chairman of Japan’s small fish—chock full of the same beneficial national union of sushi chefs, has been exper- fatty acids found in tuna, salmon and other imenting with tuna alternatives at big fish—get ground into fish meal and fish Miyakozushi, his family’s busy lunchtime oil that will be used to fatten pigs and chick- restaurant in Tokyo. His most successful sub- ens in factory farms in North America, stitutes were ideas he “reverse imported” Europe, Japan, and other areas.50 from American sushi bars, like “smoked duck As part of Discover the Anchovy Week in with mayonnaise and crushed daikon with 2006, some 18,000 people tasted anchovies sea urchin.”53 at 30 restaurants in Lima. Fresh anchovies are Other groups, like Heritage Foods USA, now available in many of the nation’s markets, encourage customers to eat antique or her- and the government is supplying the fish as itage breeds of cows, pigs, chickens, and part of its hunger programs. Researchers esti- other foods in order to save them from extinc- mate that Peru could employ many more tion. The most well-known example is the people and generate 10 times the revenues if turkey variety known as Bourbon Reds. These the high-volume, low-value fishmeal industry birds were almost extinct because of industrial were retooled to carefully package the farming practices that favor fast-growing but anchovy as a fresh fish for local consump- flavorless, big-breasted birds. Such birds are tion and export.51 raised on factory farms, are never allowed to Part of the global impact of this gastro- mate (they reproduce by artificial insemina- nomic shift is that it would make much bet- tion), and are pumped full of antibiotics. But ter use of beleaguered fish populations. “We thanks to a consumer awareness campaign can still savor seared ahi and grilled swordfish promoting the hearty, distinctive flavor of steaks—they have the best meat and few Bourbon Reds, these birds are in high bones, after all—but we must reserve them as demand—last year Heritage Foods sold 3,000 a luxury product,” notes Martin Hall, chief Bourbon Reds in the United States for scientist of the Dolphin Tuna Program at Thanksgiving—and more and more farmers the Inter-American Tropical Tuna Commis- are raising them.54 sion. He explains that “it takes close to 60 mil- In the developing world, groups such as lion metric tons of potentially edible fish per GRAIN and the League for Pastoral Peoples year to feed the three million metric tons of are working hard to ensure that livestock the three major tropical tuna species we har- genetic diversity is on the agenda of policy- vest annually. If we could replace some of makers worldwide. Corporate agribusinesses, our tuna sandwiches with the anchovies, sar- says GRAIN, have “dramatically increased

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STATE OF THE WORLD 2008 Meat and Seafood:The Global Diet’s Most Costly Ingredients their control over the livestock industry in group also features Asian celebrities like film recent years,” and this makes the food system director Ang Lee and Taiwan’s President “dangerously dependent on a few corpora- Chen Shui-bian in public service announce- tions and a vulnerable, narrowing genetic ments asking people not to eat shark fin soup. base.” The group also warns that the vast These efforts seem to be paying off. Both knowledge attained by livestock keepers over Thai Airways and Singapore Airlines pulled millennia is quickly disappearing and that shark fin soup from their first-class services in there is an urgent need for pastoralists and 2000, for instance. And in late 2005, several livestock keepers to “reclaim their rights.”55 high-profile institutions in Hong Kong, Such a historical view is useful. Meat and including Disneyland and Hong Kong Uni- seafood have long been a part of the human versity, stopped serving shark fin soup fol- diet, but the form they take has changed as lowing protests by animal rights and marine wild populations of fish have waxed and conservation groups.57 waned, as hunted game gave way to domes- Following their lead would mean breaking ticated livestock, and as human desires and with long-standing tradition, but it is not culinary fads shifted and spread. The meat of unprecedented. Stark white veal flesh has sharks was not in wide demand until recently, become a symbol of cruel caging techniques, for example, when shark fin soup—an ancient while “rosey veal” from calves allowed to Chinese dish that can cost $200 a bowl and walk with their mothers is now showing up was once reserved for the kitchens of the on menus. Savvy seafood processors are start- wealthy—became a more common menu item ing to favor wild harvested shrimp over in economically booming China. The roaring shrimp raised on patches of deforested man- market in these fins, which can fetch $700 a groves. Shark fins, like so many ecologically kilogram and entice shark hunters from as far taxing food items that the planet can tolerate away as Ecuador, is driving the killing of only on a small scale, are something people roughly 100 million sharks each year and the will need to give up.58 extinction of most major shark species.56 But we know that not all meat and seafood As part of a recent shark awareness cam- is created equal. And innovative farmers, fish- paign, the conservation group WildAid ers, and food companies have already shown released several graphic videos of sharks being that providing safe, tasty, and humane food “finned” that were later aired on television in does not have to cost our health and the Taipei, Hong Kong, and Singapore. The environment so much.

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CHAPTER 6

Building a Low-Carbon Economy Christopher Flavin

Over the past half-million years, the world’s mate, one that could last centuries and that climate has seen four ice ages and four warm our descendants would be powerless to stop.2 periods separating them, with extensive glac- The world is entering uncharted territory. iers engulﬁng large swaths of North America, Fossil fuels made the modern economy and Europe, and Asia and then retreating, thou- all of its material accomplishments possible. sands of species displaced, and the shape of But building a low-carbon economy is now coastlines rearranged as sea levels rose and fell. the central challenge of our age. Meeting Yet throughout these hundreds of thousands that challenge will require restructuring the of years, the atmospheric concentration of global energy industry through technologi- carbon dioxide (CO2), which plays a key role cal, economic, and policy innovations that in regulating the climate, has never risen are as unprecedented as the climate change it above 300 parts per million.1 must address. In 2007, the atmospheric concentration of CO passed 382 parts per million—and it is 2 Avoiding Catastrophe already at the equivalent of 430 parts per million if the effect of other greenhouse gases Only recently have scientists understood that is included. (See Figure 6–1.) Humanity is at changes in the concentration of carbon diox- risk of creating a climate unlike any seen ide, methane, and other less common gases before—unfolding at an unnatural, acceler- could trigger an ecological catastrophe of ated pace—more dramatic than any changes staggering proportions. The climate, it turns in the climate since Earth was last struck by out, is not the vast, implacable system it a large asteroid nearly a million years ago. appears to be. Unless greenhouse gas emissions begin to Past climate changes have been caused by decline within the next decade, we risk trig- tiny alterations in Earth’s orbit and orienta- gering a runaway disruption of the world’s cli- tion to the sun—providing, for example, just

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point—or whether it Figure 6–1. Atmospheric Concentration of already has—is not Carbon Dioxide, 1744–2004 known. But it is already 390 clear that ecological Source: NOAA, ORNL change of this magni- 370 tude would lead to unprecedented disrup- Atmospheric measurements tions to the world’s 350 economies. A groundbreaking 2006 study 330 led by former World Bank chief economist 310 Nicholas Stern con- Ice core Carbon Dioxide (ppm) measurements cluded that climate 290 change could cut global economic out- 270 put by between 5 and 1740 1770 1800 1830 1860 1890 1920 1950 1980 2010 20 percent. In his 2007 book, The Age of Tur- enough added energy to warm the planet bulence, Alan Greenspan, the leading free- over thousands of years, increasing the con- market economist of the day, included climate centration of carbon dioxide in the atmos- change as one of five forces that could derail phere, and in turn triggering even larger the U.S. economy in the twenty-first cen- changes in the temperature, which scientists tury. The uneven and disruptive nature of call a positive feedback. Today’s massive these changes could set off an even more release of CO2 and other greenhouse gases is serious crisis as conflict within and between leading to far greater changes to the atmos- societies undermines their stability.5 phere in a period of decades.3 In 2006 the combustion of fossil fuels Scientists now project that within the released 8 billion tons of carbon to the atmos- decades immediately ahead, the capacity of the phere—nearly a million tons every hour— earth and ocean to absorb carbon emissions with coal and oil contributing roughly 40 will decline, while vast changes in the Arctic percent each and natural gas accounting for may further accelerate warming. Melting tun- the rest. (The manufacture of cement released dra will release millions of tons of methane, a nearly another 350 million tons, while defor- greenhouse gas more powerful than CO2. estation and agriculture contributed roughly And as the Arctic ice pack disappears in sum- 1.6 billion tons.) Global fossil fuel carbon mer—nearly half is already gone—it will be like emissions have increased fivefold since 1950 removing a large air conditioner from Earth’s and are up 30 percent just since 1990. Today, northern hemisphere. This will further warm fossil fuels provide four fifths of the energy the climate and could mean the end of the mil- that powers the global economy.6 lion-year-old Greenland ice sheet—which by Burning fossil fuels on this scale is a vast itself contains enough water to raise worldwide and risky experiment with Earth’s biosphere; sea levels by more than seven meters.4 scientists are still not sure when the world will When the world will reach such a tipping cross an invisible but catastrophic threshold

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STATE OF THE WORLD 2008 Building a Low-Carbon Economy of no return. But growing evi- Table 6–1. Global Energy Use and dence suggests that it may be Carbon Emissions in 2006 and in 2050 close. James Hansen, Director of Under Two Scenarios the NASA Goddard Institute of Space Studies, is among a growing 2050 group of climate scientists who Business Stabilization believe that the world should Indicator 2006 as Usual Scenario make every effort to avoid push- CO2 concentration ing the atmospheric concentra- (parts per million) 382 ~550 < 450 tion of CO beyond 450 parts per 2 Energy (billion tons million and the effective concen- oil equivalent) 12 22 16 tration (including methane and Energy-related carbon trace gases) beyond 500 parts per emissions (billion tons) 8 16 4 million. This would limit the increase in the average global tem- Source: See endnote 9. perature to 2.4–2.8 degrees Cel- sius above pre-industrial levels. The increase be needed to keep the CO2 concentration so far is just under 0.8 degrees Celsius.7 below 450 parts per million.9 To keep the world’s climate within the Complicating the challenge is the fact range it has occupied for at least a million that the energy needs of poor countries such years, current emission trends will need to be as India and China have accelerated in recent quickly reversed, according to the complex years as they entered the most energy-inten- models used by scientists and included in the sive stages of their development—building report of the Intergovernmental Panel on industries and infrastructure at an astonish- Climate Change (IPCC) released in early ing pace. In 2006, industrial countries, with 2007. The IPCC scenario that most closely less than 20 percent of the world’s popula- matches likely ecological limits suggests that tion, contributed roughly 40 percent of global carbon emissions will need to peak global carbon emissions, and they are respon- before 2020 and be reduced by 40–70 per- sible for more than 60 percent of the total cent from the current emissions rate by 2050, carbon dioxide that fossil fuel combustion eventually falling to zero.8 has added to the atmosphere since the Indus- The magnitude of the challenge is clear trial Revolution began. But this picture is when the emissions path needed to stay below now changing rapidly, particularly in China, an atmospheric CO2 concentration of 450 where emissions are now rising at 10 percent parts per million is compared with the current a year—10 times the average rate in indus- path. (See Table 6–1.) The U.S. Department trial nations. By 2006, China’s fossil fuel of Energy forecasts that both world energy emissions were only 12 percent below the use and carbon emissions will grow nearly 60 United States—and gaining rapidly. (See percent by 2030—an average rate of 1.8 per- Table 6–2.) Emissions are also growing cent per year. This would take emissions to quickly in the Middle East, where rapid pop- nearly 12 billion tons in 2030 and, assuming ulation growth, rising oil wealth, and low, continued growth at that rate, to almost 16 subsidized energy prices have led to sky- billion tons in 2050—nearly four times the rocketing energy demand.10 annual emissions of 4 billion tons that would At the G-8 Economic Summit in Ger-

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sil fuels, reducing energy con- Table 6–2. Energy-Related Carbon sumption through new technolo- Emissions, Selected Countries, 2006 gies and lifestyles, and shifting to 12 Carbon Carbon carbon-free energy technologies. Country Carbon Emissions, Emissions, A variety of combinations of or Region Emissions* Per Capita Per $ GDP these three strategies can in theory (million (tons) (kilograms per do the job. Princeton scientists tons) $1,000 GDP (PPP)) Robert Socolow and Stephen United States 1,600 5.3 120 Pacala have broken the task down China 1,400 1.1 140 into 15 1-billion-ton “wedges” Western Europe 930 2.2 71 of reductions—including such India 400 0.4 97 Japan 330 2.6 78 options as improved fuel econ- Africa 300 0.3 130 omy or massive construction of wind farms—that policymakers World 8,000 1.2 120 can choose from. The key ques- *Does not include emissions resulting from gas ﬂaring, cement making, or tion is which combination of land use change. strategies will minimize the sub- Source: See endnote 10. stantial investment cost but also provide a healthy and secure energy system that will last.13 many in June 2007, Canada, France, Ger- Phasing out oil, the most important fos- many, Italy, and Japan called for a 50-percent sil fuel today, may turn out to be the easiest cut in global emissions by 2050—consistent part of the problem. Production of conven- with the trajectory needed to keep atmos- tional crude oil is expected to peak and pheric concentrations below 450 parts per begin declining within the next decade or million. Although Russia and the United two. By 2050, output could be a third or States abstained from that portion of the ﬁnal more below the current level. Reliance on statement, it is clear that the need for drastic natural gas, which has not been as heavily cuts in emissions is increasingly accepted by exploited as oil and which releases half as political leaders as well as scientists. This is an much carbon per unit of energy as coal, is ambitious goal, and achieving it will mean meanwhile likely to grow.14 reversing an upward trend in carbon dioxide But the slowdown in the rate of discovery emissions that has been under way for a cen- of oil and gas is pushing world energy mar- tury and a half.11 kets toward dirtier, more carbon-intensive Providing energy services for the much fossil fuels. The greatest problem for the larger global economy of 2050 while reduc- world’s climate is coal, which is both more ing emissions to 4 billion tons of carbon will abundant and more carbon-intensive than require an energy system that is very differ- oil, and the “unconventional” energy sources ent from today’s. For the world as a whole to such as tar sands and oil shale, which at cur- cut emissions in half by 2050, today’s indus- rent oil prices have become economically trial countries will need to cut theirs by more accessible. than 80 percent. Getting there depends on The central role of coal in the world’s cli- three elements in a climate strategy: captur- mate dilemma has led policymakers and indus- ing and storing the carbon contained in fos- trialists to focus on so-called carbon capture

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and storage (CCS). Although it is only likely Locating, testing, and licensing large-scale to be feasible for large, centralized uses of fos- reservoirs where carbon dioxide can be stored sil fuels, many energy planners are counting is a particularly urgent task.16 on it. They hope to build a new generation In light of the lead times required for tech- of power plants equipped with devices that nology development and demonstration, it capture carbon either before or after the com- will be 2020 at the earliest before signiﬁcant

bustion of fossil fuels and then pipe the CO2 numbers of carbon-neutral coal plants come into underground geological reservoirs or online. Nor is it guaranteed that CCS plants into the deep ocean, where it could in prin- will be competitive with other carbon-free ciple remain for millions of years. generators that are likely to be in the market Coal can either be gasiﬁed (as it already is by that date. But the bigger question is in some advanced power plants), with the whether that would not be too late, consid-

CO2 then separated from the other gases, or ering the hundreds of new coal-ﬁred power it can be directly burned in a super-critical plants that are currently being considered in pulverized plant that also allows the capture China, the United States, and other nations. of carbon dioxide. Three significant CCS To have any hope of halving carbon emissions projects are in operation in Algeria, Canada, by 2050, it is hard to avoid the conclusion and Norway. The facilities in Algeria and that the uncontrolled burning of coal will

Norway simply capture CO2 that is extracted need to be eliminated—and soon. In the together with natural gas, which is much meantime, a growing number of climate

easier than capturing CO2 from coal com- experts are calling for a moratorium on build- bustion. A better demonstration of technical ing new coal-fired power plants unless or feasibility is offered by the sequestration pro- until CCS becomes available. ject in Weyburn, Canada, which captures CO from a coal gasification plant. How- 2 The Convenient Truth ever, even these advanced facilities lack the modeling, monitoring, and verification that Many energy industry executives argue that are needed to resolve the many outstanding reducing carbon emissions as rapidly as sci- technical issues.15 entists now urge would risk an economic col- The United States, the European Union, lapse. According to conventional wisdom, Japan, and China have all launched govern- the available alternatives are just too small, ment-funded CCS programs in the last few unreliable, or expensive to do the job. In years, but the pace of the programs is sur- 2001, for example, Vice President Dick prisingly lethargic, given the urgency of the Cheney described saving energy as a moral climate problem and the fact that much of the virtue but not important enough to play a power industry expects CCS to allow con- major role in the national energy policy pro- tinued reliance on the hundreds of coal-fired posals he was developing at the time. The power plants that today provide over 40 per- World Energy Council, which represents the cent of the world’s electricity. A 2007 study large energy companies that dominate today’s by the Massachusetts Institute of Technology energy economy, declared in 2007 that (MIT) concluded that the U.S. Department renewable energy has “enormous practical of Energy’s main program to demonstrate challenges.It is unlikely to deliver a significant large-scale CCS is not on track to achieve decarbonisation of electricity quickly enough rapid commercialization of key technologies. to meet the climate challenge.”17

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A thorough review of studies that assess the hundreds of systems and technologies that can potential contribution of new energy options, be made far more efficient, in many cases as well as the rapid pace of technological and just by using already available technologies policy innovation now under way, points to the more widely—such as compact fluorescent opposite conclusion. Improved energy pro- light bulbs and hybrid electric vehicles. Fur- ductivity and renewable energy are both avail- ther gains can be made by altering the design able in abundance—and new policies and of cities—increasing the role of public trans- technologies are rapidly making them more port, walking, and cycling, while reducing economically competitive with fossil fuels. In dependence on automobiles. combination, these energy options represent A global assessment by the McKinsey the most robust alternative to the current Global Institute of the potential to improve energy system, capable of providing the diverse energy productivity concluded that the rate of array of energy services that a modern econ- annual improvement between now and 2020 omy requires. Given the urgency of the climate could be increased from 1 percent to 2 per- problem, that is indeed convenient. cent, which would slow the rate of global The first step in establishing the viability of energy demand growth to just 1 percent a a climate-safe energy strategy is assessing the year. If these gains are extended to 2050, the available resources and the potential role they growth in world energy use could be held to might play. Surveys show that the resource roughly 50 percent, rather than the doubling base is indeed ample; the main factors limit- that is projected under most business-as-usual ing the pace of change are the economic chal- scenarios. This large difference represents the lenge of accelerating investment in new energy combined current energy consumption of options and the political challenge of over- Europe, Japan, and North America.19 coming the institutional barriers to change. The greatest potential turns out to lie in Energy productivity measures an econ- the most basic element of the energy economy’s ability to extract useful services from omy—buildings—which could be improved the energy that is harnessed. From the earli- with better insulation, more-efficient lighting, est stages of the Industrial Revolution, energy and better appliances, at costs that would be productivity has steadily advanced; in the more than paid for by lower energy bills. United States, the economy has grown 160 With technologies available today, such as percent since 1973, while energy use has ground-source heat pumps that reduce the increased 31 percent, allowing the nation’s energy needed for heating and cooling by energy productivity to double during the 70 percent, zero-net-energy buildings are period. Germany and Japan, starting with possible that do not require fossil fuels at all. higher productivity levels, have achieved com- All countries have untapped potential like parable increases. But even today, well over this to increase energy productivity, but the half of the energy harnessed is converted to largest opportunities are found in the devel- waste heat rather than being used to meet oping nations, where current energy pro- energy needs.18 ductivity tends to be lower. Future increases This suggests enormous potential to in energy productivity will not only reduce improve energy productivity in the decades consumption of fossil fuels, they will make it ahead. Light bulbs, electric motors, air con- easier and more affordable to rapidly increase ditioners, automobiles, power plants, com- the use of carbon-free energy sources.20 puters, aircraft, and buildings are among the On the supply side, one of the post-carbon

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STATE OF THE WORLD 2008 Building a Low-Carbon Economy energy sources receiving much attention these equivalent to total human energy use in a days is nuclear power, which already plays a year. While much of that sunlight becomes major role in some countries but faces con- heat, solar energy is also responsible for the siderable obstacles to its expansion in the energy embodied in wind, hydro, wave, and decades ahead. (See Box 6–1.) Renewable biomass, each with the potential to be har- energy, in contrast, relies on two primary nessed for human use. Only a small portion energy sources—sunlight and the heat stored of that enormous daily, renewable flux of below the earth’s surface—that are available energy will ever be needed by humanity.21 in vast abundance. The sunlight alone that Several studies have assessed the scale of the strikes Earth’s land surface in two hours is major renewable resources and what their

Box 6–1.What About Nuclear Power?

Nuclear power is a largely carbon-free energy reactor has been under construction in Finland source that could in theory help phase out fossil and is already two years behind schedule and fuels. More than 300 nuclear plants currently $1 billion over budget. A study by a Keystone provide 15 percent of the world’s electricity. But Center panel composed of academics, energy this energy source has been plagued by a range analysts, and industry representatives estimated of problems, most fundamentally high cost and the cost of new nuclear power at 8–11¢ per kilo- the lack of public acceptance, that have halted watt-hour—more expensive than natural gas- development for more than 20 years in most of and wind-powered generators. And because of Europe and North America. Over the past decade, large capital requirements and long lead times, global nuclear capacity has expanded at a rate nuclear plants face a risk premium that other of less than 1 percent a year; in 2006, the world generators do not. added 1 gigawatt of nuclear capacity but 15 giga- Energy planners will also have to reckon with watts of wind capacity. the scale and pace of construction that would be Major efforts are now under way to revive needed to make a serious dent in the world’s cli- the nuclear industry—driven by a combination mate problem. MIT researchers estimate that of high natural gas prices, concern about climate 1,000–1,500 new reactors would be needed by change, and a large dose of new government sub- 2050 for nuclear to play a meaningful role in sidies.Technology advances have led several com- reducing global emissions—a construction pace panies to develop modestly revamped plant 20 times that of the past decade and ﬁve times designs that are intended to make nuclear plants the peak level in the 1980s. easier to control, less prone to accidents, and Many advocates of nuclear power argue that cheaper to build. The most important given the urgency of doing something about cli- innovations are to standardize designs and mate change quickly, it must be pursued. Speed, streamline regulatory procedures. So far, two however, is not one of nuclear power’s virtues. nuclear plants are being built in Europe, several Planning, licensing, and constructing even a single are under construction in China, and the United nuclear plant typically takes a decade or more, States is expecting as many as 32 plants to be and plants frequently fail to meet completion ordered by the end of 2008. Unfortunately for deadlines. Due to the dearth of orders in recent the industry, several different plant designs are decades, the world currently has very limited being promoted by different companies, limiting capacity to manufacture many of the critical the potential for standardization. components of nuclear plants. Rebuilding that It is too early to tell whether these nuclear capacity will take a decade or more. plants will be economical enough to launch a wave of construction.The ﬁrst new European Source: See endnote 21.

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STATE OF THE WORLD 2008 Building a Low-Carbon Economy practical contribution to the energy economy Figure 6–2. Estimates of Available Energy Resources might one day be. One Using Today’s Te chnology study by the National 2000 Renewable Energy Source: UNDP, Johansson et al. Laboratory in the >1600 United States, for example, concluded 1500 that solar thermal power plants built in seven states in the U.S.

xajoules per year) 1000 Southwest could provide nearly seven times 600 the nation’s existing 500 500 425 electric capacity from all Energy Flow (e >250 sources. And mounting solar electric generators 50 0 <1 on just half of the suit- World Solar Wind Geo- Biomass Hydro- Ocean able rooftop area could Energy Use thermal power provide 25 percent of U.S. electricity. In the case of wind power, the Pacific Northwest To seriously de-carbonize the energy economy, Laboratory found that the land-based wind ways must be found to power everything from resources of Kansas, North Dakota, and Texas transportation to the latest electronics on could meet all the nation’s electricity needs, seemingly ephemeral energy sources such as even with large areas excluded for environ- solar energy and wind power. mental reasons. Electricity is the single most important These reports demonstrate that resource element of today’s energy system, essential for availability will not be a limiting factor as the lighting, cooling, electronics, and many indus- world seeks to replace fossil fuels. With trial processes; its role will only grow as new improved technologies, greater efficiency, technologies allow grid electricity to be used and lower costs, renewable energy could one for plug-in hybrid cars and to heat and cool day replace virtually all the carbon-based fuels homes efficiently through ground-source that are so vital to today’s economy. (See heat pumps. Electricity also happens to be the Figure 6–2 and Table 6–3.)22 output of the largest and most easily replaced contributor to carbon emissions: coal-fired Designs for a power plants. It is therefore fortuitous that solar, wind, geothermal, ocean, and bioenergy New Energy Economy are all able to produce electricity. The greatest challenge for the widespread From the generator’s viewpoint, the main adoption of renewable energy sources is fitting disadvantage of most of these electricity them into an energy system that was designed sources is their intermittency—wind and solar, around fossil fuels—fuels that have the advan- for example, tend to be available only 25–40 tage of being concentrated and easily stored. percent of the time, depending on the tech-

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Table 6–3. Estimates of Potential Contribution of Renewable Energy Resources

Energy Source Potential Contribution Solar water heaters Could provide half the world’s hot water Solar cells Could supply 10 percent of grid electricity in the United States by 2030 Solar power Seven states in U.S. Southwest could provide more than 7,000 gigawatts of solar plants generating capacity—nearly seven times U.S. electric capacity from all sources Wind power Could provide 20 percent of world’s electricity; offshore wind farms could meet all of European Union’s electricity needs Biomass One billion tons could be available for energy conversion in the United States in 2025, replacing one third of current oil use Geothermal heat Could provide 100 gigawatts of generating capacity in the United States alone Wave and ocean Long-run contribution could be on same order of magnitude as current world thermal energy energy use

Source: See endnote 22. nology and site. Intermittency turns out, “peak power” when demand is particularly however, to be not as big a problem for high (or when other generators are not work- renewable electricity as utility engineers once ing.) Strengthening weather forecasting capa- anticipated. Power companies are already bilities and interconnecting multiple, accustomed to dealing with fluctuating dispersed wind farms also enables utilities to demand, and even conventional power plants avoid most problems related to high levels of are sometimes shut down unexpectedly. So dependence on wind power.23 intermittency is not a new concept, though As reliance on coal is reduced in the dealing with it does take planning and a will- decades ahead, it is likely that many regions ingness to make adjustments in grid operation will move well beyond the 20 percent thresh- as penetration levels rise. old for wind, solar, and other intermittent Power companies in some regions have power sources. To do this, they can pursue already gained experience in operating grids some combination of three strategies: add that include a sizable number of wind tur- local generating capacity using microturbines bines. Several U.S. utilities have found that and fuel cells, move to digital “smart” grids when wind turbines meet 10 percent of peak that are more ﬂexible in their ability to bal- power demand, only minimal adjustments to ance demand and supply, and develop the grid operations are needed. And in areas of capacity to store energy economically so that northern Europe, where wind contributes it is available when needed. over 20 percent of peak power, only minor The digital grid would allow the electric- strengthening of grids and adjustments to ity system to operate much the way the Inter- the operations of other generators are net does—an electronically controlled grid required. Utilities with substantial that responds in real time to decisions made hydropower capacity have the ability to by users, providing the same kind of effi- quickly ramp up power generation when ciency, interconnectivity, and precision as the needed, but most use gas turbines to provide digital devices that it powers. One advantage

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STATE OF THE WORLD 2008 Building a Low-Carbon Economy of such a system is that the electricity meter can able biofuels, while the cars themselves can be transformed into a consumer gateway that be plugged into the grid and used as “peak- transmits price signals instantaneously and ing plants” when demand is high.26 allows unneeded devices to be turned off Flexible, secure electricity grids will be when prices are high or renewable resources further aided by a new generation of micro- are not as available. Kurt Yeager, who directs power generators that is being developed. the Galvin Electricity Initiative, believes that Small-scale gas turbines, sterling engines, and the introduction of digital grids will increase fuel cells can easily generate up to a third of the ability to achieve higher levels of reliance the total electricity supply, with the waste on intermittent renewable generators.24 heat available for use in the buildings in which The ability to store energy is also devel- they are located. And unlike the large power oping rapidly. Wind farm operators’ desire to plants that dominate today’s power system, qualify for the “capacity credits” earned when micro-generators will be able to respond power can be generated during peak periods quickly to shifts in demand. In the longer run, has pushed some to explore storage options, the natural gas that currently courses through notably in the form of compressed air that can the world’s gas pipelines may be replaced by be kept in underground steel pipes or in geo- hydrogen or ammonia that is produced from logical formations. One company plans to a broad range of renewable resources. mount a compressor under the structure that The ability to integrate new energy sources houses the generating components and send into the existing energy infrastructure will the compressed air down the tower, where it speed the transition and reduce its cost. will be stored underground; when electricity Already, wind power is being blended into is needed, the compressor is reversed, gen- many electric grids, while ethanol is being erating electricity. TXU, a large electric power added to gasoline. In Brazil, most new cars are company in Texas, recently canceled eight designed to run on any mixture of ethanol coal-ﬁred power plants and is planning instead and gasoline. In Germany, local producers to build a 3,000-megawatt wind farm—larger have begun to add biogas (methane) to nat- than any now in operation—that may include ural gas pipelines. And in Japan, many home- compressed air storage.25 owners are generating electricity with solar The development of less expensive, cells—sending power to their local grids as longer-lived batteries will further ease the well as drawing from them.27 way to greater reliance on renewable energy. Portable electronic devices and hybrid elec- The Economics of Change tric cars are rapidly increasing demand for advanced batteries made of nickel metal When oil was first discovered in western hydride and lithium; as they become less Pennsylvania in the 1860s, it was virtually expensive and more widely used, these will useless—far more expensive than coal and, allow power companies and consumers to prior to the development of the reﬁnery or complement distributed micro-solar gener- internal combustion engine, useless for trans- ation with distributed storage. And the portation. Even as oil became widely used for planned introduction of plug-in hybrid cars lighting in the late nineteenth century, the by General Motors and Toyota in the next idea that it would become a dominant energy few years will allow automobiles to run on source—let alone reshape the global econ- sunlight and wind power as well as renew- omy—was inconceivable.

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The history of economic transformation years, the manufacture of wind turbines has follows a familiar path. Dominant technolo- grown at 17 percent annually, and solar cells gies and businesses are generally reliable and at a 46-percent annual rate. This rapid growth economical, and over time they develop a has turned these industries into lucrative busi- network of institutional and political support nesses, with demand outrunning supply and that effectively resists change. New tech- profits soaring. Some $52 billion was invested nologies and businesses generally enter a in renewable energy in 2006, up 33 percent niche of the broader market, offering a higher from 2005. (See Figure 6–3.) At that level, cost service that meets specialized needs. But investment in renewable energy is already over time the new competitor becomes more one quarter that of the oil industry—and economical and widens its share of the mar- gaining ground rapidly. Some of the world’s ket, eventually undercutting the cost of the leading corporations have made major invest- dominant player and gradually remolding the ments in renewable energy, including Applied institutional infrastructure to meet its own Materials (solar photovoltaics (PV)), BP (wind needs. The transition from one generation of and solar PV), General Electric (wind), technology to another is often gradual at DuPont (biofuels), Goldman Sachs (wind, first, but then speeds up as the economic and central solar), Mitsubishi (wind), Royal advantage flips. Dutch Shell (wind, hydrogen, and solar PV), According to conventional wisdom, the Sharp (solar PV), and Siemens (wind).29 energy sector is far from such a transforma- Corporate R&D on clean energy tech- tion. New renewable energy sources represent nologies reached $9.1 billion in 2006. A sin- less than 2 percent of the total energy supply, gle company, Vestas Wind Systems, spent and in 2007 total U.S. government support $120 million on R&D in 2006, while the of renewable energy R&D came to little more U.S. government spent less than $50 mil- than $600 million— about what the government spent in Iraq Figure 6–3. Global Investment in in a single day. What Renewable Energy, 2000–06 these figures fail to cap- 60 ture is the recent infu- Source: REN21 sion of private- sector capital and technology 50 and the fact that today’s renewable 40 energy pioneers are not limited to “energy 30 technology” but rather draw on fields as diverse Billion Dollars 20 as semiconductor physics, biotechnology, aerodynamics, and 10 computer engineer- 28 0 ing. 2000 2001 2002 2003 2004 2005 2006 Over the past five

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STATE OF THE WORLD 2008 Building a Low-Carbon Economy lion on wind R&D. Even these numbers over the next three years, and dramatic price understate private R&D, which is often declines are likely, spurring the industry to embedded in commercial projects, and develop new applications and markets that exclude R&D investments by privately held would not be feasible today.31 companies, many of them funded with ven- Beyond the advance in technology, the ture capital and other forms of equity invest- economics of renewable energy will further ment. Venture capital and private equity improve as the scale of production rises— investment in clean energy totaled $8.6 bil- the same phenomenon that has successively lion in 2006, 69 percent above the 2005 turned televisions, personal computers, and level and 10 times the 2001 level. (See Chap- mobile phones from specialty products for ter 13.) By early 2007, these investments had high-income technology pioneers into mass- helped create 146 clean energy start-up com- market consumer devices. An analysis of pro- panies with names such as Nanosolar, duction costs in several manufacturing Celunol, SunPower, E3 Biofuels, and Miasole, industries by the Boston Consulting Group most of them working to develop and com- found that each time cumulative production mercialize new energy technologies.30 of a manufactured device doubles, production These tiny firms may be the real game costs fall by 20–30 percent.32 changers in the new energy industries, fol- The annual production of wind turbines is lowing in the footsteps of companies like now doubling every three years—and wind is Microsoft and Google, which quickly came to already competitive with natural gas–fired dominate their more established competi- power in the United States. It would be com- tors—bringing a level of innovation that larger petitive with coal-ﬁred power plants if they

firms are rarely capable of. had to pay the current European CO2 price In Silicon Valley, clean energy is helping of $32 per ton. Solar electricity is still twice drive a post-dotcom revival. Although it is as expensive as retail grid electricity in most regrettable that serious investment in renew- markets, but annual production is doubling able energy did not begin earlier, the sci- every two years—which should cut costs in ence and technology available today will half in the next four to six years.33 allow the industry to achieve performance and cost goals that would not have been Making Energy Markets Work possible in the past. One example is photovoltaics, where pro- Advancing technology, rising energy prices, ducers are pursuing a host of strategies for and the growing move to place a price on car- reducing materials requirements, raising effi- bon emissions in many parts of the world ciency, and lowering manufacturing costs of have created an extraordinarily favorable mar- the crystalline cells that dominate the market. ket for new energy technologies. Reaching a Other companies are developing new thin- true economic tipping point will depend on film photovoltaic materials that hold the more than these simple variables, however. promise of dramatic cost reductions. With Energy markets virtually everywhere are reg- demand outrunning supplies of PV materials ulated, complex, often inefficient, and rarely in the past two years, price trends have tem- predictable. What happens to the energy porarily reversed their usual downward course. economy, and to the world’s climate, in the But the industry is planning to increase its years ahead will be heavily influenced by hun- manufacturing capacity as much as eightfold dreds of policy decisions made at interna-

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tional, national, and local levels—and whether to spur change. The electric power industry these new policies can be sustained. is particularly far from the neoclassical model, Many energy economists argue that the governed as it is by extensive government reason fossil fuels dominate today is their regulation that is intended to facilitate devel- inherently lower cost compared with the opment of large, reliable electric systems, alternatives. This suggests that putting a price with one company dominating most local on carbon—likely through a carbon dioxide grids and in some cases owning the trans- tax or a regulatory cap on emissions such as mission lines and power plants as well. the one in Europe—would solve the climate Although this economic model has been problem. Getting the price signals right is broadly successful in delivering affordable an essential step, but its limits are demon- electricity to billions of people, it has done so strated by the modest impact that the $50 mainly by making it easy to add energy sup- increase in the cost of a barrel of oil has had ply—but providing much less incentive or on petroleum consumption in the past five opportunity to improve energy efficiency. years. That is equivalent to a carbon dioxide Regulations have also favored large fuel-inten- price of $120 per ton; the current price of a sive generators at the expense of smaller, cap- carbon credit in Europe is $32 per ton, while ital-intensive units. The result is an electricity one of the leading climate bills before the U.S. system that is far from the economic ideal— Congress would cap the price of carbon at and that will require major reforms if it is to $12—equivalent to $5 per barrel of oil.34 maximize economic efficiency, let alone The neoclassical economic view assumes an account for the massive environmental exter- economically frictionless world in which buy- nalities represented by global climate change. ers and sellers have all the information and cap- The profits of most electric utilities are ital they need, and there are no serious barriers determined by regulators based on the to the introduction of new technologies. At amount of power sold. This naturally makes the extreme, neoclassical economists sound them proponents of growth—the more elec- like economic fundamentalists, envisioning tricity consumers buy, the more profitable an idealized, mechanistic economy that is the utility is. And as long as the regulator never found in the real world. Economic approves, there is no risk in building a power research beginning in the 1920s has shown plant since there are no competitors, and that the costs of transactions can greatly limit costs are borne by the consumer. The utility the effectiveness of markets, while other also bears little risk if the plant burns a fuel research suggests that people’s behavior often whose price is volatile—fuel adjustment fails to follow neoclassical rules. Nobel laure- clauses allow price increases also to be passed ate economist Douglass North has shown to the customer. that laws, customs, and social priorities greatly Although consumers should in theory be influence the working of the economy. With- interested in making investments in energy out them, most markets would work ineffi- efficiency whenever it is economical, they ciently if at all.35 face many obstacles, including a lack of cap- Because energy markets have been shaped ital to invest in conservation and a lack of more than most others by government pol- information about which investments make icy, institutional constraints, and the power of sense. Perceiving the lack of demand, poten- large industrial enterprises, simple economic tial manufacturers and installers of energy-effi- theory provides minimal insight about how cient equipment have little incentive to scale

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STATE OF THE WORLD 2008 Building a Low-Carbon Economy up production or build businesses that would Such mandates can patch over some of the facilitate efficiency improvements. holes in a market economy, but they are at best One of the easiest ways to overcome these blunt instruments that do not harness the full kinds of market barriers is government manpower of the market to effect change. While dates. Since the 1970s, many governments they are a useful backstop to ensure that min- have required that home appliances, motor imal rates of change occur and to remove the vehicles, and buildings meet minimum effi- very worst technologies from the market, it is ciency standards in order to be sold, and also essential that markets reward innovation these standards have been gradually ratch- and investment that strives to achieve the best eted up over time. Additional tightening is possible performance. One important step in now in order, and many governments are this direction is to de-couple electric utilities’ moving quickly in that direction. Average profits from the amount of power they sell by auto efficiency standards, for example, will introducing a regulatory formula that instead soon move to 47 miles per gallon in Japan rewards utilities for providing the best service and 49 miles per gallon in Europe, and the at the least cost. California regulators have U.S. Congress is considering tightening the already made this change; as a result of this and U.S. standard, which has been stuck at 27.5 other policies, Californians use less than half miles per gallon for over two decades. as much electricity per person as other Amer- Another approach to requiring efficiency icans do. (See Figure 6–4.)38 can be seen in the law recently passed in John Hoffman, an energy efficiency Australia to phase out the use of most incan- expert and former U.S. Environmental Pro- descent light bulbs, which would be replaced tection Agency official, has proposed an by compact fluorescent bulbs that are four additional strategy for spurring efficiency times as efficient.36 investments—a “transaction bridge” that Government mandates are also being used allows manufacturers and installers to share to compel the construction of more energy- in the savings derived from installing more- efficient buildings and to require the intro- efficient equipment in buildings. This would duction of renewable energy into electricity motivate them to continually develop better grids as well as the markets for liquid fuels. Sev- technologies, to work with utilities to accel- eral national governments and 24 states in the erate the development of new markets, and United States now have binding “renewable to scale up both production and installa- portfolio standards” requiring that specified tion in order to lower cost. This mechanism amounts of renewable electricity be added to could also be used to spur introduction of their grids. In Spain, a recent update of build- micro-power technologies such as photo- ing codes requires all new buildings to incor- voltaics, as well as ground source heat porate solar water heaters. As of April 2008, the pumps. And Hoffman has proposed a simi- state government of Baden-Wurttemberg, lar system for motivating the production Germany, will require that 20 percent of new and sales of efficient vehicles.39 buildings’ heating requirements be met with European governments have developed renewable energy. Brazil, the United States, another economic tool to spur investment and the European Union are among the juris- in renewable energy. Beginning in the early dictions that require that a minimum propor- 1980s, Denmark decided to reduce its depen- tion of biofuels be blended with gasoline and dence on oil-fired generation by encouraging diesel fuel, spurring growth in their use.37 its agricultural industry to enter the power

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investment, and policy Figure 6–4. Electricity Use Per Capita, California reform have led to a and Rest of United States, 1960 –2006 pace of change unseen 15 since men like Thomas Source: CEC, DOE, Census Bureau Edison and Henry Ford created the last great 12 energy revolution a Rest of United States century ago. But is it enough? Will the com- 9 California ing years bring the accelerated change and 6 trillions of dollars of investment that Nicholas Stern esti- 3 mates is needed to

Annual Consumption (MWh/person) reverse the tide of cli- 0 mate change?42 1960 1970 1980 1990 2000 2010 The answer to that question will likely be business by selling wind- and biomass-based found not in the messy world of economics electricity to the utilities at prices set by gov- but in the even messier world of politics. ernment. This stopped the utilities from Can the enormous power of today’s indus- thwarting potential competitors, and over tries be set aside in favor of the common two decades it reduced Denmark’s depen- good? Time is growing short. In the United dence on fossil fuels and made it a leading States alone, 121 coal-fired power plants generator of renewable power.40 have been proposed. If built, they could pro- Germany and Spain adopted similar mar- duce 30 billion tons of carbon dioxide over ket access laws in the 1990s, and they too their 60-year lives. China is building that moved quickly into the leading ranks of many plants every year.43 renewable energy development. Over time, There were growing signs in 2007 that the the prices governments set have been years of political paralysis on climate change adjusted downward as the cost of renewable may be coming to an end, spurred by the technologies has fallen. As a result of this law, warnings of scientists and the concerns of Germany now holds the pole position in citizens. One sign of the changing times is solar PV and wind-generating capacity— that many of the planned coal plants are despite the fact that it has modest resources under attack by local and national environ- of sun and wind.41 mentalists, and some have already been scrapped. Germany recently announced that The Final Tipping Point its centuries-old hard coal industry will be closed by 2018. Several potentially game- There are good reasons to think that the changing political developments in 2007 are world may be on the verge of a major trans- worth noting: formation of energy markets. The powerful • Twenty-seven major U.S. companies—from interaction of advancing technology, private Alcoa and Dow Chemical to Duke Energy,

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General Motors, and Xerox—announced strengthening international climate agree- 44 support for national regulation of CO2 ments. emissions. As negotiations begin on the international • The European Union committed to reduc- climate agreement that will supplant the ing its carbon dioxide emissions 20 percent Kyoto Protocol after 2012, the world’s polit- below 1990 levels by 2020, and member ical will to tackle climate change will be put states are ramping up their energy effi- to an early test. The politics of climate change ciency and renewable energy programs in are advancing more rapidly than could have order to achieve these goals. been imagined a few years ago. But the world • China announced its first national climate has not yet reached the political tipping point policy, pledging to step up its energy effi- that would ensure the kind of economic trans- ciency and renewable energy programs and formation that is required. And the divide acknowledging that earlier policies were between industrial and developing countries not sufficient. over how to share the burden of action must • Seventeen states in the United States moved still be resolved.

toward adopting regulations on CO2 emis- As people around the world come to sions, increasing pressure on the U.S. Con- understand that a low-carbon economy could gress, which was considering national one day be more effective than today’s energy legislation. mix at meeting human needs, support for • Brazil recognized the threat that climate the needed transformation is bound to grow. change poses to the country’s economi- Urgency and vision are the twin pillars on cally crucial agriculture and forestry indus- which humanity’s hope now hangs. tries and signaled a new commitment to

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SPECIAL SECTION: PAYING FOR NATURE’S SERVICES

CHAPTER 7

Improving Carbon Markets

Zoë Chafe and Hilary French

In financial capitals across the world, bro- market. They take several forms, including kers are hard at work trading a key com- cap-and-trade systems in countries meeting modity of the twenty-first century: carbon Kyoto Protocol emissions targets and credit credits. These are allowances or offsets that exchanges for energy-related industries. represent a quantity of carbon dioxide (CO2) Recent years have also seen the rapid growth or other greenhouse gas (GHG) measured in of voluntary carbon markets, in which indi- tons of carbon dioxide equivalent.1 viduals, businesses, and communities invest in Regions, countries, and states are setting projects that offset their emissions. limits or caps on the amount of greenhouse There is little question that carbon markets gas that can be emitted each year—limits that are here to stay: some analysts project that are typically passed on to large emitters such they will constitute the world’s largest com- as power plants and factories in certain indus- modity market in the years ahead. But carbon tries. If these plants reduce their emissions— markets are in their infancy. There are major by installing low-carbon technologies or challenges, such as adequately addressing ver- improving the energy efficiency of their pro- ification, certification, and monitoring. And duction processes, for example—and emit these markets must be scaled up substantially less than their allowed limit under the cap, the if they are to significantly decrease the con- companies can sell unused allowances to util- centration of greenhouse gases in Earth’s ities or companies that are emitting more gas atmosphere. Despite the remaining hurdles, than legally allowed. The effect is to put a today’s burgeoning efforts by businesses, price tag on greenhouse gas emissions—and governments, and individuals to reduce car- to create an economic incentive to look for bon emissions and exchange credits are crit- ways to reduce them. ical first steps toward ensuring that future The platforms for exchanging such cred- generations inherit something priceless: a sta- its are part of a rapidly growing global carbon ble climate.2

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The Shape of (CDM) allows countries with emissions reduction commitments under Kyoto to Carbon Markets Today reduce their burden by investing in emis- In the last few years, carbon markets moved sions reductions in developing countries from the realm of economic theory into that that are party to the protocol but not held of practical reality—due in no small measure under it to any specific reductions. to the Kyoto Protocol to the U.N. Frame- • Joint Implementation (JI) allows coun- work Convention on Climate Change. Under tries to meet their reduction targets by this accord, 38 industrial countries agreed investing in projects that reduce emissions to cut their greenhouse gas emissions to, on in other countries bound by Kyoto tar- average, 5.2 percent below 1990 levels gets, usually those in Eastern Europe and between 2008 and 2012. This commitment the former Soviet Union. became legally binding on participating coun- • Emissions trading allows parties with emis- tries in early 2005, after the protocol had sion targets to trade portions of their been ratified by the required number of coun- national emission allocations among them- tries. By October 2007, the protocol had selves.6 been ratified by 174 countries and the Euro- So far, most of the credits generated under pean Union (EU).3 the terms of the Kyoto Protocol have involved The emissions reductions required under the CDM, although some projects under the protocol are just a small fraction of what sci- Joint Implementation have also begun. Trad- entists now believe will be needed to limit ing of emissions allocations between countries global average temperature increases to 2 has not yet started, but it could begin as early degrees Celsius and to avoid crossing potentially as 2008—the first year of the Kyoto Proto- catastrophic thresholds in Earth’s climate sys- col’s initial commitment period.7 tem. (See Chapter 6.) Still, the reductions made Carbon trading in all of the major markets under Kyoto represent a critical first step.4 reached an estimated total value of $30.1 The inspiration for today’s rapidly grow- billion in 2006, almost triple the amount ing carbon markets comes from a successful traded in 2005. The EU Emissions Trading U.S. experiment with trading sulfur dioxide Scheme (EU-ETS) accounted for more than and nitrogen oxide credits. This market was 80 percent of the total value of carbon cred- created in the early 1990s primarily to address its traded in 2006, with credits related to the the problem of acid rain. As a result of this Clean Development Mechanism coming in a experience, the U.S. government successfully distant second. (See Table 7–1.)8 pushed for the inclusion of similar provisions Within the broad category of carbon cred- in the Kyoto Protocol, overcoming initial its, there are two distinct segments: allowances skepticism from other countries. Ironically, the and project-based transactions. Allowances U.S. government has so far refused to ratify are allotted through a government cap-and- the protocol that contains the very provi- trade system or by a financial institution with sions it championed, while the EU has created a binding emissions reduction schedule, such the most ambitious trading system to date.5 as the Chicago Climate Exchange (CCX). The protocol created three innovative mar- Global trade of allowances has increased ket-based instruments to encourage its cost- rapidly, from 328 million tons of CO2 equiv- effective implementation: alent in 2005 to 1,131 million tons in 2006. • The Clean Development Mechanism The value associated with these trades rose

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Table 7–1. Carbon Transactions,Selected Markets, 2005 and 2006

2005 2006 Market Volume Value Volume Value (mill. tons of (million (mill. tons of (million

CO2 equiv.) dollars) CO2 equiv.) dollars) EU Emissions Trading Scheme 321 7,908 1,101 24,357 New South Wales 6 59 20 225 Chicago Climate Exchange 1 3 10 38 Primary Clean Development Mechanism* 351 2,638 475 4,257 Joint Implementation 11 68 16 141 Other compliance 20 187 17 79 Other voluntary markets 6 n/a 13 55

Total 716 10,863† 1,652 30,153

* Primary sales of credits generated through the CDM are distinguished from the secondary market, which exists when these credits are resold through a market mechanism such as the EU-ETS. † Excludes over-the-counter voluntary market. Source: See endnote 8. from just under $8 billion in 2005 to $24.6 are currently operating—the European Union billion just one year later.9 Emissions Trading Scheme, the New South Project-based transactions are associated Wales Market in Australia, and the Chicago with specific carbon reduction projects. Com- Climate Exchange in the United States—and panies and governments can acquire credits more are being formed. from international emissions reduction projects The EU-ETS has grown to become the and count the reductions toward their national largest carbon trading platform. Established caps using the Clean Development Mechanism as an important component of the Euro- or Joint Implementation. And individuals, pean Union’s strategy for achieving its Kyoto- businesses, universities, municipalities, or orga- mandated emissions target, the EU-ETS nizations can seek to reduce their own “car- allows European reduction credits to be bon footprints” by voluntarily investing in bought and sold alongside credits created specific emissions reduction projects. through projects in developing countries In sum, carbon trading can be described as (through the CDM) or in economies in tran- either allowance-based (under a cap-and- sition (through JI). The EU-ETS includes trade scheme) or project-based, and it can be the 15 countries that originally committed part of a compliance market (such as the EU- through the protocol to collectively reduce ETS) or a voluntary transaction. their greenhouse gas emissions by 8 percent from 1990 levels by 2012 under what is Capping and Trading known as the “European bubble.” An EU Directive translated this commitment into Measured by both volume and value, specific emissions reduction targets for each allowance-based systems dominate today’s member country. The EU-ETS also allows carbon markets. At least three such systems newer EU member states to participate in the

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STATE OF THE WORLD 2008 Improving Carbon Markets SPECIAL SECTION: PAYING FOR NATURE’S SERVICES trading scheme in order to meet their electricity, improved generator efficiency, national reduction targets of 6–8 percent, reduced electricity consumption, or forestry as agreed under the protocol.10 carbon sequestration projects to meet their The EU-ETS has recorded strong growth targets. (So far, this market does not include since it began operations, more than tripling credits generated through the CDM or JI.) the tons of CO2 equivalent traded in its ﬁrst In 2006, 20 million tons of carbon dioxide two years—from 321 million in 2005 to equivalent were traded on this market, worth 1,101 million in 2006. The value of the $225 million.13 traded carbon also tripled over that time, The third largest allowance-based market climbing from $7.9 billion in 2005 to $24.4 is the Chicago Climate Exchange. Started in billion. The program currently involves at 2003, the CCX differs from the other two least 12,000 companies across the EU whose markets described here in that it was not allowances and transactions are recorded in established by a government. Any entity that registries. These registries are vital for keep- joins the CCX does so voluntarily. CCX mem- ing track of legitimate transactions and mak- bers must, however, legally adhere to the ing sure that credits are not double-counted emissions reduction schedule stipulated by the or resold.11 exchange. Trading volume on the CCX sur- During its initial test phase, from 2005 to passed its 2006 total in the ﬁrst half of 2007,

2007, the EU-ETS traded only CO2 emis- putting it on course to double its trading sion allowances associated with power and volume over one year.14 heat generation and select industries, includ- Businesses and organizations join CCX at ing oil refineries, iron and steel plants, and different membership levels: full members factories making cement, glass, bricks, ceram- have signiﬁcant direct emissions, including ics, and pulp and paper. These sources industrial companies, states, and municipal- account for 45 percent of CO2 emissions in ities. They can purchase or sell credits. Asso- the EU. The second phase corresponds with ciate members are organizations, universities, the Kyoto Protocol’s first emissions reduc- and companies with negligible direct emis- tion commitment period, which runs from sions that agree to buy credits to offset 100 2008 to 2012. It is expected that this phase percent of the emissions associated with their will integrate additional emissions sources, energy purchases and business travel. CCX such as aviation, and other greenhouse gases members have a range of motives for joining, beyond carbon dioxide.12 such as to respond to public demand for The New South Wales market is the sec- action on climate change or to gain early ond largest allowance-based market to date. experience with emissions trading on the Australia’s most populous state, New South assumption that mandatory U.S. systems will Wales, set mandatory emissions reductions sooner or later be created.15 targets in 2003; its market whirred into While the Chicago Climate Exchange motion two years before trading began on grows, pressure is building within the United the EU-ETS. Targets apply specifically to States for federal regulation of greenhouse gas the state’s power sector—meaning that large emissions through a cap-and-trade system. electricity buyers or sellers must reduce or off- Prospects for some form of national legisla- set emissions from production of the election improved in January 2007 with the for- tricity they supply or use. They can buy mation of the United States Climate Action certiﬁcates from low-emission generation of Partnership, an alliance of major U.S. com-

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Improving Carbon Markets panies and prominent environmental orga- these systems are carefully studying the Euro- nizations. The partnership, which has grown pean experience.17 to include more than 30 businesses and orga- One of the biggest surprises at the EU nizations, is calling for national legislation Emissions Trading Scheme was the precipi- on “signiﬁcant reductions” of GHG emissions tous drop in the price of emissions contracts using a multi-pronged strategy based around for credits to be counted in 2007 (known as a cap-and-trade program. More than a dozen December 2007 contracts); the price sank competing pieces of legislation are currently from a peak of $34 per ton to nearly zero in being considered by the U.S. Congress.16 early 2007. The second phase will have more In the absence of effective federal action on stringent emissions caps, so future contracts emissions reductions, several other allowance- are currently trading at higher prices. (See Fig- based carbon markets have been proposed or ure 7–1.) (Emissions contracts have an are in the process of being created by states assigned date, according to the date the cred- and provinces within the United States and its will be produced; contracts can be traded Canada. (See Box 7–1.) Meanwhile, the cen- several years in advance, for delivery at future tral government in Australia has announced dates.) The price crash for December 2007 that it will develop a national cap-and-trade contracts coincided with the announcement market for greenhouse gas emissions by 2012. that more permits had been allocated through Legislators and regulators working to develop the EU National Allocation Plan process than

Box 7–1. North American Carbon Trading Systems under Development

Regional Greenhouse Gas Initiative cap-and-trade system based largely on emissions (RGGI): This program was initiated in 2005 reductions among major emitters in-state. Emis- through the support of state governors in the sions trading is scheduled to begin in 2012. Cali- northeastern United States. Cooperation fornia stands to beneﬁt from the establishment between at least 10 states will lead to a regional six years ago of the California Climate Action cap-and-trade system that will regulate the emis- Registry—a voluntary system of GHG emissions sions associated with most power plants in the accounting that was set up to protect and region. Collectively, participating states have reward companies that chose to take early

agreed to cap regional CO2 emissions at 1990 action in anticipation of future regulatory levels by 2014 and to reduce them to 10 percent requirements. (Other states, including Florida, below that level by 2018. When the program Minnesota, New Jersey, and Oregon, have since gets going in 2009, some 188 million carbon passed similar legislation.) credits representing one ton of carbon each will Western Climate Initiative: Created in be distributed to participating states, which will February 2007, this scheme involves California, ﬁve in turn allocate or auction them to power plants other western states, and the Canadian provinces within their borders. The program could be of British Columbia and Manitoba. Modeled extended beyond power plants to include other somewhat on RGGI, the initiative has set a large emitters after the initial trading period is regional emissions reduction goal of 15 percent completed. below 2005 levels by 2020 and is establishing California: The state passed landmark legis- a market mechanism for achieving it. (Three lation in 2006 that mandates a 25-percent reduc- other states and three provinces have also joined

tion in CO2 emissions by 2020, with emissions as observers.) reductions expected to reach 174 million tons

of CO2 equivalent. It is expected to establish a Source: See endnote 17.

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ties are expected to Figure 7–1. Average Price of EU Emissions enjoy windfall profits Contracts, 2005–07 worth $44–91 billion 35 between 2005 and Source: ECX 2012 as a result of 30 emissions credits granted to them under 25 December 2008 the EU-ETS.19 2

O There is a good side

tC 20 to the price rises, December 2007 though: in general, 15 consumers react to

Dollars per higher electricity prices 10 by increasing energy efficiency and buying 5 less electricity. Jörg 0 Haas of the Heinrich Apr 05 Sep 05 Feb 06July 06 Dec 06 May 07 Oct 07 Böll Foundation and Peter Barnes of the Tomales Bay Institute were needed, resulting in an oversupply for explain that “as emissions trading is meant as the first phase of the EU-ETS. Political and a way of internalizing external costs, it is nec- special interests lobbying led in part to overly essary that prices reflect these new costs.” generous permit allocations, combined with But they and other critics nonetheless ques- inadequate historical emissions data. This tion whether large emitters should profit highlights the key importance of establishing from free allocations of a public good: the high-quality baseline data if cap-and-trade atmosphere’s capacity to absorb carbon. While markets are to function effectively.18 allocating permits amounts to a subsidy for A significant problem in the recent EU- electricity companies, auctioning can encour- ETS experience was that the vast majority of age a more equitable distribution of permit emissions permits were distributed for free to revenues.20 large emitters rather than offered for sale The EU-ETS allows large emitters to through an auction. (See Box 7–2.) Whether meet their caps in part by purchasing cred- permits are allocated or auctioned, the right its via the Clean Development Mechanism to emit carbon gains a value when a carbon and Joint Implementation program; this pro- cap exisits—and that value is reflected in vision has also elicited criticism. Some groups increased electricity prices. Because large worry that wealthy countries will fail to make emitters were given permits for free, they significant in-country reductions, relying reaped windfall profits when electricity prices instead on the relatively cheap credits gen- rose while their production costs did not. erated in developing countries or economies British power companies, for example, made in transition. This fear is one reason that an estimated $1.5 billion in profits as a result forestry-related credits have so far been of the carbon permits they were issued for free banned from the EU-ETS. The World Wide by the U.K. government, and German utili- Fund for Nature–UK (WWF–UK) recently

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Box 7–2. Who Gets Permission to Emit?

When carbon trading began under the EU-ETS, panies, production costs usually remain about European governments had to decide how many the same, despite the rise in electricity prices, emissions permits each company covered by the because the permits are basically given as a sub- EU-ETS would receive. There were two major sidy—so businesses and associations favor this options: to auction permits or to allocate option. When permits are auctioned, the average permits to companies based on their historical cost of production can increase, and the revenue emissions. In an auction, companies list the from the auction is redistributed either through amount they are willing to pay for a given quan- tax breaks for consumers, assistance to energy- tity of permits, and a market price is established. intensive sectors, or investments in low-carbon Under allocation, or “grandfathering,” companies technologies. In general, economists support auc- receive permits for free based on the amount tioning permits. they emitted in past years. Some 80 percent of businesses polled said Governments decided that in the first phase that the EU Directive should not allow for more of EU-ETS (2005–08), no more than 5 percent auctioning in the future, in part because they are of permits could be auctioned in each member worried they will not be able to compete with country. (Only four countries used auctions at sectors not covered by the EU-ETS or with com- all.) In Phase II (2008–12), up to 10 percent of panies abroad—worries that researchers say are permits will be auctioned. largely unfounded due to domestic protections Prices will rise anytime carbon emissions are covering many industries. restricted—whether through allocation or auctioning. When permits are allocated to com- Source: See endnote 19. reviewed nine National Allocation Plans for for allocating permits. Under the Regional the second phase of the EU-ETS, conclud- Greenhouse Gas Initiative in the northeast- ing that up to 88 percent of the EU emis- ern part of the country, all participating states sions reductions required by 2012 could with announced rules have opted for 100 take place outside of the European Union. percent auctions, and California is consider- WWF–UK argues that this is contrary to the ing a similar requirement for its climate reg- Kyoto Protocol and EU directives, both of istry. Most of the cap-and-trade proposals which specify that Kyoto mechanisms be before the U.S. Congress call for a share of supplemental to domestic actions.21 permits to be auctioned and for a percentage Some lessons from Europe are already of the revenue generated to be allocated for being incorporated there and elsewhere. Cur- public benefit.23 rent prices indicate that the prices of contracts Under the auctioning systems being con- for the second phase of the EU-ETS will rise, sidered in the RGGI program, earned rev- with more-aggressive emissions caps making enues would be used in part to finance public permits scarcer. As of early October 2007, spending on climate-related programs, such EU-ETS contracts for December 2008 (for as the promotion of energy efficiency. Federal delivery just before emissions levels are eval- proposals currently under consideration also uated for 2008) were trading around $30 envision investing auction proceeds in alter- per ton of carbon dioxide equivalent.22 native energy development (including clean And U.S. policymakers appear increasingly coal), cleaner transportation technologies, convinced that auctioning is the best approach and climate-related initiatives to lessen the

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STATE OF THE WORLD 2008 Improving Carbon Markets SPECIAL SECTION: PAYING FOR NATURE’S SERVICES impacts of climate change on low-income in 2006, worth $141 million.26 communities in the United States and else- Since the creation of CDM credits began where. Peter Barnes has gone further, propos- in 2002, China has registered 118 projects, ing that all citizens should share benefits from accounting for the highest share of expected carbon emissions permits. When permits to CERs (75.4 million, 45 percent of the global “use” atmospheric capacity are auctioned, total). While India has registered the most the revenues would be placed in a public projects (282), these projects are expected to trust. Through a mechanism similar to the generate 27.8 million CERs (about 17 per- Alaska Permanent Fund, which distributes cent of the global total). China’s domina- royalties to Alaskans for oil extracted from the tion of the CDM market is expected to North Slope, citizens would receive their fair continue: adding up all the CDM projects share of the trust’s value. (See Chapter 10.)24 that are in the process of being verified and registered, it is expected that by 2012 China The Kyoto Mechanisms will generate almost 53 percent of all CERs and India will be home to 16 percent. (See in Action Figure 7–2.)27 The Kyoto Protocol’s flexibility mechanisms By contrast, Latin America as a whole has link countries that have a shared interest in only registered 290 CDM projects worth creating projects to reduce greenhouse gas 33.6 million CERs, and sub-Saharan Africa emissions—harnessing industrial countries’ has issued 13 projects worth 3.8 million interest in investing in lower-cost efficiency CERs (just 2.3 percent of the global total). projects overseas and pairing that with devel- Though there are 33 sub-Saharan African oping countries’ interest in receiving financ- CDM projects now in the pipeline, they are ing and cleaner technologies. International expected to account for about the same low carbon finance flows to developing countries percentage of the global total by 2012.28 could climb as high as $100 billion a year in Despite Africa’s opportunities to gain out- coming decades, according to U.N. estimates, side investment for sustainable development roughly equivalent to total spending on for- through the Kyoto mechanisms, the continent eign aid in 2006.25 has thus far received an abysmally low share Investments in project-based transactions of CDM investment. To counteract this wor- funded through the Clean Development rying trend, six U.N. agencies have formed Mechanism and Joint Implementation have the Nairobi Framework, an initiative aimed at grown rapidly since the protocol’s flexibility improving CDM implementation in Africa by mechanisms became operational. Since 2002, building the capacity of countries in the 29 CDM credits worth 920 million tons of CO2 region to develop and implement projects. equivalent have been generated—equal to The largest volume share of CDM projects one fifth of the EU’s total emissions in 2004. to date involves “fugitive emissions”—that is, In 2006 alone, CDM projects led to certified those that trap and dispose of fuel emissions, emissions reductions (CERs) of 475 million halocarbons, and sulfur hexafluoride. Pro- tons of carbon dioxide equivalent, with a jects that destroy the greenhouse gas HFC- total value of more than $4 billion. Joint 23 (a potent byproduct created during the Implementation projects have gotten off to manufacturing of a class of refrigerant gases a slower start. Nonetheless, 16 million tons known as HCFCs) have generated the largest of CO2 equivalent were transacted through JI share of CDM credits to date, accounting

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col agreed that coun- Figure 7–2. Distribution of CDM Credits Expected 2002–12, tries could work toward for All Projects in Pipeline their emissions targets by encouraging carbon India (16%) sequestration in vegetation and soil through forest management, Brazil (7%) cropland management, grazing land management, and revegetation. China (53%) Now the CDM is beginning to approve Other (20%) projects from the sector known as LULUCF, for land use, land use change, and forestry. This sector includes South Korea (4%) Source: UNEP projects started since 1990 that focus on for 50 percent of all issued credits.30 afforestation (planting new trees) or refor- There are significant concerns about these estation (planting replacement trees).33 projects, however, including that the lure of Despite their potentially important role in earning CDM credits has created a perverse stabilizing the climate, forestry and land use incentive for countries to produce more projects have been tightly restricted under HCFCs than they would otherwise, despite CDM rules. As of September 2007 one pro- the fact that HCFCs are both an ozone- ject was registered—a reforestation project in depleting substance and a greenhouse gas. An China’s Pearl River Basin. (Eleven other added problem is the high price of buying forestry projects, in seven countries, were these credits relative to directly subsidizing being evaluated.) The World Bank is seeking needed technology. By one estimate, installing to expand forestry and agriculture project the equipment needed to eliminate HFC-23 funding through its BioCarbon Fund and emissions at the 17 remaining refrigerator its new Forest Carbon Partnership Facility, plants producing HFC-23 in developing with the aim of helping countries gain cred- countries would cost only $142 million— its by protecting existing forests—a concept $6.5 billion less than purchasing CDM cred- known as “avoided deforestation.” Although its generated by capturing the HFC-23.31 countries cannot yet generate credits through In any event, a decline in new HFC-23 this approach, it is likely that avoided defor- projects in 2007 suggests that these oppor- estation will be included under the CDM in tunities have largely been exploited. A shift is the future.34 under way toward other projects, including Voluntary standards are now being devel- energy efficiency, hydroelectric, and methane oped to help guide the LULUCF sector in capture from landfills. (See Figure 7–3 and the future and to maximize the benefits of Table 7–2.)32 forestry projects. The Climate, Community In 2001, the parties to the Kyoto Proto- and Biodiversity Alliance (CCB) is a group of

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percent). Russia (19 Figure 7–3. Sources of CDM Credits Expected 2002–12, percent) and Bulgaria for All Projects in Pipeline (18 percent) are also home to many JI projects.36 European buyers Fugitive emissions lead both the CDM (35.7%) and JI markets, with 86 Energy Transport (0.2%) efficiency percent market share. (11.5%) Other (1.9%) This reflects the fact Afforestation and that the European reforestation (0.3%) Union is party to the Biogas, Agriculture (2.0%) Kyoto Protocol and Energy biomass energy, (30.1%) landfill gas can use emissions cred- (18.4%) its purchased under the CDM and JI to meet its emissions reductions Source: UNEP targets.37 Elaborate rules gov- 12 companies and nonprofit organizations erning the CDM and Joint Implementation that are working together to implement stan- have been painstakingly negotiated among the dards for carbon ventures. Projects must meet parties to the Kyoto Protocol over the last sev- 15 standards—addressing land tenure, com- eral years to ensure that projects meet key munity impacts, and biodiversity impacts, quality-oriented criteria. For example, in among others—in order to be certified. They order to be approved a project must be cer- may earn additional points if they satisfy 8 tified to be “additional”—in other words, other standards, on issues like capacity build- that it would not have taken place if the ing, adapting to climate change, and native CDM did not exist. A second requirement species use. Both CDM and voluntary mar- relates to a concept known as leakage: busi- ket projects can earn CCB certification.35 nesses and governments proposing CDM With Joint Implementation projects, projects must show that they are not simply energy projects dominate the overall portfo- shifting activities from one place to another.38 lio in both number and overall volume. Although these requirements were cre- Between 2003 and 2006, energy projects ated with the best of intentions, they have led accounted for nearly two thirds of the volume to some unanticipated problems. One diffi- of JI projects, with energy efficiency and pro- culty has been that the transaction costs asso- jects switching from carbon-intensive fuels ciated with the CDM are so high that only to renewable energy accounting for 28 per- large projects can absorb them. It typically cent of the total, biomass for 13 percent, costs $50,000–250,000 to shepherd a pro- wind energy for 12 percent, and hydroelec- ject through the approval process—or on tric projects for 8 percent. Projects financed average some 14–22 percent of the projected through JI are predominately located in East- revenue from the sale of the carbon credits. ern Europe, with Ukraine accounting for the This is a particular obstacle for the world’s largest volume between 2003 and 2006 (21 poorest countries, such as those in Africa,

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Table 7–2. Selected Clean Development Mechanism and Joint Implementation Projects

Host Country/ Authorized Other GHG Project Participants Parties Reductions Description

(tons of CO2 equiv. per year) Clean Development Mechanism

Reforestation China: BioCarbon 25,795 First forestry project registered for Guangxi Xinghuan Fund, under CDM; 4,000 hectares of watershed Forestry IBRD new forest will sequester carbon, management Development Italy conserve soil and water, and gen- in Pearl River Company Spain erate revenue for local farmers Basin from sale of CDM credits.

BRT Bogotá, Colombia: Netherlands: 246,563 First transportation project to be TransMilenio TransMilenio Corporación registered under CDM; a Bus Rapid Phase II to IV S.A. Andina de Transit system will increase Fomento efﬁciency of public transportation. Lawley Fuel South Africa: Netherlands: 19,159 Corobrik’s Lawley brick factory Switch Project Corobrik Statkraft located in Gauteng province of Markets BV South Africa will switch from using coal to natural gas. Osório Wind Brazil:Ventos Spain: 148,325 The wind power complex, the Power Plant do Sul Energia Enerﬁn largest in Latin America, will gen- Project Enervento erate 150 megawatts, enough S.A. power to meet the needs of 650,000 residents.

where potentially eligible projects tend to down on the grounds that it was unclear be smaller in scale and thus less able to afford that the project would not have happened the high transaction costs. However, the anyway—meaning the project developers World Bank and private brokers are working may have been trying to cash in on what to aggregate smaller projects and reduce was in fact business as usual.40 transaction costs. Africa also stands to benefit from the expected future inclusion of Assessing Voluntary more LULUCF projects.39 The CDM has been criticized for lax over- Carbon Markets sight on its rules. For the ﬁrst several years of In the absence of government caps on carbon operation, every project proposed was dioxide emissions—or sometimes alongside approved. Since then, there has been tighter them—businesses, organizations, and indi- scrutiny by the CDM Executive Board, and viduals are voluntarily purchasing credits that some projects have been rejected. In August aim to mitigate greenhouse gas emissions. 2007, for example, a large gas-capture pro- Often referred to simply as “carbon offsets,” ject slated for Equatorial Guinea was turned these credits are bought and sold over the

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Table 7–2. continued

Host Country/ Authorized Other GHG Project Participants Parties Reductions Description

(tons of CO2 equiv. per year) Joint Implementation

Rehabilitation Ukraine 826,875 Old boilers will either be replaced of the district (total by 2012) or upgraded; switch to natural gas heating system from coal/oil; pipe length will be in Donetsk decreased and pipe insulation will Region be enhanced; introduce combined heat and power plants; reduce heat loss, improve efﬁciency, and decrease fuel consumption. Switch from wet Ukraine Ireland-based 750,000 Cement will be produced through to dry process at CRH plc, dry process rather than through Podilsky Cement Dublin energy-intensive wet process.

Landfill gas Russia 4,122,016 A landfill gas recovery and flaring recovery in (2008–12) system will be constructed to Moscow reduce release of landfill methane. RBTI Biomass Latvia 5,337 Boilers will be introduced at the Waste-to-Energy Baltic Timber Industries so bark and Project wood waste can be used to generate electricity for the company.

Source: See endnote 32. counter or through an established trading increasingly encouraged to buy carbon offsets mechanism such as the Chicago Climate to negate the climate impacts of their every- Exchange. Ecosystem Marketplace, a U.S.- day activities. The airline ticket consolidator based group that tracks markets for a variety Expedia, for example, teamed up with carbon of ecosystem services, estimates that in 2006 credit broker TerraPass to offer customers at least 23.7 million tons of CO2 equivalent the opportunity to offset the carbon dioxide were exchanged in voluntary carbon mar- generated during their flights; TerraPass, in kets, with 10.3 million tons moving through turn, uses the fees it collects to buy carbon the CCX. Many more voluntary credits were credits produced by verified wind, biomass, exchanged in so-called over-the-counter or industrial efficiency projects. And Jiva trades—transactions made outside of formal Dental in the suburbs of London advertises market structures, often between an offset itself as the first “carbon-neutral” dental prac- provider and a private citizen.41 tice in the world; the office buys carbon off- People in North America or Europe are sets created by projects in India, Mexico, and

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Improving Carbon Markets the United States. Jiva Dental is just one of organizations or companies that sell forestry- many institutions, events, and enterprises to based carbon offsets. The report documents claim “carbon neutrality.” (See Box 7–3.)42 incidents in which groups advertised that One specific type of renewable energy off- buying their offsets would support the plant- set sometimes traded on the voluntary mar- ing of new forests when, in reality, consumers’ ket is the renewable energy credit (REC), money was going toward purchase of car- which represents power generated from bon sequestration rights to existing forests.44 renewable sources and fed into the grid. Use The report also calls attention to an inci- of RECs as carbon offsets is controversial dent in which a community was displaced by because the energy sources are not tested for a forestry project and then moved to another additionality—in other words, it is difficult to forested location, clearing the area to build know if they represent renewable energy their new homes. This allegedly happened products that would not have occurred any- with a project unfortunately located at a dis- way without financing from the purchase of puted boundary area in a Ugandan national the credits.43 park—the site of ongoing forced evictions Forestry and tree-planting projects are a and conflicts over resource rights. Some res- prevalent but controversial method of seques- idents forced to move away from this site tering carbon and producing voluntary off- had little choice but to fell trees at their new set credits. A recent report from the location, perhaps cancelling the intended Amsterdam-based Transnational Institute beneficial effects of the offset project. While questions the claims of several well-known some of the examples in the report are quite

Box 7–3. Carbon Neutrality—Not a Neutral Term

When “carbon-neutral” became the Oxford Amer- need to offset in order to truly erase their ican Dictionary’s 2006 Word of the Year, many impact on the global atmosphere, especially for hailed it as the mainstreaming of an important emissions associated with air travel. Although environmental topic. But what does it really mean several well-recognized methodologies do exist, to be carbon-neutral? Is it at all possible to docu- such as the World Business Council for Sustain- ment such a claim? Businesses, organizations, able Development (WBCSD)/World Resources conferences, sporting tournaments, concerts, Institute GHG Protocol, not all voluntary offset and individuals are certainly trying to. sites use this methodology. Some critics argue that carbon neutrality is an While the term carbon-neutral is surely allur- empty descriptor, in part because it sometimes ing, buyers do need to beware when purchasing takes years for the emissions being offset to offsets and using this term. Some critics argue really be neutralized. Offsets based on forestry that offsets are a cheap way of pushing aside more projects, for example, often calculate a 99-year serious questions about ongoing consumption lifespan, during which the tree will absorb carbon patterns. Others urge that people should go dioxide at varying rates.Trees are by no means beyond carbon-neutral and look toward a guaranteed to live for this amount of time, and “carbon-positive” future—one in which people there are still uncertainties about the carbon are proactively repairing damage to the climate emissions associated with their decay. through lifestyle changes, business practices, and There are also signiﬁcant questions about the everyday purchases. often-opaque algorithms used to determine the emissions that a person or organization would Source: See endnote 42.

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old, the authors’ main points remain valid: without proactive legislation, concerns over With the right legislation, people will be able land tenure could easily escalate as forestry to purchase better products and there will be projects increase in frequency and size.45 less need to consider buying carbon offsets Given the frequent changes in scientific on a voluntary basis. Until that happens, findings, certification systems, and due dili- carbon offset purchases will be made more gence that affect carbon credits, purchasers meaningful by simultaneously lessening con- need to ask about the origins of carbon off- sumption and lobbying for more effective sets and how they are verified. By under- national legislation. standing the differences among various offset products, their certifiers, and the available The Future of standards, buyers can get a sense of whether they are getting value for their money. This Carbon Markets will clarify the process involved in offsetting As emissions reduction projects and carbon carbon emissions and will put pressure on trading increase rapidly, financial analysts, those generating and brokering the credits to environmental researchers, and human rights ensure that customers are truly getting the advocates will jostle to fine-tune the imple- “offsets” they believe they are paying for.46 mentation. Perhaps the most crucial issue to improve is the ability to prove that GHG By understanding the differences among reductions are indeed happening as marketed. Several recent cases spotlighted by the media various offset products, their certifiers, make this clear. In one case, Toby Nichol, and the available standards, buyers can get communications director at EasyJet, a low- a sense of whether they are getting value cost airline in Europe, warned carbon offset for their money. buyers to beware the “snake oil salesmen” that lure do-good customers into paying exorbi- A note of caution: while carbon offsets tantly high fees for offset services. EasyJet had offer some positive benefits, they are not a originally intended to offer its passengers panacea. The carbon emissions associated credits from carbon offsetting brokers, but the with high-consumption lifestyles will not be company found that the quality of the cred- neutralized by simply buying carbon offsets. its offered was questionable and the markup (Nor would it even be possible to produce was high, so it decided to purchase the cred- and offer for sale enough credits to attempt its from the CDM instead.47 that feat.) Improving energy efficiency and Reliable emissions calculators and rep- decreasing consumption are key first steps to utable certification and verification schemes decreasing carbon emissions. will help ensure that carbon credit purchasers With the energy sources currently used to are getting what they paid for. These tools are generate electricity, the building standards crucial to the continued success of this nascent that dictate construction of houses and market. Several protocols help project man- offices, and the industrial regulations that agers ensure that they are correctly calculat- influence how appliances and clothes are ing the environmental benefits they market. manufactured, it is clear that government Perhaps best known is the WBCSD/World rules and regulations have great power over Resources Institute GHG Protocol, which the emissions associated with everyday lives. standardizes accounting methods. The Inter-

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national Organization for Standardization ing Association, the Climate Group, WBCSD, has also released a useful methodology (ISO and the World Economic Forum—contin- 14064) with four components: organization ued work on the Voluntary Carbon Standard reporting, project reporting, validation and Framework, a global standard for project- verification, and accreditation of validation or based emissions reductions. The goal of this verification bodies. But there is concern that standard is to ensure uniformity, additional- these tools do not sufficiently address the ity, and registration in an extremely varied vol- key issue of additionality.48 untary offsets market.51 While lack of certification and oversight While the inner workings of the global continues to be a problem in some sectors of carbon market are being refined, it is impor- the carbon market, a new problem is emerg- tant not to lose sight of the larger picture: ing: there may be too many competing cer- how to best integrate emissions trading into tification and registration schemes. Ecosystem the architecture of future international climate Marketplace counted at least 15 major certi- governance. It is widely agreed that the cur- fication programs and standards available for rent Kyoto target is not stringent enough to the U.S. voluntary carbon offset market meet the overall goal of the 1992 climate alone.49 change treaty—preventing dangerous levels of Several certification systems stand out in human interference with the climate system. the crowd, however: The Gold Standard Kyoto was always intended as simply a first developed by WWF is one of the most step. The initial phase of Kyoto emissions focused certification schemes. Endorsed by targets comes to an end in 2012, and gov- more than 40 organizations, it certifies only ernments will soon begin formal negotia- renewable energy and energy efficiency pro- tions over what should come next. A jects, excluding any forestry or land use pro- post-2012 target is needed, among other rea- jects. It was originally developed to spotlight sons, to provide a clear signal to the market. exceptional CDM projects when there was As British economist Nicholas Stern explains: widespread skepticism regarding the CDM “Creating an expectation that a policy is very governing body’s ability to screen projects likely to be sustained over a long period is crit- adequately. The Gold Standard has created ical to its effectiveness.” Belief in the future a registry for emissions reductions traded on viability of an effective global carbon market, the voluntary market to ensure that the same underpinned by strong emissions reduction credits are not sold multiple times. At the targets, is key to behavior change.52 same time, an increasing number of certifi- Countries already bound by the Kyoto cation and standard programs are focusing Protocol have recently recognized that global not only on the quantifiable environmental emissions must be reduced 25–40 percent aspects of offset projects but on larger social below their 1990 levels to avoid catastrophic and biodiversity characteristics as well. The levels of climate change. But this goal has not Climate, Community and Biodiversity Stan- been agreed to by countries that are not party dards and Social Carbon are two examples of to the Kyoto agreement—notably the United this approach.50 States, which is alone responsible for some 20 Other initiatives target one specific seg- percent of global carbon dioxide emissions ment of the market, such as voluntary offsets. from fossil fuel burning. In upcoming nego- In 2007 a consortium of organizations— tiations, governments will consider strength- including the International Emissions Trad- ening the reduction targets included in the

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STATE OF THE WORLD 2008 Improving Carbon Markets SPECIAL SECTION: PAYING FOR NATURE’S SERVICES protocol in the post-2012 period. They will developing in North America, the Clean also likely discuss the possibility of adding Development Mechanism, and the many vol- targets for developing countries, where emis- untary offset programs now available.55 sions are growing rapidly but from a small per Whatever the future may hold for inter- capita base.53 national carbon markets, they are properly The future of the CDM is linked closely to viewed as only one of many strategies that will these discussions of post-Kyoto targets. There be needed to help reverse the powerful forces is widespread agreement that the current fueling steadily rising greenhouse gas emis- design, while an interesting experiment, is sions. A range of other tools will also be not putting a meaningful dent in the rapid important, including carbon taxes and policy increase in greenhouse gas emissions in many reforms to reduce carbon emissions in key sec- developing countries. One way to restruc- tors such as buildings, transportation, and ture the CDM would be to allow developing forestry. (See Chapter 6.) Individual actions countries to obtain credits for implementing to reduce carbon emissions are also essential— broad-based policy reforms rather than piece- from shortening trips to using public trans- meal projects. As a move in this direction, the portation whenever possible, purchasing local CDM Executive Board recently approved goods, improving energy efficiency at home new procedures for a “programmatic CDM,” and in the office, and lobbying for more in which countries can initiate a number of effective government emissions reduction small projects under one larger program. It is policies.56 hoped that this will result in greater emissions Although far from a magic bullet, carbon reductions and will make the investment more markets will be a significant feature of the commercially attractive by reducing high global economic landscape in the years and transaction costs.54 decades ahead. One of their most important Some critics ask whether limits should be benefits is political: they are creating power- placed on countries’ ability to purchase CDM ful economic constituencies that favor stricter credits to meet domestic reduction targets, international action to stabilize Earth’s cli- particularly while developing countries are mate. This development stands poised to fun- not subject to binding emission limitations. damentally alter the political calculus Another remaining issue is whether a global surrounding climate change negotiations in emissions trading system will eventually be the years ahead—perhaps finally breaking the created, building on and linking today’s ongo- logjam that has so far stalled global efforts to ing experiments with instruments as diverse reduce greenhouse gas emissions.57 as the EU-ETS, the regional trading blocs

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CHAPTER 8

Water in a Sustainable Economy Ger Bergkamp and Claudia W. Sadoff

Water is as essential to economies as it is to Kampala, Uganda, are worth $363 per human life. Clean drinking water is needed for hectare of swamp area per year. the health of productive populations, but • Wetland products in the Zambezi basin in only 10 percent of global water use is actu- Southern Africa—including crops, live- ally for household consumption. Agricultural stock, fish, and tourism—are valued at an water is needed to produce food and fiber. average $48 per hectare. Water is a direct input in virtually all indus- • The net market value of downstream flood trial production processes, and it is needed to protection given by avoiding upstream produce hydropower and to cool thermal deforestation through the establishment power plants, which together account for the of the Mantadia National Park in Mada- vast majority of world energy supplies. In gascar is estimated at $12.67 per hectare lakes and rivers it is used for transportation, per year.1 fisheries, and recreation. Recognition of water’s full range of values Water is also essential, however, to sustain comes at a time when societies are confronted the ecosystems people live in and depend on. with mounting water shortages and the fact It must be recognized for its value as an envi- that clean and reliable water can no longer be ronmental resource that underpins economies taken for granted, even for those who can and societies. Consider the findings from a dis- afford it. Over the last century water usage parate set of recent economic analyses: increased sixfold, twice the rate of population • Wastewater treatment services provided by growth. Fifty years ago people did not per- the Nakivubo Swamp to the citizens of ceive water as a globally scarce resource. But

Dr. Ger Bergkamp is head of the Water Programme at IUCN–The World Conservation Union. Claudia W. Sadoff is Economic Adviser at IUCN and Principal Economist at the International Water Management Institute.

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STATE OF THE WORLD 2008 Water in a Sustainable Economy SPECIAL SECTION: PAYING FOR NATURE’S SERVICES today competition for clean water is becom- flows are withdrawn for agriculture, industry, ing the norm in many regions. Experts esti- or domestic purposes. (See Figure 8–1.) In mate that by 2025 over three quarters of the this sense, dry areas may not be water-scarce people in the world will face some degree of if there is adequate water to meet all water scarcity. Already 2.8 billion people—40 demands, while wetter areas may be effec- percent of the global population—live in tively water-scarce. Economic water scarcity basins with some level of water scarcity. Nearly occurs when human, institutional, infra- half of the world’s river systems are degraded structural, or financial limitations prevent to some degree, and the flows in some rivers people from gaining access to water even no longer reach the ocean.2 though there is enough available locally in In some locations and economies water nature to meet human demands. The exis- scarcity is a matter of physical shortage; in tence of water resources and the management others, it is an issue of economic or sociopo- and delivery of water services are dual but dis- litical access. Physical water scarcity can be tinct constraints.3 defined as a situation in which water use is Shortages in water stem from growing approaching or exceeding sustainable lim- economies, rising populations, and chang- its—that is, where more than 75 percent of ing lifestyles. The result: ever increasing

Figure 8–1. Physical and Economic Water Scarcity

Little or no scarcity: <25 percent of river flows withdrawn for human uses Physical scarcity: >75 percent of river flows withdrawn for agriculture, industry, domestic purposes Approaching physical scarcity: >60 percent of river flows withdrawn Economic scarcity: <25 percent of river flows withdrawn, but human, institutional, and financial capital limit access to water Not Estimated Source: IWMI

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Water in a Sustainable Economy demand and competition for water. News- Water in Today’s Economy papers are filled with warnings of a “global water crisis” and impending “water wars.” More than 70 percent of the world’s water is Although these headlines may be hyperbole, used for food and fiber production in agri- there is simply no question that the way water culture (see Table 8–1), a source of liveli- resources are managed today is unsustain- hood for some 80 percent of the world’s able. The resource is vulnerable to overex- poor. Industry consumes an additional 20 ploitation and pollution and increasingly percent, and less than 10 percent of global scarce relative to current and future demands. freshwater abstraction is used for drinking Uncertainties associated with climate change water and sanitation. Water used to sustain are adding to communities’ vulnerability to ecosystem services is left out of these global an unreliable and scarce water resource. calculations, as are navigational, recreational, Growing demands and rising competition and other direct and indirect uses that do over water mean that choices must be made— not involve monitorable withdrawals of water choices over allocating water for different from rivers, lakes, or groundwater reserves.4 purposes. Drinking water and sanitation, food As the primary user of water, agriculture is and fiber production, hydropower genera- at the heart of the water management chal- tion and industrial production, river trans- lenge. While the average person requires two portation and the maintenance of ecosystems to five liters of water a day for drinking, aver- and their services: all these need water. age daily food intakes embody some 3,000 Choices must also be made in the ways water liters of water. Diets in wealthier countries is used—whether it is wasted or conserved, involve even higher water usage. A single polluted or protected, overextracted or man- hamburger requires over 10,000 liters of aged sustainably, valued for all its uses or water, taking into account what is used to pro- simply exploited for a few. duce corn to feed the cows. The Interna- The increased recognition of the value of tional Water Management Institute recently water for economies and the impending water completed a five-year comprehensive assess- shortages present, surprisingly, an opportunity ment of water management in agriculture to to move toward a more sustainable global determine whether there will be sufficient economy. As economies are closely linked to water to grow enough food in 2050. It found the way water is used, managing water wisely that this will only be possible with real changes becomes an economic imperative rather than to the way in which the world produces food a luxury available only to those who can and manages the environment.5 afford it. Moving in this direction, however, requires significant changes in the way water is viewed Table 8–1.Water Use by Sector and managed. The practical steps Domestic and needed include more inclusive and Region Agriculture Industry Residential transparent decisionmaking, (percent) investments in new technologies Developing countries 81 11 8 to enhance water use efficiency Industrial countries 46 41 13 and water productivity, and a care- World 70 20 10 ful alignment of economic signals Source: See endnote 4. and incentives.

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A number of global trends related to agri- uted to unsafe water, sanitation, and hygiene cultural production are set to have profound practices—all, in theory, preventable.8 effects on the global water balance. Growing In September 2000 the global community populations and changing diets are the pri- agreed to a set of Millennium Development mary drivers, likely tempered to some degree Goals (MDGs) that includes reducing by half by gains in land and water productivity. Trade the proportion of people in the world living in food and fiber products could either ease without access to water and sanitation by or aggravate water scarcity. A surge in biofuel 2015—at an estimated cost of some $30 bil- production may help mitigate climate change, lion a year. At this time it appears that this tar- but it will certainly consume great volumes of get can be achieved, although not uniformly water. In many places, agricultural water con- in all countries. But the MDG goal for drink- straints are beginning to pinch, while in growing water is not an end point. World popu- ing economies the competition for water lation—today over 6.5 billion people—is from industries and municipalities is rising.6 expected to reach around 9 billion by 2050. Clean, potable water will need to be provided to all. Moreover, the challenge of ensuring As agriculture, industry, and households sustainable access will remain long after the vie for ever larger shares of water, MDG investment targets are (or are not) ecosystems risk being the greatest losers. met. In industrial countries, for example, it is estimated that $200 billion a year is needed Water use for energy production, industry, just to replace aging water supply and sani- and services is the next largest user of water tation systems, reduce leakage rates, and pro- globally and the most rapidly growing one. tect water quality.9 Typically, developing economies tend to be As agriculture, industry, and households vie highly dependent on agriculture, with the for ever larger shares of water, ecosystems relative share of industrial production rising risk being the greatest losers. To continue to as the economy grows. Water use patterns provide a range of provisioning, regulating, mirror these trends: industries in industrial and cultural services, ecosystems need clean economies withdraw twice the global average water. This demand, however, is often not (over 40 percent), while those in developing taken into account when water is abstracted countries account for roughly 10 percent of from aquifers or rivers are used as sewers. To national water usage.7 maintain downstream ecosystems and their While drinking water and sanitation claim services, societies need to keep (semi-) natural a relatively modest share of the global water river flows and leave water of sufficient qual- resource, access to safe drinking water is rec- ity in the river. This is referred to as the “envi- ognized as an urgent global priority. The ronmental flow.” Maintaining or restoring challenge of providing these services, how- environmental flows forms a real challenge ever, is daunting. Worldwide, more than 1.1 when economic growth and development billion people currently lack access to intensify the competition for increasingly improved water supplies, and over 2.7 billion scarce water resources.10 lack sanitation. These people are, of course, It is clear that some level of tradeoff needs the very poor. Two thirds of those without to be made between economic development access to water earn less than $2 a day. In and water for ecosystems. Increasingly, how- 2000, at least 1.7 million deaths were attrib- ever, efforts to enhance economies and the

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Water in a Sustainable Economy environment go hand in hand. People are ary basin management initiatives are increas- now defining dual benefits from keeping ingly being seen, with many positive results.12 rivers alive and investing in economic sec- Trade in goods that embody significant tors toward greater water use efficiency. Cit- amounts of water can also transcend this izens are calling for action to protect water, resource’s local nature. Rather than moving air, and forests. Consumers are demanding water itself from scarce to plentiful regions, “greener” businesses practices, which creates “virtual water” can be traded by exporting direct economic returns for sustainable man- water-intensive goods from wet to dry agement of natural resources and ecosystems. regions. In these ways, while water is managed Growing recognition of the value of ecosys- locally, it can have impacts on (and be affected tems and their services for economies is often by) water management and economic policies behind these changes. at many scales.13 Managing water across scales. Water short- Water management and equity. Water ages are most clearly seen at local levels, but policies and investments can have important managing water is a challenge at all scales. equity impacts through the opportunities Because water is bulky and expensive to store and risks they create for different groups and and move, it is generally managed and allo- individuals within an economy. The avail- cated at a fairly local level. Integrated water ability of and access to reliable water of good resources management—a process promoting quality in a particular region will help spur the coordinated development and manage- that region’s growth, whereas absence of ment of water, land, and related resources— water or lack of access to it can reduce eco- focuses on the basin level and tries to reconcile nomic opportunities and investments. Pro- various water users and demands to arrive at viding access to water of good quality at an a sustainable system. Working at basin level is affordable price creates incentives and oppor- often difficult, however, because political and tunities for different sorts of economic activ- administrative boundaries rarely correspond ities in different places. Not doing so with hydrological ones.11 effectively forecloses opportunities or makes At the national level, reservoirs and them unprofitable. Thus the mix and char- pipelines are built that store and transport acter of economic activities undertaken in a water to where it is needed, potentially region—the structure of the regional econ- enabling water management on a country- omy, in other words—is influenced by water wide scale. Most countries aspire to inte- policies and infrastructure investments, grated water resources management at the whether intentionally or incidentally. national level, but this requires significant Great wealth has been built in many coun- coordination across a range of institutions tries where early settlers and entrepreneurs and stakeholders. obtained valuable water rights or passed the At the international level, integrated cost of pollution and natural resource degra- approaches are being proposed in trans- dation on to others or to future generations. boundary river basins. Transboundary rivers In other countries, millions of people remain join countries, so uses in one country are in poverty due in part to the burden of water- likely to have direct impacts on others. There borne diseases and a lack of reliable water are more than 260 such rivers in the world, for agriculture or other forms of economic posing potential conflicts over water but also development. real potential for cooperation. Transbound- The Human Development Report 2006

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STATE OF THE WORLD 2008 Water in a Sustainable Economy SPECIAL SECTION: PAYING FOR NATURE’S SERVICES prepared by the U.N. Development Pro- dering it. gramme highlighted the fact that the water Furthermore, the costs of degradation of crisis is a challenge of poverty, inequality, and water resources and related ecosystem services unequal power relationships as much as it is are not accounted for in national income about physical water scarcity. The issues of accounts. Whereas investment in manufac- equity and power, in addition to the strong tured capital, such as a water treatment plant spiritual and cultural associations that societies or a dam, is reflected as an increase in a coun- have with this vital resource, give rise to an try’s wealth, investments in “natural assets” extremely complex and often emotive polit- such as wetlands, watersheds, or groundwa- ical economy around water.14 ter aquifers are not included at all, even if they serve equivalent functions as produced cap- Valuing Water ital. (See Box 8–1.) In fact, quite the opposite tends to be true: the inflated income for Sustainability derived by overexploitation or degradation of The value of water as a resource that under- natural assets is reflected as (apparently) strong pins economic activities is evident in all growth. At the macroeconomic level, there- economies, but it is much less evident in eco- fore, decisionmakers are receiving perverse nomic statistics. Its value and that of related signals regarding the impacts—and, in par- ecosystem services are poorly understood and ticular, the sustainability—of their develop- rarely explicitly factored into tradeoffs and ment strategies. decisionmaking. Prices virtually never reflect Since the 1970s, many people have water’s full value, so water users do not see its worked to reintroduce the value of the envi- full value or the need for conservation. These ronment and natural resources into eco- flawed “market signals” guide everyday economics and thereby promote more nomic decisions. If they do not recognize sustainable economic decisionmaking. (See the value of water, then—broadly speaking— Chapter 2.) These perspectives are grounded neither will the economy. in the recognition that natural resources, The value of water is also obscured in while once abundant, are now clearly a con- measures of macroeconomic performance straint in some circumstances. Again, water such as the gross domestic product (GDP). provides an excellent demonstration. The In the System of National Accounts, from use of deep groundwater was once con- which the GDP is calculated, water for constrained by the technology and capital needed sumption or as an input into production is for pumps and fuel. Groundwater abstrac- universally undervalued by using the price tions since the 1950s, with the advent of actually paid for its use. Unlike other inputs motorized drilling rigs and pumps, have that are sold in competitive markets, this increased from 100–150 cubic kilometers price is generally far less than water’s real per year to 950–1,000 cubic kilometers. economic value and often even less than the Today groundwater is significantly overex- cost of supplying it. Under these circum- ploited in many countries. As a consequence, stances, neither producers (who receive price water tables fall, wells run dry and no longer signals that do not value water) nor policy- provide water for human and agricultural makers (who receive economic analyses that needs, and fragile ecosystems such as wetlands do not value water) can know whether they are degraded. The constraint is no longer are using water beneficially or simply squan- capital or labor, but the resource itself.15

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Box 8–1.Water as Capital

Fifty years ago sustainability was simply not a on well-being and economic growth. part of the vocabulary, and water was not a par- The focus on produced rather than natural ticular consideration for economists. Classical capital is particularly stark when it comes to economists recognized land (meaning all natural water. Prices are typically related to the capital resources), labor, and produced capital as the outlays required to deliver water (that is, the basic sources of wealth. Neoclassical economists infrastructure and the operations and mainten- focused only on labor and capital, with “land” ance charges) without any component of value treated as just another interchangeable form of attributed to the resource itself. Not only does capital. The general view was that natural an undervalued water resource tend to be resources were abundant relative to demand and overused, it also induces distorted prices that therefore not an important focus for the econo- provide poor information about whether invest- mist, whose task it was to allocate scarce ments make sense. It provides no insight into resources—those whose use constrained alter- whether economic activities are actually creating native economic opportunities. There was little value or whether the resource is running out and appreciation of the fact that the environment is needs to be conserved. It must be said, though, used not only as a “source” of valuable inputs but that water delivery is highly capital-intensive, and also as a “sink” for the waste and pollution of the produced capital will therefore remain a crucial economy. Neither was there much thought about focus for ﬁnancial and economic analyses of the possibility that the world might reach a scale water investments. The point to recognize is that of resource exploitation at which the capacity of the value of water resources also matters, and both the “source” and “sink” functions of the that water’s availability, quality, and timing cannot environment could become a binding constraint simply be “assumed.”

Total economic value (TEV) has become milestone in the area of sustainable resource a recognized means of capturing both the management. (See Box 8–3.)17 market values (those that can be observed Principle 4, on water’s economic value, through market trades) and the nonmarket unleashed a spirited debate. Many people values of natural resources. (See Box 8–2.)16 held the view that water was a “gift of nature” While efforts are being made to ensure or a “basic human right” and that it should that the value of water is better incorporated therefore be provided free of charge. “Water into economic decisionmaking, similar efforts as an economic good” was seen as a denial of are being made to ensure that the economic water as a social or environmental good and value of the resource is recognized in water an effort to “capture” and “commodify” the management decisions. In January 1992, in world’s water. Yet Principle 4 was not advance of the U.N. Conference on Envi- intended as anything quite that radical and ronment and Development in Rio, the Inter- was not meant to deny the environmental or national Conference on Water and the social aspects of water—these features were in Environment was held in Dublin, Ireland. fact underscored in the very ﬁrst principle. Some 500 participants—government experts Nor was it intended to call into question and representatives from nongovernmental whether access to water for basic human groups around the world—endorsed the needs would remain a priority relative to Dublin Principles, which distilled global good other economic uses. There was, and still is, practice in water management and were a a strong global consensus that this is the case.

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Box 8–2.Total Economic Value

Total economic value has become a widely used value in the future because of innovations in framework for looking at the value of eco- management or new information. systems.TEV is typically disaggregated into two Non-use values, on the other hand, derive categories, use values and non-use values. from the benefits that ecosystems may provide Use value has three elements: that do not involve using them in any way, Direct use value, which is mainly derived from whether directly or indirectly: goods that can be extracted, consumed, or enjoyed Bequest value is the value derived from the des- directly. Examples include drinking water, fish, and ire to pass on ecosystems to future generations. hydropower, as well as recreation activities. Existence value is the value people derive from Indirect use value, which is mainly derived knowing that something exists even if they never from the services that the environment provides, plan to use it. Thus people place value on the including regulation of river flows, flood control, existence of blue whales or pandas even if they and water purification. have never seen one and probably never will, as Option value, which is the value attached to demonstrated by the sense of loss people would maintaining the possibility of obtaining benefits feel if these animals ever became extinct. from ecosystem goods and services at a later date, including from services that appear to have Source: See endnote 16. a low value now but could have a much higher

To t al Economic Value

Use Value Non-Use Value

Direct Use Value Indirect Use Value Option Val ue Bequest Val ue Existence Val ue (resources (resources (our future (future generation (right of used directly) used indirectly) possible use) possible use) existence) •Provisioning •Regulating •All services •All services •Supporting services services (ex. flood (including (including services (ex. water, fish) prevention, water supporting supporting (ex. panda, blue •Cultural and purification) services) services) whale, wild eagle) amenity services (ex. recreation)

Principle 4 was included to highlight the ciently and equitably, and of delivering water importance of recognizing the full range of services (including sanitation and wastewater economic values that can be derived from treatment) cost-effectively. water, of allocating all water resources efﬁ- Recognizing water as an economic good

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Box 8–3.The Dublin Principles

Fresh water is a finite and vulnerable environment has seldom been reflected in insti- resource, essential to sustain life, develop- tutional arrangements for the development and ment and the environment. Since water sus- management of water resources. Acceptance and tains life, effective management of water implementation of this principle requires positive resources demands a holistic approach, linking policies to address women’s specific needs and social and economic development with protec- to equip and empower women to participate at tion of natural ecosystems. Effective management all levels in water resources programmes, includ- links land and water uses across the whole of a ing decision-making and implementation, in ways catchment area or groundwater aquifer. defined by them. Water development and management Water has an economic value in all its should be based on a participatory competing uses and should be recognized approach, involving users, planners and as an economic good. Within this principle, it policy-makers at all levels. The participatory is vital to recognize first the basic right of all approach involves raising awareness of the human beings to have access to clean water and importance of water among policy-makers and sanitation at an affordable price. Past failure to the general public. It means that decisions are recognize the economic value of water has led to taken at the lowest appropriate level, with full pub- wasteful and environmentally damaging uses of lic consultation and involvement of users in the the resource. Managing water as an economic planning and implementation of water projects. good is an important way of achieving efficient Women play a central part in the provi- and equitable use, and of encouraging conserva- sion, management and safeguarding of tion and protection of water resources. water. This pivotal role of women as providers and users of water and guardians of the living Source: See endnote 17. brought the value of water itself to the fore- conservation is increasingly seen as one of ground. When water was abundant relative to the options to “fulfill” future water demands. demand, the challenge of water management Can people do more, or better, with the was to raise the capital and find the skilled water already in use? Is it really necessary to engineers to deliver the service. Where there tap “untapped” resources, and for what pur- was a demand for water, engineers created pose? What will these additional abstractions supply by developing new sources and design- cost, and how will they affect ecosystems and ing delivery systems. The resource was not current water users? Do benefits justify eco- perceived as a constraint. Economists were nomic, environmental, and social costs? These involved in water resources development only questions, in turn, prompt innovations in the to the extent that they could assist in defin- way water is managed. ing a least-cost approach to delivering new water supplies. Innovations That Turn the Tide Highlighting water’s economic value in other uses, including ecosystem uses, helped Fortunately, given the pressures on water shift the paradigm of water management from supplies and quality described earlier, inno- a supply-side focus on an unlimited resource vations are constantly being made in the ways to one that also includes demand manage- water is used and managed. Innovations occur ment of a limited resource. Today, calls for in the way water is stored and distributed, new water supplies are questioned and water allocated and priced, and used and reused

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STATE OF THE WORLD 2008 Water in a Sustainable Economy SPECIAL SECTION: PAYING FOR NATURE’S SERVICES for productive and ecosystems purposes. Mas- throughs continue in desalination, where sive investments are being made in new water advances in technologies and energy effi- storage and delivery systems, while estab- ciency have brought costs down dramati- lished water systems and management prac- cally in the past decade so that desalination tices are being reassessed in light of climate is now an economic option for water supplies change predictions. New technologies are in the coastal cities of industrial countries. changing the ways in which water is used, Singapore, a recognized leader in urban water cleaned, and reused to meet human, eco- management, has diversified its water sources nomic, and environmental needs. Serious by leveraging innovations in water reuse, efforts are also being made in the “software” desalination, stormwater management, mul- of water management, to make better use of tipurpose water storage, and high-quality currently available water, to safeguard the recycled water. Singapore has also pursued quality and integrity of water resources, and demand management measures, such as to clarify goals and risks by involving stake- reducing water losses due to leakage in pipes holders in design and decisionmaking. and restructuring its water pricing and access Innovations in technology. Technological policy to encourage more-efficient water use innovations already offer many ways of man- while ensuring low-cost water for poor aging water more efficiently, productively, households.19 and sustainably. Industries are investing in Managers are increasingly looking at invest- new technologies and processes that dimin- ments in and management of “natural water ish water use and wastewater discharges. infrastructure” such as watersheds, wetlands, Household consumers are being offered lakes, and floodplains to be used as comple- water-saving technologies such as low-flush ments or even substitutes for infrastructure like toilets, low-flow showers, and faucet aera- dams, weirs, and wastewater treatment tors to diminish demand. Agricultural pro- plants—all while providing biodiversity, aes- ductivity is being leveraged by drip irrigation thetic, and recreational benefits that are all and other targeted water delivery technolo- increasingly valued. In Costa Rica, for exam- gies and by soil fertility and conservation ple, the water utility of the Heredia region pays techniques. Moreover, the adoption of estab- landholders to protect forest on the hill slopes lished agronomic good practices could lead to from which they derive their water, which real gains in water productivity in many coun- has proved to be very beneficial for both tries. In rainfed agriculture, which accounts landowners and municipal water customers. In for some 80 percent of global cropland and the United States, the government is consid- the livelihoods of most of the world’s poor, ering converting strategic tracts of the coastal adoption of already proven technologies could areas that were battered by Hurricane Katrina at least double current crop yields. Innova- into public wetlands, to help mitigate the tions in agriculture are particularly benefi- impacts of future hurricanes.20 cial because agriculture is such a large Innovations in management. Water man- consumer of water that a relatively small per- agement practices are evolving. Integrated centage decline here could allow a relatively water resources management is now a uni- large percentage increase in other uses.18 versal aspiration—albeit one that is quite chal- Water supplies are being enhanced in lenging to implement. River basin many countries using innovative wastewater organizations are being established to man- treatment and reuse techniques. Break- age water holistically at the basin level, some

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Water in a Sustainable Economy using highly sophisticated computer models enhance their efficiency. Nestlé, a founder of to grapple with the complexity of their river the SAI, has recently begun targeted trainings systems. Stakeholder consultations are con- in water management for farmers who supply sidered routine good practice these days in the company with its primary commodities.23 order to better understand the social and Innovations in market-based tools. Mar- livelihood impacts of water management deci- ket signals and incentives, which have often sions, although structuring these consultations led to overexploitation and degradation of to have meaningful impact is a continuing water resources, can and are increasingly challenge. Environmental flows is an innov- being used to enhance the sustainability of ative framework for ensuring that adequate in- water management. One way this can be stream water is allocated to sustain the health done more effectively is through water prices of river systems, with much work ongoing as and wastewater fees. These can signal the to how to establish and institutionalize envi- true value of water to every user, so that peo- ronmental flow regimes.21 ple are aware of—and bear—the full costs The range of current innovations include they incur when using or degrading water. finding better options for water manage- Prices set to reflect the full costs of sustain- ment and also better ways of making choices able water management should also, by def- among those options. The importance of inition, generate sufficient revenues to better decisionmaking in water management accomplish this. was highlighted in 2000 in the report of the World Commission on Dams. Built on Integrated water resources management an awareness of the range of interrelated interests and impacts of water management, is now a universal aspiration—albeit one multistakeholder consultations are increas- that is quite challenging to implement. ingly being used to strengthen policy design and implementation. This apparently obvious Water managers are beginning to con- innovation—to consult the people who will struct better-targeted pricing schemes based be affected—has proved essential in enhanc- on a range of tariff structures, on survey ing sustainability.22 techniques to determine consumers’ will- The private sector is also innovating. Moti- ingness and ability to pay for services, and on vated both by consumer demand for more sophisticated monitoring and infor- “greener” products and the recognition that mation systems. Prices can be structured to sustainable strategies can be extremely cost- meet multiple objectives: allocate water effective, many corporations now find that resources efficiently; ensure financial viabil- sustainability makes good business sense. ity so that reliable service can be delivered; Increasingly, progressive companies are work- provide affordable access to clean water for ing with community and stakeholder groups drinking, cooking, and washing require- to create water management partnerships. ments; and encourage water conservation. The Sustainable Agriculture Initiative (SAI) is Wastewater fees are being targeted to ensure an example of a major food industry effort: water quality and to encourage industries some 30 partners are actively supporting the to minimize overall volumes of water use. development and implementation of sustain- Water pricing, however, tends to be a con- able agricultural practices to safeguard the troversial topic. (See Box 8–4.)24 future availability of natural resources and Water pricing, however, is not a panacea.

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infeasible to recover water fees at all. Fortu- Box 8–4. Water Pricing nately, there are numerous market-based and Water Prices tools, as well as legal, regulatory, and partic- Economic water pricing does not necessarily ipatory ones, that can aid the sustainable require charging the very poorest users the management of water. In all cases, good gov- full cost of water. There are likely to be cases ernance and consumer and environmental where targeted subsidies will be needed to protection will be crucial for the sustainable meet the basic water needs of the poor. But it management of water. is essential to understand the actual level of Water markets, tradable water rights, and subsidy embodied in water prices—that is, the difference between the price paid by the water quality credits are increasingly being consumer and the true value of the water and used to enhance the efﬁciency of water use its associated delivery costs—and to make and allocation within and across sectors. Water transparent policy decisions based on those markets are arrangements in which users are full costs. It is also absolutely essential to granted water rights—sometimes rights of understand who receives those subsidies. ownership but more often time-bound use Governments have traditionally subsidized all water use rather than just targeting poorer rights (called usufruct rights)—which they people.When this happens, those who use can sell or trade. In a functioning market, the most water receive most of the subsidy. water can thus be “moved” to higher value So a poor family who uses, say, 50–100 liters uses in a transparent transaction that both of water each a day for basic needs would increases the productivity of water and dimin- receive a subsidy on that volume of water. ishes tensions among competing users. Meanwhile, a wealthy family might consume 10 or 100 times that amount of water to Appropriate and capable institutions are nec- wash cars, water lawns, and ﬁll swimming essary to ensure transparency, enforcement, pools and would receive 10 or 100 times that and protections for vulnerable groups and amount of subsidy. By subsidizing (undervalu- ecosystems. ing) all water, all users are effectively encour- Efforts are being made to explicitly incor- aged to overuse it. Underpricing water also porate water into calculations of GDP, to means that utilities cannot recover their costs, which often leads to poor service and ensure that macroeconomic indicators pro- an inability to extend municipal systems and vide more rational guidance about the impact provide water to new users. of water use on economies. These efforts “Getting the prices right” does not mean are part of a broader movement toward envi- that water should be made unaffordable to ronmental accounting that began in the late the very poor, who consume just a very small 1980s and was consolidated in 2003 with the share of the water governments deliver. Rather, it means pricing the vast majority of water in System of Environmental and Economic a way that encourages productive use and Accounting. The United Nations recently conservation, and carefully structuring and developed a more detailed, specialized Sys- targeting pro-poor subsidies as the exception tem of Environmental-Economic Accounting rather than the rule in water pricing. for Water. There appears to be a good deal of interest in these accounts but little sys- Source: See endnote 24. tematic adoption to date, particularly in developing countries.25 In some countries cultural practices and beliefs The concept of “genuine savings” is hamper or even forbid the use of water pric- another innovation in conceptualizing macro- ing. In some cases it may be uneconomical or economic measures of sustainable wealth.

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(See also Chapter 2.) Rather than focusing on specific call to diminish barriers to water pro- economic production (like GDP), this vision and wastewater treatment services. approach looks at an economy’s creation or (See Chapter 14.) depletion of wealth—broadly defined. Gen- In the absence of effective national regu- uine savings takes net savings measures for an lation frameworks and enforcement, how- economy and subtracts the value of resource ever, global markets can aggravate water stress depletion and environmental degradation and ecosystem degradation by creating strong (and adds the value of investment in human incentives for individuals or corporations to capital) to arrive at a measure that more fully produce inappropriate products (such as reflects the changes in the real sources of water-intensive exports from water-scarce wealth of an economy. By this measure, many regions) using destructive practices (polluting countries are being progressively impover- or overabstracting water sources, for exam- ished by negative genuine savings patterns. ple), which can result in overexploitation of Using this to identify losses in wealth can resources, excessive pollution, and the degra- help direct policymakers toward a more sus- dation of ecosystem services on which the tainable development path, economically and poor and the environment rely. environmentally.26 Paying for ecosystem services is another Trade can also influence water manage- market-based tool that seeks to create incen- ment decisions, both positively and nega- tives for maintaining a water resource or pay- tively. Global trade in agricultural goods can ing for watershed services. (See Table 8–2.) diminish water stress and take pressure off These payment mechanisms are differenti- ecosystems if, for example, water-intensive ated by the degree of government interven- goods are exported from water-rich areas tion in administration of the schemes and and imported by water-poor regions, as noted the characteristics of the buyers and sellers. earlier. Recent studies suggest that such trade Four types of approaches are distinguished: in virtual water could reduce worldwide • private payment schemes; water use in agriculture by 6 percent. It must • cap-and-trade schemes, under a regulatory also be kept in mind, however, that packag- cap or floor; ing, storing, and transporting large volumes • certification schemes for environmental of goods also carries its own environmental goods; and footprint.27 • public payment schemes, including fiscal Health and safety standards, such as water mechanisms. quality standards imposed on traded agricul- In practice, many initiatives are a mix of these tural products, can be drivers for reform and approaches, adapted to local needs and con- investment in environmental protection. (On text. (See also Chapter 9.)28 the other hand, in some instances standards Private payment schemes have the lowest can effectively create trade barriers against level of government intervention. In these, poor countries.) Diminished barriers to trade private entities agree among themselves to in environment-enhancing or water-saving provide payments or rewards in return for technologies and services can help spread maintenance or restoration of a watershed state-of-the-art solutions. The World Trade service. The actual transaction mechanisms in Organization’s current Doha Round of nego- such schemes can take many forms; the most tiations includes the first multilateral negoti- popular ones are transfer payments, land pur- ations on trade and environment, with a chases, cost sharing, and the purchase of

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Table 8–2. Selected Examples of Payments for Watershed Services

Watershed Price Paid Activities Services Service Service (per hectare Location Compensated Provided Buyer Seller per year)

Murray Reforestation Salinity control Downstream Government $45 Darling Basin, Freshwater supply farmers’ and upstream Australia association landowners Sarapiqui Protecting, Hydropower Energia Global Private $48 watershed, sustainably Regulation of flows (hydropower upstream Costa Rica managing, and Sedimentation company) and landowners replanting forests control National Fund for Forest Financing (FONAFIFO) Costa Rica Protecting, Freshwater supply National Forest Private $45–116 sustainably Wildlife habitat Office and upstream managing, and Cultural heritage FONAFIFO landowners replanting forests and identity United Soil conservation Soil protection U.S. Department Farmers $125 States Sedimentation of Agriculture control Water quality control Regulation of flow State of Watershed Freshwater supply State of Paraná Municipalities $170 Paraná, restoration Wildlife habitat and private Brazil landowners Rhine-Meuse Reduced-input Water quality Perrier Vittel Upstream $230 Basin, France farm control (private bottler farmers management Freshwater supply of mineral water)

Source: See endnote 28. development rights to land. with the aim of safeguarding the watershed With transfer payments, a service seller services provided there. Strictly speaking, receives money from a service buyer in return this is a mechanism for payment for water- for the protection or restoration of a watershed services only if the land is purchased and shed service. For example, a hydroelectric then leased back to the former owner under power company experiencing increasingly a contract stipulating how the land can be irregular water flows might decide to pay used or managed. landowners upstream to change their man- In the third type of private payment agement practices. Here the company assumes scheme, beneficiaries of watershed services that a different management practice will can agree among themselves to share the improve water supply. costs that must be met by service sellers In a land purchase, a private party may upstream to maintain or restore watershed decide to buy land from another private party services. For example, if conversion of nat-

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ural vegetation upstream is affecting water late river flows. Mechanisms for payment in quality, downstream landowners can agree these schemes include user fees, land pur- to share the costs of compensating or chase, and land easement, which are rights to rewarding upstream landowners for main- the specific use of land owned by others. taining or establishing preferred land uses in Environmental taxes are fiscal mechanisms certain areas. that can be used to ensure that some or all of In cap-and-trade schemes, a cap is estab- the external costs of land use are internalized lished for, say, the release of pollutants or in the decisionmaking process. They create abstraction of groundwater. In the case of pol- direct price signals for producers and con- lution, the cap is the aggregate maximum sumers. Taxes can be used as a positive incen- amount of pollution that can be released by tive when people are exempted from paying participating entities. (See also Chapter 7.) them. Taxes can also be used negatively—to Tradable pollution permits or credits are then discourage consumption or activities that are allocated by dividing up the allowable over- detrimental to the environment. all total among polluters. Industries or companies can sell permits they do not need to Aligning Economic and other participants who need more than they were allocated. This rewards companies able Water Policies to cut their pollutant discharge and penalizes Water management and economic manage- those who pollute more heavily, creating an ment is a two-way street. Water manage- incentive for them to invest in pollution con- ment affects the performance and structure trol. Trading increases the economic effi- of economies—and economic policies have ciency of water and environmental an impact on the condition of water management by enabling companies or land- resources. The sustainability of economies holders to buy permits from those able to and water-related ecosystems could be comply in a cheaper way. strengthened by better aligning the two and Certification or eco-labeling schemes are by looking for more-efficient and more- a third payment mechanism for watershed equitable uses of water resources across var- goods and services. Transactions occur ious sectors and users. between private parties, but payment is On the one hand, water management embedded in the price paid for a traded prod- should be designed with due consideration for uct, such as certified timber, fish, or organic its economic implications. What sorts of eco- produce. Payments under this approach can nomic activities will be encouraged or dis- be made to suppliers as, for example, a fixed couraged? Are these prospective changes sum, a fixed sum per hectare, or a price pre- consistent with broader economic, environ- mium on products sold. mental, and social goals? Are they likely to Public payment schemes are the most com- enhance growth or sustainability? Who will mon form of payment scheme for environ- benefit and who will be harmed? How will mental services and have the highest level of this affect poor people and the broader dis- involvement by public agencies. Service buy- tribution of wealth? ers in these schemes are public authorities On the other hand, those making eco- such as municipalities or national govern- nomic policies should consider the implica- ments who are typically motivated by the tions for water management. Will sectoral need to provide safe drinking water or regu- and macroeconomic policies encourage more-

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STATE OF THE WORLD 2008 Water in a Sustainable Economy SPECIAL SECTION: PAYING FOR NATURE’S SERVICES efficient and sustainable water management the future, and the best available information or lead to waste, overexploitation, and degra- suggests that over the coming decades the dation of the water resource and aquatic world can make the changes necessary to ecosystem? Can policies be modified or com- feed the planet and sustain it at the same pensatory mechanisms put in place so that time. As described in this chapter, a range of economic incentives are aligned to promote innovations in technologies and management sustainable water management? practices are increasing the potential pro- In a sustainable economy, social, economic, ductivity of water in all its various uses. The and regulatory incentives need to be aligned supply of water available for people and the to promote: environment is also effectively being enhanced • water use patterns that are sustainable; through increasingly sophisticated manage- • water allocations that enhance current and ment and technologies. Ecosystem diagnos- future welfare; and tics and management techniques are • water investments, technologies, and prac- demonstrating cost-effective means for sus- tices that promote efficiency, water quality, taining and even strengthening ecosystem conservation, and ecosystem integrity. health.30 Today’s water use patterns are clearly not Broader consultations and more struc- sustainable. There is strong evidence that tured and transparent decisionmaking is help- under a business-as-usual scenario there will ing water managers to capture the range of not be enough water to produce the food water’s value and to avoid many of the envi- needed to feed the world in 2050. Current ronmental and social missteps of the past. practices are also depleting and degrading Increasing recognition of the need to sustain many ecosystems, raising serious concerns ecosystem services and the desire to conserve for the future of the natural environment the natural environment are also leading to a and the sustainability of ecosystem services. closer alignment of economic signals and Grappling with environmental and ecosys- incentives with sustainability. tem dynamics remains the main challenge Together these innovations, and those still for sustainable water resources management to come, can help ensure the sustainability of in industrial and developing countries alike.29 water management, ecosystems, and There is reason for both optimism and economies. The challenge is to change. activism. We are not on a straight-line path to

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CHAPTER 9

Banking on Biodiversity

Ricardo Bayon

Protecting the world’s biodiversity requires tinguish right from wrong, but also the more answers to a few not entirely rhetorical ques- mundane concept of economic values. tions: Assuming agreement of the need to In a way, the issue boils down to the fact protect Earth’s biological wealth, how much that the world is losing species and ecosystems would you be prepared to pay to protect an because the economic system has a blind endangered fly? Would you spend $1.50, spot. It sends signals that cutting down a $15, $150,000, or more? How about society rainforest to grow soybeans or palm oil plan- as a whole, how much should society spend tations makes more economic sense than on the protection of this fly? Does the answer leaving that forest intact. It says that building depend on the nature of the fly itself? On its a shopping mall to sell iPods is more valuable role in the ecosystem? Or is the calculus based than having a wetland that buffers coasts on something else—perhaps on what you against storms, filters water, and provides must give up to save the fly, or your standard nesting ground for birds. Is it, therefore, any of living, or your priorities? surprise that people take such signals seri- The questions may seem crass and mate- ously? rialistic—and in some ways they are—but Or, to put it another way, the fact that the they are essential if the world is to conserve U.S. suburban landscape appears to have the species and ecosystems that sustain more bowling alleys than wetlands is simply humankind. The reason is simple: like many a symptom of an economic system that has other important matters, the staggering loss its values—used here in the sense of its of biodiversity is really a matter of values—and prices—wrong. It is what economists call a not just the principles that allow people to dis- problem of externalities. Some values—like

Ricardo Bayon is Director of Ecosystem Marketplace, a leading source of information on market and payment schemes for ecosystem services.

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STATE OF THE WORLD 2008 Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE’S SERVICES that of a species of woodpecker or of a par- the right signals to the economy; they do ticular ecosystem such as a rainforest or a wet- not permit society, via markets, to deter- land—do not enter into the economic mine and understand the actual value (the system. They are external to it, and so they price) of biodiversity. are not taken into account when economic • Voluntary transactions set the price: Users decisions are made. of ecosystem services voluntarily agree on Indeed, for eons the price of nature has the value with those who provide the ser- been woefully close to zero. Supply out- vices. These “self-organized private deals” stripped demand, and priceless came to mean are sometimes mislabeled as “markets,” worthless. But that equation is changing. but true markets depend on multiple buy- Priceless nature is becoming increasingly ers and multiple sellers meeting regularly scarce (see Box 9–1) and therefore needs to to exchange goods and services. In con- be made valuable once again. Giving some trast, in most cases these are one-time- economic value to biodiversity would make only deals. They may also take the form of it easier to protect. At the very least, stand- “voluntary biodiversity offsets,” in which ing rainforests would not compare so unfa- an individual or company that damages vorably when considered against soybean biodiversity pays to “protect, enhance, or fields and palm oil plantations. Their value restore” an equivalent amount of biodi- would no longer be zero.1 versity somewhere else. It may sound strange, even counterintu- • A hybrid system sets the price: In this case itive, but the solution to the loss of biodiver- scarcity of a traditionally “public” good is sity may actually lie in the very same markets established through government regula- that appear to be causing the problem. It may tion, which then forces buyers and sellers to lie in creating payment schemes for biodiver- negotiate in order to set a price for the sity, mechanisms that give nature a value and good or service in question. Examples of that force the economy to look into its blind this include various “cap-and-trade” spots. Luckily, a good number of countries— schemes in the United States for sulfur from Australia and Brazil to the United dioxide and in Europe for greenhouse gases States—have been experimenting with such (see Chapter 7). These schemes create true schemes, sometimes for more than 20 years, markets because they generate demand for and there is much to be learned. services from multiple buyers and therefore Countries use a variety of mechanisms for lead to the provision of services from mul- giving value to ecosystems and the services tiple sellers. they provide. In essence, these can be sum- This chapter focuses mainly on the third of marized as follows: these mechanisms, regulatory cap-and-trade • Government sets the price: This is done either systems. While government payment schemes by fining those who damage the ecosystems and voluntary biodiversity offsets are (through endangered species laws, for extremely useful and are likely to account for instance) or by paying those who conserve the majority of global payment schemes for it (providing tax breaks or subsidies for biodiversity in the near future, they tell more conservation, for example). While these about where we are now than where we might systems are useful and play an important be in the future. The new and emerging reg- role in protecting biodiversity, they suffer ulated markets for biodiversity offsets hold the from a fundamental flaw: they do not send key to that future.

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Box 9–1.The Escalating Problem of Biodiversity Loss

The loss of biodiversity is tremendous and adequate data are available. disturbing, and it continues to grow at an expo- • Over half of the 14 biomes assessed have exper- nential rate (see Figure)—even though scientists ienced a 20–50 percent conversion to human use, for decades have been saying that species and with temperate and Mediterranean forests and ecosystems are important, that they provide temperate grasslands being the most affected. invaluable goods and services, that they keep • There are approximately 100 well-documented people fed and clothed and Earth habitable. extinctions of birds, mammals, and amphibians The Millennium Ecosystem Assessment, one over the last 100 years—a rate 100 times of the most comprehensive scientific assess- higher than background rates. ments of the world’s biodiversity ever under- • Some 12 percent of bird species, 23 percent of taken, came to this sobering conclusion:“Human mammals, and 25 percent of conifers are actions are fundamentally, and to a significant currently threatened with extinction. In extent irreversibly, changing the diversity of life addition, 32 percent of amphibians are threat- on Earth, and most of these changes represent a ened with extinction, but information is more loss of biodiversity.” The authors cited ample evi- limited and this may be an underestimate. dence to support their conclusion. For example: Sociobiologist E. O.Wilson attributes the loss • Virtually all of Earth’s ecosystems have now of biodiversity to five forces summarized in the been dramatically transformed through human acronym HIPPO—habitat loss, invasive species, actions. More land was converted to cropland pollution, population growth, and overexploita- in the 30 years after 1950 than in the 150 years tion of species for consumption (essentially over- between 1700 and 1850. consumption).While he is correct in singling out • Some 35 percent of mangroves have been each of these forces, they are in many ways inter- lost in the last two decades in countries where connected: the first three are byproducts of the last two.They are essen- 120 tially the result of human Source: MA numbers multiplied by human greed.And given that human population is

00) 100 expected to go from 6 bil- 1 Te r restrial species = lion in 2000 to 9 billion in 0 2050 and that per capita 97 1 ( Marine species consumption of every- x 80 de thing from water and All vertebrate species energy to oil and food (Living Planet Index) is growing at practically exponential rates, the The Living Planet Index is an indicator 60 pressures on biodiversity

Population In of the state of the world’s biodiversity: it measures trends in populations of Freshwater are likely to become vertebrate species living in terrestrial, species unbearably intense. freshwater, and marine ecosystems. 40 1970 1975 1980 1985 1990 1995 2000 Source: See endnote 1.

The Fly in the Ointment tled in the sand dunes east of Los Angeles— Colton, California—that provides some idea Before delving too deeply into these issues, of the new world that may be emerging as a however, a story: There is a small town nes- result of regulated markets for biodiversity off-

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STATE OF THE WORLD 2008 Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE’S SERVICES sets. Colton is smack in the economic center less, to be learned and cherished, and never of San Bernadino county, one of the fastest- to be surrendered without a struggle.” The growing counties in the United States. state of California, in contrast, has a more But there is a fly in Colton’s ointment of moderated view. Having determined that the future economic growth. The city is cur- fly should be protected, it decided to let the rently involved in a series of legal battles over market decide what it costs to conserve it. how much it should be prepared to pay to And the market determined that the going save an endangered fly: the Delhi Sands rate in California for Delhi-sands fly habitat Flower-loving Fly, a rather pretty insect that, is currently somewhere between $100,000 like a butterfly, hovers and sips nectar from and $150,000 an acre.4 local flowers. This tiny creature has the dis- This story is interesting not so much tinction of being the first fly—and only the because it is hard to believe that people are seventeenth insect—to be declared an endan- buying fly habitat—let alone paying gered species in the United States.2 $150,000 for it—but rather because it forces According to the U.S. Endangered Species society to answer that crass and materialis- Act (ESA), no individual or entity, public or tic question: How much is nature really private, can harm an endangered species—not worth? Some would argue that the ques- even a fly—without a permit from the gov- tion should not even be asked. And yet soci- ernment. Thus shortly after this fly was listed ety answers this question “by default” every as an endangered species, construction of a day. Every time people buy soybeans, for hospital in San Bernadino county ground to example, they are putting a value on the a halt. The hospital had planned to pave over Amazonian rainforests that were cleared to seven acres of occupied fly habitat, but that grow them. At least in the case of the fly, the all of sudden became illegal. The hospital price tag is clear, evident, and visible. If a then had to spend $4 million redrawing its developer wants to pave over fly habitat, it plans, moving its parking lot 250 feet, and will cost the company (in today’s market) as making a few other minor changes. All so it much as $150,000 an acre. wouldn’t harm a fly.3 If that were all there was to this story, the How much is a fly worth? Do you judge concept of putting a price on endangered by what the fly does? With this fly, scientists species would be quite troubling. It implies do not know the answer to that question. that someone could pay the price set by the They know that pollinators, such as this fly, marketplace and then go ahead and destroy tend to have important and symbiotic rela- the last surviving population of a species. But tionships with the plants they feed on. In that is not what is happening. The $150,000 some cases, without the pollinator the plant paid to pave over the fly’s habitat is actually cannot reproduce. Perhaps the flower-loving being used to protect or create habitat for that fly plays that role. Or it could be a cornerstone same fly somewhere else. It is, in other words, species, without which an entire ecosystem an “offset”—not unlike the carbon offsets could collapse. Or maybe protecting this fly people are buying to counteract their green- will protect dozens of other species, some of house gas emissions. (See Chapter 7.) which may not even have been discovered yet. As the money goes into legally and finan- Or maybe not. cially protecting the flies forever (at least in E. O. Wilson has written: “I will argue theory), in a way it is a market, or at least a that every scrap of biological diversity is price- market-like mechanism. It puts a value on

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Banking on Biodiversity endangered species and habitat, turning them cannot, the next step is to minimize the dam- into marketable assets. It puts a cost on the age. Finally, the developer is supposed to off- fly for those who would harm it, and at the set, mitigate, or compensate for any damage same time it creates a value for those who that cannot be minimized. This hierarchy would conserve it. It is this marvelous should be considered in all forms of offsets, alchemy—turning cost into value, liability but it is not usually codified into law. Section into asset—that may ultimately allow society 404 of the CWA is an exception.7 to preserve biodiversity. But does it work? The law is also quite clear on what is con- And, if so, how does it work? sidered appropriate compensation for the damage to wetlands: developers must “create, Wetland Mitigation Banking enhance, or restore” an amount equal to or greater than the amount being damaged in a Since the mid-1980s the United States has wetland of “similar function and values” in the had a series of functioning biodiversity mar- same watershed. In some special cases, pro- kets worth more than $3 billion a year. This tecting a similar wetland is considered suitable system is currently the largest and most well compensation, though this is rare. The law established experiment on Earth on creating recognizes that not all wetlands are equal. biodiversity markets. Although these are mar- Someone cannot damage a wetland in Cali- kets and they involve the private sector, it is fornia and protect one in New Jersey. In government that makes these markets possi- short, the law is trying to ensure “no net ble. The system that makes the flower-loving loss” of wetlands.8 fly worth real cold, hard cash begins with The compensation for any development government regulation. Indeed it has its roots projects that harm wetlands—whether done in two very important U.S. laws: the Clean by private developers or the government—can Water Act (CWA) and the Endangered be undertaken by the developers themselves Species Act, both passed in the 1970s.5 or by third parties. And the Army Corps of Although the Clean Water Act is basically Engineers and EPA are charged with over- designed to prevent the dumping of chemi- seeing this process and making sure the com- cals into the nation’s rivers, it is also in some pensation happens. respects a rather innovative biodiversity law— One of the most interesting repercussions thanks to section 404, which attempts to of this law is that there are now private, for- prevent the placement of dredged and filling profit, wetland mitigation bankers who make materials into the “waters of the US.” Any- money by creating, enhancing, and restoring one wishing to dredge or fill a wetland con- wetlands and then selling the resulting “wet- sidered of national importance in the United land credits” to needy developers. (See Box States must first obtain a permit through a 9–2.) They buy wetland areas in parts of the program administered by the U.S. Army United States that are likely to experience Corps of Engineers and the U.S. Environ- economic growth; they work with the Corps mental Protection Agency (EPA).6 and EPA to get “credits” for their “creation, In considering whether to award this per- enhancement, and restoration” of wetlands mit, EPA and the Corps are supposed to fol- (hence creating a “wetland bank”); and then low a process known as “sequencing,” in they sell these wetland credits to developers which the first step is to determine if the who find themselves in need of compensation. damage to the wetlands can be avoided. If it In other words, wetland mitigation banking

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Box 9–2.The Evolution of a Wetland Banker

Steve Morgan is a duck hunter who now makes the past been dammed, dredged, or filled (thus a living as a wetland banker. He came to this attracting his beloved ducks).With the approval business via a strange and somewhat circuitous of the U.S.Army Corps of Engineers and EPA, he route. In the late 1980s, Morgan and a few then turned around and sold the wetland credits colleagues bought a piece of land in central from this land (for tens of thousands of dollars California to create a “hunting club,” a place an acre) to the Department of Transportation where streams and wetlands would attract the that was building the highway on his former ducks they so loved to hunt. Unfortunately for hunting club, allowing them to offset the damage Morgan—or perhaps fortunately—the wetlands to the wetland they wanted to pave over by pro- that served as a rest stop on the ducks’ flyway tecting the restored wetlands on his new prop- were also slated to serve as the site of a major erty. The end result was that Steve Morgan had highway bypass. Under the U.S. Constitution, the created the first “wetland mitigation bank” west government can force private landowners to sell of the Mississippi. their land (assuming adequate compensation) Based on this success, Morgan went on to when it is deemed in the “public interest.” In found a wetland mitigation company called Wild- legal jargon, the law is called “eminent domain.” lands Inc. Two decades later, this has become a Naturally, Morgan was furious. But in discus- multimillion-dollar business that employs some sions with the local authorities, he found out that 100 people and manages thousands of acres of while it was perfectly legal for the U.S. govern- restored wetlands. (It is also involved with species ment to strip him of his duck-hunting grounds mitigation banking.) In March 2007,Wildlands in order to make a highway, it was not legal— received a major capital infusion from Parthenon thanks to the Clean Water Act—for anyone to Capital, a private equity investment firm that damage the wetland without “minimizing and manages some $1.5 billion. mitigating” (or offsetting) that damage. In destroying his wetlands, the government Morgan decided to take advantage of this sit- had upended Steve Morgan’s life, but that gave uation. He bought 315 acres of his neighbor’s him a whole new way of making a living and farm across the street and then “enhanced and pushed him to become an accidental pioneer for restored” the existing wetland complex by a whole new industry. removing invasive species and returning water to the system of streams and channels that had in Source: See endnote 9. is possible because the government is restrict- mitigation is worth more than $3 billion a ing supply and allowing the market to set a year, and that entrepreneurial wetland miti- price—a value—on this particular aspect of gation bankers account for about one third of biodiversity.9 that business. The rest is composed of peo- In a way, it amounts to governments tin- ple doing their own wetland mitigation in kering with the economic infrastructure in order to obtain permits or paying the gov- order to protect those aspects of biodiversity ernment or nonprofit groups a fee instead of that should be valued, the externalities. And compensation.10 it is no small matter: Although there are no Although wetland mitigation banking has reliable figures on the size and value of wet- proved to be a rather innovative concept— land banking, the best guess is that there are fueling the growth of a new “nature man- more than 400 wetland banks throughout the agement industry”—it is important to point United States, that the market for wetland out that it is by no means perfect. Like all

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innovations, it has come in for some serious had been studied and monitored by the criticism. Some of these critiques are really Army Corps and EPA, the study found that about a reticence to assign a dollar value to many were not up to standard when checked biodiversity, reflecting an inherent dislike for against stringent scientific criteria. Indeed, the use of markets and capitalist tools to pro- against these measurements only three banks tect nature.11 scored in the “successful category,” while five The critics often argue that the only way passed in some areas and failed in others. The to protect nature is for government to remaining four failed nearly every assess- restrict its use and strongly enforce this ment, functioning more like shallow dead restriction. Although there is clearly a place pools than wetlands. More disturbing, none for this type of protection, there are other of the government agencies charged with powerful tools that should be used as well. oversight were taking the bank managers to Besides, without wetland banking U.S. wet- task for this fact. Overall, however, the study lands would be worth little or nothing, and found that the banks were most successful they would continue to disappear under when they maximized the areas defined as strip malls, airports, and highways. With wetland, minimized areas of open water, banking, their loss has at least a very real and had similar plant and animal life to nat- monetary cost and can generate funds that ural wetlands.12 may actually lead to the creation of new, very Despite its implicit criticism of banking, the similar wetlands. More important, this cost study’s author, wetland ecologist John Mack, sends a signal: developers who want to remains one of the more steadfast supporters develop a site that has wetlands will spend of mitigation banking. He says that the con- considerably more per acre, so they had clusion from his study should not be that better be absolutely sure they must have banking as a concept is flawed but rather that particular site. that, when done properly, it can succeed. He Two other criticisms do merit concern, argues that by using better designs, perfor- however. The first has to do with the fact mance standards, enforcement, financing, that it is notoriously difficult to “create, and an appropriate watershed approach, wet- enhance, or restore” wetlands, so the wetland land mitigation banking can produce high- acre used as compensation may be inherently quality wetlands.13 “less valuable” in terms of biodiversity than The second important criticism centers the acre being damaged. Partly for this rea- on how wetland mitigation banks are mon- son, many of the U.S. wetland banking sys- itored and implemented. How is it possible tems require that each acre damaged be to ensure that an acre of wetland protected compensated with two, three, or more acres today will still be there tomorrow, the day of wetland “created, enhanced, or restored.” after, and the day after that? There is also a It is a form of overcompensation or insurance related question: Will funding be ensured and, while it alone does not resolve the mat- to maintain the newly created wetland? To ter, it does help. address these issues, the Corps and EPA So far the studies on the quality of the require that wetland bankers provide both wetlands created as compensation are mixed. legal and financial assurances that the “cre- In one study conducted in Ohio, scientists ated, enhanced, or restored” wetland will looked at the 12 oldest of the state’s 25 last (presumably) in perpetuity. The legal wetland mitigation banks. Although these assurances usually take the form of conser-

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STATE OF THE WORLD 2008 Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE’S SERVICES vation easements (legal restrictions on the use Endangered Species: of land) held by third parties (usually a nonprofit or the government). The financial From Liabilities to Assets assurances can take a variety of forms. They If endangered species are so important, so are either trust funds set up to produce the valuable, why does the economic system see interest necessary to run the bank or bonds them as liabilities? The perverse unintended or letters of credit that hold the bank finan- consequence of the Endangered Species Act— cially liable for the protection of the wet- forcing people to see endangered species as lands.14 a liability—is nothing new. Ever since the act In addition to these assurances, wetland was passed some 30 years ago people have mitigation banking requires a considerable been complaining that listing an endangered amount of enforcement and verification. It species places an unfair burden on the private needs the government agencies overseeing landowners whose land harbors these species. the system to continuously monitor and In such cases, they argue, the incentive is not ensure that the promised wetland protection to protect an endangered species but rather is delivered. Such “perpetual oversight,” how- to get rid of it fast, before anyone knows it is ever, is costly and is usually very difficult for there. (See Box 9–3.) This is what some have understaffed and underfunded government called the “Three Ss Approach to Endan- agencies. Nevertheless, as the mitigation gered Species Management”: shoot, shovel, industry grows it may generate the funds and shut up.16 needed to monitor itself. Critics of the ESA have often used this atti- Despite these warranted criticisms, wetland tude to argue that the act needs to be revised mitigation is still probably a better system or even dismantled. But rather than throw than the alternative—which, realistically, the legislative baby out with the bathwater, amounted to little or no real protection. Even there are other, less drastic approaches. One if there were no wetland banking, roads of these involves a process known as conser- would still be built, airports would still be vation banking. In the 1990s, people began constructed, and shopping malls would still looking for a better way to accomplish the go up. Wetlands, in other words, would still ESA’s objectives—one that instead of penal- be damaged. History shows that society has izing private landowners for harboring endan- not been very good at blanket prohibitions on gered species would perhaps reward them. the use of land. To do this, they created a system reminis- And even if all further damage to biodi- cent of wetland banking. Under this system, versity could realistically be prohibited, the landowners with an endangered species on problems of government enforcement and their land can get a permit to harm that monitoring would still exist. It just would species (known as an “incidental take” permit be spread out across tens of thousands of in the euphemistic language of the govern- projects, and tens of thousands of acres of ment) if they can show they have compen- damaged wetlands, rather than across hun- sated for it by creating habitat for that same dreds of wetland banks. In fact, numerous species somewhere else. Again, as with wet- government officials report that the existence land banking, this has paved the way for pri- of wetland mitigation banking makes it eas- vate, for-profit, species bankers to create ier for them to carry out their monitoring, habitat for endangered species, get credit enforcement, and protection work.15 from the government for any new members

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Box 9–3. Perverse Incentives on Endangered Species

Ben Cone is a tree farmer in North Carolina. vesting the trees on the rest of his land on a He owns 7,200 acres of pine forest that he was much quicker rotation schedule (around 40 managing on an 80–100 year rotation. The years). Understandably, he did not want those system made sense for him because he could trees to be still standing after 80 years and harvest different portions of his land at different thereby become a tempting home for the endan- times and take the largest, most valuable trees. gered woodpeckers. It wasn’t Cone’s preferred And it was good for a wide variety of species modus operandi, since the trees were less valu- that lived on his land. In particular, it was good able and needed to be harvested on a quicker for red cockaded woodpeckers, which like to rotation, but he could not afford to have more of make their nests in pine trees that are at least 80 his land placed “off-limits” by endangered wood- years old. These woodpeckers are endangered, peckers. And, ultimately, it was bad for the wood- however. So when they were discovered on peckers and many other forms of biodiversity Cone’s land, the U.S. government prohibited him that would have probably preferred the more from harvesting some 1,500 acres of forest. This mature (and presumably more diverse) forests ban alone is alleged to have cost Cone some made up of 80-year-old trees. $1.8 million in lost revenues. Following the prohibition, Cone did what Source: See endnote 16 any rational landowner would do: he started har- of that species found on their land (“new” area of it in the Colton dunes. But instead of meaning above an initial baseline), and sell hiring lawyers and attacking the fly’s endan- those credits to other developers who intend gered species status, Vulcan decided to see if to damage that species’ habitat or harm the it could make the fly pay.19 species somewhere else.17 Working with the U.S. Fish and Wildlife Not much is known about the size and Service and the Riverside Land Conservancy, breadth of species banking across the United Vulcan set up a conservation easement on States, though it appears that there are more the land, created a management plan for the than 70 species banks and that these might fly habitat, established a baseline for flies on trade anywhere from $100 million to as much its land, and obtained the right to sell “fly as $370 million in species credits each year. habitat credits” above that baseline to needy Whatever the size, the use of conservation developers. The bank opened in June 2005 banking means that species banking, also and by December had already sold three of its known as “conservation banking,” can turn credits. Although Vulcan will not officially a species liability into a species asset.18 release the sale prices, reliable sources estimate This is just what one company in Colton, that at least one credit sold for $100,000, California, discovered. While the municipal although they also say the price has now risen government there sued the federal govern- to $150,000 per acre, as mentioned earlier.20 ment over the Delhi Sands Flower-loving Fly, According to Kevin Klemm, the owner of saying the government had no place regulat- the development company that was Vulcan’s ing where people can build their houses, a first customer, the credits were worth it: “The sand and gravel company called Vulcan Mate- Vulcan Materials people were tremendous. rials Corporation acquired 130 acres of prime They were business-like and accommodat- fly habitat—the largest remaining contiguous ing. They didn’t waste any time. The bank is

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STATE OF THE WORLD 2008 Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE’S SERVICES a tremendous value… I spent six years of my than the alternatives.23 life trying to build 18 buildings.” And pre- In the state of Victoria, the BushBroker sumably he got nowhere because the gov- scheme is mandatory and applies to native ernment made it illegal for him to harm the vegetation. The principle is simple: whoever flower-loving flies. Now, with a bank from harms native vegetation in Victoria needs to which to buy offsets, he has an option. To offset that damage by creating or protecting people like Klemm, the rapid response miti- the same type of vegetation in the same biore- gation solution now offered by the Vulcan gion. Applying this scheme, on the other bank is no doubt a blessing.21 hand, is extremely complicated. There are And Vulcan is not alone. There are now literally dozens of vegetation systems and conservation banks in the United States that bioregions, which makes finding the right sell credits on everything from vernal pool match a daunting task. To address this prob- fairy shrimp and valley elderberry longhorn lem, the government of Victoria is building beetle to tiger salamanders, Gopher Tor- a sophisticated computer matching system toises, and prairie dogs. As noted, these mar- that it expected would be operational by the kets may be worth as much as $370 million end of 2007.24 a year. The conservation of endangered While cap-and-trade regulated offset species has thus become a very real, and very schemes to protect biodiversity can indeed profitable, business opportunity.22 create real markets and can be extremely powerful when used correctly, they also Government Programs: require strong government oversight, effective legal systems, enforcement of rules and Benefits and Drawbacks regulations, and robust financial institutions. Outside the United States, several other coun- These conditions may be found in some tries are also experimenting with regulated industrial countries, but they are not the con- biodiversity offsets. (See Table 9–1.) For ditions of much of world—especially in those instance, the Australian states of Victoria and parts that hold most of the world’s biodiver- New South Wales either already have or are sity, places like parts of Central and South setting up schemes similar to the U.S. system, America, Congo, China, Indonesia, Mada- although with a few important differences. gascar, and Mexico. So what can be done in The BioBanking system in New South Wales those parts of the world? has proposed a scheme whereby some areas Fortunately, the underlying concept would be deemed too sensitive for develop- behind both conservation banking and wet- ment. These would be “red-flagged” and lands mitigation banking—that is, putting a would ideally be the sites where species bank- value on biodiversity—applies in all coun- ing would occur. In other words, the Aus- tries, even if the exact systems for providing tralians are looking at addressing one of the these payments may not. Even the U.S. gov- main pitfalls of the U.S. system: a lack of ernment has a multimillion-dollar-a-year pro- broad-based, landscape-level planning to gram to help farmers and private landowners determine which areas are most needed for conserve. It comes in the form of Farm Bill conservation. For now, it looks like the payments such as the Wetlands Reserve Pro- BioBanking scheme will be voluntary, but gram, the Conservation Security Program, the hope is that, since compensation for dam- the Conservation Reserve Program, and the age is obligatory, BioBanking will be cheaper Environmental Quality Incentives Program.25

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Table 9–1. Examples of Legal Requirements for Biodiversity Offsets

Country or Region Program Legislation Policy goal

United Species Mitigation (of Endangered Species Act 1973 as To offset adverse States which conservation amended and the Guidance on Estab- impacts to threatened banking is one tool) lishment, Use and Operations of and endangered species Conservation Banks Wetland Mitigation Clean Water Act 1972 Chapter “No overall loss of 404(b)(1) and the US Army Corps of values and functions” Engineers regulations (33 CFR 320.4(r)) (1990);“net gain” (2004) Australia, Green Offsets for Sustainable Develop- “Net environmental gain” New ment: Concept Paper (2002); Native South Vegetation Act (2003) and subsequent Wales regulations (2005); the Threatened Species Conservation Amendment (Biodiversity Banking) Bill 2006 Australia, Native Vegetation Management Frame- “A reversal, across the Victoria work (2002) and subsequent amend- entire landscape, of the ments to related Acts; BushBroker– long-term decline in native vegetation credit registration extent and quality of and trading: Information Paper (2006) native vegetation, leading to a Net Gain” Western Native Vegetation Act (2003); Environ- “Net environmental Australia mental Offsets: Position Statement beneﬁt” No. 9 (2006)

Brazil Forest Regulation Lei No. 4771 of 1965; Lei No. 14.247 No net loss of habitat and National System of 22/7/2002, Lei No 9.985 of under a deﬁned mini- of Conservation 18/7/2000, Decreto No. 4.340 of mum forest cover for Units 22/8/2002 private landholdings Canada Fisheries Act R.S. 1985, c. F-14, Policy for the Manage- No net loss in capacity ment of Fish Habitat (1986), and the of habitat to produce Habitat Conservation and Protection ﬁsh Guidelines, Second Edition (1998); see especially Subchapter 35(l) and Subchapter 35(2) of the Fisheries Act

European Habitats and Birds Council Directive 92/43/EEC of 21 May Maintain overall Union Directive 1992 on the conservation of natural (ecological) coherence habitats and of wild fauna and ﬂora and of the sites Council Directive 79/409/EEC

Source: See endnote 23.

In Brazil, the government requires that a Brazil’s books that requires compensation minimum amount of a landowner’s territory for damage to biodiversity, although the laws be kept in forest cover. There is also a law on to determine that compensation are not ade-

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quately established yet. Similarly, in places as the country. The program started in 2003 and far afield as South Africa, Colombia, and the pays between $30 and $40 a hectare for for- European Union, laws requiring or encour- est conservation, depending on the type of aging biodiversity offsets are either being forest being protected. Currently the pro- considered or already being implemented.26 gram is paying for the management of close The Chinese government has long had a to a million hectares.28 program known as Grain for Green (the offi- Building on its success with water services, cial title translates as the Sloping Lands Con- Mexico has received a grant from the Global version Program, or SLCP) that pays farmers Environment Facility to establish a similar to keep forest cover on hillsides. Its aim is to program to make payments for biodiversity help conserve watersheds and prevent floods, conservation. The problem with this approach but it also affects biodiversity conservation. is twofold. First, as in China, the money is This is not a market-based system, however; coming from philanthropic sources or the it is a system of government subsidies and pay- government. Second, the payment and the ments. The money comes directly from tax payer are severed from the actual service revenues and is redistributed based on certain being received. In other words, while all established criteria. While the SLCP system Mexicans contribute a bit of the money they does help increase the value of standing forests pay for water to the PSAH, they often do not (and has an astounding budget of $43 billion know they are making this contribution. And over 10 years), it does not directly link the the money they pay is not necessarily used in users of the biodiversity services with the the watersheds that supply those individuals providers of those services. Government with water. Again, the link between buyer mediates the transaction, so the users of the and seller is not direct. This makes it difficult service are not receiving information on the for users of the service to make decisions cost of their use.27 based on the economic costs of their use.29 One of the most talked about payment for ecosystem services programs, as these are Private landowners in Costa Rica who often called, is the Pago por Servicios Ambi- protect their forest cover receive a payment entales (PSA) program created by Costa Rica from the National Forestry Trust Fund. in 1996. Private landowners in Costa Rica who protect their forest cover receive a pay- Mexico is introducing a similar system. It ment from the National Forestry Trust Fund. was modeled on a program for water con- These payments are made at a base rate of $40 servation in the country known as Pago por per hectare but can vary depending on type Servicios Ambientales Hidrológicos (PSAH, of forest cover. Most of the money for this or Payment for Environmental Hydrological trust fund comes from a tax added to fuel sales Services). The PSAH is interesting in that it in Costa Rica, but this is supplemented by collects a fixed amount of revenues from “environmental credits” sold to businesses water users and then redistributes it to key tar- and other sources of international finance. geted forested watersheds across the country. Between 1996 and 2003, the Costa Rican The principle here is that by helping protect PSA program had enrolled more than forested areas in key watersheds, the pay- 314,000 hectares of forested land, transferring ments will help support the provision of more than $80 million to landowners in the water-related ecosystem services throughout process.30

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Once again, this is a government-run pro- vious grant-based systems for distributing gram where the user and provider of the conservation funds to landholders.”31 biodiversity services are not closely linked. BushTender’s success is now being fol- Also, like China’s Grain for Green program lowed up with EcoTender, in which the state and Mexico’s PSAH, the price per hectare of is inviting local landholders to submit com- biodiversity is set by government, not via a petitive “bids” for government funding to pay direct market-based mechanism. They are for improved management of remnant veg- in effect government monopsonies (one etation and revegetation on their properties. buyer without competition, the opposite of “Where BushTender focused on a single envi- a monopoly) for biodiversity services, and as ronmental outcome (increasing terrestrial such they may be paying too little or (though biodiversity), EcoTender aims to achieve mul- this is less likely) too much for the conser- tiple environmental benefits, including vation of biodiversity. The price is largely improvements in saline land and aquatic func- arbitrary and based on the government’s tion,” explains Eigenraam.32 ability to pay rather than on supply and What is interesting about BushTender and demand for the service. EcoTender is that they use government’s Despite these drawbacks, the programs in monopsony buying power to invite bids that China, Mexico, and Costa Rica have been effectively serve to discover the “best” price extremely successful at giving added eco- at which biodiversity conservation will be nomic value to biodiversity and, some achieved. Nevertheless, the buyer is once observers say, have also been successful in again the government using tax revenues, so their overall goal of increasing forest cover. the connection between the buyer or user of A particularly interesting and different the biodiversity services and the seller is still approach to payments for biodiversity ser- not direct. vices is found in Victoria in Australia. Through two programs there—known as Voluntary Biodiversity Offsets BushTender and EcoTender—the state has established a reverse auction system for pro- Beyond government regulation, numerous viding government payments to private companies have begun to set up biodiversity landowners who conserve local biodiversity offsets voluntarily in places like Qatar, Mada- (among other goals). gascar, and Ghana because they think it makes The pilot for BushTender took place in good business sense to do so. Like the vol- Victoria in 2003, and according to Mark untary carbon markets described in Chapter Eigenraam, one of its architects, it “used an 7, the number and investment in such offsets auction system to distribute environmental is presently modest. But they are likely to funds to landholders who were interested in become much more widely used as a part of improving terrestrial biodiversity on their standard business practice. Some observers properties. The implementation of Bush- believe that they could serve as the precursors Tender led to 5,000 hectares of native vege- to larger, more broad-based biodiversity mar- tation on private land being secured under kets in the long term. Essentially, they demon- management agreements. In economic terms, strate that there can be a business case for it created the supply side of a market for investing in biodiversity conservation. nature conservation and generated signiﬁ- To understand whether, when, how, and cant cost savings when compared with pre- where voluntary biodiversity offsets should be

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STATE OF THE WORLD 2008 Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE’S SERVICES undertaken, the Washington-based non- tion and policy; governmental group Forest Trends estab- • assure “first mover” advantage for innova- lished the Business and Biodiversity Offsets tive companies; and Program (BBOP). This is a partnership of • maximize strategic economic opportuni- over 50 companies, governments, conserva- ties in emerging markets (for instance, tion experts, and financial institutions from establishing companies to implement off- many different countries and led by Forest sets).34 Trends and Conservation International. The Currently BBOP is working with partners BBOP partners believe that biodiversity off- on projects in a variety of countries, includ- sets may help achieve significantly more, bet- ing Ghana, Kenya, Madagascar, Qatar, South ter, and more cost-effective conservation Africa, and the United States, and is explor- outcomes than normally occur in the context ing projects in Argentina, China, Mexico, of infrastructure development. The program and New Zealand. Some of the companies the aims to demonstrate conservation and liveli- program is working with or in discussions hood outcomes in a portfolio of biodiversity with include Newmont Mining, Rio Tinto, offset pilot projects; to develop, test, and dis- Shell, and AngloAmerican.35 seminate best practice on biodiversity off- As these experiences mount up, and as sets; and to contribute to policy and corporate case studies become available on best-practice developments on biodiversity offsets so they biodiversity offsets, it is likely that both the meet conservation and business objectives.33 supply and demand for these offsets will grow. Companies undertake biodiversity offsets Countries that establish clear policies may for one or more of three reasons: they are improve land use planning and use market required to by national legislation (as in the mechanisms to create aggregated offset areas United States, with wetland mitigation bank- that achieve significant conservation out- ing and conservation banking), they are comes in high biodiversity-value areas. encouraged to or facilitated by Environmen- tal Impact Assessment legislation or other How Much Is Nature Worth? planning procedures, or they find a legitimate business case to get involved. BBOP Whether through voluntary offset mecha- staff have identified numerous benefits for nisms, government-mediated payment companies in doing this; namely, voluntary schemes, or full-fledged markets in offsets, the offsets can help companies: concept of payment for biodiversity services • ensure continued access to land and capi- is beginning to take hold. More important, tal and to the license to operate; these approaches are beginning to subvert • bring competitive advantage or favored sta- the current economic model that is blind to tus as a partner; the value of biodiversity, to the services that • increase investor confidence and access to species and ecosystems provide, and to the capital; costs inherent in destroying the natural wealth • reduce risks and liabilities; on which human well-being depends. • ensure strong and supportive relationships The problem these systems are trying to with local communities, government reg- address is self-evident: When iPods are valued ulators, environmental groups, and other over whale pods, the economic system will important stakeholders; deliver ever more species of iPods and wipe • influence emerging environmental regula- out yet another species of whales. When wet-

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STATE OF THE WORLD 2008 SPECIAL SECTION: PAYING FOR NATURE’S SERVICES Banking on Biodiversity lands are seen as nothing more than mos- species—could be used to protect species, to quito-infested swamps, they will lose out to give them a real value in people’s everyday shopper-infested malls. And as land becomes decisions of what to eat, what to wear, and ever more scarce, the problems will simply be what to buy. aggravated. The economic system is not bro- To return to the questions at the start of ken. It is doing exactly what it was set up to this chapter: How much should society be do: deliver more of what people value—or at prepared to spend to protect nature? The least more of what the imperfect price signals answer will in large measure determine say people value—and less of what they don’t. whether humanity ends up living in a world As this chapter documents, the solution to of whales, wild tigers, and wetlands or a world the problem may actually lie in using markets of pavement, iPods, and pollution. Better and the economic system to our advantage. yet, we can hope that through a form of eco- Imagine how powerful it would be if market nomic jiu-jitsu these market mechanisms will forces—the same market forces that have make it possible for the pavement and the inexorably pushed for the destruction of rain- iPods to co-exist comfortably with the whales forests and the extinction of countless and the wetlands.

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CHAPTER 10

The Parallel Economy of the Commons Jonathan Rowe

It is an article of faith among economists example of commons management—a tra- that a resource without a private property ditional property arrangement that has regime is destined for overuse. Yet on Bali, an worked effectively for centuries in a wide island in the Indonesian archipelago, that is variety of resource contexts but that econo- not the case. For centuries rice farmers there mists today either disparage or ignore. That have coordinated their use of scarce water was the case in Bali, when in the late 1960s through social networks built on the innate the government decided to push rice farmers human capacity to manage such resources in into the modern age. It bypassed the water a cooperative manner.1 temples, hired hydrologists to install modern The system is based on what anthropolo- water systems, and pushed Green Revolu- gists have called “water temples,” which tion techniques, complete with heavy pesti- enfold the water sharing within a context of cides, upon the farmers.3 traditional Balinese religion. But actually the The result was a disaster. Insects soon networks function through a form of bottom- developed resistance to the chemical pesti- up cooperation in which the temples pro- cides. Crop yields plummeted. In the end, the vide a venue through which producers can government had to relent, and the farmers coordinate their water use. Modern com- returned to the social productivity arrange- puter analysis has found that the resulting ments that the experts had deemed relics of allocation is close to ideal in terms of the an unenlightened past.4 productivity of the farms. It defeats pests nat- Fast forward to 2001 in the United States, urally and uses the available water to maxi- when Jimmy Wales set out to create an ency- mum effect.2 clopedia online. He thought ﬁrst of the cor- Bali’s water sharing system is a textbook porate Britannica model, only staffed by

Jonathan Rowe is a fellow at the Tomales Bay Institute and is founding codirector of West Marin Commons.

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons volunteers. He established panels for peer tannica. It found that the difference in accu- reviews, assigned articles to recognized racy was “not particularly great.”8 experts, and then waited for something to Technophiles attribute this social produc- happen. Not much did. Economists might see tivity to the magic of silicon chips and the the problem right away—a kind of corollary Web. Tech leads and people follow. Yet in real- of the problem they would see in Bali. Writ- ity the Web is just a new venue for the same ers lacked a property right in their output and human capacity that found expression in the therefore a monetary “incentive” to activate water temples of Bali. It is a long way from their dormant mental assets. Wales was famil- one to the other, in time as well as space. But iar with that lure; he was a refugee from the in both the rice fields and on the Web, social world of options trading and understood the structures and social norms are doing jobs— role that incentives play in business. But creating and managing resources that are instead he went in a different direction.5 held in common—that conventional eco- He tried writing an entry himself (on nomic wisdom says only monetary incentives option trading) and discovered it was like and private property rights can do. “handing in an essay at grad school.” It just Moreover, both draw on a side of human wasn’t any fun, and the top-down corporate nature that does not exist in the economics structure was the reason why. So Wales shifted texts and that has fallen off the radar in west- gears. He abolished the expert peer-review ern economic life. People are not supposed to panels and put informal teams of coordinators produce something for nothing. They are in their place. More important, he dropped not supposed to be able to manage a scarce the idea of assigning entries and let users resource without a regime of private property write them on any topic they desired. Then rights to keep them in line or else the edicts these same users would check one another for of an authoritarian state. They are not sup- accuracy and bias. A discussion page for each posed to but they are—and with results that entry would provide a forum in which to equal if not surpass those produced by the hash these issues out and a written record that prevailing economic model. every user could retrace.6 The rice farmers on Bali are an example of In other words, Wales created—or rather, a mode of local resource management that has seeded—a social network instead of an eco- worked for eons, from the alpine pastures of nomic mechanism in the conventional sense. Switzerland to the irrigated rice fields of the People were engaged not as profit seekers northern Philippines. Today this model is from the economics texts but as social beings reappearing in many precincts of the economy who get a kick out of producing in this way. at large—from the revival of traditional main Within two weeks the project had generated streets, public spaces, and community gardens more articles than it did in two years of the to the resistance to the corporate enclosure of top-down model.7 university research and the genetic substrate The result is Wikipedia, the free online of material life.9 encyclopedia that now has almost 2 million It is as though something latent in human articles in English and smaller numbers in nature is breaking through the concrete of the about 250 other languages—for a total of corporate economy and the bureaucratic state. almost 8 million articles. Nature magazine The result is not just effective and generative compared a sample of science articles from use of the asset, but also a dividend in the Wikipedia with corresponding ones in Bri- form of social cohesion and trust that can be

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons as important as the product itself. A new field hold jointly and together rather than sepa- called “behavioral economics” (a phrase that rately and apart. (See Box 10–1.) As gov- ought to be redundant but revealingly is not) ernments look for models for conserving has been rediscovering and giving empirical natural resources for the long haul, a large shape to this. Researchers have demonstrated, part of the answer could lie here.11 for example, that people seek fairness in economic dealings and not just their own gain. How Tragic Are They seek stability over the long term and not just a quick buck.10 the Commons? Such insights are not really news to most To most economists, a commons is by defin- people. But recognition of them by at least a ition “tragic” because it is prone to overuse. part of the economics profession helps put Their standard reference point is an article policies that derive from them into play in the that appeared in Science in 1968 called “The high-level debate. In particular, it gives new Tragedy of the Commons.” Though the legitimacy to the commons—a form of prop- author, Garrett Hardin, was a biologist, his erty that is neither the market nor the state, article was strangely lacking in scientific inquiry. public nor private, but rather that people It was more like economics—that is, a logical

Box 10–1. Property: A Social Construct

Property is not a metaphysical absolute. It is an were regarded as commons for purposes of sub- instrument that societies design to advance par- sistence, such as hunting, fishing, and even cutting ticular ends. There are many different kinds— wood. The woodland commons sustained slaves corporate, marital, municipal, partnership, during their bondage. To resubordinate them cooperative, and so forth—all of which are after emancipation, the southern planters closed defined socially for different purposes. Today, the commons and thereby shut off a key part of two categories of property dominate the public their livelihoods. debate: public and private. This follows from an Residues of the earlier thinking exist today in ideological spectrum that offers the public and regards to wildlife and more broadly in the legal private “sectors” as the only options from which doctrine of the public trust. Ancient Roman law to choose. declared that some things are common by their Yet a third kind of property—common prop- very nature—primarily air, sky, wildlife, and navi- erty—is neither public nor private in the usual gable waters. Government did not own these sense. Historically it has served well for organiz- and therefore could not privatize them, even if ing the use of natural resources of many kinds legislators wanted to. Much like trustees of an and for defining the rights and responsibilities estate, governments have a legal obligation to of people regarding these. In England, much agri- maintain the asset for the benefit of the public cultural land was held in common until the eigh- at large. teenth and nineteenth centuries. In practice this Today the public trust prohibits governments was similar to community gardens today. Individ- from turning over to private parties the coast- uals had their own plots, but the underlying lines and navigable waters (and perhaps other ownership was in common. things as well) that they have a responsibility to The concept permeated the early thinking protect for future generations. Common about property generally, including what today property is encoded for the long haul. are called the public and private realms. In the early U.S. colonies, private woodlands typically Source: See endnote 11.

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extrapolation from assumptions about reality for those who constituted it. rather than an actual investigation of it.12 The historical and anthropological literature Hardin simply assumed that all commons is full of examples of commons-based man- are free-for-alls, and he took no account of the agement of limited resources. Regarding human capacity to create rules to govern water, the irrigation systems in Bali are not access and use. He bid his readers to “picture” exceptional. Spain has had similar systems, a hypothetical pasture, which he peopled called huerta, for almost 600 years. The farm- with hypothetical herders enlisted from the ers whose land adjoins each canal elect their economics texts. These individuals existed own chief executive, called a syndic, who outside of any social structure and tradition resolves disputes between them in a tribunal and lacked a capacity even to talk to one held twice a week. They get water from the another. They all behaved as the texts said canal on a rotating basis. During droughts, the they would and according to what they call crops with the greatest need get first priority.14 “rationality.” They let their herds loose in Especially suggestive are the zanjera of the pasture in a single-minded effort to max- the northern Philippines. Tenant farmers imize their own gain, with no thought for the there join together and build irrigation sys- future or for anybody else. The pasture was tems on dry private land in exchange for use depleted, and the tragedy was born. rights to that land. In effect they become There is a large irony here. Hardin was joint semi-owners through sweat equity. It is assuming the psychology of the large corpo- grueling work. The dams break routinely ration and projecting it onto the pasture. during the monsoon season and must be This is the very institution that free market rebuilt sometimes three or four times in a sin- advocates, who cite Hardin as gospel, want to gle year. Members typically work something entrust the pasture to through privatization. like 40 days a year on the zanjera and in They are purporting to solve the problem some cases close to double that.15 by embracing a purer version of it. There are more than a thousand of these What Hardin overlooked is that people in the province of Illocos Norte, according to do not necessarily behave as economists one estimate. They have an ingenious system assume they do. As historian E. P. Thompson for allocating water to make sure everyone observed, Hardin failed to grasp “that com- gets a share. They divide the land into three moners themselves were not without com- or more sections and members get a plot in mon sense.” Thompson was referring each section, in differing sequences along specifically to the common-field agriculture of the canals. This way each member can have his own England. Households had their own a plot that is close to the front of an irrigation plots, but the rights to these were a matter of line. Even in times of drought, everybody custom rather than of legal title, and the gets something. In addition, officials of the same was true of access to other lands for zanjera get extra land at the tail end of the hunting, foraging, and grazing.13 line. This gives them extra motivation to Commoners pooled their implements and ensure prudent use so that at least some water labor for joint maintenance and the like. They makes it that far.16 combined their herds to fertilize their respec- There are many examples of common pas- tive plots. The destruction that Hardin tures working effectively as well. In the alpine declared to be an axiom simply did not hap- region of Switzerland, for example, the graz- pen. To the contrary, the system worked well ing pastures typically are commons, as are

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons forests, irrigation systems, and paths and tually, Hardin himself had to modify his roadways connecting private and common stance. He acknowledged that the problem is property. Farmers generally have private land not common ownership per se but rather for their own crops. The commons and the open access—that is, commons in which there private exist in symbiosis, a little like the com- are no social structures or formal rules to mon areas of a co-op or condominium apart- govern access and use.20 ment building. Each form of property serves Such cases do exist, of course. The fisheries the purpose for which it is suited best.17 on the East Coast of the United States are an In the Swiss village of Törbel, residents obvious example of an open access regime; formed a commons association over 500 years Earth’s atmosphere is another. When ago. They established a rule that members tragedies occur, there generally has been a could graze no more cattle on the common breakdown in the social structure that once pasture than they could feed during the win- governed use, or else a scale at which such ter. As of a decade or so ago the rule still was structures are not possible, or new tech- in effect. It is general practice throughout the nologies of exploitation for which the exist- Alps—another example of the common sense ing rules are not sufficient. Population that Hardin and others assumed that com- pressures have played a role as well, as in the moners lack.18 mountain forests of the Philippines.21 Hardin practically could have looked out- But population generally has not worked side his California window, at the western alone. There also has been the invasion of a plains, to test his hypothesis against reality. corporate, governmental, or other external The early cattle ranchers there were not saintly and exploitive force. Native Americans did not people. But they also were not stupid. They eradicate the buffalo on the western plains; fur found ways to cooperate rather than destroy- hunters from outside did. Local residents ing the habitat that sustained their herds and have not sliced the tops off mountains in themselves. They adopted the practice of Appalachia or befouled the land and water in branding from Mexicans, to distinguish dif- quest of coal bed methane gas in the Rocky ferent herds. They cooperated on roundups Mountains. Outside corporations have. When and cattle drives. Most important in the pre- the fishery off of Brooklyn and Queens in sent context, these ranchers limited their cat- New York City began to collapse in the tle herds and worked to keep out newcomers. 1960s, it was not because of local fishers It was not always pretty. But it also was not alone. Rather it was a combination of garbage the tragedy that the “tragedy thesis” assumes barges and factory trawlers that brought this is inevitable in a pasture not enclosed by a fishery to the brink.22 property regime.19 It is strange that the reigning policy focus Hardin’s essay won applause in environ- is on the tragedy of the commons when actu- mental quarters, mainly because it was not ally the tragedy of the corporate is probably really about the commons. It was a case for a greater threat. population control, and the tragedy thesis served merely as a grim parable to that end. The Tragedy of the Corporate From the start, however, anthropologists and others who actually studied commons-based Privatization of the commons usually means social arrangements objected to Hardin’s corporatization of them. When a govern- broad-brush dismissal of the commons. Even- ment sells resources, such as oil rights or

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons ocean plots, individuals rarely have the means in the form of quarterly earnings statements, to buy them. To free-market believers, this is the demands of shareholders and creditors, a distinction without a difference. Corpora- and the like. These push generally toward tions are really just economic persons, they liquidating nature, not husbanding it. Speak- say, only bigger. But that is like saying that a ing of a rival who controls his own company federal bureaucracy is no different than a and so can think “long term,” Richard Par- town meeting democracy, because both are sons, the CEO of Time Warner, observed, “If “government.” almost anybody else did it, they’d get killed” As Adam Smith observed often, humans by shareholders and Wall Street analysts.24 are social beings. They have a capacity for empathy and a desire to be esteemed by their The problem is not common ownership peers. “Nature, when she formed man for per se but rather open access—that is, society,” Smith wrote in his Theory of Moral Sentiments, “endowed him with an original commons in which there are no social desire to please, and an original aversion to structures or formal rules to govern offend his brethren.” This desire actually access and use. goes deeper, Smith said, because we aspire truly to be “what ought to be approved of.” The paradigmatic case is that of Pacific Right or wrong, that is an assumption on Lumber, a California company that in the which his theory of a benign and generative 1980s owned most of the major old-growth market was based. The modern corporation redwood forest still in private hands. Pacific does not fit this model.23 Lumber was unusual. The chief executive The corporation is a creature of lawyers was a lifelong timberman by the name of rather than of nature. It embodies the pure A. S. Murphy, who believed in harvesting no financial calculus of the ciphers that inhabit more than the forests could replace. “Their the economics texts. The bottom line really approach,” said David Harris, author of The is the bottom line. This is not because cor- Last Stand, “was basically to treat the forest porations are run by bad people. On the as capital and try and live off the interest.”25 contrary, the financial calculus is built into This virtue did not go unpunished. charters through which corporations acquire Pacific’s self-discipline meant its forests were legal life—fixed in the operating system, as ripe for less conscientious plucking. Its clean it were. balance sheet—Murphy believed in pay-as- This institutional machinery was designed you-go—left plenty of room for a raider to for an era in which resources seemed limitless load up the company with debt. This is exactly and the consumption of them the only urgent what happened. During the leveraged buy-out mandate. It was set loose on this landscape boom of the 1980s, a corporate chief by the and did what it was supposed to do—dig name of Charles Hurwitz teamed up with mines, drill wells, build factories, lay tracks, Michael Milken and Ivan Boesky, two of the generally eat like an adolescent and consume more infamous financiers of the era, to take everything in sight. Today, however, it has over Pacific Lumber. They mortgaged the become like an appetite without a shut-off company to the hilt to finance the purchase.26 switch, the adolescent who never grew up. It Then Hurwitz began to liquidate the has no built-in capacity to say “enough.” forests that Murphy had conserved, in order The main internal constraints are financial, to pay off the debt. Finance trumped hus-

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons bandry, as it most often does. External hunger that drives—indeed, requires—the restraints are vulnerable at best, given the invasion of the commons. The appetite political inﬂuence of those whom they are requires more, and the commons is where supposed to restrain.27 that more lies. This institutional engine is But there is a more fundamental prob- programmed to take whatever in nature and lem—namely, the way the modern corpora- society did not have a protective shell around tion lies outside the constitutional structure it. There are efforts to reform the corporation that the nation’s founders erected to keep from within, by rewriting the charters under institutional power in check. The corporations which they operate. Whether that succeeds or of today did not exist when the United States not, there still will be a need to establish a new was founded. Adam Smith actually dismissed kind of outer boundary, so that corporations them as inherently too cumbersome and cannot claim everything. bureaucratic, their managers too given to “negligence and profusion.” Individual entre- Reclaiming Common Spaces preneurs, nimble and resourceful, would out- wit them every time.28 Enclosure is the process by which a com- Smith was talking about the joint stock mons is taken for private use and gain. It has companies of his day, which were govern- a long history. War and conquest excepted, ment-sanctioned monopolies such as the East the original enclosures in Anglo-American India Company. He did not know that free history largely were the work of the British incorporation laws soon would release the Parliament, which parceled out the common corporation from its legal strictures and oblig- lands to private owners, often with inade- ations. He could not have known that these quate compensation—if any—for the com- lawyer-created entities then would acquire moners whose rights and subsistence were the constitutional protections intended for taken in the process. human beings, through a Supreme Court The U.S. government followed the exam- procedure that was irregular at best. ple of its British parent on many fronts. The The result is an institution that has out- Dawes Act in 1887 broke up the tribal com- grown both its legal and conceptual contain- mons for many Native Americans and ers, including the ones of Smith’s own theory. imposed on them a private ownership regime, Although this is especially the case in the as did the Alaska Native Claims Settlement United States, it is true to some degree in most Act a century later. The North American nations in which corporations operate. Even Free Trade Agreement, enacted in 1994, a diligent U.S. Congress can go only so far in declared the water commons a private com- terms of regulation. Nor have organized labor modity for purposes of international trade. It and consumer interests been an effective coun- also helped erode the ejido system of land terweight. Labor unions represent only some tenure in Mexico, which was based on com- 12 percent of the workforce in the United munal rather than market values.30 States and often side with employers on The parceling out of the broadcast air- resource issues, as when autoworkers oppose waves to private corporations was part of this fuel efﬁciency standards for cars.29 same lineage. In recent decades the process The companies that own the resources— has metastasized from discrete acts into a oil, coal, gas, and so forth—and those wholesale assault. From the microcosm of premised on their use have an insatiable the gene pool to the far reaches of space,

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons corporations have been transgressing all Toronto, the number increased from 14 to 69 boundaries and laying claim to that which pre- between 1987 and 1997. These operate much viously was assumed to belong to all. the way the original common field agriculture Often corporations have direct help from did in England. People have their own plots government, such as the expansion of the but often share tools and know-how, and intellectual property laws that made possible pitch in on maintenance as well. The result is the patenting of seeds and genes. The Bush generative socially as well as agriculturally. A administration has worked to parcel out tracts study in upstate New York found that a third of ocean to corporate fish farmers. There are of the gardens gave rise to broader neigh- efforts in Congress to privatize outer space as borhood improvement projects such as tree well, for the purpose of advertising. The planting and crime watch. “It is very peace- momentum now is so great that corporations ful now,” said a resident of Richmond, Vir- often need no direct help at all.31 gina, about a community garden reclaimed The escalating enclosures of recent decades from a decrepit neighborhood park. “It brings have prompted a response that is almost like people together.” (See also Chapter 11.)32 an autoimmune reaction. Spontaneously, all Another example is the revival of com- over the world, people are seeking to re- mon spaces in cities across the United States, establish boundaries and to reclaim territory from Pioneer Square in Portland, Oregon, to that has been lost. The environmental move- Copley Square in Boston. Three decades ago ment is one example of this, as are the cam- Detroit tried to renew its decaying down- paigns against corporate globalism and town with a corporate fortress called Renais- genetically modified (that is, corporately sance Center. The Center became a enclosed) food. white-collar island, the decay continued, and This is a movement that defies standard renaissance never came. In the late 1990s, ideological categories. Genuine conservatives someone had the idea of taking the opposite oppose the decimation of traditional main approach. Instead of a private corporate space, streets by “big box” stores and the com- the city would create an open common one.33 modification of childhood, among other The result is Campus Martius, in the heart things. Those of a more leftward bent oppose of downtown. Symbolically enough, Detroit as well the enclosure of university research by actually rerouted automotive traffic to accom- a corporate patent regime, the privatizing of modate it. (The Renaissance Center had water and other resources, and a host of kin- housed the corporate offices of General dred incursions. Motors.) Now life is coming back down- Boundaries are not the only issue. There town. There are some 200 concerts and also has been an instinctive groping back to events a year, plus ice skating in the winter. the social dynamic that animated the early People are coming in from the suburbs. commons and made resource sharing in them Investment is coming too: some $500 million possible. Community gardens have become worth. The Compuware corporation has increasingly popular in North America, for moved 4,000 employees in from the suburbs example. There have been no official sur- to be close to this new center of activity.34 veys, but the American Community Gar- This actually is how markets began—in dening Association estimates there are now common spaces, especially the plazas around roughly 18,000 such gardens in the United churches. Markets were festive social occasions States, with 750 in New York City alone. In before they became “economic” ones in the

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narrow modern sense. Farmers’ markets today From Community are direct descendents of those early ones, and they are spreading rapidly for much the same to Conservation reason. According to the U.S. Department of The lobster fisheries of Maine illustrate how Agriculture, the number of farmers’ markets social process can translate into husbandry grew by 150 percent between 1994 and of a resource commons. These fisheries are 2006. Today there are more than 4,300 in the organized informally within the state’s many United States, and people are flocking to harbors, which are small enough to be com- them not just for local and organic food. It munities. The fishers that work these waters is also for the festive sociability, the fun of know and watch one another. Each has a ter- being out among neighbors, the freedom ritory that has been worked out informally. from the hyper-calculated marketing enclo- The enforcement of these informal terri- sures of corporate supermarkets and malls.35 tories, as well as of restrictions on taking Neighbors are starting to create their own undersized, oversized, or egg-bearing lobsters, is a community function more than a bureaucratic one. “As most lobstermen live in At present the institution that best the same town, send their kids to the same embodies commons functions outside school, and rely on one another in emergen- the public sphere is the trust. cies,” Colin Woodard observed in his book The Lobster Coast, “social sanctions can be common spaces for this kind of spontaneous more effective than a dozen wardens.” The sociability. In Portland, the City Repair pro- wardens do exist. But the social networks ject is turning traffic intersections into pub- that have evolved around these commons lic squares. In Baltimore and Boston, make them less needed.37 neighbors have closed off back alleys and Maine fishers often toss back all the female turned them into commons for their blocks. lobsters in their traps, not just the egg-bear- In some cases people actually have shortened ing ones, even though they don’t have to. their own backyards in order to make the Unlike the hypothetical herders in Hardin’s common space larger. The so-called New hypothetical pasture, these actual common- Urbanism—which is really the old village- ers are not without common sense. It is not ism—expresses a similar desire to restore entirely coincidental that the state’s lobster social content and interaction to the normal fisheries are thriving, even though the num- flow of daily life.36 ber of fishers making a majority of their Such movements are not about expanding income from lobsters more than doubled the governmental sphere. To the contrary, between 1973 and 1998.38 they are about stopping incursions into the This is the same kind of social structure commons sphere and protecting the genera- that makes commons so productive in the tive social process (as opposed to the bureau- alpine pastures of Switzerland, the rice fields cratized governmental process) that occurs of the Philippines, and many other settings. there. They are parallel expressions of the It is an argument for management that is social productivity that is emerging on the local and community-based, and it raises World Wide Web. Together they provide a questions about the assumptions behind a template for a new/old kind of resource man- corporate global economy. Such arrange- agement as well. ments are not always possible, however, espe-

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cially in a mobile market culture such as the Arctic National Wildlife Refuge and on United States. Then too, some commons are national forests illustrate the vulnerability of simply too large, such as watersheds, the a system that is ultimately political. Even at the oceans, and the atmosphere. local level there are pressures to invade parks The challenge, then, is to devise formal and other public spaces with corporate spon- institutions that replicate the essential features sorships, advertising, and so on. The national of commons even if they cannot include all parks are treasures, but there is increasing the social dynamic of local and traditional set- need for an alternative to government own- tings. In other words, it means scaling up ership that is not so tied to the corporate-gov- commons management just as the corpora- ernment nexus.39 tion scales up business management from No solution is without problems, but some the individual entrepreneur. One essential are less problematic than others. At present feature is equity and mutual benefit. Com- the institution that best embodies commons mons serve all, either equally or by a just dis- functions outside the public sphere is the tributional standard, subject to necessary trust. (See Box 10–2.) Existing trusts are pri- rules for access and use. Central Park is open marily local or regional and have discrete to all New Yorkers whether they live in boundaries. The next challenge is to apply the Harlem or on Central Park West, so long as concept to larger commons such as the atmos- they obey the rules. phere and oceans or with entire watersheds. The second essential feature has to do One possibility is to scale up the trust model with time. Corporations are designed to seek one step further and use something that looks short to midterm gain. They move to the like a “market mechanism” but that actually metronome of the quarterly earnings state- serves nonmarket ends. For example, Peter ment. The market theory that justifies them, Barnes of the Tomales Bay Institute has pro- moreover, has no concept of the future in posed a Sky Trust, which would serve as regards to resources. Maximize gain today trustee for the atmosphere much the way a and the future will take care of itself, the bank serves as trustee for a family trust. To theory goes. The needs of future genera- understand the Sky Trust model it helps to tions actually are discounted, which means consider briefly what it is an alternative to.40 that market calculus always values the present The air pollution debate in recent years has generation more than it does future ones. focused on something called tradable pollu- Commons, in contrast, turn that assumption rights. Under this scheme corporations tion upside down. Properly designed, they are essentially get grandfathered rights to their encoded to preserve assets for the future past levels of dumping in the sky. If they rather than to liquidate them for the pre- reduce their emissions they can then sell the sent. They embody the way neighbors might air space they are not using to another com- think about a wooded hillside as opposed to pany—thus reaping a financial bonus for past the way developers would. There are times bad behavior. when government management can play this This approach is called “market-based” role. Central Park functions admirably as a because it involves the buying and selling of commons under public ownership. dump space as opposed to just regulatory But government ownership is not always limits. (Such limits still would exist, but they possible—or necessarily the best course. In the would cap the dump space overall while com- United States, continuing pressures on the panies worked out through trading which

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Box 10–2.Trusting Commons

Trusts exist by definition to maintain an asset for protect the larger ecological functions of the for- their beneficiaries, future as well as present. They est. have all the protections of private property on A similar example is the Marin Agricultural the outside, but inside they can be designed for Land Trust (MALT), which buys development opposite ends. It is not surprising that this legal rights to the rolling farm and ranch lands on the form has emerged as a way to graft commons- western edge of Marin County, California. Ranch- type management of limited resources onto an ers get to keep and work their land and pass economic system that is not always the most it on to heirs. The public gets stunning and receptive host. unspoiled landscapes, plus active stewards on the One example is the Pacific Forest Trust,which land. To date, MALT has protected nearly 15,400 helps protect private forests in the United States hectares—roughly half the ranchland in the from both clearcutting and development. About county—on 58 family farms and ranches. Given four fifths of U.S. forestland is privately owned, the development pressures in west Marin and and some 6,070 square kilometers (at least 1.5 the trophy palaces that Bay Area millionaires are million acres) of this forest disappears each year. lusting to build, the importance of MALT to one The Pacific Forest Trust is working to halt this of the nation’s most stunning landscapes is hard trend by acquiring conservation easements, which to exaggerate. are a kind of property right in conservation use. Another example is the Oregon Water Trust, Mineral rights give a corporation the right to which restores water flow to crucial and endan- extract resources; conservation easements give gered streams. It does this by acquiring water the trust the right to protect the land against uses rights and by working with farmers and other that would compromise its ecological functions. property owners to find ways to reduce their The private owners keep the land and the take from the streams. As with land and forest right to harvest it sustainably. They donate or sell trusts, the property owners keep their land. to the trust the rights to develop the land. The All they give up is a portion of their water flow. trust holds these rights so that no one else can That in turn becomes a commons that the orga- use them. In this way the public gets the benefits nization holds in trust for the well-being of peo- of living, breathing forests for the long haul, while ple and habitat, present and future. owners still can harvest timber if they choose. In And in New York City, the Trust for Public effect, this harkens back to the time in U.S. Land now holds 70 community gardens. It helped history when private forests were deemed com- save these from Mayor Rudolf Giuliani’s efforts mons for purposes of sustenance. Back then sus- to sell the gardens to developers. tenance meant cutting trees for firewood. Today it also means refraining from cutting trees to Source: See endnote 40. ones used how much.) The ability to sell broader beneficial result. The premise is that dump space presumably provides an “incen- the sky belongs in some sense to everyone, tive” for companies to reduce their emissions which is why it is a commons. Corporations continually. The problem is that the system should not own it; they only can rent dump rewards most those who polluted the most. space from the owners. Accordingly, under It also ignores the equitable owners of the the Sky Trust, there would be annual auctions sky—that is, all of us. for the available dump space, within strict A commons-based approach would use a and diminishing limits. The proceeds would similar market dynamic, but it would start go into the trust, where it could be used for from a different premise and achieve a much investment in clean energy, cash dividends

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons to the owners, or some combination of the between income earned by productive invest- two. Sky Trust could help finance a long- ment or toil and income that came from term solution to climate change, not just cashing in on something that nature or soci- reduce emissions.41 ety already had created. The question is not The Sky Trust would operate much like the what people make, he was saying, but rather Alaska Permanent Fund, which distributes what they take from the common pool. revenues from that state’s oil lands. But there Specifically he was talking about land. would be one crucial difference. The Per- Land is not just a gift of nature as opposed manent Fund encourages drilling, because to a product of human enterprise (with rare more drilling means more revenues for the exceptions, such as landfills). The value of owners. Sky Trust, in contrast, would encour- urban land arises from the investment of the age less pollution because it would reward the entire society rather than of a particular owner. commons owners—all of us—for tough emis- The difference in value between a parcel in sion limits. When less dump space is available, Bridgeport, Connecticut, and one of identi- the auction price will be higher, as a simple cal size on Park Avenue in Manhattan has lit- matter of supply and demand.42 tle to do with the efforts of individual owners This commons-based approach has been and much to do with the investment that gaining ground due in part to the failure of has gone on around them. a permit trading scheme in the European It is a social creation rather than an indi- Union. Even the Deutsche Bank and the vidual one, and therefore a form of com- Conservative Party in the United Kingdom mons. When individuals profit from increases now back the auction model, as do the gov- in this location value—that is, the value of the ernors of New York and Massachusetts. The site, as opposed to any buildings or improve- concept is basically that of parking meters. ments they have made on the site—they are When you take a scarce resource from the reaping where they have not sown and are commons, be it parking space on the streets expropriating for themselves a gain that right- or dump space in the sky, then you have to fully belongs to the society at large. pay the ultimate owners. And you can take There is a social component in all gain, of only as much as the natural and social systems course. But with land the case is almost pure. can carry. 43 The consequences of permitting this expro- The approach could be applied to seabed priation from the commons are grim eco- mining, under the Law of the Sea Treaty, logically as well as in terms of justice. The lure and in a host of other ways. It has implications of land gains feeds the speculation that drives also for public revenues more broadly. Start- development far into the hinterland. It ing from a commons standpoint, rather than encourages sprawling low-density develop- a conventional economic one, would bring ment; when taxes on the site (or socially cre- the ecological and the moral into economic ated) component of real estate are low, there alignment. As Winston Churchill, an advocate is no need to use the land intensively to gen- of this approach, once put it as a young Mem- erate revenue to pay the tax. ber of Parliament: “Formerly, the only ques- The current property tax includes the value tion of the tax gatherer was, ‘How much of both land and buildings. Typically the land have you got?’ Now we also ask, ‘How did portion is understated, because commercial you get it?’”44 owners like to attribute site value to the build- Churchill was getting at the distinction ing so they can depreciate it. Shifting the

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STATE OF THE WORLD 2008 The Parallel Economy of the Commons property tax from buildings to land would ments and most single family residences.46 encourage more-efficient use of this limited That would be a win both ecologically resource. (Zoning is necessary to prevent the and politically—and socially as well. It is sug- high-rising of stable low-rise neighborhoods.) gestive, moreover, of the larger possibilities It also would reclaim for society what society of shifting the tax burden from what people had created, thus achieving equity as well as and corporations make or buy in total to ecological sanity. what they take from the common weal in the Numerous cities have tried this approach: process. Taxing the takings from the com- Sydney and Canberra in Australia, Taiwan, mons would encourage people to take bet- and indirectly Singapore and Hong Kong. ter care of it. It would mean less waste of land Almost 20 cities in the state of Pennsylvania and other resources and therefore denser have done so too, and the results have been patterns of development that are more promising. Officials in Harrisburg, Pennsyl- resource-efficient. vania, claim that the number of vacant lots That in turn would increase the occasions and structures downtown has dropped by 90 for human interaction and community in the percent. Many localities have used the course of daily life. Thus the wheel comes full approach in a more limited way, by recoup- circle. The measures necessary to protect the ing the value of public improvements from commons actually would foster the kind of benefited property owners. One study found social arrangements that make that protection that the Washington, D.C., metropolitan area more feasible. could have paid for most of its Metro transit For decades we have been told that there system by recapturing the site value increases are only two choices for the management of along the Metro route.45 scarce resources: corporate self-seeking or After a long hiatus, interest in site value the bureaucracy of the state. But there is taxation is reviving. A computer simulation for another way. Commons management has King and Clark Counties in Washington state worked for centuries and is still working found that taxes on parking lots and vacant today. It can be adapted to the most pressing building lots—that is, the most wasteful global problems, such as climate change. A uses—would more than double, while taxes new phrase is about to enter the policy realm. on car-oriented strip development would go To “market-based” and “command-and-con- up by a quarter. Neighborhood shopping trol” we can now add “commons-based.” districts would have decreases, as would apart-

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CHAPTER 11

Engaging Communities for a Sustainable World Erik Assadourian

To the west is Vermont Avenue, one of the many impressive victories. Within its grounds, most congested trafﬁc corridors in Los Ange- LAEV has facilitated technology and lifestyle les, tiled with a mosaic of fast-food chains, nail changes, such as installing solar panels and salons, and dollar stores, all nested in a half- composting facilities, providing rent reduc- dozen strip malls. To the east lie three auto tions for people who live car-free, and trans- repair shops, housing, and a giant concrete forming its courtyard into a 7,000-square-foot church that dominates the street. To the garden that produces nine types of fruits and north, there are two more auto body shops, many more vegetables as well as a lush com- three overcrowded schools, and a couple of mon area to sit and relax in. LAEV has also car dealerships. And to the south, just beyond incubated businesses like the Bicycle the Bresee Community and Youth Center, are Kitchen—a shop that repairs bikes and that two giant supermarkets with equally gigantic trains neighborhood children in bicycle main- parking lots, tailored to be one-stop shopping tenance skills. And perhaps most important, for people commuting along the Vermont the community has inﬂuenced the broader Avenue corridor.1 political process of Los Angeles, from lending In the middle of this car-centric infra- support to “green” mayoral candidates to structure—what some might call “sprawl”— engaging in public planning processes, such lies a little green oasis: the Los Angeles as the restoration of the Los Angeles River, Ecovillage (LAEV). This community, two transportation planning, and local redevel- small apartment buildings with about 55 res- opment—all while continuing to be an afford- idents, was started in 1993 as a demonstra- able, accessible place to live, located within a tion project on how a community can 10-minute walk of two subway stops and 20 transform its surroundings, helping to create bus lines.3 a sustainable society.2 Through its built infrastructure, the social In its 15 years, the LA Ecovillage has had relationships it generates, and the way of life

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Box 11–1. What Is a Community? it promotes, the LA Ecovillage highlights the powerful contributions that communities can Community typically refers to a wide range of make in helping to facilitate the transition groupings of people: a church, a city, a political to a sustainable society. (See Box 11–1 for the party or other affiliation. But more funda- definition of community used in this chapter.)4 mentally, a community suggests a group of Community practices and choices about geographically rooted people engaged in rela- land use, technologies, and transportation tionships with each other (though many of the examples of community discussed in this can be used to model sustainable living. The chapter have relevance to broader definitions production of social capital—the glue that of community as well). Through these holds communities together—can be tapped relationships, members in a community have to help community members become leaders shared responsibilities—as the Latin roots of in sustainability and can provide the resilience the word suggest: com (with) munis (duties). that helps communities weather difficult times. Communities’ engagement in eco- Source: See endnote 4. nomic activities can help localize agriculture and the production of other essential goods. cation. This has proved to be the case in And their unique design can help stimulate Lydney, England, where residents set up a new ways to finance sustainability. While Community Energy Club to help bring national and global-level initiatives will be energy efficiency measures and small-scale essential for building a sustainable world, renewable energy projects to the area. Since community-level programs may prove indis- it started in 2001, the club has grown to 115 pensable in providing better models and the members who together have introduced leadership to drive global-level change. about 500 energy efficiency measures. Alto- gether these efforts will save 3,865 tons of carbon dioxide (CO ) emissions over the life of Modeling Sustainability 2 the projects—a significant amount consider- Perhaps most concretely, a community man- ing that the average U.K. resident produces 5 ifests its values through its physical design. about 9 tons of CO2 emissions each year. Local gardens, solar panels on rooftops, and Other times, what is needed is not just wind turbines spinning on a hilltop are typi- social support but mobilization of a com- cal signs of an ecologically minded commu- munity’s resources—for example, to invest in nity. Built primarily to reduce ecological and a community-owned wind farm. In 2006, financial footprints of communities, these Findhorn Ecovillage in Scotland completed design features also play a strong role in mod- installation of four wind turbines that have a eling a sustainable way of living. Many are capacity of 750 kilowatts. Together these simple enough to be taken on by practically produce 40 percent more electricity than the any community. No matter the size—whether community needs, allowing them to generate a small town or a neighborhood block—there revenue by selling some back to the local are immediate opportunities to retrofit a com- utility through the broader grid system. Of munity’s design and thereby lower its envi- course, this project took several years to plan ronmental impact, save money, and model and construct, but now the wind farm pro- sustainability as well. vides the community with both a source of Often all that is needed to make these clean electricity and revenue.6 changes is a bit of social support and peer edu- Opportunities to enhance the sustain-

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World ability of a community when building or just to how food is produced, to how waste is renovating are nearly boundless—limited treated. (See Table 11–1.) Most of these only by the energy, commitment, and take significant time and effort to imple- resources of the community. Unlike at the ment—or ﬁnancial resources when built by household level, where design options can be a contractor—but in the end they can help limited, nearly the entire metabolism of a bring the community together (through the community can be adjusted to be more sus- planning and construction of the project), cut tainable: from where fresh water is obtained, costs, and reduce ecological impact.7

Table 11–1. How Selected Communities Model Sustainability

Sector Project Location Description Energy Micro Inverie, In 2002, this remote Scottish community on the Knoydart hydroelectric Scotland peninsula finished refurbishing a 280-kilowatt hydro- generator electric generator, which now provides electricity for at least 65 properties. Energy Biomass ZEGG, Belzig, The 80 residents of ZEGG obtain their heating from a Germany wood-chip-fired heating plant, with the wood sustainably harvested from the local area. Energy Biogas Hammarby In this Stockholm district 1,000 residences obtain their Sjöstad, cooking gas from biogas that is generated from the Stockholm, district’s wastewater. Sweden Food Permaculture Kibbutz Lotan, Kibbutz Lotan maintains an array of sustainable agriculture Production Arava Valley, features, including organic gardens, composting, trellising, Israel and community-supported agriculture. It also maintains a migrating bird preserve of five distinct habitats. Water Rainwater Christie Walk, This 27-unit Adelaide community captures all on-site rain- Catchment harvesting Adelaide, water and uses it to maintain its 870 square meters of Australia rooftop and surrounding gardens. Sewage Ecological Berea College This community’s “ecological machine” processes about Treatment machine Ecovillage, 12,700 liters of wastewater each day using a combination Kentucky, of bacteria, snails, and plants. Some of this water is then United States stored for use on the community’s lawns and garden. Sewage Constructed Ecoovila, In this 28-family community, sewage is processed in a bio- Treatment wetlands Porto Alegre, logical system that uses reed beds to filter water—water Brazil that is then used to irrigate the community’s gardens. Sewage Water reuse Solaire In this luxury apartment building, a water reuse system Apartments, filters wastewater and reuses it for toilet flushing and the NewYorkCity, building’s cooling tower. In 2006, this system recycled about United States 73,000 liters per day, reducing total water needs by one third. Transportation Car sharing BedZED, Forty residents subscribe to a community carsharing London, venture, obtaining access to electric cars that are charged England by solar energy.

Source: See endnote 7.

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The ecovillage and co-housing movements group of like-minded neighbors. Small groups are perhaps the best illustrations of the oppor- within a broader setting can come together tunities that exist in designing communities and start a sustainability project, such as a car- to be sustainable through the mobilization of pool, community garden, or weekly potluck resident energy and resources. An ecovil- dinner of locally grown food.10 lage, in particular, has the goal of creating “a People can even convert their neighbor- human-scale, full-featured settlement, in hood into an ad hoc ecovillage—like resi- which human activities can be harmlessly dents in the neighborhood of Phinney Ridge integrated into the natural world in a way that in Seattle, Washington, did. Phinney Ecovil- is supportive of healthy human development, lage members hold regular meetings and and can be successfully continued into the gatherings to help neighbors reduce their indefinite future.” While none have achieved ecological impact. In spring 2007, the group this high ideal, many have made great strides. started a new neighborhood global warming A resident of Findhorn Ecovillage has just project. This venture, partly funded by a half the ecological footprint of an average grant from the city government specifically for individual in the United Kingdom. And in neighborhood-based climate change efforts, Germany’s Sieben Linden Ecovillage, per is helping to mobilize residents to change capita CO2 emissions are just 28 percent the their behavior to reduce fossil fuel use— national average.8 everything from switching to a push lawn While co-housing communities are typi- mower that relies on human power rather cally more focused on developing a con- than fossil fuels to lowering their thermostats nected community than on reducing and turning off appliances not in use.11 environmental impact, they often incorporate many ecological designs as well as adding Cultivating Community another important element—namely, clus- tered homes. Instead of spreading out houses, Connections co-housing communities group homes Not all capital is tangible. Communities gen- together, enabling them to preserve more erate an often underappreciated asset called land as open space or farmland and to facili- social capital, the relational glue that holds tate community connections by having neigh- communities together, or as political scientist bors within walking distance. At the center of Robert Putnam defines it, “connections these houses there is also typically a commu- among individuals—social networks and the nity house, where meetings, dinners, and norms of reciprocity and trustworthiness that other activities are regularly held.9 arise from them.” As individuals in a com- Ecovillages and co-housing communities munity interact, work together, and trade are not the only communities that can imple- favors, a level of trust and feelings of reci- ment these changes. Indeed, with 385 regis- procity form. This is what makes a commu- tered ecovillages (though the actual number nity a community rather than just people is greater if broader village networks are living near each other.12 included) and about 500 co-housing pro- In industrial countries, social capital is an jects worldwide, these serve more as models increasingly scarce asset, according to Putnam for other communities than as solutions them- and other social scientists. Since 1985 the selves. Many of the projects these communi- average American has lost connection to one ties implement are readily replicable by any confidant each—going from three other peo-

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World ple to confide in to just two. Today, nearly a babysitting and day care, and even elder care. quarter of Americans do not have anyone This helps create the ties that bind commu- like that in their lives. But where social cap- nities together.15 ital exists, or where there is the will to rebuild it through regenerating relationships, there is Sharing within a community also great opportunity to improve opportunity, life helps to establish a different cultural quality, and sustainability. Communities, regardless of the obstacles they face, can use norm, one based in cooperation social capital to form sustainable community instead of conspicuous consumption development projects, empowering them- and competition. selves as they work together on projects that increase their well-being while reducing their While an economist would regard these ecological impact.13 shared goods or nonmarket exchanges as a Social capital yields important dividends. reduction in economic activity (and thus a Psychological research demonstrates that the negative development), they actually may breadth and depth of a person’s social con- increase community members’ quality of life. nections is the single best predictor of hap- A recent study of individuals living in eco- piness. And social isolation translates directly villages and co-housing communities found into physical health concerns as well. More that although they earned significantly less than a dozen long-term studies in Japan, than people in Burlington, Vermont (a town Scandinavia, and the United States, for exam- with a similar demographic makeup to the ple, show that the chances of dying in a given communities studied), members expressed year, no matter the cause, are two to five life satisfaction levels equal to Burlingtonians. times greater for people who are socially iso- Indeed, 50 percent of residents had incomes lated than for people with close family, friends, of less than $15,000 a year yet life satisfaction or community ties.14 levels equal to Burlingtonians—the majority Social capital is generated in a variety of of whom earned over $30,000 a year. The ways. Some communities, particularly eco- conclusion of the study was simple: ecovillage villages and co-housing groups, do so by members successfully substituted social cap- sharing resources. Some have a shared car ital for the possessions they own, thus enjoy- available that residents can rent or borrow, ing a similar quality of life with much less thus freeing more of the community to live consumption—and as a result a reduced eco- car-free. Many have shared major appliances, logical impact as well.16 including washing machines and dryers. Oth- Sharing within a community also helps to ers have created “tool libraries” for lawn establish a different cultural norm, one based mowers, chain saws, and other implements in cooperation instead of conspicuous con- that may only be needed once a week, sumption and competition. Indeed, this men- month, or year. One community tool is often tal shift can help channel the urge to “keep more than enough and saves members sig- up with the Joneses” into a more construc- nificant cost in purchasing and maintaining tive form—namely from one of rivalry over these goods. Many people also barter food or who has the biggest SUV or McMansion to goods they produce in exchange for what who has the lowest ecological footprint. (See other residents produce. Along with goods, Chapter 4.) some communities share services, such as Many communities have even institution-

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alized these educational efforts, providing build community ties, they also adopt green schools for community children that maintain business practices and help educate cus- an ecocentric curriculum. For example, the tomers about living sustainably—using such Berea College Ecovillage in Kentucky includes tools as periodic lectures, discussion groups, the Berea Early Learning Center, for the stu- informational guides, and books they sell. dents’ children in day care (most residents of Sustainable third places can also synergisti- the ecovillage are “nontraditional” students cally support other sustainable business sec- who have children). This eco-friendly day tors—particularly food production. Local care introduces preschool students to recy- restaurants, not bound by franchise con- cling, gardening, and composting.17 tracts, can order food directly from local farmers, helping to support local agricultural production. And sustainable third places Throughout history, teahouses and can encourage their customers to get coffeehouses have been a central staging engaged in sustainability efforts, for example ground to discuss revolutionary action. helping to set up volunteer groups to work on a local ecological restoration project or Beyond the ecovillage, communities are environmental campaign. trying to rebuild community connections in One example of a sustainable third place is innovative ways, with one of the most inter- the White Dog Cafe in Philadelphia. Judy esting being the “third place.” This term Wicks founded the cafe in 1983 in a 100-year- was coined by sociologist Ray Oldenburg to old house on Sansom Street, after joining describe informal public gathering places— with her neighbors to fight to prevent this and the place after home and work (the first and other houses from being torn down to make second places) that people tend to spend room for a new shopping mall. The White their time in. Being informal gathering places, Dog now fills three adjacent houses, serving they have many important roles: connecting up local food, running on wind power, and the community, integrating newcomers and hosting regular “Table Talks” on a variety of visitors, offering staging areas in times of social and environmental topics. Wicks was local crisis, and providing a set of local store one of the first to serve local food in Philadel- owners who tend to watch over and help phia, a niche she could have attempted to the community.18 monopolize. Instead, she started a foundation Over the past several decades, neighbor- (and supported it with 20 percent of the hood hangouts have increasingly been cafe’s profits) that worked to expand local replaced by soulless franchises that are typi- food use in the city, by helping other restau- cally identical in design, lack local flavor, and rants to localize and connecting farmers and rarely serve community needs. Today, how- businesses in the city. And the White Dog is ever, many neighborhoods are starting to not alone. There are hundreds of sustainable consciously recreate third places and the com- third places around the world, each with its munity ties that they facilitate. And some are own priorities and projects.19 even starting to recognize that these places Cafes, in particular, have great potential to can not only serve a central role in cultivat- shape people’s values and mobilize commu- ing social capital, they can also serve as impor- nities. Throughout history, teahouses and tant tools in shaping environmental values. coffeehouses have been a central staging These “sustainable third places” not only ground to discuss revolutionary action, with

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World organizers of both the American and French One key sector of the economy ripe for Revolutions discussing plans and organizing localization (in addition to energy production, actions in coffeehouses. Today, organizations discussed earlier) is food production. Farming like the Green Café Network are starting to today depends on massive amounts of petro- mobilize cafe owners to use their spaces to leum-based inputs: fuel to run the tractors and “mainstream sustainability”—teaching mil- ship food thousands of kilometers, fertilizers lions of Americans who visit a cafe each day and pesticides, and packaging often derived how they can live greener. The Network, from petroleum. While oil is cheap and the started in San Francisco in 2007, helps locally effects of climate change appear relatively owned cafes reduce their ecological foot- minor, this may not seem to be a problem. But prints and become certified green businesses. with ramped-up efforts to regulate green- It also aims to change customer consumption house gas emissions, potential disruptions of patterns and promote green lifestyle prac- agricultural production due to climate change, tices by using partner cafes to teach sustain- and increasing competition over a finite sup- ability—through hosting talks, eco-art ply of oil, the cost of far-off food will most exhibits, and educational displays and dis- likely increase, as will its scarcity. tributing information.20 Local farming can address these problems, reducing oil dependency and the ecological Localizing Economic impacts of industrial-scale agriculture while providing many other benefits, such as health- Production ier, tastier food, heightened food security, The dairy at the Cobb Hill Cohousing com- and increased community interactions. Grow- munity in Hartland, Vermont, that produces ing food locally reduces the fuel used to ship award winning cheeses, the bakery in the goods long distances. From farm to market, ecovillage of Lakabe near Pamplona, Spain, fruits and vegetables in the United States that bakes bread for 25 stores in surrounding travel between 2,500 and 4,000 kilometers on towns, the herbalist business at the Earthaven average—generating 5 to 17 times more CO2 Ecovillage that makes medicines from herbs emissions than the equivalent amount of local found in the surrounding bioregion—there food. Eating locally produced food can reduce are countless local businesses employing peo- an individual’s carbon footprint by about ple from the community, providing a sus- 2,000 kilograms per year.22 tainable living, and helping to relocalize an A study of 200 residents in Philadelphia economy that has become increasingly glob- found that residents who gardened not only alized and environmentally destructive. The had increased access to healthier foods—eat- benefits of localizing economic activity have ing more fresh vegetables and fewer sweets— been well chronicled and can include pro- but also saved at least $100 a year in food viding a more stable source of jobs and costs. Community gardens often help build income, a reduction in use of fuel for trans- social capital as well. In a study of 63 com- portation, businesses more willing to adapt to munity gardens in upstate New York, people stricter environmental regulations (as opposed in 54 of these worked cooperatively—sharing to closing and rebuilding elsewhere), and a tools, work, or harvest. Moreover, having a larger percentage of profits circulating within community garden improved many residents’ the community instead of being concentrated attitudes about their neighborhoods, reduc- in the hands of far-off investors.21 ing problems like littering, while also spurring

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World broader community revitalization efforts.23 the city to set up community gardens and As more local farms and gardens are estab- urban farms in public parks. This not only sus- lished, a growing number of farmers’ markets tains the projects but redirects money that and community-supported agriculture (CSA) would have gone to for-proﬁt landscape busi- operations are sprouting up. In the United nesses toward providing food and job train- States, there are now more than 4,300 farming to underserviced residents. In 2006, one ers’ markets and 1,100 CSA farms. These tie of these projects—a 1,900-square-meter consumers and producers together—educat- urban farm in Grant Park—trained 25 young ing consumers about the source of their food, people in farming and produced over $15,000 giving farms a better source of income, and, worth of food that was donated to food with CSAs, providing working capital to farm- pantries and soup kitchens.25 ers (because CSA members purchase in To expand this beyond certain cities or advance a share of a farmers’ annual produc- regions, a national grassroots network called tion). Being part of a CSA or farmers’ mar- Rooted in Community (RIC) is working to ket can help reconnect consumers directly help young people set up community gar- to the food cycle, obtaining fresh food straight den, local farms, and other local food projects. from a farmer. And farmers’ markets help Since 1998, at least 75 grassroots groups have increase community interactions: patrons been engaged with the network, and RIC has shopping at these markets typically have 10 strengthened the skills of hundreds of com- times more social interactions than those munity leaders through national trainings.26 shopping at grocery stores.24 But can gardens and local farms actually To cultivate the local food movement, supply more than a small fraction of a com- many community groups and nongovern- munity’s food? Cuba—after reducing annual mental organizations (NGOs) are creating oil imports from 13 million to 6 million tons community gardens and small farms. Some in one year because of the collapse of the are driven by food security concerns, others Soviet Union and the U.S. embargo—proved environmental worries, and still others sim- that the answer to this question is yes. At ply by the facts that local, organic produce that time, Cuba had the most industrialized usually tastes better and is healthier than food agricultural system in all of Latin America produced in far-off farms or greenhouses and and even used more than twice as much fer- that local gardens can strengthen community tilizer per hectare as U.S. farmers did. But the ties and give people an opportunity to exer- Soviet collapse and subsequent lack of oil, cise and reconnect with nature. chemical fertilizers, pesticides, and other In Chicago and Milwaukee, Growing industrial agricultural inputs forced Cuba to Power is working to create local sustainable localize agricultural production rapidly. Today, food systems through a combination of train- after considerable innovation, the country ing local farmers, supporting farmers’ markets, now delivers much of its agricultural pro- setting up local food processing and distrib- duce from small urban farms and community ution facilities, and converting the many gardens. In Havana alone, there are more underused spaces in these two cities—like than 26,000 food gardens, spreading across the 60,000 vacant lots in Chicago—into gar- 2,400 hectares of land and producing 25,000 dens and farms. One impressive innovation is tons of food.27 that the organization is working directly with Americans typically have ample space to the Chicago city government, being paid by devote to food gardens. During World War

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II, Americans set up 20 million home and community groups, NGOs, and government community gardens—Victory Gardens—that agencies. Realistically, however, a major dis- provided 40 percent of civilians’ fresh veg- ruption in food production, like the one etables, allowing farms to concentrate on Cuba experienced, will also trigger a return providing for the troops. Today, in contrast, to local farming. Future ecological disruptions Americans maintain 10 million hectares of may also speed the transition to a new model. lawns, often with assistance from toxic pesti- (See Box 11–2.)28 cides and fertilizers. These lawns could read- Beyond food production, efforts to local- ily be replaced with gardens, producing a ize the economy are taking some novel forms. new source of local food and reducing toxic NGOs are taking a lead in reducing depen- chemical usage. The key to this transition dence on the globalized economy. One— will ideally stem from increased support by The Relocalization Network—is helping to

Box 11–2. Preparing for the Long Emergency

On the outskirts of Barcelona, a former leper Communities can play a significant role in colony now houses a new community. In 2001, helping reduce ecological problems that currently a group of 30 squatters took over this property threaten the future of human civilization. But due that had lain vacant since the 1950s and created to a lack of leadership by the worst polluters and an eco-squatter community, Can Masdeu. While positive feedback cycles like thawing permafrost squatters typically are viewed as a problem, this and the melting Arctic ice cap, it may be too late group has taken unused land and is now a model to prevent the worst effects of climate change— sustainable community—maintaining a compost- such as a sea level rise of 15 meters that the ing toilet, a constructed wetlands for processing melting of Greenland and western Antarctica gray water, homemade solar thermal panels, would trigger. Add to this growing social disrup- even a “bici-lavadora” (bicycle-powered washing tions from increased competition over petroleum machine). Moreover, the community provides supplies and the possible breakdown of global 28 community garden plots to neighborhood governance as new resource rivalries form, and residents, maintains a regular meeting space for the picture looks bleak indeed. If this scenario— a variety of social activist groups, and sets up “the long emergency,” as author James Howard a sustainable third place on Sunday nights: the Kunstler calls it—becomes the new reality, then Rurbar, selling food and beer that the com- communities will once again become central in munity produces. providing for themselves. Local food provision, Can Masdeu also offers another benefit: it local energy production, and the basic technolo- shows that life can go on in a climate of uncer- gies needed to maintain a water supply and tainty, where community members have no rights process sewage safely may mean the difference to ownership, where police have attempted to between a high quality of life and abject poverty. expel them by force, and where financial capital If humanity cannot mobilize to prevent an to invest is scarce. The leper colony, founded in ecological collapse, any effort by communities to the seventeenth century, functioned without increase their self-sufficiency and reduce depen- electricity, obtained its water from mountain dence on far-off goods that will become scarce as springs, and grew its own food. While Can Mas- the global economic system falters will help them deu has electricity today, its water and sewage survive in a less stable future, much as the resi- treatment and much of its food production are dents of Can Masdeu are doing now. not dependent on it. The community—in pared- down form—could function even if the global Source: See endnote 28. economy seized up and died tomorrow.

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World coordinate 166 groups in 13 countries, pro- empowerment of communities like those just viding an online learning and networking described with efforts to meet people’s basic forum for communities working to lower needs independently and sustainably. Com- their reliance on a fragile, globalized eco- munity-driven development (CDD) is one nomic system. Efforts of these many groups strategy to address poverty in this way. With are impressive—ranging from local commu- CDD, poor communities are the lead actors nity education projects to town and city res- in development efforts, not passive recipi- olutions to reduce dependence on oil.29 ents of aid, and are empowered to focus on Networks like BALLE—the Business the priorities they choose—whether that be Alliance for Living Local Economies—are health, education, sanitation, or other press- also helping to drive localization forward. ing issues—and given the assistance they need BALLE, consisting of more than 15,000 to succeed. businesses, has 51 networks spread over 26 Sometimes CDD efforts are initiated regions in North America (states and Cana- directly by communities, but many are sup- dian provinces). These networks help con- ported by either NGOs or international agen- nect local businesses, with the goal of cies that can provide financial or technical strengthening exchange of goods locally assistance. For example, a Zambian NGO, the while helping to enact public policies to North Luangwa Wildlife Conservation and support decentralized ownership of busi- Community Development Programme, has nesses, fair wages, and good stewardship of worked to reduce poaching in the North the environment.30 Luangwa National Park by empowering com- Some towns and cities are also looking munities to make a living through farming holistically at how they can localize their and other more sustainable enterprises, while economies. For example, in Willits, Califor- also setting up local clinics and education nia, the WELL (Willits Economic LocaLiza- programs. Started in 1994, this program now tion) initiative is educating town residents reaches more than 35,000 people.32 about the benefits of and opportunities to The United Nations and other interna- localize the economy. So far WELL has tional agencies are also increasingly using focused on assessing current resource use in CDD. The COMPACT program (Commu- Willits—such as the amount of energy nity Management of Protected Areas Con- imported and the CO2 emissions produced servation), for instance, is a joint project of the per capita—and it is now turning to figuring U.N. Development Programme and the out how best to reduce the town’s ecologi- Global Environment Facility that provides cal impacts and reduce dependence on the grants of less than $50,000 to communities global economic system. In the United King- in World Heritage Sites to help establish pro- dom, there are also 21 Transition Towns— jects that improve community well-being towns, neighborhoods, villages, and cities while reducing people’s impact on the sur- that are setting up “transition initiatives” in rounding ecosystems. Around Mount Kenya, which they try to move toward localization, where deforestation is a significant concern, reduce oil dependence, and lower the eco- COMPACT has worked with villages to set logical impact of their economies.31 up a microhydro generator and sustainable With growing disparities between rich and food projects like beekeeping and trout farm- poor worldwide and the global growth of ing, and it has worked with schools to provide slums, there is a strong need to merge the more efficient cookstoves—all of which help

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World reduce community dependence on firewood tainable businesses.35 while offering new economic opportunities. On a larger scale, ShoreBank Pacific in (For more on CDD in developing countries, Washington State sees itself as a sustainable see Chapter 12.)33 community development bank. This bank, with assets of $113 million, lends to com- Financing Sustainable munity businesses while also proactively helping clients in a variety of industries to use Communities energy efficiently, reduce waste, conserve Underlying local economic enterprise there resources, and shift production toward a needs to be sustainable community finance, greener model. This starts with a review of the which can mobilize community funds to business by a staff scientist and continues invest in local green endeavors—an essential with consultations throughout the course of element if businesses like local farms and sus- the loan, offering strategic advice on how to tainable third places are to thrive. Tradition- become sustainable.36 ally, community development financial Instead of creating banks, some commu- institutions (CDFIs)—including develop- nities are actually creating their own curren- ment banks, credit unions, loan funds, and cies. These can take many forms. Some, like venture capital funds—finance projects that Ithaca Hours, are pegged against an hour of build affordable housing, create livable-wage labor, thus valuing all work equally. Others are jobs, or provide essential services such as pegged to a national currency. The Berk- health care. (See also Chapter 13.) Although Share is one of these. In Great Barrington, these investments are comparatively small— Massachusetts, there are about $760,000 at just $20 billion in the United States—the worth of BerkShares circulating; they are effects of community investing are impressive. accepted by some 300 local businesses—from A survey of 496 U.S. CDFIs found that in coffeeshops to grocery stores. A local bank is 2005 these institutions financed 9,074 busi- even considering creating a credit card based nesses that established or sustained 39,151 in BerkShares. And Great Barrington is not jobs, and they facilitated the building or ren- alone. There are over 4,000 community cur- ovation of 55,242 units of affordable hous- rencies around the world.37 ing and 613 community facilities in While the true economic impact of these economically disadvantaged communities.34 currencies is relatively minor, they do pro- While interest in CDFIs has grown sig- vide many benefits to communities that use nificantly over the past years—with total them. Because franchises typically do not investments quintupling between 1997 and trade in community currencies, these systems 2005—few of these investments are targeted help create support—and loyal customer toward sustainable community development. bases—for local businesses. They also help If they were, they could have not just an eco- build community support networks. Accord- nomic impact but an ecological one as well. ing to a U.K. study, local currencies help Some ecovillages have small banks that do just many users develop a network of people this. In Italy, the community of Damanhur they could call on for help, as well as help- maintains a co-operative that invests members’ ing people cope with unemployment. And savings in existing community businesses as local currencies can help address specific well as giving loans and business advice to social needs in a community. In Japan, many community members trying to start new sus- areas use fureai kippu (caring relationship

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World tickets): helping the sick and elderly with efforts to reform local or even national polit- daily living will earn the helper some tickets, ical agendas. which can then be exchanged for help when One way communities are readily engag- that person is sick or can be given to sick or ing in this effort is helping with ecological elderly relations to use. This has enabled restoration projects in their area. The Los more elderly people to continue living in Angeles Ecovillage was instrumental in help- their homes and communities rather than ing the Bresee Center design The Bimini moving to convalescent homes.38 Slough Ecology Park at the end of LAEV’s Another innovative way to finance sus- street. Now the runoff from two neighbor- tainable communities involves harnessing the ing streets drains into a small stream in the profits of a new breed of business called park. Here the water is cleaned by stream “social enterprise.” This term refers to busi- plants on its way back to the watertable nesses that achieve their social missions instead of moving directly to the ocean, with through their earned income strategies. For all of its pollutants, via the storm drain.40 example, Greyston Bakery in New York City An example of a much broader-ranging was founded in 1982 to provide jobs for the restoration project comes from the commu- chronically unemployed. Today, the proﬁts of nity of Las Gaviotas in Colombia. This village this $6.5-million business provide funding was established on degraded savanna and for health clinics, day care centers, afford- made it a point to replant 8,000 hectares of able housing, and other social services that surrounding land with forest—an area larger help address poverty in New York City. And than Manhattan. Along with providing the in Thailand, the resort and restaurant Cab- community with food and tradable forest bages and Condoms uses its ﬁve restaurants products, this land now absorbs 144,000 and two resorts to promote safe sex and AIDS tons of carbon a year and will continue to do prevention while generating revenue for the so while the forest grows. Gaviotas’ efforts are Population and Community Development impressive, but the village’s decades-long Association, an NGO that works on rural plan is even more ambitious: Gaviotas hopes development, AIDS education, population to replant another 3 million hectares with growth, and environmental protection.39 the help of other villages and towns; that’s Although few social enterprises currently enough to absorb a quarter of Colombia’s focus on sustainable poverty alleviation, when annual carbon emissions.41 they do they can make an important contri- Some communities—in particular ecovil- bution to redesigning the economy to serve lages—are reaching out globally to local lead- the needs of communities in an ecologically ers to help spread the knowledge needed to responsible manner. make towns and larger regions sustainable. Many ecovillages have regular training Communities courses. At The Farm, an ecovillage in Sum- mertown, Tennessee, the Ecovillage Training Mobilizing Society Center hosts dozens of training workshops— Beyond design and helping to rebuild local from how to install solar panels to how to cul- economies, communities can use members’ tivate and build with bamboo. Ecovillages energy and resources to help green society like The Farm also host longer apprenticeships more broadly—restoring local ecosystems, for people wanting to learn about the many educating the broader public, or engaging in aspects of community sustainability. In 2003

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STATE OF THE WORLD 2008 Engaging Communities for a Sustainable World many ecovillage and other community sus- groups are approaching HOAs to get this and tainability leaders founded Gaia University, other sustainability measures implemented. which offers accredited bachelors and masters Project Laundry List is an organization that degrees in Integrative Ecosocial Design, in helps homeowners appeal to their HOAs and which students learn how to design societal, that is coordinating broader efforts to change community, and personal behaviors that are state laws to uphold “the right to dry.”43 in line with ecological principles.42 At the town and city level, there are even Communities are also increasingly getting more opportunities to foster local-level sus- involved in local political efforts. Today in tainability through policy changes. A key the United States, many of the 300,000 home- strategy is to push for “smart growth,” shift- owners associations (HOAs) ban their mem- ing urban planning away from car-depen- bers from hanging clothes outside to dry dent low-density housing to one of walkable because of the perception that clotheslines neighborhoods with a mix of commercial look unsightly and thus reduce property value. and residential space. Smart growth is essen- Yet if Americans dried just half of their clothes tial for reducing car dependency and for mak- outside instead of in dryers that were powered ing towns and cities more sustainable. Some by coal-ﬁred power plants, they could save communities are joining broader coalitions enough electricity to shut down eight such working on campaigns as varied as increasing plants and reduce CO2 emissions by 23 mil- public transit, organizing to make cities bicy- lion tons. Communities and community cle-friendly, and lobbying to strengthen urban

Box 11–3. Dockside Green: Developers Taking the Lead

Until recently, the 15-acre Dockside Lands parcel save CDN$81,000 a year in city fees. On-site in Victoria, British Columbia—the province’s cap- energy generation, including solar panels and a ital on Vancouver Island—was the epitome of an biomass gasification system fueled by waste underused property. Purchased by the city for a wood, will further reduce pressure on Victoria’s single dollar in 1989, this prime real estate lay infrastructure. Preliminary studies indicate that largely ignored for years, crippled by an industrial Dockside Green’s goal of carbon neutrality may legacy that left the soil saturated with petro- even produce excess energy that can be sold chemicals and toxic heavy metals. Now the site back to the city. Residents can stroll down a cen- is poised to become the greenest neighborhood tral greenway irrigated only with recycled in Victoria, thanks to collaboration between the rainwater, ride mini-transit vehicles that run on city and two developers,Windmill Development biodiesel, and check their personal energy con- Group and VanCity Enterprises. The first of three sumption via monitors in each home. distinct neighborhoods, Dockside Wharf,is set Walkable, dense neighborhoods with a variety for completion in 2009 and will include 268 resi- of housing units, lively public areas, and commer- dential units of varying sizes. By the time it is cial space will help foster a sense of community. completed around 2018, the development will Planners have also been careful to integrate accommodate approximately 2,500 people. existing industry, interspersing light industrial The developers have promised to deliver 26 space among the housing units, thus preserving LEED platinum-rated buildings in addition to an Dockside Green’s distinctive harbor industry impressive green infrastructure and have even heritage. pledged to pay penalties up to CDN$1 million —Meghan Bogaerts if certification goals are not met. One hundred percent on-site sewage treatment is projected to Source: See endnote 44.

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growth boundaries. Currently 238 projects are involved in the Another innovative strategy is to educate pilot phase of the LEED for Neighborhood developers about the importance of smart Development, ranging from sustainable com- growth. Some developers are starting to rec- munities like the Los Angeles Ecovillage to ognize the profitability of building develop- large urban projects. In 2009 the USGBC will ments along these lines, tapping into the finalize the program once the pilot phase growing demand for environmentally friendly concludes and public comments are received. communities and the many government Once finished, new communities that are incentives that subsidize such projects. (See forming can use these standards, and existing Box 11–3.)44 communities can lobby local governments to ensure that these standards are used when Eco-municipalities are efforts by new developments are planned.46 community members, local NGOs, Another innovative idea that has started to spread around the world is that of the “eco- and town officials to create long-term municipality.” In essence, eco-municipalities comprehensive sustainability plans are efforts by coalitions of community mem- for towns, villages, or cities. bers, local NGOs, and town officials to create long-term comprehensive sustainability But the key will be making smart growth plans for their towns, villages, or cities. Over- the norm for developers. One impressive effort torneå, Sweden, became the first eco-munic- is being led by the U.S. Green Building Coun- ipality in 1983. Since then, more than 60 cil (USGBC). This organization’s LEED pro- municipalities in Sweden, ranging from vil- gram (Leadership in Energy and lages to cities of 500,000, have followed Environmental Design) has helped provide suit—as have 20 Estonian municipalities and green certification schemes for all type of municipalities in 10 other countries.47 buildings: commercial, residential, and others. Because communities are by their nature USGBC is now working on a new small, their ability to address global environ- “LEED for Neighborhood Development” mental problems is often overlooked by certification system. This standard, currently national governments. But with proper sup- in its pilot phase, will provide a grade for port, they can have a dramatic impact. The planned neighborhood developments, giving key will be getting governments to recognize points for designs that connect communities, communities’ potential and tap into it. The reduce vehicle use, and create local jobs. It United Kingdom may be the first country to also includes prerequisites such that any proactively do so. Parliament is close to pass- development that compromises wetlands or ing the Sustainable Communities Act, which agricultural lands, is located in a flood zone, would provide local councils with direct access or is built “60 miles from anything” (as Pro- to the office of the Secretary of State and gram Manager Jennifer Henry puts it) can- fund local sustainability projects—including not be certified. For well-planned those that support local businesses, protect the neighborhoods, developers can receive a local environment, and build community high grade (platinum or gold), which may connections and political activity.48 help expedite permission from local planning When national policy is changed in the boards and make developers eligible for tax right way, the effects can be impressive. While breaks or other incentives.45 small-scale wind and other major projects are

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often difficult to implement because of zon- impact of initiatives like California’s Million ing restrictions, in some countries govern- Solar Roofs, which provides financial incen- ments have actually facilitated them. Since tives and other support to individual home- the 1970s, Denmark has allowed communi- owners to put solar panels on their roofs. ties, co-operatives, small companies, and Similar efforts could mobilize communities towns to establish small renewable projects around the world: a 10,000 Town Wind Co- and obtain a set price for the electricity they op Project; a 100,000 Neighborhood Energy provide to the grid. Today, over 80 percent Club Initiative; a Million Community Gar- of wind turbines are owned by co-operatives, den Program; or a $10 Billion Sustainable local companies, or individuals. Along with Community Investment Initiative could all triggering a major investment in wind energy drive community sustainability efforts to the (over 20 percent of Denmark’s electricity next level. The key will be mobilizing com- comes from wind), local ownership and the munities around the world to educate resulting local profits have led to broad pub- national policymakers on the benefits local lic acceptance.49 efforts can bring—and to challenge them to National policy changes have great poten- make these happen.50 tial and could take many forms. Imagine the

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CHAPTER 12

Mobilizing Human Energy

Jason S. Calder

Niger was all but given a death sentence in the putting down roots and a buffer against top- 1970s when drought-propelled desertiﬁca- soil erosion and crop loss.2 tion, rapid population growth, and unsus- The quick-growing native trees became tainable farming practices threatened assets that families used to supplement ecological collapse and mass human suffering. incomes, provide insurance against crop fail- Women on average each gave birth to more ure, and meet their own needs. The trees than seven children, and the population was provided wood for charcoal, foliage for ani- expected to double in the next two decades. mal fodder, and fruit for food. News spread Families who had worked their land for gen- through social networks and marketplaces in erations could see the tell-tale signs: it was tak- the more densely populated regions of the ing longer and longer to get to trees and country until an area of 7 million hectares, fresh water, and the Sahara desert was getting about the size of the state of West Virginia, closer and closer.1 was re-greening with trees.3 Thirty years later there is startling evi- Did farmers do this alone? Hardly. Better dence of a turnaround, thanks to changes rains helped, and so did the government. undertaken beginning in the mid-1980s. (See But the standard anti-desertiﬁcation strategy Figure 12–1.) At that time, farmers in several of massive tree planting projects was not what villages were taught to carefully plow around made the difference. The forest law previously tree saplings when sowing crops of millet, stated that both land and trees were the prop- sorghum, peanuts, and beans. Careful nur- erty of the state. Recognizing that farmers had turing, along with other simple soil and water de facto ownership of the trees and were conservation practices, saplings became trees, investing in their regeneration, the govern-

Jason Calder is Director of the Engaging Citizens and Communities in Peacebuilding Project at Future Generations.

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Figure 12–1. Farmer-managed Tree Regeneration in Galma Village, Niger,1975 and 2003 1975 2003

USGS and Institut Géographique National du Niger ment wisely amended the forest code, giving woman must walk for ﬁrewood in the Zinder farmers formal property rights. This addi- region has declined from 2.5 hours in 1984 tional security helped reinforce a trend and to half an hour today. When a regional add momentum. The forest service began to drought and massive locust invasion hit in change from policing tree cutting and levy- 2005, many of the villages in the “green ing ﬁnes to partnering with communities to belt” reported no child deaths from malnu- assist regeneration. Nongovernmental orga- trition because they were able to sell wood in nizations (NGOs), the Peace Corps, and local markets to purchase expensive cereals donors helped promote the new practices that normally would have been beyond reach.5 through training programs and farmer-to- This success story from Niger demon- farmer visits.4 strates that the greatest untapped resource in Notwithstanding this support, it was the solving the problem of global poverty and energy invested by the farmers of Niger that environmental decline is the poor themselves. fueled this massive transformation of land They have the most unambiguous incentive and livelihoods. The result is a more complex to change their condition, yet this simple fact agricultural system and a more diverse econ- is all too rarely embraced by governments, aid omy that is helping farmers invest in regen- workers, and the market. In the face of depri- erating once-infertile lands. Today farmers vation, discrimination, and oppression, the credit their efforts with lowering poverty, poor are all too often offered charity, manip- improving nutrition, and reducing vulnera- ulation, and condescension. bility to hunger. The average distance a But there are signs that this is beginning to

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STATE OF THE WORLD 2008 Mobilizing Human Energy change. Over three decades of grassroots com- Grounding Action munity development experiences that began as a search for an alternative to mainstream eco- in Local Realities nomic development have coalesced into new Thanks to several encouraging developments approaches to citizen and community empow- in the 1990s (see Box 12–1), there are signs erment that embrace partnerships with gov- that thinking in international development ernments and markets while maintaining an policy circles is converging around several emphasis on self-reliance and self-help. sensible propositions that could reorient the As with traditional community-based devel- global poverty fight. The first is that no one- opment, this newer community-driven devel- size-fits-all model of development can be opment recognizes that the poor must be the applied anywhere. The generally poor record active authors of their own destiny and that of various western-inspired plans for devel- development cannot be sustainable if it dis- opment has been well documented. Even locates people from their communities and the World Bank draws this conclusion in its resources. Recognizing poverty as much more reading of the development experience of than a lack of income, the new approaches recent decades: “The central message...is emphasize building assets, expanding free- that there is no unique universal set of doms, and mobilizing the poor to overcome rules….we need to get away from formulae the voicelessness and powerlessness that are and the search for elusive ‘best practices.’”8 defining characteristics of poverty.6 Referring to the standard set of free mar- Informed by an emphasis on incentives ket reforms promoted by western develop- and client knowledge, community-driven ment institutions since the 1980s, in 2006 approaches are being implemented by NGOs, development economist Dani Rodrik noted businesses, and large organizations like the that “the question now is not whether the World Bank. Perhaps most promising is that Washington Consensus is dead or alive; it is practitioners are tackling the question of how what will replace it.” It is increasingly accepted to scale up community-driven change over that each country’s path to success will be dif- wide geographic areas involving significant ferent, based on the particular obstacles and numbers of people. opportunities set forth by their histories, cul- While the international community sets tures, social institutions, political climates, ambitious development targets like the Mil- and geographies.9 lennium Development Goals, it is not clear The second sensible proposition is that how to achieve them. So far, the debate is poverty is about much more than lack of polarized between mobilizing massive finan- income. The U.N. Development Programme cial resources for technical fixes and piecemeal has been publishing annual Human Devel- responses sought by entrepreneurs. But finan- opment Reports since the early 1990s; its cial resources and technology, although Human Development Index combines health, important, are not the binding constraints. education, and income as an alternative mea- Experimentation and local solutions are also sure of national progress. (See Chapter 2.) important, yet the scale of the challenge Informed by the role of social capital and demands a more ambitious response. As the institutions, this is also about more than hopeful case of Niger demonstrates, what is investing in the “social side” of development. required are ways of tapping into the ultimate A much broader view is emerging: develop- resource: human energy.7 ment is about the expansion of freedoms that

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Box 12–1. Reshaping the Development Agenda in the 1990s

The 1990s were a period of momentous change was that the absolute number of people living on in global affairs, with significant consequences for less than $1 a day worldwide had decreased by international development and, in particular, the 500 million between 1981 and 2001, mainly as a environment for more holistic, less prescriptive, result of growth in China and India. Yet the for- more locally driven development. mer had done so without democracy and tradi- First, with the end of proxy wars between tional private property rights, while the latter East and West and the historic “third wave” of had a significant government role in the economy. democracy resulting in greater political openness, In addition to these and the well-known East it was no longer defensible for rich nations to Asian “miracle” economies, countries such as prop up and defend corrupt and authoritarian Bangladesh, Botswana, Egypt, Mauritius, Sri Lanka, regimes with aid dollars (although by no means Tunisia,Viet Nam, and others also achieved pro- has that practice ended). This opened discussions gress with “unorthodox” strategies. Meanwhile, about issues of good governance—democracy, countries that had supposedly gotten their accountability, transparency, rule of law, and clean macroeconomic fundamentals in order—Bolivia, government—that had long been swept under Brazil, Mexico, Philippines, and Venezuela, for the carpet in official international development. example—had very mixed records. This experi- Evidence emerged over the decade that donors ence argued for much more humility among pol- slowly but surely were becoming more selective icy reformers and international institutions, and in who received their aid. much greater attention to the specific conditions As it became more difficult to tolerate unac- within countries. countable behavior on the part of aid recipients, Third, globalization of trade, investment, tech- the tables were turned on the providers. Devel- nology, and communications accelerated human oping countries and social activists argued for contacts and shrank the psychological distance greater “ownership” of development by those between people. Private capital flows outstripped who ultimately lived with the consequences of official development assistance by wide margins, aid. Society-wide attempts to transform econo- although only small amounts went to Africa. mies from the top down through “structural Global threats such as climate change, terrorism, adjustment” were deeply resented. In an era of and disease, with their various connections to political opening and concern for good govern- human deprivation, made it increasingly clear that ance, it became clear that development policies a more robust global engagement on poverty should be the result of public dialogue between was imperative. citizens and their governments at all levels, and Fourth, the United Nations sponsored a not principally the result of conditions imposed succession of international conferences on the on cash-strapped governments. environment, population, food security, social The World Bank instituted sweeping changes development, women, and housing that shaped in the late 1990s requiring governments to con- a broad international consensus on fighting sult with citizens on strategies and policies for poverty. These culminated in the adoption of the poverty reduction. There is still plenty of debate Millennium Development Goals by the U.N. Gen- on whether governments yet really “own” their eral Assembly in September 2000, followed by development programs, particularly in the macro- the International Conference on Financing for economic arena, but reform of development Development in Monterrey, Mexico, to consider assistance and “aid effectiveness” are major top- how to fund the goals’ achievement through ics of reform. public and private financial flows. This agenda Second, it became undeniably clear that the helped establish new norms for international countries that had made the most progress with development cooperation. sustained growth and poverty reduction were following their own unique paths. The good news Source: See endnote 8.

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STATE OF THE WORLD 2008 Mobilizing Human Energy people experience, requiring the interactive local economies.11 engagement of citizens and communities with Use of these techniques exploded in the state and markets.10 1980s and 1990s in NGO projects and began By the early 1980s, there was growing to be adopted by institutions such as the U.S. frustration about the top-down, expert-dri- Agency for International Development, the ven nature of prevailing development mod- United Nations, and the World Bank. Much els. Many commentators saw that the key to has been learned and accomplished by com- reversing this was to value and build on local munity-based approaches, but most have not knowledge and respond to the “felt needs” succeeded in igniting fundamental transfor- of communities, an idea articulated by Brazil- mation of societies in an age of globaliza- ian educator and activist Paolo Freire. Later, tion. (See Box 12–2.)12 Robert Chambers helped popularize a series Several pitfalls have been common. In of participatory or community-based devel- some cases the use of participatory techniques opment techniques that were effective in by donors and NGOs was nothing more than stimulating greater community awareness, an attempt to co-opt communities into devel- identifying local needs, highlighting local opment schemes that had already been fully assets, and mobilizing community action formulated elsewhere. After all, British and around projects of their own conception French colonial administrations in Africa and that fit with their cultures, ecologies, and elsewhere had used involvement of “tradi-

Box 12–2. Common Critiques of Community-based Development

Scope. Many projects were conceived on a nar- Sustainability. Community-based projects too row basis, such as helping communities build often failed the “walk-away test” and essentially schools or increase food production.These may collapsed or were abandoned by communities respond well to an NGO’s particular expertise, when the funding ran out and a sponsoring NGO a congressional earmark, a bureaucratic priority, or aid agency left. There may have been commu- or the demand for straightforward quantiﬁable nity involvement, but not true community own- “results,” but they do not reﬂect the real world ership. Communities learned to use outside of individuals and communities whose problems resources for a one-time effort, not how to seek and challenges are complex and interrelated. out, create, and manage partnerships. Integrated rural development programs in the Structural change. The obstacle to resolving 1970s and 1980s attempted to combine social many community problems lies outside the com- and economic needs, but they proved unsustain- munity in institutions and political and social able and gave little room for local voice. More structures. Community-based projects that dealt recent area development programs have had exclusively with the local, no matter how partici- greater success. patory, would never achieve fundamental trans- Scale. Community-based projects were too formation. Until development is understood as small and localized to make much of a difference, an inherently political process of people claiming given the scale of the problems faced. Despite basic rights, people will never ultimately reshape success, replication “a village at a time”’ was not the structural forces in society that are responsi- feasible. In addition, many supporters of these ble for the deprivation, discrimination, exclusion, projects assumed that eventually someone vulnerability, and violence that mark the lives of else—the government, a donor agency—would the poor. do the work of replication. Sources: See endnote 12.

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tional leaders” and “community participa- devalued by the world around them. Sus- tion” as a means of exerting social control. In tainable routes out of poverty would have to a reprise of this role, NGOs and private con- involve the poor not only by building their tractors, who were increasingly the conduits assets and capabilities but by engaging with of official foreign aid, were driven by donor- the institutions and structures of governance mandated results and timetables rather than and markets. Engaging this governance community needs, capabilities, agency, and agenda involves communities participating in vision. Many of these “participatory devel- public budgeting decisions, scrutinizing pub- opment” projects weren’t all that participa- lic and private development projects, giving tory from the perspective of the poor. “report cards” to government ministries, Captured by elite interests or simply involv- and campaigning for greater access to pub- ing information sharing or consultation but lic information.15 no real control or influence, these were a far cry from the liberating process of local ini- The Unlimited Resource tiative and social movement that their advocates claimed.13 Increasing poor people’s freedom of choice Many of these projects also idealized com- and action to shape their own lives is critical munities in ways that undermined their poten- to achieving development outcomes because tial. First, they imagined communities as it taps into their natural energy and incentive. homogenous and harmonious entities when World Bank research on this topic has dra- often they were far more complex units within matically expanded theoretical and practical which needs and interests were mediated by approaches to understanding and measuring power, caste, ethnicity, age, religion, or gen- empowerment. It requires the poor to build der. Second, many NGOs who supported their individual assets (material, financial) as these projects were ideologically or other- well as their capabilities (human, social, psy- wise antagonistic toward working with gov- chological, political). The poor also require ernment or the private sector. Their efforts at greater collective assets and capabilities, as times isolated communities or promoted the these provide security, preserve culture, pro- naive notion that bottom-up mobilization vide meaning, protect the local environment, alone would overcome the powerful and and expand voice and power. Particularly entrenched forces arrayed against them. As a critical is the role of collective organizations result, many community activities remained and social movements. Informed by these essentially local projects and failed to affect or concepts, efforts to stimulate community- engage wider social and political structures driven development are showing promise in that were driving poverty, environmental overcoming some key shortcomings of early degradation, and social injustice.14 efforts at community-based development.16 These criticisms were one helpful reminder A leading example is the Self-Employed of the inherently political nature of poverty. Women’s Association (SEWA), a 30-year-old The poor are poor because the rich and pow- grassroots movement that has empowered erful have created institutions to serve their some of the most marginalized of India’s interests. The landmark Voices of the Poor poor women. Where economic growth has study, which gathered the views of 60,000 outpaced employment growth, many Indian poor men and women from 60 countries, women take up casual labor or self-employ- confirmed that the poor saw their humanity ment in the informal sector, including load

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STATE OF THE WORLD 2008 Mobilizing Human Energy pulling, street vending, and home-based faster and at other times slower, and may work. In addition to poverty and insecurity, occasionally be deflected around an obstacle, these women are regularly cheated by employ- but it always moves in the same direction.”20 ers, charged exorbitant interest by money- Daniel Taylor and others at the develop- lenders, and forced to pay bribes to police and ment NGO Future Generations consider public officials to ply their trades. Despite community-driven solutions the basis for their varied and dispersed occupations, labor redirecting globalization, reducing inequality, activist and SEWA founder Ela Bhatt believed and preserving and restoring the environ- these women could be organized and helped ment. They maintain that most development to become more self-reliant.17 projects fail because they seek to control and SEWA today has over 700,000 rural and manage communities rather than unleash urban members in seven states. It has orga- energies and potential. Instead of building nized women to fight for their rights to fair confidence and resourcefulness, such pro- treatment, ranging from better prices for jects teach dependence on outside actors and their goods and services to influencing the for- funding. When funding runs out and the mation of India’s first National Policy on project ends, communities are left waiting Street Vendors. To secure income and assets, for the next project.21 SEWA has formed 76 cooperatives in a vari- Taylor has developed a simple system of ety of fields—from tree growing and handi- community-driven learning and adaptation crafts to milk production and salt farming. It called Seed-Scale—a process that helps com- gives women skills training and marketing munities to marshal and direct their energy in assistance, helping them to avoid exploitative ways that fit their economy, ecology, and cul- go-betweens.18 ture at a pace that is natural and organic. The organization helps its members gain Seed-Scale is based on four simple principles access to state-provided services (where they embedded in a seven-step community dia- exist) and lobby for improvements of inade- logue and planning process. (See Box 12–3.) quate services. If these approaches do not These are so intuitive that communities, no work, SEWA helps members organize the ser- matter how daunting their situation, can vices for themselves. SEWA today maintains a quickly and easily absorb and use them to network of services to meet basic needs such mobilize and channel their efforts.22 as child care, health care, insurance, and hous- The idea of building purposeful human ing. More than 300,000 women have used its and social energy is at the center of Seed- primary health services and 110,000 are cov- Scale. To catalyze it, the poor must believe ered by its insurance program.19 that a better future is possible and that they The movement has grown and sustained a can bring about positive change. Arjun wide scope of activities and services involving Appadurai of The New School has devel- hundreds of thousands because of its orga- oped the idea of the “capacity to aspire” to nization, values, leadership, and flexibility. understand this aspect of empowerment. It SEWA’s decentralized structure and strong is a cultural capacity based on how the poor value system have kept the movement respon- learn and understand their “place” in society sive to the women’s needs. Bhatt emphasizes based on wider cultural norms. It is an abil- the fundamental difference between running ity to navigate the wider world that is devel- an organization and sustaining a movement oped through experimentation and learning like SEWA: “The movement flows at times in a way that helps to expand the horizons of

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simple techniques or by taking individuals Box 12–3. Basic Principles to see successes in other places. People adopt of Seed-Scale something new when they see others doing Build from success. Every community has a it in circumstances similar to their own. recent or distant success that can be the basis Since 1997 Future Generations has applied for inspiration and insight as to how the com- Seed-Scale in the northeast Indian state of munity can work together. Arunachal Pradesh, which shares a border Engage in three-way partnerships. Part- with Bhutan, China, and Burma. Arunachal nerships require that communities, state and is home to 125 tribal groups and the center market actors, and outside individuals (as of biological diversity for all the bananas and facilitators, knowledge brokers, and change citrus fruit in the world. In this isolated area agents) all work together. of India, communities have persisted for cen- Make decisions based on evidence. turies in very basic conditions. While the Objective data can inform decisions and help British Empire never successfully penetrated measure progress. Learning simple survey techniques gives villagers a deeper under- this area during colonial rule, outside inter- standing of their environment and power ests are encroaching on the state today, eye- over information collection. ing its vast potential for hydropower and Measure results through behavior timber. The government has promised the change in individuals and communities. people of Arunachal a great deal since inde- Behavior change happens when people pendence, but little has been delivered. Social perceive something works and is in their self- conditions are harsh, particularly for women. interest to continue. Polygamy and child marriage are entrenched traditions, and forced labor is still practiced Source: See endnote 22. by some ethnic groups.24 Today, from four core sites radiating across the possible.23 more than 100 villages, communities in In the beginning, anything can be the Arunachal Pradesh are actively and creatively spark that nurtures this capacity, whether it is solving their own problems. Small successes a mother learning to treat her baby’s diarrhea are keeping communities motivated and mov- with homemade oral rehydration solution, a ing forward. Village Welfare Workers take farmer learning better farming techniques, the lead—gathering data on health, eco- or a group effectively confronting a polluting nomic, and environmental issues; delivering industry in its community. The critical insight home-based services; and mobilizing the is that the ownership of the success and its community to action on a wide scope of deeper meaning resonates within the com- issues and advocating for change. Work munity, which outsiders need to accept and started with women’s groups but later build from. expanded to include men. Health improve- In Seed-Scale, the initial emphasis of out- ments came from communities learning how side assistance is on guidance with the to treat diarrhea and pneumonia, improve methodology and facilitation of community maternal care, have safer child births, immu- access to knowledge that responds to local pri- nize children, and monitor child growth.25 orities in areas such as health and hygiene, lit- Husbands who were initially unsupportive eracy, natural resource management, and of their wives’ involvement quickly changed income generation. This happens by teaching their minds when their families’ health and

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STATE OF THE WORLD 2008 Mobilizing Human Energy welfare improved. They have gained access to What has transpired in these cases microcredit and have started small businesses. represents a different way of achieving the They also have improved farming techniques Millennium Development Goals. An empow- and learned how to improve food security and erment approach sees citizens as the authors nutrition. Impressed with the success in of their own destiny, not passive vessels await- Arunachal, the state government asked that ing government programs, services, or edu- each new village council be trained in the cational campaigns to catch up with them. Seed-Scale methodology so that the 6,000 vil- While ﬁnancial resources are an important lages in the state could be equipped to orga- component of any community development nize a process of local change.26 plan, the ﬁrst question addressed by empow- Perhaps the most impressive indicator of erment approaches is whether the plan can be community empowerment is demonstrated by mobilized from within by using existing assets what the women have done to change some differently or through partnerships with oth- deep-seated social norms and institutions. ers. What is perhaps a greater challenge is Indian law exempts tribal areas from laws the fact that this approach requires outside banning polygamy and child marriage, so the experts and agencies to relinquish control practices flourish. Some of the women in and agree to an iterative effort that starts community action groups were from the low- modestly and will take unexpected directions est rungs of the social hierarchy, as one-time as well as its own time. child brides and the third or fourth wives in a household. Once their value to their fami- Scaling Up Local Successes lies and communities was enhanced through new knowledge and practices brought back One of the greatest challenges for develop- from village health trainings, they found the ment organizations is taking a success that voice to argue against child marriage and is working locally and translating it to the became part of a gathering community pres- regional or national level. This principally sure to end the practice voluntarily. involves understanding why something Dialogue started within a few women’s worked in a particular place and time and groups spread and then percolated up into vil- then determining how those lessons can be lage council meetings. A petition was drawn applied elsewhere. In some cases, expansion up and endorsed by men and women at a depends on a quantum leap of investment; series of public meetings and given effect by in others, it may depend more on removing tribal leaders. When rumors surfaced of an old barriers to entrepreneurial activity or mak- man planning to take a child bride (his ing government agencies more transparent fourth), he was confronted and stopped by and accountable. Numerous approaches to the community and reminded that this prac- scaling up successful programs exist. (See tice was no longer acceptable. This new atti- Box 12–4.)28 tude has held up throughout an area Each approach has its place. The biologi- equivalent to 10 percent of the state. It is cal approach would not be appropriate, of noteworthy that this change was the result of course, to respond to a natural disaster or an organic process that was directed by the build a transnational highway system. But community. For this reason it is likely to be the explosion or campaign approach is not sustained because it reflects changed roles appropriate for community-driven develop- and behaviors.27 ment. Yet too often such top-down, expert-

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Box 12–4. Common Ways to Scale Up Successful Programs

Blueprint approach. A technical solution that jects engage in site-specific activity (a community has worked under a set of generally widespread or cluster of villages) for an extended period of circumstances is codified into a plan for replica- time, developing local leaders and change from tion on a large scale. Attempts are sometimes within. Often implemented by NGOs or religious made to tailor to local conditions during imple- mission groups, these projects get to know the mentation, but to communities this is essentially local circumstances and adapt to local conditions. a process that operates down from the top or in Replication is additive as success spreads village from the outside. Local actors might comment on by village, community by community. Given that proposed implementation but not on the basic these are often pioneering initiatives or demon- plan. Examples include many nature preserves, stration projects, proponents of this approach appropriate technology projects, large-scale micro- argue that governments or others with larger credit programs, and infrastructure expansion. budgets have an obligation to adopt and expand Explosion or campaign approach. This these projects. Going to scale with this approach involves a large-scale, concentrated effort to is very slow and dependent on outside resources. marshal resources to deliver commodities or Biological approach. Drawing comparisons to services in response to a generally narrow need. the way species evolve in nature, this approach Food, humanitarian aid, and reconstruction supports local experimentation and adaptation assistance after a natural disaster are typical (“evolutionary adjustments”) and then sets an examples. Campaigns focused on disease eradi- enabling environment for rapid expansion. It cation, such as the global smallpox campaign in combines the local focus of the additive model the 1970s, are another example. While intensive with the growth potential of the explosion and and generally effective in achieving results, this blueprint approaches, but unlike the latter the method is not well suited for systemic change, impetus comes from within adapting communi- local variation, or sustainability in terms of local ties. Government plays an important role in ownership. In fact, some of the favorite disease- removing obstacles and facilitating expansion. specific programs of donors are accused of The potential for exponential growth, healthy undermining national health systems, and relationships, and balanced and organic growth donated food aid’s deleterious impact on local make this approach more self-sustaining. agricultural economies has long been known. Additive approach. Typical “bottom-up” pro- Source: See endnote 28. driven approaches are the favorite of aid agen- poor were reached. The Millennium Village cies and politicians because they deliver tan- Project of the Earth Institute combines a gible goods quickly: school buildings, blueprint approach offering villages choices hospitals, large dams, airports, and the like. from a list of over 40 poverty reduction inter- These are not undesirable per se, but this ventions with a campaign approach for the approach is not good at engaging the human distribution of commodities like bednets, but element. For example, the spread of micro- here again it is not clear how much local credit programs in Bangladesh used the blue- adaptation, ownership, and integration with print approach for expansion initially but was local institutions will develop.29 forced to adopt the biological approach when Some promising programs to stimulate the limitations of the initial model were community-driven development reaching reached and it became clear that site-specific millions of people are being supported by the solutions were needed to ensure that the World Bank using essentially a blueprint

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approach but still managing to support local access to information needed to investigate collective action and give discretion to com- and publicize incidents of corruption. Rig- munities in the selection of projects to fund. orous evaluations of KDP have shown that it They are designed to institutionalize com- has made important contributions to behav- munity participation in decisionmaking. ior change and social norms in project areas Funding is transferred directly into village compared with control sites, even taking into bank accounts to be used for the projects consideration the broader democratic trends selected by elected local committees follow- in the country during the period. More peo- ing extensive public dialogue. The program ple are participating in local decisionmaking supports various NGOs to help facilitate forums, including more women. In East Java, community participation and the inclusion of 67 percent of survey respondents in KDP marginalized people. Critical to their effec- villages say decisionmaking is more democ- tiveness are built-in systems to promote ratic now, compared with 46 percent in non- transparency and control corruption. The KDP villages.31 Kecamatan Development Program (KDP) The NSP in Afghanistan is implemented of Indonesia and the National Solidarity through a partnership between the govern- Program (NSP) of Afghanistan are two ment and NGOs and is the only program to examples of the Bank’s new approach to have reached all 34 provinces, affecting 13 scaling up successes. million Afghans—two out of every three rural individuals. In rural Afghanistan, where no form of local election has taken place in Governments can institute changes in decades and where some traditional leaders laws, policies, and practices that reshape have lost credibility because of their role in institutions and remove obstacles to change. 20 years of civil conﬂict, the NSP organizes elections for community development coun- Between 1998 and 2006 KDP covered cils and the key leadership positions. Women’s 34,233 of the poorest villages in Indone- participation in the elections and as candidates sia—about half the villages in the country. The is supported by program facilitators. Com- program is signiﬁcant for the World Bank, munities have used NSP resources to build representing almost half its lending portfolio community centers, health posts, and schools, to the country. KDP provides grants in the to resurface roads, and to construct run-of- range of $60,000 to $110,000 to districts for the-river hydropower projects. Community use in projects chosen by the community. members are learning important civic skills, Open public meetings are held at the hamlet, and community cohesion is being rebuilt.32 village, and kecamatan (district) levels to Innovative blueprint programs such as determine priorities; independent facilitators these, with the backing of government and ensure the participation of women and the World Bank resources, are not available to all disadvantaged. Projects are carried out by communities. In addition, their focus has villages with local labor and materials.30 been on providing block grants for small- The KDP promotes transparency by using scale infrastructure, which, combined with the local media and billboards to publish the the weak coordination within government, amount of funding provided to each com- has placed limits on community choice.33 munity and the details of the contracts. In A biological approach appears most addition, the media are given unhindered promising for stimulating solutions that

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STATE OF THE WORLD 2008 Mobilizing Human Energy evolve to fit a variety of local possibilities to respond to new incentives. In Niger, the rather than being adjusted after the fact. change in the forest code that gave farmers According to Seed-Scale, the process ideally secure rights to the trees on their land had this unfolds simultaneously along three dimen- effect. It stimulated investments by farmers sions: community, regional, and national. throughout the country and further experi- The first dimension is reached when comments that the forest service could support. munities have mastered how to build upon Alternatively, structural change can happen at their local success. Initial interventions in the local level and be scaled up to other lev- one area such as community health have els, as when the women of Arunachal brought stimulated a wider scope of action in other about the end to child marriage. areas such as food security, environmental Each of these dimensions is an entry point protection, education, and income genera- to the other, and all are necessary to see tion. Through partnerships with NGOs and change operate on a regional or society-wide government officials, communities gain access level. Recent developments in Tibet are a to the knowledge and resources necessary to good illustration of this. In the early 1980s sustain momentum. Tibet faced growing environmental pres- The second dimension is pursued when sures from population growth, increasing successful communities share their experi- fuelwood consumption, and resource pres- ences formally and informally with other sures from China’s economic expansion. communities in the same region. As the farm- One national policy response was the creation ers in Niger showed, this can happen when of the Qomolangma National Nature Pre- NGOs facilitate farmer-to-farmer site visits serve (QNNP), where local people were and when farmers meet and share knowl- encouraged to continue living in the preserve edge in markets and social settings. Specifi- and attention was focused on promoting cally, the idea is to help transform clusters of their economic and social development— communities that have already mastered a action that, in the traditional view, would series of interventions into formal Action have been seen as antithetical to environ- Learning and Experimentation Centers, mental protection. The regional government where experimentation takes place to adapt provided budgets and staffing for the con- these interventions to each local area. Visi- servation area—not to police the region but tors from other communities are welcomed to engage people through education and to this group of villages to learn and take part incentives. Outside partners brought in in workshops and formal training. The con- knowledge and partnered with communi- trast between traditional development— ties and townships to focus on improving where outside experts design the livelihoods rather than expecting people only solution—and truly home-grown approaches to protect nature. A participatory model of could not be stronger. conservation management emerged reflect- The third dimension happens at the level ing the Seed-Scale principles.34 of systemic enabling conditions over which Today the duality of development and governments most often have the greatest conservation success can be seen in the influence. They can institute changes in laws, QNNP. In the late 1980s the area had only policies, and practices that reshape formal and one bank; by 2006 there were 10. Initially informal institutions and remove obstacles to none of the 320 villages had protected water change, encouraging people and institutions supplies; now 64 villages have them. The

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STATE OF THE WORLD 2008 Mobilizing Human Energy number of schools has grown from 5 to 38. trade rules are not designed to enhance The population of the area has swelled, partly opportunities for the poorest countries. (See from immigration due to the growth of sev- Chapter 14.) In fact, many rich-country poli- eral towns but also because better health cies do just the opposite. U.S. and European means more children are surviving. The con- Union agricultural barriers and subsidies deny servation side of the ledger is just as impres- market opportunities to poor countries. Not sive. Now 42 percent of the land area is only do such impediments need to be protected under conservation management. removed, but Paul Collier, former head of Wild animal population numbers are increas- research at the World Bank, argues that the ing for every species, including the endan- most destitute nations actually require some gered snow leopard, the Tibetan antelope, red trade protection (from Asia) to get their ghoral, and argali sheep. Deforestation rates economies started.36 have decreased by over 80 percent, and large- International aid, held up as a symbol of scale tree plantations are being started in rich-country concern and generosity to the fragile river drainages. The use of environ- less fortunate, is hardly accountable to those mentally friendly solar, geothermal, and who receive it. Many rich countries recycle a hydroelectric generated energy is expanding large percentage of their aid back to influen- across Tibet.35 tial constituencies of NGOs, consulting firms, and universities. Current estimates are that as Overcoming Obstacles much as 57 percent of U.S. development assistance comes back to the United States to When considering Earth’s potential to sustain pay for good and services. This “tying” of aid growth, the case is often made that the rich reduces its value by up to 25 percent and and affluent need to reduce their consump- closes off opportunities to support businesses tion of resources in order to make room for in poor countries.37 increased consumption by the world’s poor A good deal of donor assistance bypasses as they climb out of poverty. (See Chapter 4.) governments in the name of avoiding cor- This proposition stands on its own merits, but ruption and bureaucratic inefficiency, tar- it also suggests international action is a zero- geting beneficiaries, and supporting civil sum proposition. Yet poor countries need society. While these goals and concerns are not repeat the mistakes of the rich or emulate worthy and often legitimate, it means that their overconsumptive lifestyles. Sustainable donors miss the opportunity to build state progress on global poverty need not rest on capacity to deliver services effectively. In an economic growth and resource consumption age when the international community is alone. Attacking poverty as it is conceived by trying to build democratic states that are the poor themselves opens up a wider range accountable to their people, the persistent of possibilities for action. channeling of aid through scattered projects But for globalization to allow these possi- of myriad donors breaks the link between cit- bilities to be pursued, the rules of the game izen and government. Donors recognize this, need to change at all levels. Needed reforms and in countries that are reasonably well of the global development architecture of governed they are attempting to channel trade, aid, investment, migration, security, more of their aid into budget support rather and rich-country environmental policies are than stand-alone projects. well documented. For example, international If donor nations are to make this invest-

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STATE OF THE WORLD 2008 Mobilizing Human Energy ment, developing countries need to make from control held by experts and officials to changes too. In return for investments in one of learning and experimentation among government capacities, there must be strong partners. This is often antithetical to the efforts toward decentralized and open gov- “results-based” mindset that insists on get- ernance. Deepa Narayan, lead author of the ting things right the first time.39 World Bank’s Voices of the Poor, highlights Yet around the world there are many who four priorities: enabling citizen access to pub- will be left behind because even the basic con- lic information, promoting policies of par- ditions for change are absent. Collier argues ticipation and inclusion, ensuring democratic that the growth engine in many of the more and client accountability, and enhancing local advanced developing countries will eventually organizational capacity. These will help pro- pull the poor out of poverty, but it is the weak- vide the enabling environment.38 est states—many caught in conflict and bad These and many other systemic changes governance, where growth is not happening— are critical for unlocking the potential for that need attention and support. The “bottom home-grown development. Development billion” of the world’s poor live in such coun- economist Bill Easterly describes it as the tries. Perhaps it is here where empowerment- need for more “searchers” and fewer “plan- based approaches hold the most promise. ners.” Empowerment frameworks such as Why? Because little more is required to start Seed-Scale argue for a change in mindset than a little capacity to aspire.40

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CHAPTER 13

Investing for Sustainability

Bill Baue

At a United Nations summit on corporate performance, Goldman integrated sustain- responsibility in July 2007, Goldman Sachs ability factors into its traditional financial released a report that breathed yet more life analysis. The report found that sustainability into the maturing body of sustainable invest- leaders outperformed the general stock mar- ing. The venerable investment bank had been ket by 25 percent over the previous two years nurturing growth in this field over the past and outperformed their same-sector peers by several years: in 2004 it released its first sus- almost 75 percent over the same period.2 tainable investing report, in 2005 it issued a Such numbers turn heads. And more company-wide environmental policy, and in important, they draw ever more money into 2006 it invested $1.5 billion in clean energy. sustainable investing, as it has come to be At first glance, it may have disappointed sus- known—increasing the amount of capital tainable investing advocates to see Goldman pegged to environmental, social, and gover- analysts saying that it was too early to corre- nance performance. (See Box 13–1 for a def- late sustainability performance directly to inition of sustainable investing.) These financial performance.1 commitments are increasingly of interest to a Of course, this coy assertion assumed that broad range of investors—from individual such a link—considered the Holy Grail by shareholders and businesses engaged in pro- some advocates of sustainable investing— ject finance to venture capitalists and non- unquestionably exists. In the meantime, until profits promoting microfinance. (See Table empirical evidence could prove a direct con- 13–1.) Together, these investors control sig- nection between sustainability and financial nificant assets that can steer societies toward

Bill Baue writes on socially responsibility investing for SocialFunds.com and on corporate social responsibility for CSRwire.com. He co-hosts and co-produces the nationally syndicated Corporate Watchdog Radio show and podcast and teaches at the Marlboro Sustainability MBA program in Vermont.

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sustainable development. Box 13–1. Definition and Scope Indeed, building sustainable economies of Investing for Sustainability will necessarily have investment at its core. “Investing for sustainability” is an umbrella Currently, modern industrial economies rely term used in this chapter for all the various on pillaging the past at the expense of the forms of investment that promote sustainabil- future, burning through solar energy that ity in one way or another. The term “sustain- has fermented for millennia forming fossil able investing” applies to the most prominent fuels that release eons worth of carbon diox- subset of investment practices that promote ide that turns the atmosphere into a veritable sustainability: socially responsible investing pressure cooker. Changing course requires and mainstream investing that integrates environmental, social, and governance factors into applying strong leverage from many different investment decisions. The lion’s share of pro- directions—especially investment. The sci- ject finance for major infrastructure projects entific consensus, for example, is that car- such as dams and mines now operates bon dioxide emissions need to be reduced according to the Equator Principles, which 50–80 percent by 2050 in order to avert cat- integrates sustainability factors. astrophic climate change—essentially requir- Other investment practices that promote ing a complete overhaul of carbon-intensive sustainability fall outside the definition of “sustainable investing” as it is currently devel- economies and lifestyles. (See Chapter 6.) oping, however. “Green” investing, or support Because investment decisions help shape an for environmentally beneficial companies and economy’s infrastructure decades into the projects, is all the rage in private equity and future, investor engagement is essential in venture capital, though these investments turning economies away from conventional rarely take the full range of sustainability con- paths and toward a sustainable one.3 siderations into account. And microfinance is Luckily, sustainability and investing share growing rapidly, but it focuses primarily on social factors, with less emphasis on environ- a common horizon: both focus on the future. mental sustainability. Sustainability considers how to meet people’s needs today as well as in the future.

Table 13–1. The World of Sustainability Investments

Sector Description Contribution to Sustainability Socially responsible Values-based investment opportuni- A large share of SRI focuses on investment (SRI) ties, shareowner advocacy, and com- environmental and social sustainability; munity investing some investments, however, focus on values unrelated to sustainability Project finance Funding for major infrastructure or More than 85 percent of project finance extractive projects such as dams or capacity globally falls under the Equator mines Principles, which factor in social and environmental sustainability Private equity and Speculative financing for promising Attention increasingly focused on green venture capital innovative startups energy and other green products Microfinance Very small loans, as little as $50, that Largely focused on income generation and help small-scale artisans and crafts- poverty alleviation people develop markets for their wares

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Investing is essentially a form of delayed con- has evolved into a widespread practice, as sumption that uses current capital to gener- described in the next section.5 ate future financial support—particularly after The 1971 launch of the Pax World Bal- retiring from active income earning. Tradi- anced Fund introduced the second SRI pil- tional investment strategies in current use lar—screening out companies in so-called sin support business practices without regard to sectors, such as weapons, tobacco, alcohol, social or environmental impacts, arguably and so on. Since the late 1990s, some strands defeating the purpose of saving, as they con- of SRI have been building on this ethical, val- tribute to the destruction of the future. Sus- ues-based foundation by adding financial tainable investing necessitates deep value-seeking approaches typified by so-called consideration of social and environmental positive screens that give priority to compa- implications, always assessing and measuring nies with best practices in corporate social whether business practices can sustain social responsibility. Similarly, “best-in-class” screens equity and ecological balance while main- reward the best social and environmental per- taining profitability.4 formers across all sectors—even those typically Viewed through this lens, sustainability avoided by SRI, such as oil. According to and investing can reinforce each other. A this strategy, it is best to encourage better sus- shift in worldview toward sustainability invest- tainability practices in all companies. More ments is already well under way, but its con- recently, value-enhancing SRI has emerged, tinued growth cannot be taken for granted. arguing that strong environmental, social, The challenge is to structure investment and governance management acts as a proxy options so that outcomes promote both sus- for strong business management.6 tainability and strong returns. In 1973, Chicago-based ShoreBank pioneered community investing, which accepts Socially Responsible Investing below-market financial returns in exchange for social returns by supporting community Some four decades ago, the foundations of development projects such as low-income sustainable investing were established with housing, minority- and women-owned busi- the advent of modern socially responsible nesses, and microfinance. However, it wasn’t investing, or SRI, which broke new ground by until some two decades later that SRI mutual marrying social and environmental consider- funds began supporting community invest- ations with traditional financial considera- ing, when the Calvert Social Investment tions. SRI has since grown by encompassing Fund integrated the practice into its portfo- three elements—shareowner activism, screen- lio in 1990.7 ing, and community investing—all of which SRI has moved from a niche practice to the now inform sustainable investing. mainstream, with about $1 of every $10 Modern shareowner activism—where invested in the United States using at least one stockholders engage with companies on envi- of the three pillars of social investing, accord- ronmental, social, and governance issues ing to the Social Investment Forum. In 2005, through direct dialogue, campaigns, and $2.29 trillion (9.4 percent) of the $24.4 tril- nonbinding shareowner resolutions that lion in total assets under management tracked appear on the corporate proxy and go to in Nelson Information’s Directory of Invest- vote at annual meetings—dates back to the ment Managers was involved in SRI—up late 1960s. Since then, shareowner activism from $2.16 trillion in 2003.8

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Although SRI growth has been rapid over SRI or mainstream investments seeking social the past decade, national monitoring bodies and environmental sustainability, but it measure different attributes of this invest- excludes values-based investment strategies ment, making growth rates difficult to com- that simply involve ethical considerations (such pare. Still, in Australia SRI funds under as Catholic screens of companies that pro- management grew 36-fold between 2000 duce drugs that induce abortion) that tradi- and 2006. In the United States, they grew tionally fall under the SRI umbrella but that do more than threefold between 1995 and 2005. not promote progress toward sustainability. Canadian SRI increased nearly eightfold Spearheading this movement is Pax World between 2004 and 2006. And in Europe, CEO Joe Keefe, who believes that sustain- these funds went up by some 36 percent able investing has the potential to be a trans- between 2003 and 2006.9 formative strategy that revolutionizes Globally, SRI assets stand at about $4 tril- investing itself—“at a time when market lion (see Table 13–2), with U.S. growth capitalism must of necessity undergo a sus- plateauing somewhat while funds continue to tainability revolution equal in significance to grow more robustly elsewhere around the the industrial revolution that ushered in the world. To place this in context, however, the modern period.”11 global management consulting firm McKin- Keefe believes sustainability advances a sey & Company estimates global capital mar- new conception of wealth, with the potential kets at $136 trillion and projects this will to offer a solution to the crisis in capitalism reach $228 trillion by 2010. So formal SRI by aligning financial outcomes with environ- represents a mere 3 percent or so of global mental, social, and governance outcomes— capital markets.10 “not with ‘values,’ mind you, but with Now SRI is shifting terminology, with some outcomes,” he notes. Achieving sustainabil- leaders in the field advocating for a semantic— ity requires companies and markets to shift and arguably a structural—change, to “sus- their behavior and necessitates that wealth- tainable investing.” The move seeks to creation strategies live up to the term “sus- simultaneously broaden and narrow the scope tainable” by eliminating the byproducts that of the practice using this term. It encompasses too often flow from market capitalism currently—poverty, injustice, and environmen- 12 Table 13–2. Socially Responsible tal degradation. Investments, by Region, Mid-2000s Adoption of the term “sustainable investing” as defined by Keefe represents a main- Socially streaming for SRI, as it blends the core SRI Country Responsible Year of focus on sustainability outcomes with the or Region Investments Data mainstream focus on financial outcomes. (billion dollars) What is interesting is that the mainstream United States 2,290.0 2005 investment community is converging on the Europe 1,224.0 2005 Canada 439.0 2006 same destination, but from the other direc- Australia and tion—integrating sustainability considera- New Zealand 7.0 2005 tions into a traditional focus on financial Japan 2.6 2007 factors. It is a measure of SRI’s success that its methods are now embraced by the very Source: See endnote 10. people who previously scoffed at it.

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Mainstream asset managers, such as Citi sions to the best research on so-called extra- and Neuberger Berman, who buy stocks to fill financial (environmental, social, and gover- mutual funds and other portfolios, started nance) factors. The chance to earn real money practicing SRI long ago to fill a niche demand. motivated some financial analysts to become Now mainstream investment banks, which quick studies of environmentalism and sell stocks (a much more lucrative business humanitarianism.14 stream than managing funds) are embracing Now it is standard for mainstream analysts sustainability, with investment analysts inte- from such firms as Citi, Lehman Brothers, grating environmental, social, and gover- UBS, Piper Jaffrey, and Merrill Lynch to nance factors into their research. incorporate sustainability factors into their research. JPMorgan has even established a Now it is standard for mainstream dedicated Web page for its climate change- related research. The Goldman Sachs report analysts from such firms as Citi, UBS, released at the July 2007 U.N. corporate and Merrill Lynch to incorporate responsibility summit exemplifies the strat- sustainability factors into their research. egy of assessing sustainability performance not in isolation but in conjunction with This trend dates back to 2003, when the financial metrics.15 U.N. Environment Programme’s Finance Many in the SRI community—including Initiative commissioned investment analyst Michael Kramer, managing partner and direc- reports from mainstream financial institu- tor of social research at Natural Investment tions assessing the “materiality” of sustain- Services—consider the mainstream embrace ability issues—in other words, whether they of sustainability a mixed blessing. While affect stock prices significantly enough to Kramer acknowledges that the Goldman trigger a fiduciary responsibility for investors Sachs report and others like it are part of the to take them into account. The result was 11 solution due to their influence over the main- reports by such venerable firms as Deutsche stream corporate community, he laments that Bank, Goldman Sachs, HSBC, and UBS— they advance “such broad interpretations of essentially creating a glut of research on the sustainability now that it renders the con- intersection between financial and sustain- cept nearly meaningless.” When a major oil ability issues to fill the dearth that had existed company invests modestly in renewable until then. The reports also covered a wide energy while its business model still hinges on spectrum of sustainability issues, from cor- fossil fuels, is this really sustainable?16 porate governance to emissions trading.13 Yet modest support by a giant may do In October 2004 this movement received more to advance sustainability than a small another boost from the Enhanced Analytics renewable energy company with a deeper Initiative, a global consortium of institutional commitment to sustainability. In practice, in investors set up by the Universities Superan- any case, this is not necessarily an either/or nuation Scheme (one of the largest U.K. equation, as both dynamics are happening pension funds), Generation Investment Man- simultaneously. In the end, the achievement agement (chaired by Al Gore, the first firm to of true sustainability will require a conver- integrate sustainability analysis directly into gence of both bottom-up and top-down financial analysis), and others. Members of the transformations, with investment playing a initiative offer 5-percent brokerage commis- significant role in both.

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One innovative way of moving toward for social activists to start using shareowner- truly sustainable investing from the bottom ship again as a tool for promoting progressive up is called “regenerative investing,” a notion change. In a 1947 court case, the Securities pioneered in 2003 by Michael Kramer. He and Exchange Commission (SEC) confirmed calls the new investment style “regenerative” the right of the infamous corporate gover- because it channels financial resources into nance gadflies John and Lewis Gilbert (and projects that mimic the way nature operates all shareowners) to file resolutions with com- within closed-loop systems that recycle mat- panies, which the brothers had been doing ter and energy. Regenerative investing gives since the 1920s without any legal standing. priority to far-sighted investments in areas These rights languished largely unused until such as clean energy, sustainable agriculture social and environmental activists adopted and forestry, recycling, and green real estate them in the late 1960s. Activist shareowners development. The strategy also looks for local filed the first social and environmental reso- investment that supports formal barter net- lutions in 1967 at Eastman Kodak, address- works and currency systems, small business ing racial discrimination against African incubators, property leasing systems, and land American employees; in 1969 at Dow, trusts. At this early stage, regenerative invest- addressing Agent Orange; and in 1971 at ing strategies carry significant risk and so are GM, addressing apartheid in South Africa.19 only open to “qualified” investors with The year 1971 also saw the founding of the enough assets to buffer the risk.17 Interfaith Center on Corporate Responsibil- ity (ICCR), which pioneered the modern Shareowner Activism practice of shareowner activism in the United States—namely, direct engagement with com- Shareowner activism, a core strategy of SRI panies through dialogue or the filing of res- and sustainable investing, is as old as share- olutions to advocate for improvements in ownership. The Dutch East India Company environmental, social, and governance per- was the first enterprise ever to be listed on a formance. Since then, ICCR has grown into stock exchange, in 1602. On January 24, a coalition of 275 faith-based institutional 1609, it received history’s first shareowner investors and SRI firms with over $110 bil- petition from Isaac Le Maire, the largest lion in assets under management, and the minority investor, who railed against the man- practice it pioneered has brought about sig- agement as “absurd and impertinent” and nificant corporate change.20 “a kind of tyranny,” according to Stephen It is difficult to substantiate the degree of Davis, Jon Lukomnik, and David Pitt-Watson influence shareowners have, however, for two in The New Capitalists: How Citizen Investors reasons. First, they often work in concert are Reshaping the Corporate Agenda. Dutch with other activists, such as nongovernmen- religious pacifists followed suit, buying shares tal organizations (NGOs) and campaigners, in order to protest the company’s “generous as well as other intermediaries, making it application of warfare, blockade, piracy, assas- impossible to attribute success solely to share- sination, imprisonment, plunder, terror, slav- owner activists. And second, dialogue most ery, bribery.” So began civil society’s use of often occurs outside the public eye. stock ownership as leverage for advancing Statistically speaking, the 2007 proxy sea- social justice.18 son (when annual meetings take place, where It took almost three-and-a-half centuries shareowners present resolutions for all

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STATE OF THE WORLD 2008 Investing for Sustainability investors in a company to vote on) demon- such an effort.23 strated this clearly. According to Institutional But shareowner activism as traditionally Shareholder Services (ISS), which issues vot- practiced in the United States is in great peril, ing recommendations on resolutions for as the Securities and Exchange Commission investor clients, shareowners filed a record has issued two separate rulemaking propos- number of proposals: 1,150. And in an indi- als addressing shareowners’ access to the cation that companies were making sufficient proxy to file resolutions. Both float sugges- progress on issues to satisfy resolution filers, tions that could seriously curtail shareowners’ a record number were also withdrawn: more rights. This is an instance where regulation than 270. In other words, almost a quarter of could stifle the growth of sustainable invest- all resolution filings prompted acceptable ing. In response, the Social Investment Forum responses to the shareowners’ concerns. And and ICCR launched a Web site encouraging this does not even account for shareowner dia- investors to use the public comment period logues with companies that progress suffi- to oppose any rules that would shrink share- ciently for shareowners to refrain from filing owner rights. The site generated almost 1,700 in the first place.21 comments, which contributed to the more The previous proxy season (the most than 22,500 comments submitted, a record recent one with complete results) saw record according to the SEC—all but a handful of levels of support for shareowner resolutions which opposed both SEC proposals curtail- addressing social and environmental issues. Of ing investor rights.24 the nearly 180 such resolutions that came to a vote through mid-2006, some 27 percent Project Finance and received over 15 percent support from voting shareowners, according to ISS. This the Equator Principles almost doubles the percentage of resolutions Project finance—the funding of major infra- surpassing the 15-percent threshold in the structure projects such as dams, oil wells and 2004 and 2005 proxy seasons, and it repre- pipelines, and mines—is one of the most sig- sents a record high in support since 1973, nificant investment strategies driving a top- when this information first began to be down integration of sustainability principles. tracked by ISS’s Social Issues Service.22 Because these projects have such high-profile Perhaps the best indication of the power environmental and social impacts, they expose and success of shareowner activism comes companies to community and NGO opposi- from companies themselves, many of which tion—which has in turn driven corporations readily acknowledge the positive though to pay more attention to social and environ- challenging role that shareowners play in mental management in project finance. promoting the adoption and promotion of For example, the Rainforest Action Net- corporate sustainability. Indeed, a corporate work hounded Citi beginning in late 1999 sustainability executive who wished to remain over its financing of projects considered anonymous has been quietly sending word socially and environmentally destructive, such out to shareowner activists urging them to as the Three Gorges Dam in China. In Jan- file a resolution asking her company to pro- uary 2003, more than 100 NGOs signed the duce a sustainability report, as this would Collevecchio Declaration on Financial Insti- provide the kind of pressure she cannot tutions and Sustainability (named after the muster internally to get her CEO to approve town in Italy where it was signed), which

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STATE OF THE WORLD 2008 Investing for Sustainability called on banks to make six commitments, scrutiny of the EPs, coordinated by the Bank- including “doing no harm,” sustainability, Track consortium in Amsterdam, functions as accountability, and transparency.25 de facto accountability, given the absence of A half-year later, 10 financial institutions enforceable mechanisms.29 (including Citi) from seven countries launched The EPs—now with 54 signatory banks, their own series of commitments, the Equator representing over 85 percent of global private Principles (EPs), a voluntary set of guidelines project finance capacity—were revised in July promoting social and environmental respon- 2006 in conjunction with the updating of sibility in project finance, particularly in emerg- the social and environmental performance ing markets. The initiative exemplified a trend standards of the International Finance Cor- in corporate social responsibility toward vol- poration (IFC—the private finance arm of untary action to supplant government regu- the World Bank) that provided the basis of the lation, and it showed great promise.26 EPs. NGOs welcomed some of the revisions NGOs pragmatically gave their stamp of as improvements—for example, the lower- approval to the principles while maintaining ing of thresholds of projects covered from $50 healthy skepticism of the degree of substan- million to $10 million. But they lambasted the tive progress that companies can make out- revised guidelines and the underlying IFC side binding mandates. For example, socially standards for retaining significant loopholes.30 and environmentally destructive projects can Take, for example, the issue of the role of do an end-run around the Equator Principles communities in approving projects that sig- by seeking funding from more lax financial nificantly affect them. NGOs support the institutions—notoriously, banks in China. right of affected communities to give or with- (See Box 13–2.) By 2007, NGOs were start- hold their free, prior, informed consent, a ing to lose patience waiting for companies to concept enshrined in Article Six of the Inter- deliver on their promises of comprehensive national Labour Organization’s Convention (instead of selective) sustainability. Yet com- 169 concerning indigenous and tribal peoples’ panies defend the EPs, claiming they do have rights. The World Bank infamously shifted this real bite.27 concept to free, prior, informed consultation The member banks’ external commit- in 2004, and both the IFC and the revised ment to the Equator Principles on a volun- Equator Principles followed suit. Consent tary basis makes them mandatory to and consult may sound very similar, but there implement internally, according to Pamela is a profound difference in meaning between Flaherty, head of global community affairs at the two words—a difference with significant Citi. And when banks incorporate EP guide- human rights implications.31 lines into contracts with clients, the voluntary nature disappears altogether, replaced by The Greening of Private legal obligation.28 Ironically, financial institutions claim that Equity,Venture Capital, client confidentiality precludes them from and Hedge Funds disclosing details on compliance to EP social and environmental covenants, frustrating The year 2006 will likely be remembered for NGOs who consider this an end-run around the “greening” of the high-stakes upper end transparency and accountability. However, of the investment chain—private equity, ven- some commentators maintain that NGO ture capital, and hedge funds. (See Box 13–3.)

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Box 13–2. Importing Sustainability to China

Although China has huge negative social and “By adopting world-class environmental environmental impacts through exporting, it has financing standards, Chinese banks can play an the opportunity to integrate sustainability into its important role in advancing sustainability on a burgeoning finance sector. But the task is as big global level,” said Johan Frijns, coordinator of as everything else about the country, and the BankTrack,an NGO consortium. “Otherwise, banks are at least a decade behind their counter- they threaten to drag down whatever progress parts throughout the rest of the world in this that has been made in developing such standards endeavor. The first steps have been taken, how- for the international banking sector.” ever: in May 2006, Bank of China International Unfortunately, market forces push down on Investment Managers launched the Sustainable the environmental and social performance of Growth Equity Fund, the first SRI fund in the China’s banks. The improving sustainability per- country. formance of the rest of the world’s banks is Even more significant, Chinese banking regula- leaving the socially and environmentally riskier tory authorities have issued notices to all banks projects to these newer entrants. China’s banks in the country that their lending activity must are “bottom feeding on those things international assess borrowers’ compliance with environmen- banks are not touching,” explains Jules Peck, tal laws. How comprehensively is this mandate global policy advisor at the World Wide Fund for being followed? The lack of transparency makes Nature–UK, in Ethical Corporation. For example, a it difficult to tell. Only two banks—China Devel- European firm seeking to build a dam in Ecuador opment Bank and the Export-Import Bank of that is denied funding due to environmental and China—have publicly disclosed their social risks can seek (and often receive) capital environmental financing standards. In addition, from a Chinese bank. the China Construction Bank has issued a corpo- International banks are not exactly innocent, rate social responsibility report. however. “International banks have complained The Peoples’ Bank of China also recently that the lack of environmental financing developed a new credit database that includes standards at Chinese peers is putting them at a borrowers’ environmental compliance data, allow- competitive disadvantage,” said Michelle Chan- ing Chinese banks to evaluate how well compa- Fishel of Friends of the Earth–US. “But banks like nies have followed environmental laws before HSBC, RBS, Citigroup, Goldman Sachs, and Bank offering loans. And finally, in February 2007 the of America all own large shares in Chinese banks. Shanghai Division of the China Banking Regulatory They must take responsibility for ensuring that Commission floated a guidance draft document high environmental standards, which they all on corporate social responsibility that addresses claim to have, are also adopted by their strategic banks’ “shareholders, employees, financial con- business partners.” sumers, communities, and other stakeholders, The issue of international investment support and social development, and environmental pro- for Chinese companies operating irresponsibly tection,” according to the Xinhua news agency. extends beyond China’s banks. The oil company Such guidance would be a first in China. PetroChina has come under intense fire from

The effective death of climate change denial investment category encompassing a broad helped drive green investment, as the frenzy range of eco-friendly products and services— to ﬁnd solutions focused on development of from alternative energy generation to waste- “clean” energy—namely, renewable power water treatment and more resource-efﬁcient sources such as solar, wind, and biofuels. The industrial processes.32 bonanza extended to clean technology (or Market and regulatory forces are also cleantech), newly recognized as a distinct amplifying environmentalists’ concerns over

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Box 13–2. continued Box 13–3. Hedge Funds Marry Ecology with Economics human rights activists as its parent, the China National Petroleum Corporation, provides Hedge funds—unregulated portfolios open significant oil revenues to the Khartoum only to accredited investors that use “sophis- regime in Sudan that supports the Janjaweed ticated” strategies such as shorting (profiting militia who are committing genocide, torture, from falling stock prices)—have caught the and rape in Darfur. As with Chinese banks, green bug, with the number of hedge funds in PetroChina holds hefty investments from this category proliferating. According to Peter international investors. Fusaro, founder of Global Change Associates, Activists with the Save Darfur Coalition there are over 600 environmental and energy and Sudan Divestment Task Force targeted hedge funds, 50 hedge funds trading emissions mutual fund giant Fidelity Investments and in the United States and Europe, and 13 pure Warren Buffett’s Berkshire Hathaway in high- green hedge funds. profile campaigns urging them to divest their In other words, there are enough green PetroChina holdings. In May 2007, Fidelity hedge funds to launch several “funds of divested 91 percent of its U.S. depositary funds”—as the name implies, hedge funds that receipt holdings in PetroChina. It was unclear hold a number of hedge funds. The first such at the time, however, whether the company meta-fund, the Kenmar Global ECO Fund, also divested its shares on the Hong Kong which seeks to marry ecology with econom- exchange—if not, it would have divested only ics, was launched in July 2007. 38 percent of its overall PetroChina holdings. There is also enough interest in green Berkshire Hathaway shareowners filed a hedge funds to get the attention of the world’s resolution for vote at the May 2007 annual largest hedge fund management firm. In Sep- meeting calling on the company to divest from tember 2007, the Man Group announced it PetroChina. The “Oracle of Omaha” (as Buf- had raised almost $400 million in a climate fett is known) contended that using his voice change–related hedge fund. The China Meth- as an investor to promote change at Petro- ane Recovery fund will set up subsidiaries to China through divestment or moral suasion extract methane, a potent greenhouse gas, was “fruitless” (despite the fact that Berkshire from Chinese coal mines to generate electric- held the largest stake of PetroChina), and ity and also to trade for carbon credits. more than 97 percent of shareowners voted against the resolution. However, Buffett later Source: See endnote 32. quietly divested more than a quarter of Berk- shire’s holdings in PetroChina—dumping 445 million shares worth over $1 billion between of a new wave of coal-fired generation [in the July and September 2007, according to United States] have vaporized,” writes report Investors Against Genocide. author John Hill. “We expect anti-coal politics to intensify, with carbon constraints Source: See endnote 27. almost certain to pinch.” So carbon regulation is driving investors toward sustainable the viability of traditional energy investments investing strategies. (See Box 13–4.)33 such as coal, according to a July 2007 report When it comes to green venture capital and from Citi. The report downgraded coal stocks private equity investment—namely, large from “buy” to “hold” recommendations due investments to seed startup or early-stage primarily to concerns over impending coal companies—the statistical picture that regulations seeking to curb the dirty fuel’s emerges depends on who is coming up with contributions to global warming. “Prophesies the numbers. There is a clear consensus on

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Box 13–4.TXU Buyout Is History’s Biggest—and Greenest

The greening of private equity/venture capital nership platform, including the call for a manda- took a surreal turn in February 2007. The major tory federal cap on carbon emissions; private equity firms Kohlberg Kravis Roberts & • reduce the company’s carbon emissions to 1990 Co. and Texas Pacific Group had teamed with levels by 2020; Goldman Sachs to buy out TXU. The company • promote demand-side management programs had been under intense fire from environmental- to reduce energy consumption; ists for fast-tracking plans (presumably to get • double the company’s expenditures on energy them in place before potential federal carbon efficiency measures; legislation kicked in) to build 11 coal plants that • double the company’s purchases of wind would annually dump 78 million tons of carbon power; dioxide into the atmosphere. SRI activists had • honor TXU’s agreement to reduce criteria filed three separate shareowner resolutions call- pollutants in Texas by 20 percent (the pledge ing the plan into question. had been contingent upon approval of all 11 The buyers called in two of the main NGOs plants); and campaigning against TXU, Environmental Defense • establish a Sustainable Energy Advisory Board and the Natural Resources Defense Council, on which Marston of Environmental Defense to broker agreeable terms over two weeks of will serve. intense negotiation. “This will not only be the Making good on its wind pledge,TXU biggest leveraged buyout ever, it is the only buy- announced in late July 2007 a partnership out in history made contingent on the approval between its Luminant subsidiary and Shell of environmental groups,” said Jim Marston, WindEnergy to develop the world’s largest wind director of the Energy Program in the Texas farm—a 3,000-megawatt wind project in the Office of Environmental Defense, who led the Texas Panhandle—as well as other renewable campaign against TXU and lobbied the buyers. energy projects. In April 2007, however, the Wall The $45-billion TXU deal,which also included Street Journal reported that the company is also Lehman Brothers, Citi, and Morgan Stanley as pursuing plans to build the biggest nuclear plant equity investors, committed the company to in the United States to make up for the eight drop applications for 8 of the 11 coal plants, canceled coal plants. Some environmentalists avoiding 56 million tons of annual carbon emis- now view nuclear power as a climate solution, sions.The plan also committed the company to: while others cite continuing concerns about this • terminate its previous plans to expand coal energy source. operations in other states; • endorse the United States Climate Action Part- Source: See endnote 33. one count, however: money is pouring into While these investments primarily address clean energy and cleantech. the environmental part of the sustainability According to a June 2007 U.N. report, equation, they sometimes attend to social global venture capital and private equity issues as well. For example, while the major- investment in sustainable energy totaled $8.6 ity of the money went into increasing man- billion in 2006, increasing 69 percent over ufacturing capacity (particularly in wind), $5.1 billion in 2005, with the number of some went to develop new technologies— deals increasing by 12 percent. (See Figure such as 20 percent of biofuel investment, 13–1.) The three most active sectors were bio- some of which supported research for second- fuels ($2.3 billion), solar ($1.4 billion), and generation biofuels, including cellulosic wind ($1.3 billion).34 ethanol, that reduce the diversion of cropland

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mere $27, from his own Figure 13–1. Ve nture Capital and Private pocket—he won the Equity Investment, 2000–06 Nobel Peace Prize for 10 pioneering microfi- Source: SEFI/New Energy Finance nance. Yunus, a Chit- tagong University 8 economics professor when he helped those women, recognized his 6 small loan and the finance institution it led 4 to as both a market Billion Dollars opportunity to serve the unserved and an 2 opportunity to alleviate poverty, promote social 0 justice, and foster com- 2001 2002 2003 2004 2005 2006 munity. The Nobel Committee made an unprecedented move in from food to fuel.35 linking finance to peace, validating anunder- Looking through the lens of cleantech, lying rationale of sustainability investments.37 global venture capital investment increased by “The one message that we are trying to 78 percent in 2006 to $2.9 billion, catapult- promote all the time, is that poverty in the ing cleantech into the spotlight as the third world is an artificial creation,” Professor largest venture investment category, ahead Yunus told the Nobel Committee upon learn- of telecommunications and medical devices. ing he had won the Prize. “It doesn’t belong High demand for global warming solutions to human civilization, and we can change such as renewable energy is driving a bull that, we can make people come out of poverty market for clean technology, according to and have the real state of affairs.…The only Bob Epstein, co-founder of Environmental thing we have to do is to redesign our insti- Entrepreneurs, who coauthored a study with tutions and policies, and there will be no Cleantech Network on the state of venture people who will be suffering from poverty. So capital in cleantech. The report projects that I would hope that this award will make this venture capital investments in this sector will message heard many times, and in a kind of exceed $19 billion by 2010—a more than six- forceful way, so that people start believing that fold increase in just four years.36 we can create a poverty-free world.”38 Microfinance broke ground on a number Microfinance Goes Global of levels—by empowering women in a patri- archal society, by creating community Thirty years after Muhammad Yunus lent 43 accountability through lending groups that women from the village of Jobra, Bangladesh, “collateralized” loans, and by lending such the capital they needed to start small busi- tiny sums. To underwrite the increased tech- nesses that banks would not lend them—a nical support necessitated by microfinance

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while keeping loans as affordable as possi- (BRAC). The summit resulted in Fonkoze ble, Grameen Bank (the microfinance insti- adopting the BRAC model for providing tution Yunus founded) split the difference microfinance to the extreme poor—the between the lower interest rates of standard BRAC-Bangladesh program for the Ultra- commercial loans and the exorbitant rates of Poor—by coupling close case supervision with local loan sharks. five basic sets of services: enterprise develop- The success of microfinance opened it up ment training, social development, health to greater scrutiny and criticism, such as a care, short-term living allowances, and the 2001 Wall Street Journal article questioning transfer of assets needed to start businesses.41 claims of 95-percent repayment rates. Abra- The success of microfinance has also ham George of the George Foundation hosts attracted the richest of the rich. The month a Web site critical of microfinance, maintain- before Yunus won the Nobel Prize, Citi and ing that it does not reach the poorest of the TIAA-CREF (an academic pension giant) poor since it primarily focuses on those already each committed $100 million to microfi- running businesses.39 nance. Some people question whether this corrupts the microfinance field, while others heralded the infusion of big money. However, To what degree does sustainable the flood of mainstream investment in micro- investing actually contribute to the finance has created a bottleneck straining the achievement of true sustainability? capacity of existing microfinance institutions to process the flows.42 Nimal Fernando, lead rural finance spe- It also raises the question of whether hav- cialist for the Asian Development Bank, ing industrial countries sink money into divided attitudes toward microfinance reach- microfinance actually acts to siphon money ing the poorest of the poor into three camps. from developing economies, as the interest The first camp simply rejects the notion that ultimately ends up in the hands of the already- microfinance can reach this group on a sus- haves. Is this an acceptable price of making tainable basis. The second camp optimistically capital available to the poor? Or does it sim- advocates that such individuals can be ply create a poverty trap in a world of finite reached not only on a sustainable basis but resources and hence finite economics? Micro- also on a large scale. The third camp recog- finance operates on the same principle as the nizes that the potential for reaching this existing capitalist economic structure of profit group on a sustainable, large-scale basis is lim- and debt. Can wealth disparity be solved ited but also advocates for the continued using the very system that many would argue search for innovative approaches to expand has created huge wealth disparity? outreach to the poorest.40 From a more practical perspective, micro- Fonkoze, the largest microfinance institu- finance seems a better alternative than the cur- tion in Haiti, has aspired toward the second rent options of entrenched poverty—at least solution since recognizing that standard it is a step in the right direction, and the microfinance does not suffice for many of its hope is that it can help transform the econ- clients who fall into the poorest of the poor omy into a more humane system. category. It convened a summit on the issue Supporting microfinance has even opened in 2004, including representatives of the up to everyday people. The Web site Kiva.org Bangladesh Rural Advancement Committee uses the Internet to connect individual lenders

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STATE OF THE WORLD 2008 Investing for Sustainability who invest modest sums directly with bor- known as additionality. Critics liken offsets to rowers, who can receive loans from a number medieval “indulgences,” whereby consumer of different lenders. While the loan may be payments assuage people’s guilt, thereby cybernetic, its disbursement still requires reducing their incentive to actually shift from infrastructure in the form of local microfi- carbon-generating habits. Instead of focusing nance institutions around the world.43 on additionality, the focus should be on “sub- Finally, the social and environmental tenets tractionality”—in other words, deducting car- of sustainability are starting to converge on bon emission from personal, organizational, microfinance, as evidenced by the success of and broader economic equations.45 Green Microfinance, whose mission is to pro- The biofuel debate injects social consid- mote environmentally sustainable microen- erations into the mix. Biofuel supporters terprise and microfinance. In March 2007, for point to the carbon neutrality of the process— example, Green Microfinance partnered with renewable biomass absorbs carbon during Fonkoze to study the feasibility of launching growth that is then emitted during burning. a solar energy initiative with Fonkoze clients. Opponents point out that the atmosphere The greening of microfinance “represents a does not care where the carbon comes from: competitive advantage at the heart of social a ton of carbon emitted from biofuel warms enterprise,” according to David Satterth- the planet just as much as a ton of carbon waite, CEO of Prisma MicroFinance and edi- emitted from petroleum. Furthermore, divert- tor of MicroCapital.org, a leading Web site on ing land from food to fuel crops will raise food the subject.44 prices and exacerbate world hunger, opponents argue. Debates such as these push any Current Obstacles to investments in sustainability to adopt sufficient degrees of sophistication to increase the like- Investing in Sustainability lihood of bringing about positive progress The astonishing maturation of sustainability instead of fueling regression.46 investments in recent years raises a number of A second key question is raised by the key questions. First, to what degree does sus- upward trajectory of sustainable investing: tainable investing actually contribute to the What obstacles stand in the way of maxi- achievement of true sustainability? Take the mizing the momentum? Unfortunately, sig- examples of carbon offsetting and biofuels, nificant structural impediments stand in the which on first blush seem like positive invest- way. For example, in December 2005 U.K. ments for sustainability but which have led to Chancellor of the Exchequer Gordon Brown significant debate over whether they actually suddenly and unexpectedly killed the Oper- undermine sustainable development. ating and Financial Review, a March 2005 Companies and individuals flocked to car- regulation requiring companies to disclose bon offsetting, which allocates investment in environmental, social, and governance infor- renewable energy projects or tree planting in mation. Brown inexplicably cited “gold-plat- proportion to carbon emissions calculations. ing” (blindly adopting European Union (See Chapter 7.) Supporters acknowledge regulations), confounding members of the the importance of radically reducing emis- U.K. Department of Trade and Industry who sions first and only then injecting capital into had worked for years developing the regula- carbon-offsetting projects that would not tion in-country through transparent consul- otherwise receive such infusions—a concept tation with business and the public.47

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In the United States, the Corporate Sun- ment watchdogs alike served notice to the shine Working Group (consisting of social SEC and the business community that dis- investors, environmental organizations, closure of environmental and social risks was unions, and public interest groups) has since not optional but mandatory, as markets thrive 1998 been urging the SEC to enforce regu- only in the presence of complete and accu- lations requiring companies to disclose data rate information.50 on potentially material financial impacts from Such regulatory and corporate hostility to environmental and social risks, such as the mere disclosure on sustainability makes it dif- estimated $10-billion liability Chevron faces ficult to maintain optimism that regulation if it loses a lawsuit in Ecuadorian courts over will help foster sustainable investing. Those its subsidiary Texaco’s dumping of toxic interested in this new approach to invest- wastes into the Amazonian rainforest over ment long ago abandoned hope that regula- two decades. The SEC’s response: silence.48 tion would be a primary driver of progress, and instead have created their own mecha- Investors, activists, and government nisms for fostering corporate disclosure of sustainability information—trusting that trans- watchdogs alike served notice to the SEC parency will inspire companies to improve that disclosure of environmental and social sustainability performance. risks was not optional but mandatory. In late 2006, the Global Reporting Ini- tiative (GRI) released G3, its third generation Fed up, a coalition of state treasurers, pen- of sustainability reporting guidelines, which sion funds, institutional investors, and envi- are evolving by default into the generally ronmental organizations confronted the SEC accepted accounting principles for disclos- in September 2007 by filing a petition ing environmental, social, and governance demanding that companies be required to information. (See Chapter 2.) Currently, disclose the financial risks associated with cli- almost 2,500 of the nearly 15,000 sustain- mate change. The coalition cited the scientific ability reports logged on CorporateRegis- consensus and extensive business commuter.com comply with GRI guidelines, which nity action recognizing that the risks and were conceived in 1997 by Ceres, a coalition opportunities associated with climate change of environmental organizations and activist are material to investment decisions and must investors, and drafted with significant input be disclosed under existing law. They also from social investors.51 noted that Exxon-Mobil, one of the most Similarly, more than 300 institutional profitable and largest companies in the world investors representing over $41 trillion— operating in a sector intimately connected almost a third of McKinsey’s estimated $136 to climate change, mentioned the phenom- trillion in total global capital markets—have enon only once in its 2006 filings.49 signed onto the fifth iteration of the Carbon This petition followed closely on the heels Disclosure Project, which asks 2,400 of the of New York State Attorney General Andrew world’s largest companies to voluntarily report Cuomo’s issuance of subpoenas to five energy their carbon emissions and management companies to question whether they withheld processes. A majority of firms now recognize information on the financial risks associated the financial and reputational benefits of with plans to build coal-fired power plants. improving their carbon performance—in In short, investors, activists, and govern- other words, lowering their carbon emis-

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STATE OF THE WORLD 2008 Investing for Sustainability sions. Four fifths of respondents recognize sponsored by the United Nations. Launched that climate change poses commercial risks or in April 2006, some 20 mainstream institu- opportunities, and just over three quarters tional investors managing $2 trillion in assets reported implementing greenhouse gas emis- announced their commitment to address envi- sions reduction initiatives—compared with ronmental, social, and governance factors in 48 percent in 2006.52 their investment decisions. By April 2007, Of course, actual performance in reducing membership grew ninefold, to 183 signato- carbon emission trumps the importance of ries, and the assets under management disclosure, both in sustainability and in finan- quadrupled to $8 trillion.54 cial terms. According to Innovest CEO These initiatives demonstrate the signifi- Matthew Kiernan, leaders in carbon disclo- cant muscle behind sustainable investing, sure outperform their same-sector peers marching forward in spite of regulatory road- financially, but leaders in actual carbon emis- blocks. The sea change in momentum sions reductions perform even better. How- swelling behind this over the past few years ever, it is safe to say that the Carbon gives rise to optimism that the world is Disclosure Project plays a significant role in approaching a tipping point whereby all driving both disclosure and emissions reduc- investing addresses sustainability factors, as a tions—and, presumably, corporate financial matter of course. However, the challenge of performance and hence the performance of actually achieving sustainability—of getting sustainability investments.53 the economy to respect ecological limits and Complementing the Global Reporting Ini- human rights—remains well beyond the hori- tiative and the Carbon Disclosure Project are zon. Time alone will tell how much sustain- the Principles for Responsible Investment able investing contributes to saving the future.

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CHAPTER 14

New Approaches to Trade Governance Mark Halle

At an international conference in Paris in decade the debate on trade and the trading July 2007, former Mexican trade minister system has moved from a narrow focus on Luis Ernesto Derbez remarked that the envi- trade policy and mechanisms to a broader ronment would determine the future of the focus on how the system might best con- multilateral trading system. This was a sur- tribute to the search for sustainable develop- prising assertion from someone once known ment. It focuses on the governance of trade as a mainstream supporter of free trade and and explores what might be done to this gov- the international system of rules that govern ernance to bring about the shift that the it. One interpretation of his remark is that Mexican minister suggested is needed. humanity is facing a series of grave challenges—including climate change, loss of International Trade: biological diversity, threats to water sources— that go well beyond the partisan interests of Help or Hindrance? individual states. Addressing these challenges Ever since David Ricardo explained the Law will call on all the institutional ingenuity that of Comparative Advantage in 1817, it has society can muster and will require harness- been an article of faith that international ing these institutions to the broader task that trade is a good thing. Trade contributes to these challenges represent. This includes the prosperity not only by rewarding the suc- institutions of international trade—just when, cessful trader but by expanding the size of the more than ever, they are under scrutiny and overall economic pie so that, with good gov- attack from many quarters.1 ernance, there should be adequate slices for This chapter will explore how in the last everyone. (See Box 14–1.) Trade contributes

Mark Halle is Director, Trade and Investment, at the Geneva Ofﬁce of the International Institute for Sustainable Development.

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Box 14–1. Good Governance

Governance can be understood as the mechan- itself are answerable for their actions, decisions, isms used to ensure that a system or regime and compromises in terms of the stated goals advances smoothly and effectively toward the and objectives as well as any statements and goal it has set for itself and can deal efﬁciently declarations they make about their actions and and justly with the issues that arise along the decisions. Accountability includes access to jus- way. The basic characteristics of good govern- tice for those with a legitimate grievance. In the ance include: case of the trading system, accountability seeks • Transparency: People affected by decisions have an accommodation with the claims of justice timely access to accurate and up-to-date infor- made by those who believe the trading system mation on the issue, as well as information on should support sustainable development. the positions and proposals of the different Where the vision for society is well articu- parties. lated in goals, objectives, and priorities and is broadly known and supported, the exercise of • Participation: The right to take part in the good governance is comparatively easier.Where debate or decisionmaking process links to the the goals and objectives are vague, good gover- extent a stakeholder has interests at play or nance can be near impossible. will be affected by the decisions. • Accountability: Decisionmakers and the regime Source: See endnote 2.

to peace by building both mutual depen- tectionism. In a very real sense, it can be dence and a better understanding of the trad- argued that the codification of trade rules ing partner’s character, culture, and and the creation of institutions to govern motivations. Conflict among partners that international trade were a response to trade share commercial interests would disrupt expansion, not the cause of it. The rules and trade and hurt their shared economic inter- institutions were put in place to ensure that ests, so they also share a strong incentive to the trading system is as free of conflict as keep the peace.2 possible. As the perception grows that gross Before looking at some of the small print inequalities—or collateral damage to other that suggests a more sober view of trade lib- areas of public policy, such as the environ- eralization and its track record, it is appro- ment—can also lead to conflict, the multi- priate to acknowledge how much of trade lateral system is under increasing pressure to theory actually translates into real benefits address these through the codification of in practice. International trade has expanded practice and the creation of new ways to pre- massively since World War II and has vent such conflict. accounted for a significant share of the eco- Much of the trade expansion since World nomic expansion that the world has experi- War II can be attributed to successive rounds enced. The gradual lowering of trade barriers of multilateral trade negotiations in the Gen- in the second half of the last century accel- eral Agreement on Tariffs and Trade (GATT) erated both economic growth and the pro- and its successor, the World Trade Organi- portion of that growth attributable to trade. zation (WTO). These trade negotiations have With the expansion of trade, pressure grew gradually, round after round, reduced and to enshrine the rules that would facilitate “locked in” successively lower tariffs and quo- open trade and prevent backsliding into pro- tas, making them today a small fraction of

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STATE OF THE WORLD 2008 New Approaches to Trade Governance what they once were. Further, true to trade growth, however—like trade liberalization— theory, a good deal of the growth in trade is a means to an end and not an end in itself. stems from unilateral decisions by countries (See Chapter 1.) What goal, then, is the trade to eliminate obstacles without seeking con- regime dedicated to reach, against which it cessions from their trade partners in return or must inevitably be judged? from the disappearance of trade barriers At its origins in 1947, GATT had a highly through regional integration arrangements.3 utilitarian purpose, based on the need to raise Trade’s contribution to peace is also well standards of living and to ensure full employ- documented. Violent conflict is significantly ment by “developing the full use of the less frequent between countries that enjoy resources of the world” and expanding trade. robust trade and operate open economies. In The WTO, established on 1 January 1995, is region after region around the world, the an altogether different animal. Its agreements removal of trade barriers has been matched by focus less on what happens to manufactured the evaporation of armed conflict.4 goods at the border than on the trade impacts So why does every successive step in trade of domestic policy. Further, the key agree- liberalization appear to be a long, agonizing ments that make up the WTO package— process in which microscopic advances are fol- including a revamped GATT—are part of a lowed by long periods of deadlock, where “single undertaking.” GATT member coun- hopes are continually dashed as endless last tries that became the initial WTO members chances are missed? Why is it that, after six and the countries that joined the organization years of negotiation, the current Doha Round since then are all bound by these rules (with of WTO negotiations is stalled, with an minor exceptions). Countries are either in increasingly large proportion of experts and or out of the multilateral regime, and it is observers wondering if it can be revived and increasingly impossible to remain out of it. concluded at all in the next few years? Why Being part of the system requires accepting does the WTO—an institution built on the the decisions of the WTO’s dispute settlement unimpeachable principles of non-discrimina- system, which are not only binding but tion, transparency of the conditions applying enforceable in the most extreme cases through to trade, and peaceful settlement of disputes— economic sanctions.5 face so much hostility? No doubt thanks to the high political The remainder of this chapter explores profile of the environment at the 1992 Earth this basic paradox: Why does such a benefi- Summit in Rio, the Marrakesh Agreements cial thing as trade excite such disapproval? that established the WTO articulated an ambitious and both socially and environ- The Goals of the Multilateral mentally responsible goal for the trading system. The governments who signed on agreed Trading System in the Preamble “that their relations in the Ask a WTO delegate what the goal of trade field of trade and economic endeavour should liberalization is and the likely answer will be conducted with a view to raising stan- have a good deal to do with stimulating eco- dards of living, ensuring full employment nomic growth. If trade stimulates growth, and a large and steadily growing volume of then liberalizing trade increases the volume of real income and effective demand, and trade and therefore stimulates more growth expanding the production of and trade in than would occur otherwise. Economic goods and services, while allowing for the

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STATE OF THE WORLD 2008 New Approaches to Trade Governance optimal use of the world’s resources in accor- system and has often been in the front lines dance with the objective of sustainable devel- of protests against the North American Free opment, seeking both to protect and preserve Trade Agreement (NAFTA), the WTO, the the environment and to enhance the means Free Trade Area of the Americas, and others. for doing so.” 6 There are several reasons for this. They further recognized the particular Extension of free trade reinforces the rel- need for a trading system that boosts the ative strength of the corporate sector and development efforts of the poorer countries especially the multinational corporations. by noting “that there is need for positive This leads to the perception that the trading efforts designed to ensure that developing system is an ally of the corporate sector, countries, and especially the least developed which the environmental community con- among them, secure a share in the growth in tinues to distrust. international trade commensurate with the The trade rules embodied in the WTO needs of their economic development.”7 appear stronger—and the compliance mech- So the goal of the multilateral, rules-based anisms much stronger—than the equivalent trading system managed by the WTO is to environmental rules, whether at the national harness trade to the task of achieving sus- or international level. When there is overlap tainable development, ensuring that trade and contradiction between the two sets of openness provides a boost to development in rules, it is not unreasonable to expect that the the less-advanced countries, and recogniz- trade rules will prevail, especially given that ing the distinct needs of countries at differ- economic policy generally has stronger polit- ent stages of development. ical support than environmental policy does. Unfortunately, while the trade disciplines Attempts to extend trade policy to cover contained in the WTO texts are binding, services (such as water supply, forestry, pro- enforceable, and set out in precise language, tected area management, and so on) smack of the legal status of the Preamble agreed to in an attempt to privatize what the environ- Marrakesh was at first unclear. One leading mental community regards as public goods. negotiator of the agreement has remarked As WTO rules on nondiscrimination appear that the Preamble was used to “park” to question domestic policy decisions such as notions held to be important by one gov- the setting of environmental standards or the ernment or a group of countries but around adoption of environmental labels, they appear which no consensus could be built. Most to threaten hard-won environmental progress trade lawyers would argue that the Pream- and to question the ability of the state to act ble sets tone and context and has exhorta- in accordance with the public good. tory value but is unenforceable. This view is Finally, early trade dispute cases decided by not shared by the WTO’s own dispute set- GATT appeared to attack the ability of states tlement system, however. The Appellate to harness the power of the market to advance Body, for one, has made clear in a few land- environmental goals. One famous case sug- mark cases that the Preamble is to be gested that the trade rules did not allow the regarded as part and parcel of the legal United States to distinguish between tuna agreements that bind members.8 caught with massive associated dolphin deaths It is important to note here that the envi- and “dolphin-safe” tuna, because the two ronmental community has been among those were “like” products under the trade rules and most suspicious of the multilateral trading no discrimination between them was allowed.9

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Foundations of the WTO tation, and transparency in government procurement—with a view to including them in Governance Crisis a later round of negotiations. An attempt to Governance crises can arise when the gap launch that new round collapsed in Seattle in between what is declared and what is deliv- late 1999, but two years later and with none ered grows too big. This is the case with the of the developing-country concerns addressed WTO if the text of the Preamble is taken to adequately, WTO members agreed in Doha, represent a legitimate articulation of the orga- Qatar, in November 2001 to launch a com- nization’s overriding goal. The results of the prehensive new round of trade negotiations.11 Uruguay Round of trade negotiations, which Most developing countries went along in ran from 1986 to 1994 and led to the estab- large part because the new round was pre- lishment of the WTO, were sold hard to sented as a “Development Round,” with the developing countries. While it was recog- goal of delivering a result genuinely positive nized that some countries would benefit more for poorer countries and correcting some than others, the promoters insisted that all problems inherited from the Uruguay Round. countries would be winners. And in recog- By implication, at least, this suggested recognition of the adaptation challenges they might nition of the fact that the promise of the face, developing countries were given addi- Uruguay Round had proved hollow for many tional time to implement the new agree- countries. As WTO Director-General Pascal ments. That, it was felt, should be enough. Lamy told the U.N. Economic and Social No one accurately assessed the difficulties Council in July 2007: “Trade opening and developing countries would face.10 rule-making are indeed major goals of the It soon became evident that not only were WTO. But today a number of the current many countries having a hard time adapting substantive rules of the WTO do perpetuate to the new requirements, some clearly felt some bias against developing countries.” He they were losing out. It began to emerge cited the rules on subsidies in agriculture, that although trade openness could bring for example, which tend to favor industrial benefits, it tended to do so only where cer- countries, along with high tariffs that many tain basic conditions—institutions, capacity, of those countries apply to agricultural and an efficient customs service, an independent industrial imports, in particular from devel- judiciary, a solid banking system, and so on— oping nations. “A fundamental aspect of the were in place. Developing countries received Doha Development Agenda,” Lamy noted, scant sympathy when they sought to use “is therefore to redress the remaining imbal- WTO mechanisms to obtain help in these ances in the multilateral trading system and areas. The gap between rhetoric and reality to provide developing countries with was proving hard to bridge. improved market opportunities.”12 Despite this, many major trading powers More than six years after it was launched, felt they were on a roll and should push fur- the Doha Round has come to a standstill, and ther. Less than two years after the WTO prospects for an early conclusion appear dim. opened for business, the Singapore ministe- While few participants question either the rial meeting in December 1996 adopted a robust foundation of trade theory or the ben- new agreement on information technology efits of open, rules-based trade, several prob- and agreed to “study” four new topics— lems are increasingly evident. investment, competition policy, trade facili- Trade openness does not, on its own, bring

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STATE OF THE WORLD 2008 New Approaches to Trade Governance the benefits that trade theory suggests, as mal meetings take place each week at WTO they depend on the right conditions being in headquarters. But as many as 19 developing place. The trading powers have until recently countries, for financial reasons, have no rep- showed little interest in helping poor coun- resentation in Geneva at all; others have just tries achieve these conditions. one or two staff covering all U.N.-related Concerns for equity, environment, and events in Geneva.13 development are largely incompatible with the hard-ball, mercantilist approach to trade There is widespread agreement that negotiations and the culture that this the massive expansion of the number approach consolidates. Since trade policy and the trade rules and complexity of the agreements and shifted their principal focus from border mea- negotiations has presented poorer sures to domestic policy and expanded their countries with considerable difficulties. reach beyond trade in goods, the relationship between trade policy and public policy inter- This is especially difficult for negotiations, ests in these areas can no longer be ignored. since the interests of developing countries Developing countries are increasingly aware do not divide easily along North-South or of their power and authority and will no longer regional lines or even according to any par- accept promises of future benefits. They want ticular pattern of interests. And yet it is impos- tangible results, if not down payments in the sible to envisage delicate negotiation of form of up-front concessions from richer trad- binding and enforceable economic agree- ing powers as a proof of good faith. ments with 150 players in the room. Some So where does this leave the WTO? And form of representational presence must be is the present impasse a governance crisis? In used, but it is far from clear how that might terms of transparency and access to informa- be organized. The Doha Round has seen tion—two of the basic criteria of good gov- considerable experimentation with interest ernance—the WTO rates well, at least as far groupings, with some positive impacts on as its members are concerned. The creation transparency and inclusiveness but so far with- of the WTO led to a massive increase in pub- out appearing to find the magic solution. To lic interest in the trading system, and both for- some extent, then, the crisis of the WTO is mal and informal access to accurate, related to the governance challenge of ensur- up-to-date information on virtually every ing adequate participation of stakeholders. aspect of the system’s operations is now avail- This is particularly true beyond the WTO’s able to anyone who wishes to receive it. primary constituency in the trade policy com- Participation presents greater challenges. munity—in the wider group of stakeholders There is widespread agreement that the mas- in civil society, among consumers and other sive expansion not only of the WTO mem- groups whose interests are centrally affected bership (over 150 countries, twice the size of by the shape and nature of the trading sys- GATT when the Uruguay Round was tem. While some civil society organizations launched) but of the number and complex- are having a clear impact on the policy ity of the agreements and negotiations has debate, the level of participation and the presented poorer countries—especially the mechanism to make constructive participa- smaller ones—with considerable difficulties. tion possible are far less than optimal for In the normal course of events, some 25 for- well-governed trade policy.

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The real challenge, however, relates to role in insisting that the WTO be held to the third pillar of good governance: account- account for the impact of its rules and deci- ability. At one level, of course, the WTO sions on wider public policy objectives. boasts of its fine record with accountability. Although civil society has been notable for It is very much a member-driven organiza- criticizing the WTO for its shortcomings and tion, and each member is accountable to in part for opposing any progress toward fur- legislative bodies back home. The crisis ther trade liberalization, it is clear that the net relates to the WTO’s track record in advanc- impact of civil society input has been to place ing the goals that the founders established the multilateral trading system squarely in for the system, as set out in the Preamble. front of its responsibility to deliver results There is a very real sense in the WTO com- that support sustainable development.16 munity—not to mention the wider trade policy community—that the formal struc- The Challenge of Respecting tures available do not guarantee accountability in terms of the objectives set for the WTO Goals system. And it is precisely this failure that has How might the governance challenge best be led governments and interested observers addressed? It is by now a platitude to decry to question how the WTO works and how the negotiated tradeoffs that characterize the committed its most powerful members are WTO culture. It is a culture that saturates the to finding solutions compatible with the organization, that pervades its operations, overall goal. Indeed, the WTO has no mech- and that has done a great deal of damage to anism to assess fidelity to and progress the cause of open trade. At its root, the notion toward its stated goal. (Although the WTO is defensible. Whereas lowering trade barriers Committees on Environment and Develop- is by and large favorable over the medium and ment were invited to monitor the impact of long term and for most players, there is often Doha Round proposals on sustainable devel- a price to be paid by some countries in the opment, they have not done so.)14 short term. This often involves selling par- An interesting and important exception ticular economic interests short in favor of a is the Appellate Body, the WTO’s highest solution that is overall better for others (such “court,” which rules on appeals against the as consumers) in the short term and for all or findings of Dispute Settlement Panels. As most in the longer term. Lowering subsidies noted earlier, it has invoked the WTO Pre- for French farmers may cause them adjust- amble as evidence that the founders intended ment problems, for instance, but it may also the system to support sustainable develop- lower food prices for the consumer or boost ment, even if the commitment is cast in the French service industry. Yet the immedi- imprecise terms. It is clear that the Appellate ate interests are often politically inﬂuential, so Body has adopted a central position in ruling the tradeoffs that go on at the WTO serve as on the character, purpose, and direction of the a political currency whereby trading partners system. Beyond that, however, there is little make concessions in order to provide the sign that WTO members collectively feel any political justiﬁcation for the penalty imposed obligation to correct past decisions that have on the interests that lose out. damaged the prospects for development or If negotiating tradeoffs is an effective way the environment.15 of convincing countries to make politically Civil society has also played an important unpopular but economically necessary con-

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STATE OF THE WORLD 2008 New Approaches to Trade Governance cessions, it is not generally a good way to gration pressure in the United States, for serve wider goals such as equity, poverty alle- instance, and even if that development might viation, or environmental responsibility. In any best be served by giving Central America commercial negotiation, commercial power unfettered access to U.S. markets for their confers negotiating advantage, so the pow- goods and services, in reality the partisan erful trading countries and blocs have greater interests of U.S. textile workers and fruit pro- negotiating power. This suggests that they will ducers will tend to prevail. always—or almost always—prevail in a stand- Finding the right balance among com- off with weaker parties. Further, in any nego- peting interests in formulating trade policy tiation involving commercial tradeoffs, the and negotiating positions is hard enough result may be more open trade, a larger eco- within the confines of trade concerns alone. nomic pie, and a greater range of opportu- But ensuring that trade and sustainable devel- nities for traders; it will not automatically do opment are mutually supportive is consider- anything to correct the inequities built into ably more difficult, since it involves the the trading system. If both sides make equal traditionally complex question of policy concessions, their relative position on the coherence. It is an inescapable fact that pub- trading totem pole will remain the same. If the lic policy is a hierarchy. Macroeconomic pol- European Union is negotiating with the icy, including trade policy, travels first class, countries of the Southern Africa Customs whereas the policies that relate to the envi- Union, a successful outcome is unlikely to ronment and development travel coach—and include a shift in the balance of commercial often stand-by. The current crisis suggests advantage in favor of the latter. that there may not be much progress on A second reason that wider goals are trade liberalization unless governments begin ignored relates to how trade policy is devel- to demonstrate that they take the environ- oped at the national level. Interest in main- ment seriously. taining a particular tariff or subsidy will be concentrated in a relatively small group of Taking the Environment players (truckers, for instance, or dairy farmers) who will usually be well organized to Seriously in the WTO defend an interest they deem crucial to their It is now abundantly clear that developing commercial success. An equally valid inter- countries will not accept an outcome from est—for example, closing the gap between multilateral trade negotiations that does not rich and poor countries, protecting the envi- confer on them—or at least the more vocal of ronment, or even lowering prices for the con- them—tangible trade benefits and that does sumer—is likely to be far more dispersed and not go some way toward correcting existing less well organized, at least in terms of affect- inequities and imbalances. Although it is hard ing trade policy. Thus when national trade to imagine an outcome in which all countries representatives set their negotiating priorities will benefit, any acceptable outcome will have and parameters, the weight of immediate to offer clear benefits to developing countries commercial interests will always trump less in some form, even if not directly due to immediate or well organized concerns. So trade openness. Development has now even if rapid, trade-led economic development become a genuine trade imperative. in Central America is an essential compo- If the environment has not achieved this nent of any sensible strategy to limit immi- same position, it is nevertheless remarkable

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STATE OF THE WORLD 2008 New Approaches to Trade Governance how this concern has progressed toward nization is perceived by an important and acceptability in the trading system. The early highly vocal segment of society as a central fear that the powerful new WTO would chal- part of the effort to impose the “Washington lenge and roll back decades of environmen- Consensus” on the rest of the world—an tal achievement at the international level has economic system based on a blind belief in the subsided, replaced in both the trade and envi- market and predicated on eliminating as many ronmental communities with the far health- constraints on corporate opportunity as pos- ier view that each concern relates to and sible. Whereas WTO agreements are by and affects the other and that both need to find large unfairly accused of advancing an unpop- ways to be mutually supportive. This includes ular economic paradigm, that has not pre- the need to ensure that environmental stan- vented the public perception of the WTO as dards do not become an unwarranted obsta- the vanguard of this paradigm.18 cle to market access by developing countries, The crisis at the WTO reflects both grow- but also that they are not unnecessarily chal- ing doubts about staying on a path that has lenged over their effect on trade. There is failed to deliver on its promise and the grow- growing respect in the trade community for ing insistence of the developing world that multilateral environmental agreements and trade liberalization must not aggravate the even for their need to use trade measures to development problems of poorer countries. ensure compliance. The trade community The system is responding to this crisis with a asks only that the distortions to trade be no broad debate on how to achieve better coher- greater than necessary to achieve the pur- ence among different policy areas and active pose for which they are used.17 analysis of how the system can deliver genuine There remains, however, the problem that development benefits, including the correction the trading system serves an outdated and of past inequities. There is a clear sense that failed economic paradigm, that it favors the trade liberalization must not undermine corporate sector at the expense of public progress toward broadly supported public pol- policy goals, and that its rules have shifted the icy goals such as poverty alleviation, a healthy balance of benefit further toward the pri- environment, social justice, or human rights. vate sector. Since it has become clear that countries do not automatically benefit from trade openness, Responding to the a major effort is under way to put in place the conditions that would make such openness a Crisis at the WTO more positive experience. Since 1997 six Although the WTO agreements have boosted intergovernmental agencies, including the world trade and benefited some countries, WTO, have operated the Integrated Frame- they have fallen well short of the promise to work (IF) for Trade-Related Technical Assis- reduce the gaps between the rich and poor, tance for Least Developed Countries, between the powerful and the weak, and demonstrating growing cooperation among between those who pursue immediate gain international institutions sharing an interest and those who fight for a fairer world. Indeed, in a common theme. To date, the IF is active the WTO—and trade liberalization more in 33 of the world’s poorest countries, help- broadly—has come to be regarded as the ing to integrate trade with national develop- vanguard of an economic paradigm about ment plans and poverty reduction strategies, which there are increasing doubts. The orga- setting priorities for trade-related technical

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STATE OF THE WORLD 2008 New Approaches to Trade Governance assistance, and advising on governance reform arate from the formal dispute settlement to enhance participation in the world econ- mechanism. The Council for Environmental omy. This approach directly addresses one Cooperation set up under NAFTA was of the development-oriented goals in the intended to do something like this, although WTO Preamble.19 it has never lived up to expectations. More recently, the WTO has developed a Beyond the interagency level of coopera- work program on Aid for Trade. Targeting tion on the Integrated Framework, there is a developing countries, particularly the least great deal of experimentation going on with developed ones, this aims to help govern- forms of collaborative governance that go ments put in place the capacity and institu- beyond strict government-to-government tions needed to benefit from more open interaction. These involve public-private part- trade. Aid for Trade is seen by many devel- nerships or public policy partnerships that oping countries as very much part of the gather concerned stakeholders in “account- “down payment” they expect if they are to ability compacts.” The Extractive Industries sign up to any package emerging from the Transparency Initiative, the World Commis- Doha Round.20 sion on Dams, and the Forest Stewardship Efforts are also being made in the Doha Council are good examples of these.21 negotiations to link a country’s obligations to Despite the encouraging developments respect certain disciplines with its actual abil- and proposals just described, some of the ity to do so. In the ongoing discussions about problems that have become evident go well trade facilitation (the removal of administra- beyond the multilateral trading system itself. tive barriers to trade), countries will agree The crisis of the WTO also reflects the grow- to take on the full set of obligations only if and ing malaise caused by the perception that when they have the necessary institutions global change—and particularly economic and human capacity in place. Where they do liberalization—has outrun the world’s ability not, they will receive technical assistance— to govern for the general good of humanity. perhaps through Aid for Trade programs. As it becomes increasingly clear that the dom- The issue of how trade rules link with and inant economic paradigm is making poverty, affect other public policy goals is also debated social injustice, and environmental degrada- in the WTO’s Trade Policy Review Mecha- tion worse, the institutions that serve that par- nism. This unit undertakes regular, indepen- adigm come to be mistrusted. dent studies of member countries’ trade Thus a cloud of uncertainty hovers over all policies and the extent to which they respect attempts to push on further down that same the requirements of WTO membership. road. The multilateral rounds of WTO nego- This may not be enough. The world may tiations and the additional concessions beyond need to develop a set of screens and tests on WTO rules that powerful trading powers sustainable development, along with a mech- wrest from their partners through regional anism to settle areas of apparent or real incom- and bilateral free trade agreements or sec- patibility. All new trade rules, and to some toral agreements of one kind or another all extent also existing ones, would be subjected begin to look like “more of a bad thing.” to these to ensure that their impact on sus- Progress is not progress if the world is head- tainable development was positive. A forum to ing in the wrong direction. seek positive resolution in the case of incom- Yet correcting this, or finding an alterna- patibility would also be needed, probably sep- tive, is made doubly difficult by the lack of an

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STATE OF THE WORLD 2008 New Approaches to Trade Governance agreement on the paradigm that might offer emergence of a world order based on sover- a broadly preferable alternative. Critics of the eign nation states almost four centuries ago. current system know that they want a reliable Even if the impact on the WTO and other ele- and functioning economy whose quantita- ments of the international system may not yet tive and qualitative growth offers steadily be fully clear, the rise of China and India has increasing opportunity. They want to correct sent out shock waves that have not yet been the inequities that characterize today’s world, adequately absorbed. And several other coun- reducing the gap between rich and poor countries are flexing their muscles as well— tries and between rich and poor within coun- Argentina, Brazil, Mexico, South Africa, and tries and building respect for human rights and Viet Nam. In all likelihood the entry of Rus- social justice. And they want to live within the sia and most of the remaining former Soviet limits imposed by Earth’s ecosystems and republics into the WTO will trigger further natural resources. In short, they want to move seismic changes, and it is far from clear how toward sustainable development and would these changes can be handled, much less har- like the WTO and the other elements of the nessed to sustainable development. The dom- multilateral trading system to be a force in that inant position of the United States and the direction. They want the WTO to consider European Union, which have been substan- the goal set out in its Preamble not as a state- tially able to dictate trade rules, is fading and ment of broad intention but an imperative, a will never again be recovered. benchmark against which it is judged and The apparent redistribution of power against which all proposals to expand its dis- among nation-states is happening in parallel ciplines are evaluated.22 with the emergence of a global public domain In terms of both the collapsing paradigm that demands governance for which organi- and the need for the trading system to serve zations based on nation-states are proving a wider goal, the notion of sustainable devel- inadequate. Indeed, the intergovernmental opment may well mark the way forward. organizations of the United Nations, the Indeed, it may be the only acceptable way World Bank Group, and others are organized forward. The goal is there in the Preamble. around a postwar order that no longer ade- The need to meet it is reinforced in the Doha quately represents reality. This must give way mandate, and a space has been created in to a new order focused on optimal steward- which itineraries toward the goal might be ship of global public goods. Designing the reviewed. All that is missing is the political right institutions for global economic gover- will to occupy this space and the tools to nance will mean rethinking the role and pri- make the sustainable development paradigm macy of the nation-state as traditionally operational. understood. It will require reaching a geopo- litical settlement no less signiﬁcant than the Accepting That the World order that emerged from the chaos of World War II, but one built on the central recogni- Has Changed tion of interdependence. And it will involve One reason for the lack of resolute decisions understanding and ﬁnding the right role for is that the world is in a state of deep confu- a series of new actors in global governance, sion triggered by the deep and fast-paced most prominently corporations and civil soci- changes in the balance of power—undoubt- ety organizations and networks. edly the most profound power shift since the The challenge of global economic gover-

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STATE OF THE WORLD 2008 New Approaches to Trade Governance nance is that of managing multidimensional- this further.23 ity. Climate change policy cannot be left to Can they contribute to a system designed environment ministers, because getting it for citizens, not consumers? Can they help right involves energy policy, investment pol- design a system that can mediate effectively icy, foreign policy, and many other sectors. among unequal powers or in a situation of Similarly, trade policy cannot be left solely to enormous complexity and diversity? Can they trade ministers. help craft a system dedicated to the joint goals Perhaps the model in this respect is the of promoting political stability and advancing European Union (EU). For all its faults, the justice? A great deal depends on how the EU has proved adept at advancing a model of issues are framed. The goal is to move from governance capable of addressing multidi- an economics framed in terms of efﬁciency to mensional problems—at least those that are one framed in terms of justice—both proce- of central concern to its member states. It has dural justice and outcome justice. Future yet to demonstrate that it can take a multi- progress in extending the trading system will dimensional approach to emerging trading depend on the ability to demonstrate that powers or to the challenges of global eco- trade liberalization does indeed advance these nomic governance. But it also represents a wider objectives—social justice, human rights, model in another important respect: the equity, and a healthy environment. acceptance of devolved authority. One problem with the present paradigm is the ambi- Designing the right institutions for global guity of most states in terms of the authority they have devolved. This is certainly true of economic governance will mean rethinking the WTO, still stuck in the outdated national the role and primacy of the nation-state sovereignty model that characterized the as traditionally understood. world of GATT. This is not only an issue with richer trad- In a very real way, a sustainable future ing countries. The much-vaunted G-20 group depends not only on dealing with such emi- of developing countries in the WTO, which nently global issues as climate change (see Box has proved a powerful force in countering the 14–2) or the collapse of biodiversity. It traditional dominance of the rich nations, is depends on creating a society where nobody also torn by issues relating to national sover- is excluded. The challenge is to design a trad- eignty and domestic politics. And its members ing system that will harness the power of have yet to demonstrate that they can lead trade to do good to a system that is charac- developing countries to overcome a tendency terized by a search for fairness, stability, medi- toward “Third Worldism”—an automatic ation, the promotion of environmental values, resistance to change because the proposals and the imperative of inclusiveness. This come from richer countries. It will be critically requires a trading system that is accountable important that the emerging powers demon- to the goals set for it and that is genuinely strate, along with a growing sense of conﬁ- monitored to ensure it is proceeding optimally dence, a positive capacity to take the initiative, toward those goals. It requires a system that to be creative, and to help shape the new contributes as solidly as it can to the promo- order. They have already demonstrated an tion of the public good, not simply to private interest in a system characterized by greater interests, and that balances the power of the fairness. The question is whether they can take market with the need for a solid framework

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Box 14–2. Multidimensional Problems

There is no magic, single solution to the chal- picture of which they are but a part. lenge of controlling greenhouse gases. It is a The same is true of what Paul Collier calls “the challenge of energy policy and of managing the bottom billion”—those who are not benefiting transition to sustainable energy sources. This in from global growth, from trade liberalization, or turn has a great deal to do with the technological even from much development assistance and who transition, access to invention, and intellectual continue to survive on less than a dollar a day.The property. It has to do with investment policy and present economic approach offers them very little, the nature of investment agreements and the set- and the new economic elites in the emerging coun- tlement of investment disputes. And it has to do tries often appear not to pay them much atten- with trade policy—the trade rules and how the tion either. Yet a sustainable future depends on trading system deals with issues at the frontier including them in national economies and societies between trade policy and related policy areas. In and on lifting them out of their present misery. short, the issue cannot be dealt with by treating each of the pieces separately from the overall Source: See endnote 24. of public policy. In short, the world’s trading Were it not for the fundamental shift in system needs to go back to the goal set out power, the genuine threats to the future of in the Preamble to the WTO Agreements— humanity, and the growing disillusionment of the optimal use of the world’s resources in voting publics with their political leaders, this accordance with the objective of sustainable path might well be the one followed. It development. Only this time it needs to be appears, though, not to be a realistic option taken seriously.24 beyond the short term, because the world is also moving toward a situation where it is no What Is at Stake? longer susceptible to domination by one or two powers and must therefore search in Today’s world is characterized by unfairness, earnest for compromise. but in any unfair system there are those who A good deal of the efforts of the emerging benefit. Nothing prevents countries from powers in the trading system are aimed at hunkering down behind their trade barriers eliminating trade distortions that benefit rich and hanging on to what they have. Nothing countries rather than simply protecting their prevents governments digging in their heels vulnerable economic sectors from foreign com- so that the only advances made in trade lib- petition. Along with global economic rules, eralization are those imposed on weaker coun- there is developing what might be termed the tries by the more powerful. Nothing prevents “global public domain,” a recognized space in the world from moving back to a period of which notions of shared value in protecting greater protection, greater conflict, and global public goods are balanced with the greater suspicion of other countries. Things notion of commercial advantage. need not necessarily get better. They could This approach is not a statement of “no well grow worse. Indeed, that would normally confidence” in markets. It is simply a recog- be the default result in an environment where nition that markets function optimally in light reaching international agreements is increas- of the goals to be reached when they operate ingly difficult. within a framework of agreed public policy.

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The role of states is no longer to direct the demics, and civil society representatives. It is economy but to put in place a favorable pol- found in dialogues organized on these issues icy framework and adequate checks and bal- by the International Centre for Trade and ances. Within this context, the notion of Sustainable Development in Geneva, which competition for personal or national advan- offers senior trade officials a safe space in tage is replaced by a “competition for the which to experiment. It is in events orga- good,” where the rules of the global economy nized by the Royal Institute for International are not allowed to undermine the ability of Affairs in London or its equivalent in South states to act for the public good Africa, Brazil, India, and China, where new When comparing the WTO and the rest of ideas are incubated, tested, and refined.25 the multilateral system to this vision, it is clear The ideas, approaches, and proposals that that they fall short. But the system has increas- emerge in such forums and meetings make ing difficulty in moving forward precisely their way into the political processes, build a because the global community insists on some- level of trust, and begin to filter into the thing closer to that vision and has dwindling reform ideas that sooner or later design and patience with the WTO’s shortcomings. install the institutional structures that will Who, then, will lead us to the “promised allow the world to address new challenges as land” hinted at in the WTO’s own statement global change accelerates. It is no different for of purpose? Interestingly, it is not in the for- trade than it is for climate change or biodi- mal trade policy community that the new versity conservation. In each of these areas, we movement is evident. It is not the WTO del- are building toward what we hope will be a egates in their representational capacity who tipping point, a massive collection of political are acting in an innovative way. The labora- will that will tip the balance in favor of posi- tories for new thinking on trade governance tive action. Each contribution may appear are in spaces created outside traditional insti- insufficient, but the accumulation can make a tutions, in which new proposals are articu- big difference. It has done so before in one lated, reviewed, and debated. Some of the field after another. There is no reason why it most creative thinking is taking place in orga- cannot happen when addressing the challenge nizations like the Evian Group—a forum that of governing trade for the good of humanity. gathers a mix of WTO delegates and staff, aca-

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Notes

State of the World: NOAA Satellites Aid U.S. Fire Managers,” news A Year in Review story (Washington, DC: 4 January 2007).

October 2006. European Space Agency, “Record January 2007. “Board Statement,” The Bulletin Ozone Loss During 2006 Over South Pole” (Paris: of the Atomic Scientists Online, 17 January 2007; 2 October 2006); World Health Organization, U.S. Climate Action Partnership, “Major Busi- “WHO Challenges World to Improve Air Quality,” nesses and Environmental Leaders Unite to Call press release (Geneva: 5 October 2006); World for Swift Action on Global Climate Change,” Bank, “Natural Disasters on the Rise, 2005 The press release (Washington, DC: 22 January 2007). Zenith Year,” press release (Washington, DC: 11 October 2006); U.N. Environment Programme February 2007. “Summary for Policymakers,” (UNEP), “Further Rise in Number of Marine in Intergovernmental Panel on Climate Change, ‘Dead Zones,’” press release (Nairobi: 29 Octo- Climate Change 2007: The Physical Basis (Geneva: ber 2006); “Amazon Deforestation Slows,” Envi- February 2007); UNEP, “Globalization & Great ronment News Service, 27 October 2006; Her Apes: Illegal Logging Destroying Last Strong- Majesty’s Treasury, “Publication of the Stern holds of Orangutans in National Parks,” press Review on the Economics of Climate Change,” release (Nairobi: 6 February 2007); Global Wind press release, 20 October 2006. Energy Council, “Global Wind Energy Markets Continue to Boom—2006 Another Record Year,” November 2006. Boris Worm et al., “Impacts of press release (Brussels: 15 February 2007); Uni- Biodiversity Loss on Ocean Ecosystem Services,” versity of Missouri-Columbia, “Programmed for Science, 3 November 2006, pp. 787–90; World Obesity,” press release (Columbia, MO: 16 Feb- Wide Fund for Nature, “Climate Change Has ruary 2007); The Hon Malcolm Turnbull MP, Birds Out on a Limb,” press release (Gland, Minister for the Environment and Water Switzerland: 14 November 2006); Common- Resources, “World First! Australia Slashes Green- wealth Scientiﬁc and Industrial Research Organi- house Gases from Inefficient Lighting,” press sation, “Increase in Carbon Dioxide Emissions release (Bondi Junction, NSW, Australia: 20 Feb- Accelerating,” press release (Hobart, Tasmania, ruary 2007). Australia: 27 November 2006). March 2007. Samuel K. Wasser et al., “Using December 2006. “Rainforest Gets Protected Sta- DNA to Track the Origin of the Largest Ivory tus,” BBC News, 4 December 2006; Baiji.org Seizure Since the 1989 Trade Ban,” Proceedings Foundation, “Yangtze Freshwater Dolphin Expe- of the National Academy of Sciences, 6 March dition 2006,” press release (Wuhan, China: 13 2007, pp. 4228–33; Council of the European December 2006); Tansa Musa, “Two-thirds of Union, “Brussels European Council, 8/9 March Congo Basin Forests Could Disappear,” Reuters, 2007: Presidency Conclusions” (Brussels: 2 May 15 December 2006; National Oceanic and Atmos- 2007), p. 12; U.S. Department of Energy, pheric Administration, “In Record Wildﬁre Season, “Energy Praises the Nuclear Regulatory Com-

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STATE OF THE WORLD 2008 Notes mission Approval of the First United States Eagle Soars Off Endangered Species List,” press Nuclear Plant Site in Over 30 Years,” press release release (Washington, DC: 28 June 2007). (Washington, DC: 8 March 2007); Office of the Press Secretary, The White House, “President July 2007. UN Global Compact, “Business Lead- Bush and President Lula of Brazil Discuss Biofuel ers Call for Climate Action,” press release (Geneva: Technology,” press release (Washington, DC: 9 6 July 2007); University of Michigan at Ann March 2007); U.S. Food and Drug Administra- Arbor, “Organic Farming Can Feed the World, tion, “Pet Food Recall/Tainted Animal Feed,” at U-M Study Shows,” press release (Ann Arbor: 10 www.fda.gov, updated 31 May 2007; World July 2007); Suvendrini Kakuchi, “Japan’s Nuclear Wildlife Fund–US, “WWF’s Top 10 Rivers at Plans in Disarray,” Asia Times, 20 July 2007; Uni- Risk, Rio Grande Makes List,” press release (Wash- versity of Colorado at Boulder, “Glaciers and Ice ington, DC: 19 March 2007). Caps to Dominate Sea-Level Rise Through 21st Century, CU-Boulder Study Says,” press release April 2007. World Bank, “Poverty Drops Below (Boulder: 19 July 2007); “‘Once-in-a-Century’ 1 Billion, Says World Bank,” press release (Wash- Rains Displace Millions in China,” Environment ington, DC: 15 April 2007); Government of News Service, 23 July 2007; Flora and Fauna Inter- China, “Report: Yangtze Water Environment national, “IGCP Responds to Mountain Gorilla Deteriorating,” press release (Beijing: 16 April Deaths,” news release (Cambridge: 24 July 2007). 2007); United Nations Security Council, “Secu- rity Council Holds First-Ever Debate on Impact August 2007. “Spanish Company Chooses Kansas of Climate Change on Peace, Security, Hearing Town for Cellulosic Ethanol Plant,” Associated Over 50 Speakers,” press release (New York: 17 Press, 4 August 2007; New York City Department April 2007); “Double Hulled Tankers for Heavy of Health and Mental Hygiene, “Survey Finds Oil Now Law in Europe,” Environment News Ser- Elevated Rates of New Asthma Among WTC Res- vice, 28 April 2007. cue and Recovery Workers,” press release (New York: 27 August 2007). May 2007. “S Pacific to Stop Bottom-Trawling,” BBC News Online, 5 May 2007; Indiana Univer- September 2007. Mattel, Inc., “Mattel sity School of Medicine, “Premature Births May Announces Recall of 11 Toys as a Result of Exten- Be Linked to Seasonal Levels of Pesticides and sive Ongoing Investigation and Product Testing,” Nitrates in Surface Water,” press release (Bloom- press release (El Segundo, CA: 4 September 2007); ington, IN: 7 May 2007); Transatlantic21, “sun21 The Coca-Cola Company, “Coca-Cola Sets Goal Makes Historic Arrival into New York Harbor,” to Recycle or Reuse 100 Percent of Its Plastic press release (New York: 8 May 2007); The White Bottles in the U.S.,” press release (Atlanta: 5 Sep- House, Office of the Press Secretary, “Executive tember 2007); U.S. Geological Survey, “Future Order: Cooperation Among Agencies in Protect- Retreat of Arctic Sea Ice Will Lower Polar Bear ing the Environment with Respect to Greenhouse Populations and Limit Their Distribution,” press Gas Emissions from Motor Vehicles, Nonroad release (Reston, VA: 7 September 2007); Vehicles, and Nonroad Engines,” press release IUCN–World Conservation Union, “Extinction (Washington, DC: 14 May 2007). Crisis Escalates: Red List Shows Apes, Corals, Vultures, Dolphins All in Danger,” press release June 2007. Michael A. Fletcher, “G-8 Leaders (Gland, Switzerland: 12 September 2007); Alfred- Back ‘Substantial’ Cuts In Gas Emissions,” Wash- Wegener-Institute for Polar and Marine Research, ington Post, 8 June 2007; UNEP, “Investors Flock “The Sea-Ice is Getting Thinner—A Closer Look to Renewable Energy and Efficiency Technolo- at the Climate and Ecosystem of the Arctic gies,” press release (Nairobi: 20 June 2007); Ocean,” press release (Bremerhaven, Germany: UNESCO, “Galapagos and Niokolo-Koba 13 September 2007). National Park Inscribed on UNESCO’s List of World Heritage in Danger,” press release (Paris: 26 June 2007); U.S. Fish and Wildlife Service, “Bald

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Chapter 1. 3. Impoverished population from “News & Seeding the Sustainable Economy Broadcast: Poverty,” World Bank, at web.world bank.org, as of March 2007; Tim Ledwith, 1. Economic growth from Angus Maddison, “‘Progress for Children’ Reports Mixed Results on University of Groningen, “World Population, Access to Water and Sanitation Worldwide,” GDP, and Per Capita GDP, 1–2003 AD” at UNICEF, 28 September 2006; World Health www.ggdc.net/maddison, viewed 28 September Organization, “Obesity and Overweight,” Fact 2007; global output in 2006 from Central Intel- Sheet No. 311 (Geneva: September 2006). ligence Agency, The World Factbook 2007 (Wash- ington, DC: 2007); life expectancy and diseases 4. Global Risk Network, Global Risks 2007: A from “Life Expectancy at Birth, at 65 Years of Global Risk Network Report (Davos: World Eco- Age, and at 75 Years of Age, by Race and Sex: nomic Forum, January 2007). United States, Selected Years 1900-2004,” in National Center for Health Statistics, Health, 5. Maddison, op. cit. note 1; one seventh is a United States, 2006 (Hyattsville, MD: 2006), Worldwatch calculation based on U.S. Bureau of p. 176. the Census, International Data Base, electronic database, Suitland, MD. 2. Quote on temperature from American Asso- ciation for the Advancement of Science, “AAAS 6. “Daniel Bernoulli,” at Encyclopedia Britan- Board Releases New Statement on Climate nica online, viewed 16 October 2007. Change,” press release (Washington, DC: 9 December 2006); World Glacier Monitoring Ser- 7. Robert Solow, “Is the End of the World at vice, “Worldwide Glacier Melting Underlined in Hand?” in Andrew Weintraub et al., eds., The Newly Released Data,” press release (Zurich: 30 Economic Growth Controversy (White Plains, NY: January 2007); National Aeronautics and Space International Arts and Science Press, 1973), p. 51. Administration, “Greenland Ice Sheet on a Down- ward Slide,” press release (Greenbelt, MD: 19 8. Population and gross world product from October 2006); University of Colorado at Boul- Maddison, op. cit. note 1; Global Footprint Net- der, “Glaciers and Ice Caps to Dominate Sea- work, “Humanity’s Footprint, 1961–2003,” at Level Rise Through 21st Century, CU-Boulder www.footprintnetwork.org, viewed 28 Septem- Study Says,” press release (Boulder: 19 July 2007); ber 2007. Julienne Stroeve et al., “Arctic Sea Ice Decline: Faster Than Forecast,” Geophysical Research Let- 9. Boris Worm et al., “Impacts of Biodiversity ters, 1 May 2007; European Commission, “Nature Loss on Ocean Ecosystem Services,” Science, 3 Conservation: One in Six European Mammals November 2006, pp. 787–90. Threatened with Extinction Shows Assessment by the World Conservation Union (IUCN),” press 10. Maddison, op. cit. note 1. release (Brussels: 22 May 2007); U.N. Environ- ment Programme (UNEP), “Further Rise in Num- 11. Neva Goodwin, Tufts University, e-mail to ber of Marine ‘Dead Zones,’” press release authors, 20 September 2007. (Nairobi: 29 October 2006); World Health Orga- nization, “WHO Challenges World to Improve Air 12. UNEP, “IPCC Conﬁrms That Cost-effective Quality,” press release (Geneva: 5 October 2006); Policies and Technologies Could Greatly Reduce The National Academies, “Some Pollinator Pop- Global Warming,” press release (Nairobi: 4 May ulations Declining; Improved Monitoring and 2007); Nicholas Stern, The Economics of Climate More Biological Knowledge Needed to Better Change: The Stern Review (Cambridge, U.K.: Assess Their Status,” press release (Washington, Cambridge University Press, 2007); $650 billion DC: 18 October 2006); World Energy Council, is a Worldwatch estimate based on global economy 2007 Survey of Energy Resources (London: 2007), from International Monetary Fund, World Eco- p. 44. nomic Outlook Database (Washington, DC: Sep-

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STATE OF THE WORLD 2008 Notes tember 2006); Viet Nam from Lori Montgomery, Report 2006 (Washington, DC: 2006), p. 7. “The Cost of War, Unnoticed,” Washington Post, 8 May 2007. 21. Table 1–1 from James B. Davies et al., The World Distribution of Household Wealth (Helsinki: 13. Stern, op. cit. note 12; low and high estimates UNU-WIDER, December 2006), p. 3. from Frank Ackerman, “Debating Climate Eco- nomics: The Stern Review vs. Its Critics,” report 22. World Bank, op. cit. note 20, pp. 2–3. to Friends of the Earth–UK (Medford, MA: Global Development and Environment Institute (GDAE) 23. Herman E. Daly, Beyond Growth: The Eco- at Tufts University, July 2007), p. 2. nomics of Sustainable Development (Boston: Bea- con Press, 1996), pp. 33–35. 14. Frank Ackerman and Elizabeth Stanton, Cli- mate Change: The Costs of Inaction (Medford, 24. Global Roundtable on Climate Change, “The MA: GDAE, October 2006); Frank Ackerman, Path to Climate Sustainability: A Joint Statement GDAE, e-mail to Gary Gardner, 21 September by the Global Roundtable on Climate Change,” 2007; Stern, op. cit. note 12. Earth Institute at Columbia University, New York, 20 February 2007; “Kyoto Protocol,” U.N. 15. Millennium Ecosystem Assessment (MA), Framework Convention on Climate Change, at Ecosystems and Human Well-Being: Synthesis (Wash- unfccc.int, viewed 3 October 2007. ington, DC: Island Press, 2005), pp. 2–3. 25. Interface, Inc., Sustainability Report, at 16. Ibid., p. 55. www.interfacesustainability.com, viewed 13 Octo- ber 2007. 17. Robert Costanza, “The Value of the World’s Ecosystem Services and Natural Capital,” Nature, 26. Zero Waste New Zealand Trust, at 15 May 1997, p. 253; Andrew Balmford et al., www.zerowaste.co.nz, viewed 11 October 2007; “Economic Reasons for Conserving Wild Nature,” Jo Knight, Is Zero-waste Conceivable? (Auckland: Science, 9 August 2002, pp. 950–53; Marianne Zero Waste New Zealand, October 2007). Kettunen and Patrick ten Brink, Value of Biodi- versity: Documenting EU Examples Where Biodi- 27. “Global Military Spending Hits $1.2 Tril- versity Loss Has Led to Loss of Ecosystem Services lion—Study,” Reuters, 11 June 2007. (London and Brussels: Institute for European Environmental Policy, June 2006), Annex 6, p. 11. 28. Millennium Development Goals, at www.un.org/millenniumgoals; Global Call to 18. Balmford et al., op. cit. note 17; MA, op. cit. Action Against Poverty, at www.whiteband.org; note 15. The Microcredit Summit Campaign, at www .microcreditsummit.org, viewed 31 July 2007. 19. Maddison, op. cit. note 1; poverty and data on clean water and sanitation from U.N. Devel- 29. Daniel Kahneman and Alan B. Krueger, opment Programme (UNDP), Human Develop- “Developments in the Measurement of Subjective ment Report 2006 (New York: Palgrave Macmillan, Well-Being,” Journal of Economic Perspectives, 2006), pp. 2, 269; hunger from U.N. Food and winter 2006, pp. 15–16; “Gallup: Chinese Far Agriculture Organization (FAO), The State of Wealthier than a Decade Ago—But Are They Food Insecurity in the World, 2006 (Rome: 2006), Happier?” New Occidental Research, at web p. 32. .cenet.org.cn/web/Occidental, viewed 30 Sep- tember 2007. 20. UNDP, op. cit. note 19, p. 269; South Amer- ica population of 380 million from Census Bureau, 30. International Association of Public Trans- op. cit. note 5; income inequality lessening from port, Mobility in Cities Database (Brussels: 2005), “Overview,” in World Bank, World Development p. 3; “Aussie State Commits Big Bucks to

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Cycling,” Bicycle Retailer and Industry News, 1 Thomas Prugh, 27 July 2007. June 2006, p. 35; “French Create National Cycling Czar Position,” Bicycle Retailer and Industry News, 37. Cameron Walker, “Taking Stock: Assessing 15 May 2006, p. 27; “Taiwan Builds Bike Paths, Ecosystem Services Conservation in Costa Rica,” Promotes Cycling,” Bicycle Retailer and Industry Ecosystem Marketplace, 21 May 2007; Ricardo News, 15 July 2006, p. 27; “Brits Take to Bikes, Bayon, “Case Study: The Mexico Forest Fund” Infrastructure a Big Help,” Bicycle Retailer and Ecosystem Marketplace, 2004; Jessica Wilkinson, Industry News, 1 July 2006, p. 30; Rachel Gordon, Ecosystem Marketplace, discussions with Ricardo “Cycling Supporters on a Roll,” San Francisco Bayon, 2007. Chronicle, 21 August 2006; Amsterdam and United States from John Pucher and Lewis Dijk- 38. Jared Blumenfeld, “New Approaches to Safe- stra, “Promoting Safe Walking and Cycling to guarding the Earth,” San Francisco Chronicle, 4 Improve Public Health: Lessons from the Nether- August 2003. lands and Germany,” American Journal of Public Health, September 2003, p. 1509. 39. Ibid.

31. Kate Zernike, “Fight Against Fat Shifts to the 40. Maastricht from European Environmental Workplace,” New York Times, 12 October 2003. Agency, Late Lessons from Early Warnings: The Precautionary Principle, 1896–2000, Environ- 32. Andrew Revkin, “A New Measure of Well- mental Issue Report No. 22 (Copenhagen: Janu- being from a Happy Little Kingdom,” New York ary 2002), p. 14; Danish Environmental Protection Times, 4 October 2005. Agency, “The Precautionary Principle: Extracts and Summary from the Danish Environmental 33. “More Information on Environmentally Protection Agency’s Conference on the Precau- Related Taxes, Fees, and Charges,” at tionary Principle,” Environment News No. 35 www2.oecd.org, viewed 11 October 2007; Markus (Copenhagen: 1998); Los Angeles from “Prefer- Nigge and Benjamin Gorlach, Effects of Germany’s ring the Least Harmful Way,” Rachel’s Environ- Ecological Tax Reforms on the Environment, ment and Health News, 26 January 2000; “San Employment and Technological Innovation (Sum- Francisco Adopts the Precautionary Principle, mary) (Berlin: Ecologic, August 2005), p. 14; March 20, 2003,” Rachel’s Democracy and Health nitrogen oxide from International Institute for News, 18 June 2003. Sustainable Development, “The Nitrogen Oxide Charge on Energy Production in Sweden,” at 41. Robert Costanza et al., Introduction to Eco- www.iisd.org, viewed 11 October 2007; 34 per- logical Economics (Boca Raton, FL: St. Lucie Press, cent from Gary Wolff, When Will Business Want 1997), p. 211. Environmental Taxes? (San Francisco: Redeﬁning Progress, 2000), p. 5. 42. Elinor Ostrom et al., “Revisiting the Com- mons: Local Lessons, Global Challenges,” Sci- 34,. Congestion Charge Secretariat, Facts and ence, 9 April 1999, p. 278. Results from the Stockholm Trials (Stockholm: December 2006). 43. Ibid.

35. Gretchen C. Daily et al., “Ecosystem Services: 44. Elinor Ostrom, Governing the Commons: The Beneﬁts Supplied to Human Societies by Natural Evolution of Institutions for Collective Action (New Ecosystems,” Issues in Ecology, spring 1997, p. 2. York: Cambridge University Press, 1990), pp. 61 ff. 36. Renée Johnson, Recent Honey Bee Colony Declines (Washington, DC: U.S. Congressional 45. Peter Barnes, Capitalism 3.0 (San Francisco: Research Service, 20 June 2007), p. 2; Dr. David Berrett Koehler, 2006). Pimentel, Cornell University, discussion with

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46. Tomales Bay Institute, The Commons Ris- of Organic Agriculture: Statistics and Emerging ing: A Report to Owners (Minneapolis, MN: 2006), Trends 2007 (Bonn: International Federation of pp. 6, 15. Organic Agriculture Movements, 2007), pp. 9, 11; consumption share from Bureau of Economic 47. African Centre for Women, “Report of the Analysis, U.S. Department of Commerce, Ad Hoc Expert Group Meeting to Consider “National Income and Product Accounts Table, Modalities of Setting Up an African Bank for Gross Domestic Product,” at www.bea.gov, viewed Women,” at www.uneca.org. 2 October 2007.

48. U.N. Statistics Division, “Women’s Wages 53. Wal-Mart from Fishman, op. cit. note 52; BP Relative to Men’s,” in “Statistics and Indicators on Alternative Energy investment from Vivienne Cox, Men and Women,” database at unstats.un chief executive, Gas, Power & Renewables BP, .org/unsd, viewed 29 July 2007; Equal Pay Act plc, “The Business Case for Low-Carbon Power: from Equal Employment Opportunity Commis- An International Perspective,” speech to the Indian sion, www.eeoc.gov/policy/epa.html, viewed 1 Institute of Energy, 19 March 2007; 5 percent is August 2007; 77¢ from Representative Mike a Worldwatch calculation based on $8 billion over Honda, ”Statement on Equal Pay Day,” Wash- a decade, or an average of $800 million per year, ington, DC, 24 April 2007. compared with an average $16 billion in annual capital investments for the years 2004, 2005, and 49. Food production from FAO, “Gender and 2006, from British Petroleum, Annual Report Food Security: Agriculture,” at www.fao.org/GEn 2006 (London: 2006), p. 27. der/en/agri-e.htm; UNDP, Human Development Reports 2001 and 2002 (New York: Oxford Uni- 54. James Stack et al., Cleantech Venture Capi- versity Press, 2002, 2002); Aditi Thorat, “Grameen tal: How Public Policy Has Stimulated Private and the Question of Replicability,” Global Envi- Investment (CleanTech Venture Network and sion, 28 October 2005. Environmental Entrepreneurs, May 2007), pp. 8, 10; Cleantech Group, LLC, China Cleantech Ven- 50. Evelyn Dresher, “Valuing Unpaid Work,” ture Capital Investment Report (Cleantech Venture presented at Counting Women’s Work Sympo- Network, 2007), p. v. sium, UN Platform for Action Committee Man- itoba, Brandon, MB, May 1999; Erna 55. Commission on Oil Independence, Making Hooghiemstra, Ans Oudejans, and Saskia Sweden an Oil-Free Society (Stockholm: June Keuzenkamp, On the Trail of Unpaid Work: A 2006). Method of Integrating Information about Unpaid Work into Socioeconomic Policy (The Hague: Social 56. Walter Hook, “Bus Rapid Transit: The and Cultural Planning Ofﬁce of the Netherlands, Unfolding Story,” in Worldwatch Institute, State January 2002). of the World 2007 (New York: W. W. Norton & Company, 2007), pp. 80–81. 51. Paul Hawken, Amory Lovins, and L. Hunter Lovins, Natural Capitalism: Creating the Next Industrial Revolution (New York: Little, Brown Chapter 2. and Company, 1999). A New Bottom Line for Progress

52. “Toyota Worldwide Hybrid Sales Top 1 Mil- 1. Ronald Wright, A Short History of Progress lion,” Associated Press, 7 June 2007; CFL sales and (New York: Carroll and Graff, 2005), p. 5. share of total from Charles Fishman, “How Many Lightbulbs Does it Take to Change the World? 2. Rondo Cameron and Larry Neal, A Concise One. And You’re Looking at It,” Fast Company, Economic History of the World from Paleolithic September 2006, p. 74; organic sales and area Times to the Present (Oxford: Oxford University from Helga Willer and Minou Yusefﬁ, The World Press, 2003), p. 387.

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3. In Figure 2–1, gross world product data 8. World Bank, World Development Indicators from International Monetary Fund, World Eco- 2007 (Washington, DC: 2007), p. 185. nomic Outlook Database, electronic database, Wash- ington, DC, updated September 2005; human 9. World Commission on Environment and development index from U.N. Development Pro- Development, Our Common Future (New York: gramme, Human Development Report 2006 (New Oxford University Press, 1987), p. 43; Andres York: Palgrave Macmillan, 2006), p. 288; all other Edwards, The Sustainability Revolution: Portrait ﬁgures from World Bank Group, World Indicators of a Paradigm Shift (Gabriola Island, BC: New Online, electronic database, updated May 2007. Society Publishers, 2005), pp. 128–30.

4. Fischer cited in Philip Lawn, “Sustainable 10. Characterization of GPI from Philip Lawn, Development: Concepts and Indicators,” in Philip “Introduction,” in Lawn, op. cit. note 4, p. 11. Lawn, ed., Sustainable Development Indicators in Ecological Economics (Cheltenham, U.K.: Edward 11. Table 2–2 data from John Talberth, Clif- Elgar, 2006), p. 18. ford Cobb, and Noah Slattery, Sustainable Devel- opment and the Genuine Progress Indicator: An 5. Box 2–1 from the following: Sudan from Updated Methodology and Application in Policy United Nations, Under-Secretary for Humanitar- Settings (Oakland, CA: Redefining Progress, ian Affairs, “600,000 at Immediate Risk of Star- 2007). vation,” press release (Geneva: 23 February 2001), and from Alfred de Montesquiou, “African Union 12. Threshold effect from Manford Max-Neef, Force Ineffective, Complain Refugees in Darfur,” “Economic Growth and Quality of Life: A Thresh- Washington Post, 16 October 2006; Sri Lanka old Hypothesis,” Ecological Economics, November from T. J. Helgest, “Tsunami Disaster in Sri 1995, pp. 115–18. Lanka,” at academic.evergreen.edu/g/gross manz/HelgestJ, viewed 20 June 2007, from 13. Joseph Kahn and Jim Yardley, “As China Amantha Perera, “Sri Lanka: War Refugees Roars, Pollution Reaches Deadly Extremes,” New Stressed by Mass Resettlement,” IPS News, 28 York Times, 26 August 2007. May 2007, and from Amantha Perera, “Sri Lanka Civilians – Real Losers in the Civil War,” IPS 14. U.N. Statistical Division, Global Assessment News, 22 March 2007; U.S. war spending from of Environment Statistics and Environmental-Eco- Bureau of Economic Analysis, National Economic nomic Accounting (New York: 2007), p. 2; for Accounts, Table 1.1.5, electronic database, Wash- Pembina Institute’s economic, environmental, and ington, D.C., updated 28 June 2007; U.S. income social policy series, see www.fiscallygreen.ca/ inequality from David Clay Johnston, “U.S. gpi/indicators.php. Income Gap is Widening Significantly, Data Shows,” New York Times, 29 March 2007. 15. Nic Marks et al., The Happy Planet Index: An Index of Human Well-Being and Environmental 6. Johnston, op. cit. note 5. Impact (London: New Economics Foundation and Friends of the Earth, 2006). 7. Daniel Kahneman, Ed Diener, and Norbert Schwartz, eds., Well-being: The Foundation of 16. Ibid. Hedonic Psychology (New York: Russell Sage Foun- dation Publications, 2003), cited in Bill McK- 17. Details of Bhutan program and quote from ibben, Deep Economy (New York: New York Times Gopilal Acharya, “Literature on Gross National Books, 2007), pp. 32–33; Ed Diener and Martin Happiness,” at travelbhutan.tripod.com/druk Seligman, “Beyond Money: Toward an Economy .html, viewed 23 June 2007. of Well-Being,” Psychological Science in the Public Interest, July 2004, p. 5. 18. Emissions reduction scenario summarized by Bill Chameides, chief scientist, Environmental

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Defense, “Action Needed to Stop Global Warm- ReportingFramework/G3Online/Performance ing: Worldwide Emissions,” at environmental Indicators. defenseblogs.org/climate411/2007/03/14/world wide_emissions, posted 14 March 2007; gross 27. 3M information from Daniel C. Esty and world product data from “Chapter 2: An Overview Andrew S. Winston, Green to Gold (New Haven, of the Scenario Literature,” in Nebojsa Nakicen- CT: Yale University Press, 2006), p. 107. ovic and Robert Swart, eds., Special Report on Emissions Scenarios (New York: Cambridge Uni- 28. Green Mountain Coffee Roasters, Inc., Social versity Press, for Intergovernmental Panel on Cli- Responsibility Report (Waterbury, VT: 2007), pp. mate Change, 2000). 89–90, 116–19.

19. Index of representational equity from 29. Green Electronics Council, “Electronic Prod- Redeﬁning Progress, “Scenarios for Sustainability,” uct Environmental Assessment Tool: The Criteria,” fact sheet (Oakland, CA: 2007); GINI coefﬁcient at www.epeat.net/Criteria.aspx. from World Bank, op. cit. note 8, p. 69. 30. ST Microelectronics from Savitz and Weber, 20. Wright, op. cit. note 1, p. 129; Millennium op. cit. note 24, p. 35; DuPont from Esty and Win- Ecosystem Assessment, Ecosystems and Human ston, op. cit. note 27, p. 105; Advanced Micro Well-being (Washington, DC: Island Press, 2003). Devices, Inc., Global Climate Protection Plan 2006 (Sunnyvale, CA: AMD, Inc., 2006), p. 17. 21. World Wide Fund for Nature (WWF), Liv- ing Planet Report 2006 (Gland, Switzerland: WWF, 31. WHO Collaborating Centres in Occupa- Global Footprint Network, and the Zoological tional Health, “Global Strategy on Occupational Society of London, 2006), p. 1; Convention on Health for All: Recommendation of the Second Biological Diversity, Indicators for Assessing Progress Meeting of the WHO Collaborating Centres in Towards the 2010 Target: Ecological Footprint and Occupational Health, 11–14 October 1994, Bei- Related Concepts (Nairobi: U.N. Environment jing, China,” at www.ccohs.ca/who/contents.htm; Programme, 2004), p. 5. Turk Polytechnic, Corporate Sustainability Report (Turku, Finland: 2005), p. 31. 22. Localization definition from Redefining Progress et al., Building a Resilient and Equi- 32. Mountain Equipment Co-op, Making Our table Bay Area: Towards a Coordinated Strategy for Route: 2005 Corporate Sustainability Report (Van- Economic Localization (Oakland, CA: 2006), p. 2; couver, BC: 2005), pp. 31–34. World Bank, “World Bank Sees ‘Localization’ As Major New Trend in 21st Century,” press release 33. Overseas Development Institute, Tips and (Washington, DC: 15 September 1999). Tools for South African Tourism Companies on Local Procurement, Products and Partnerships 23. Associated Press, “Are Consumer Concerns (London: 2005). over Food Miles Driving Natural Food Super- markets to Begin Buying Local?” 30 April 2007. 34. Novartis, Inc., Implementing a Living Wage Globally, The Novartis Approach (Basel, Switzer- 24. Andrew Savitz and Karl Weber, The Triple land: 2006). Bottom Line (San Francisco: John Wiley and Sons, 2006), p. 209. 35. European Commission, “Beyond GDP: Mea- suring Progress, True Wealth, and the Well Being 25. Marine Stewardship Council Web site, at of Nations,” conference announcement, at www.msc.org. www.beyond-gdp.eu, viewed 22 June 2007.

26. Global Reporting Initiative, GRI Perfor- 36. World Bank Institute, Overview of Use of mance Indicators, at www.globalreporting.org/ Benefit-Cost and Cost Effectiveness Analysis for

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Environmental Management (Washington, DC: Sustainable Enterprise, Second Environmental 2002), p. 5. Economics Round Table Proceedings (Canberra: 2000); Factor Ten Club members available at 37. Esty and Winston, op. cit. note 27, pp. www.factor10-institute.org; Friedrich Schmidt- 24–27. Bleck, The Factor 10/MIPS-Concept: Bridging Eco- logical, Economic, and Social Dimensions with 38. Savitz and Weber, op. cit. note 24, p. 210. Sustainability Indicators (Tokyo: Zero Emissions Forum, United Nations University, 1999), p. 6.

Chapter 3. Rethinking Production 7. Stephan Schmidheiny with the Business Council for Sustainable Development, Changing 1. Reduced energy use from Marc Gunther, Course (Cambridge, MA: The MIT Press, 1992); “The Green Machine.” Fortune Magazine, 27 definition from World Business Council for Sus- July 2006; Cynthia Henry, “A Model of Corpo- tainable Development Web site, at www.wbcsd.org. rate Action,” Philadelphia Inquirer, 15 February 2007. 8. Programs and executive committee from “About the WBCSD,” at www.wbcsd.org. 2. Paul Hawken, Amory Lovins, and L. Hunter Lovins, Natural Capitalism: Creating the Next 9. National Business Initiative, “Case Study— Industrial Revolution (New York: Little, Brown Anglo American/Mondi: Improved Energy & and Company, 1999), p. 52; Annan quoted in Efficiency,” 3 January 2007, at www.wbcsd.org. “The State of the World? It Is on the Brink of Dis- aster?” The Independent (London), 30 March 10. STMicroelectronics, Sustainable Develop- 2005. ment Report (Geneva: 2003). Perfluorocarbon is a powerful greenhouse gas emitted during the 3. Hawken, Lovins, and Lovins, op. cit. note 2, production of aluminum (a fluorocarbon is a halo- p. 111. carbon in which some hydrogen atoms have been replaced by fluorine); it is used in refrigerators 4. For more information on Natural Capitalism and aerosols. Sulfur hexafluoride is another potent and how to implement these principles, see greenhouse gas. It one of the most popular insu- www.natcapsolutions.org. The entire text of the lating gases. book Natural Capitalism and many other reference works can be downloaded for free from this 11. STMicroelectronics, Environmental Report site. (Geneva: 2001); correlation of year’s payback to real after-tax rate of return from Hawken, Lovins, 5. William McDonough and Michael Braun- and Lovins, op. cit. note 2, p. 267. gart, Cradle to Cradle: Remaking the Way We Make Things (New York: North Point Press, 2002). 12. STMicroelectronics, op. cit. note 10; Murray Duffin,Center for Energy and Climate Solutions, 6. Ernst von Weizsäcker, Amory B. Lovins, and discussion with author. L. Hunter Lovins. Factor Four: Doubling Wealth, Halving Resource Use (London: Earthscan, 1997); 13. “Sustainability 360: Doing Good, Better, adoption of Factor Four philosophy in European Together,” Remarks of H. Lee Scott, Jr., CEO and Union environmental policy also described in President of Wal-Mart Stores, Inc., Lecture to Ester van der Voet et al., Policy Review on Decou- the Prince of Wales’s Business & the Environ- pling, Commissioned by European Commission ment Programme, 1 February 2007. (Leiden, Netherlands: Institute of Environmental Sciences, 2005); Australian Ministry of the Envi- 14. Ibid. ronment and Heritage, Visions, Management Tools and Emerging Issues Towards an Eco-Efficient and 15. Gunther, op. cit. note 1.

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16. “Sustainability 360,” op. cit. note 13. 32. Stahel, op. cit. note 26.

17. Gunther, op. cit. note 1. 33. Interface Dream Team meeting, Nether- lands, discussion with author, 2001. 18. Lee Scott, discussion with author, Business Milestone meeting, March 2007. 34. Janine Benyus, Biomimicry (New York: William Morrow, 1997); Fuller quote from 19. James P. Womack and Daniel T. Jones, Lean coolquotes.wordpress.com/2006/09/26/r-buck Thinking (New York: Simon & Schuster, 1996); minster-fuller-quote-on-beauty. “The History of Six Sigma,” at www.isix sigma.com. 35. Biomimicry Institute, “Biomimicry in a Nut- shell,” at www.biomimicry.net/biomimicryintro 20. Box 3–1 from Norihiko Shirouzu, “How duction.htm. Box 3–2 from Ray Anderson, at Does Toyota Maintain Quality? Mr. Oba’s Hair Wingspread Conference, discussion with author, Dryer Offers a Clue,” Wall Street Journal, 15 1 October 2007. March 2001. 36. Biomimicry Institute, “Biomimicry Design 21. Chicago Manufacturing Center (CMC), Process,” at www.biomimicry.net/designmeth “Green Plants Sustainable Leadership Program,” odologyA.htm. at www.cmcusa.org. 37. “EcoCover: Redesigning Waste for a Tangi- 22. For more information, see PortionPac, at ble Beneﬁt,”at www.ecocover.com. www.portionpaccorp.com. 38. Ibid. 23. Marvin Kline, founder, PortionPac, discussion with author. 39. Biomimicry Institute, “Mother-of-Pearl Inspires Lightweight Building Materials,” at 24. Walters cited in CMC, “PortionPac: At a www.biomimicry.net/casestudyabalone.htm. Glance,” at www.cmcusa.org. 40. Ibid. 25. Walter Stahel with G. Reday, Jobs for Tomor- row: The Potential for Substituting Manpower for 41. “Toyota Announces ‘Sustainable Plant’ Activ- Energy (New York: Vantage Press, 1981). ities,” Industry Week, 27 July 2007.

26. Walter Stahel, “Pillars of Sustainability,” 42. Ibid. Product-Life Institute, Geneva. 43. Biomimicry Institute, op. cit. note 35. 27. Ibid. 44. Ibid. 28. Ibid. 45. This concept was ﬁrst presented in “Catch the 29. Hawken, Lovins, and Lovins, op. cit. note 2, Wave,” The Economist, 18 February 1999; Figure pp. 157–58, 170. courtesy of The Natural Edge Project, Australia, 30 October 2006. 30. Ibid., Chapter 3. 46. For a detailed synthesis of this thesis, see K. 31. William Lazonick, “Corporate Restructur- Hargroves and M. Smith, The Natural Advantage ing,” in Stephen Ackroyd et al., eds., The Oxford of Nations: Business Opportunities, Innovation and Handbook of Work & Organization (Oxford: Governance in the 21st Century (London: Earth- Oxford University Press, 2005), pp. 577–601. scan, 2005), developed by The Natural Edge Pro-

220 WWW.WORLDWATCH.ORG

STATE OF THE WORLD 2008 Notes ject, at www.naturaledgeproject.net, 30 October 2004 (New York: W. W. Norton & Company, 2006. 2004).

47. General Electric, at www.ge.com/ecomagi- 7. Carbon footprints based on data supplied nation; Gunther, op. cit. note 1. by the BBC Newsnight team and only include

the carbon dioxide (CO2) emissions from the 48. Kevin Voigt, “Business Sees Green in Going burning of fossil fuels; they include the direct Green,” CNN Report, 21 December 2006. household emissions from electricity, cooking, and transport and an estimate of indirect emissions 49. David Reilly, “Proﬁt as We Know It Could Be based on the household income. Table 4–1 based Lost With New Accounting Statements,” Wall on data in International Energy Agency (IEA)

Street Journal, 12 May 2007. CO2 Emissions from Fuel Combustion 1971–2004 (Paris: Organisation for Economic Co-operation 50. John Elkinton, Cannibals With Forks: The and Development (OECD), 2006). Triple Bottom Line of 21st Century Business

(Oxford: Capstone Publishing Ltd., 1997). 8. Cumulative CO2 emissions in different countries from World Resources Institute, EarthTrends: 51. Margo Alderton, “Green Is Gold, According Environmental Information, online database, to Goldman Sachs Study,” The CRO (Corporate Washington, DC, 2007. Responsibility Ofﬁcer), at www.thecro.com, 11 July 2007. 9. Figure 4–1 from IEA, op. cit. note 7; Nether- lands Environmental Assessment Agency, “China Now No. 1 in CO2 Emissions: USA in Second Chapter 4. Position,” Climate Change Dossier, 19 June 2007; The Challenge of Sustainable Lifestyles “Summary for Policymakers,” in Intergovern- mental Panel on Climate Change (IPCC), Climate 1. “Ethical Man,” BBC Newsnight, 22 May Change 2007: Mitigation of Climate Change (New 2007. York: Cambridge University Press, 2007).

2. Data on income, household structure and 10. IPCC, Climate Change 2001: Third Assess- size, and energy consumption supplied by BBC ment Report (New York: Cambridge University team. Press, 2001).

3. Historical data and forecasts from J. Ablett 11. D. Farrell et al., From ‘Made in China’ to et al., The “Bird of Gold”: The Rise of India’s Con- ‘Sold in China’: The Rise of the Chinese Urban sumer Market (London: McKinsey Global Insti- Consumer (London: McKinsey Global Institute, tute, 2007); population projections from U.S. 2006). Bureau of the Census, International Data Base, Suitland, MD, updated 16 July 2007. 12. For examples of utilitarian model, see Andreu Mas-Colell, Michael D. Whinston, and Jerry R. 4. HSBC Holdings plc, HSBC Climate Conﬁ- Green, Microeconomic Theory (Oxford: Oxford dence Index 2007 (London: 2007). University Press, 1995), and David Fischer, Stan- ley Dornbusch, and Rudiger Begg, Economics, 5. U.N. Population Division, World Popula- 7th ed. (Maidenhead, U.K.: McGraw-Hill, 2003); tion Prospects: The 2004 Revision (New York: 2006). for the theory of “revealed preference,” see Paul Samuelson, “A Note on the Pure Theory of Con- 6. See Gary Gardner, Erik Assadourian, and sumers’ Behaviour,” Economica, February 1938, Radhika Sarin, “The State of Consumption pp. 61–71. Today,” in Worldwatch Institute, State of the World 13. “Science of desire” from Ernest Dichter, A

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Handbook of Consumer Motivations (New York: bridge, MA: The MIT Press, 2000). Income fig- McGraw Hill, 1964). ures are World Bank purchasing power parity estimates in 1995 dollars. 14. For the social role of goods, see Mary Dou- glas and Baron Isherwood, The World of Goods 22. Ruut Veenhoven, World Database of Happi- (New York: Basic Books, 1996); quote from Yian- ness, Erasmus University, Rotterdam, Netherlands. nis Gabriel and Tim Lang, The Unmanageable Consumer (London: Sage Publications Ltd., 2006), 23. Richard Layard, Happiness—Lessons from a p. 81. New Science (London: Penguin, 2005); The WHO World Mental Health Survey Consortium, “Preva- 15. For symbolic role of consumer goods, see lence, Severity and Unmet Need for Treatment of Helga Dittmar, The Social Psychology of Material Mental Disorders in the World Health Organiza- Possessions—To Have Is to Be (New York: St Mar- tion World Mental Health Surveys,” Journal of the tin’s Press, 1992); for “evocative power,” see American Medical Association, 2 June 2004, pp. Grant McCracken, Culture and Consumption 2581–89. (Bloomington and Indianapolis: Indiana Univer- sity Press, 1990); Mihály Csíkszentmihályi and 24. Alain de Boton, Status Anxiety (London: Eugene Rochberg-Halton, The Meaning of Penguin Books, 2005); Tim Kasser, The High Things—Domestic Symbols and the Self (New York: Price of Materialism (Cambridge, Mass: The MIT Cambridge University Press, 1981). Press, 2002); Tim Jackson, Wander Jager, and Sigrid Stagl, “Beyond Insatiability—Needs Theory 16. On self-esteem striving, see Jamie Arndt et al., and Sustainable Consumption,” in Lucia A. Reisch “The Urge to Splurge: A Terror Management and Inge Røpke, eds., The Ecological Economics of Account of Materialism and Consumer Behav- Consumption (Cheltenham, U.K.: Edward Elgar ior,” Journal of Consumer Psychology, vol. 14, no. Publishing, 2004). 3 (2004), pp. 198–212. 25. Data on “moral lives” and happiness from 17. Opinion Leader Research, 2006 Shifting Layard, op. cit. note 23, pp. 29, 81; see also Opinions and Changing Behaviour, Commissioned Robert D. Putnam, Bowling Alone (New York: by Sustainable Consumption Roundtable (Lon- Simon and Schuster, 2000); family breakdown don: 2006). data from Population Trends (London, Office for National Statistics, various years), cited in Tim 18. “Ethical Man,” op. cit. note 1. Jackson, Chasing Progress? Beyond Measuring Eco- nomic Growth (London: New Economics Foun- 19. “Islands of prosperity” from Madhav Gadjil dation, 2004), p. 3. and Ramachandra Guha, Ecology and Equity— The Use and Abuse of Nature in Contemporary 26. Layard, op. cit. note 23, p. 34. India (New York: Routledge, 1995), p. 34. 27. Richard Gregg (Gandhi’s student) originally 20. On the correlates of subjective well-being published his paper on voluntary simplicity in the (or reported life-satisfaction), see, for example, Indian Journal Visva Bharati Quarterly; Duane John F. Helliwell, “How’s Life? Combining Indi- Elgin, Voluntary Simplicity (New York: William vidual and National Variables to Explain Subjec- Morrow, reprinted 1993); Mihály Csíkszentmi- tive Wellbeing,” Economic Modelling, March 2003, hályi, “The Costs and Benefits of Consuming,” pp. 331–60. Journal of Consumer Research, September 2000, pp. 262–72. 21. Figure 4– 2 from Ronald Inglehart and Hans- Dieter Klingemann, “Genes, Culture, Democ- 28. Amitai Etzioni, “Voluntary Simplicity: Char- racy, and Happiness,” in Ed Diener and Eunkook acterisation, Select Psychological Implications and Suh, Culture and Subjective Well-being (Cam- Societal Consequences,” Journal of Economic Psy-

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STATE OF THE WORLD 2008 Notes chology, October 1998, pp. 619–43. 38. Ridley, op. cit. note 37; Leigh van Valen, “A New Evolutionary Law,” Evolutionary The- 29. Findhorn Foundation, Annual Report ory, vol. 1 (1973), pp. 1–30. 2005/6 (Forres, Scotland: 2006); Plum Village, at www.plumvillage.org/. 39. Russell W. Belk, Güliz Ger, and Søren Askegaard, “The Fire of Desire: A Multisited 30. Simplicity Forum, at www.simplicityfor Inquiry into Consumer Passion,” Journal of Con- um.org/index.html; Downshifting Downunder, at sumer Research 30, December 2003, pp. 325–51. downshifting.naturalinnovation.org/index.html. 40. S. Venkatesan, “Pathology of Power: Caste 31. Clive Hamilton and Elizabeth Mail, Down- and Capabilities,” OneWorld South Asia, 24 Octo- shifting in Australia: A Sea-change in the Pursuit ber 2006; life expectancy in India from Registrar of Happiness, Discussion Paper No. 50 (Canberra: General of India, “SRS Based Abridged Life The Australia Institute, January 2003); U.S. data Tables,” SRS Analytical Studies, Report No. 3 from Merck Family Fund, Yearning for Balance: (New Delhi: 2003). Views of Americans on Consumption, Material- ism, and the Environment (Takoma Park, MD: 41. Richard G. Wilkinson, The Impact of Inequal- 1995). ity: How to Make Sick Societies Healthier (Lon- don: Routledge, 2005). Figure 4–3 from Ofﬁce for 32. Kasser, op. cit. note 24; Kirk Warren Brown National Statistics, Sustainable Development Indi- and Tim Kasser, “Are Psychological and Ecolog- cators in Your Pocket 2007 (London: Department ical Well-being Compatible? The Role of Values, for Environment, Food and Rural Affairs (Defra), Mindfulness, and Lifestyle,” Social Indicators 2007). Research, November 2005, pp. 349–68. 42. Distress in unequal societies from Oliver 33. Buy Nothing Day, at adbusters.org/metas/ James, Affluenza (London: Vermillion, 2007), eco/bnd/index.php. Appendix 1 and 2.

34. Transition Towns, at transitiontowns.org; 43. See, for example, W. Hamilton, “The Evo- “U.S. Mayors Climate Protection Agreement,” lution of Altruistic Behavior,” American Natu- endorsed by the U.S. Conference of Mayors Meet- ralist, vol. 97 (1963), pp. 354–56; a more ing, Chicago, June 2005. accessible description can be found in Wright, op. cit. note 36; quote from Richard Dawkins, “Sus- 35. Limits of voluntary simplicity from Etzioni, tainability Does Not Come Naturally: A Darwin- op. cit. note 28, and from Seonaidh McDonald et ian Perspective on Values,” The Values Platform for al., 2006, “Toward Sustainable Consumption: Sustainability Inaugural Lecture at the Royal Insti- Researching Voluntary Simplifiers,” Psychology tution, 14 November 2001 (Fishguard, U.K.: The and Marketing, June 2006, pp. 515–35; invol- Environment Foundation). untary downshifting from Inglehart and Klinge- man, op. cit. note 21. 44. Robert M. Axelrod, The Evolution of Coop- eration (New York: Basic Books, 1984). 36. Robert Wright, The Moral Animal—Why We Are the Way We Are: The New Science of Evo- 45. For infrastructure of consumption, see lutionary Psychology (London: Abacus, 1994). OECD, Towards Sustainable Consumption: An Economic Conceptual Framework (Paris: 2002), 37. The quotation is from a review of Matt Rid- p. 41. ley, The Red Queen: Sex and the Evolution of Human Nature (London: Penguin Books, 1994), 46. Wage disparities from Stephen Bradley, In cited on book cover. Greed We Trust: Capitalism Gone Astray (Victoria, BC: Trafford Publishing, 2006); discounted long-

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STATE OF THE WORLD 2008 Notes term costs from Nicholas Stern, The Economics of 55. Darren Murph, “Australia to Phase Out Climate Change: The Stern Review (Cambridge: Incandescent Bulbs by 2010,” Engadget.com, 20 Cambridge University Press, 2007); materials sig- February 2007; Conrad Quilty-Harper, “All of naling status from Juliet B. Schor, The Overspent EU to Switch Off Energy Inefﬁcient Lights Within American (New York: Basic Books, 1998); Three Years,” Engadget.com, 10 March 2007; National Consumer Council, Shopping Genera- Sustainable Development Commission, Looking tion (London: 2006). Back, Looking Forward (London: 2006).

47. Avner Offer, The Challenge of Affluence 56. Defra, “Wellbeing and Sustainable Develop- (Oxford: Oxford University Press, 2006). ment,” at www.sustainable-development.gov.uk , updated 6 June 2007; Canada from Andrew C. 48. Parenthood from ibid., Chapter 14; savings Revkin, “A New Measure of Wellbeing from a rates from Norman Loayza et al., Saving in the Happy Little Kingdom,” New York Times, 4 Octo- World: The Stylized Facts (Washington DC: World ber 2005; State Environmental Protection Agency, Bank, 1998); consumer debt from Ben Woolsey, China Green National Accounting Study Report “Credit Card Industry Facts and Personal Debt 2004 (Beijing: 2006). Statistics (2006–2007),” at Creditcards.com, and from William Branigin, “Consumer Debt Grows 57. “Global Ad Spending Expected to Grow at Alarming Pace, at msnbc.msn.com, 12 January 6%,” Brandweek, 6 December 2005; “Internet 2004. Advertising Nears £1 Billion for First Six Months of 2006,” Internet Advertising Bureau, 4 October 49. Quote from Rio Rivas and David H. Gobeli, 2006. “Accelerating the Rate of Innovation at Hewlett Packard,” Industrial Research Institute, undated. 58. Proceedings and publications from the WHO conference available at www.euro.who.int/obe 50. “Iron cage” was ﬁrst applied to capitalism by sity/conference2006; Ministry of Children and Max Weber, The Protestant Ethic and the Spirit of Equality, “The Norwegian Action Plan to Reduce Capitalism, tr. Talcott Parsons (New York: Charles Commercial Pressure on Children and Young Scribner’s Sons, 1958); application to consumerism People,” at www.regjeringen.no/en; ban on adver- in George Ritzer, The McDonaldization of Society tising green cars reported in Edmonton Journal, 7 (New York: Pine Forge Press, 2004). September 2007; David Evan Harris, “São Paulo: A City Without Ads,” Adbusters, September-Octo- 51. U.N. Population Division, op. cit. note 5. ber 2007.

52. Sustainable Consumption Roundtable, I Will 59. Local Development Institute, A Model of If You Will: Towards Sustainable Consumption Local Economy in 200 Districts Based on Suffi- (London: Sustainable Development Commission, ciency Economy: An Action Research Project 2006). (Bangkok, Office of Village Fund National Com- mittee, 2002–03); Yuwanan Santitaweeroek, 53. Role of policy from ibid.; Tim Jackson, “Thailand’s Silk Microenterprises and the Suffi- “Challenges for Sustainable Consumption Pol- ciency Economy,” PhD Dissertation (Guildford, icy,” in Tim Jackson, Earthscan Reader in Sus- U.K.: University of Surrey, forthcoming); Bhutan tainable Consumption (London: Earthscan/James from Revkin, op. cit. note 56. and James, 2006); sustainable consumption policy from Defra, Securing the Future: Implementing UK Sustainable Development Strategy (London: Chapter 5. Meat and Seafood: Her Majesty’s Stationery Office, 2005), Chapters The Global Diet’s Most Costly Ingredients 2 and 3. 1. Meat and seafood production, Figure 5–1, 54. Stern, op. cit. note 46. and Table 5–1 from U.N. Food and Agriculture

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Organization (FAO), FAOSTAT Statistical Data- Threatens Fisheries,” The Advocate, 10 September base, at faostat.fao.org, updated 30 June 2007, and 2007; National Marine Fisheries Service, NOAA, from FAO, Yearbook of Fishery Statistics (Rome: Fisheries of the United States 2006 (Silver Spring, 2006). The United Nations recently revised the MD: July 2007). way it totals seafood, so data in this chapter do not match earlier Worldwatch publications. Since 7. Symbiotic role of ﬁsh farms from B. A. Costa- seafood is generally consumed fresh or within a few Pierce, ed., Ecological Aquaculture: The Evolution months of being caught, statistics on consumption of the Blue Revolution (Oxford, U.K.: Blackwell, and production are nearly identical. 2002); symbiotic role of livestock from Pollan, op. cit. note 3, p. 210. 2. Nanna Roos et al., “Fish and Health,” in Corinna Hawkes and Marie T. Ruel, eds., Under- 8. Danielle Nierenberg, “Factory Farming in the standing the Links Between Agriculture and Health Developing World,” World Watch, May/June for Food, Agriculture, and the Environment, 2020 2003; “Meet Niman Ranch Family Farmer Tim Focus No. 13 (Washington, DC: International Roseland,” Niman Ranch Web site, at www.niman- Food Policy Research Institute (IFPRI), May ranch.com, viewed August 2007. 2006); seafood data from FAO, FAOSTAT, op. cit. note 1; supply of protein from Meryl Williams, 9. FAO, Mixed Crop-Livestock Farming: A “The Transition in the Contribution of Living Review of Traditional Technologies Based on Lit- Aquatic Resources to Food Security,” Food, Agri- erature and Field Experience (Rome: 2001); culture, and the Environment Discussion Paper 13 Michael Greger, Bird Flu: A Virus of Our Own (Washington, DC: IFPRI, 1996). Hatching (New York: Lantern Books, 2006).

3. For more on factory farming, see Danielle 10. Iowa State University, “Alternatives to Ges- Nierenberg, Happier Meals: Rethinking the Global tation Stalls Reviewed at Iowa State,” press release Meat Industry (Washington, DC: Worldwatch (Ames, IA: 19 April 2007). Institute, September 2005), and Michael Pollan, The Omnivore’s Dilemma: A Natural History of 11. Dr. William Weida, Executive Director of Four Meals (New York: Penquin Press, 2006). the GRACE Factory Farm Project, discussion with Danielle Nierenberg, July 2007. 4. Humane Society of the United States, “An HSUS Report: Welfare Issues with Selective Breed- 12. Henning Steinfeld et al., Livestock’s Long ing for Rapid Growth in Broiler Chickens and Shadow: Environmental Issues and Options (Rome: Turkeys,” Washington, DC, February 2006. FAO, 2006); Daniele Finelli, “Meat is Murder on the Environment,” New Scientist, 18 July 2007; 5. For the history of fishing technology, see C. Cederberg and M. Stadig, “System Expansion Dietrich Sahrhage and Johannes Lundbeck, A and Allocation in Life Cycle Assessment of Milk History of Fishing (Berlin: Springer-Verlag, 1992); and Beef Production,” International Journal of 70 million tons from FAO, FAOSTAT, op. cit. Life Cycle Assessment, vol. 8, no. 6 (2003), pp. note 1; 90 percent from Ransom A. Myers and 350–56. Boris Worm, “Rapid Worldwide Depletion of Predatory Fish Communities,” Nature, 15 May 13. Farmed ﬁsh from FAO, FAOSTAT, op. cit. 2003, pp. 280–83. note 1; growth from Christopher L. Delgado et al., Outlook for Fish to 2020: Meeting Global Demand 6. National Science and Technology Council, (Washington, DC, and Penang, Malaysia: IFPRI Committee on Environment and Natural and WorldFish Center, October 2003). Resources, Integrated Assessment of Hypoxia in the Northern Gulf of Mexico (Washington, DC: 14. Rosamond Naylor and Marshall Burke, National Oceanic and Atmospheric Administration “Aquaculture and Ocean Resources: Raising Tigers (NOAA), May 2000); Amy Wold, “‘Dead Zone’ of the Sea,” Annual Reviews in Environmental

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Resources, vol. 30 (2005), pp. 185–218; Jackie Shell,” New York Times, 9 April 2007; dead zones Alder and Daniel Pauly, On the Multiple Uses of For- from J. Michael Beman, Kevin R. Arrigo, and age Fish: From Ecosystems to Markets, Fisheries Pamela A. Matson, “Agricultural Runoff Fuels Centre Research Report (Vancouver, BC: Sea Large Phytoplankton Blooms in Vulnerable Areas Around Us Project, Fisheries Centre, University of of the Ocean,” Nature, 10 March 2005, pp. British Columbia, 2006), pp. vii, 3. 211–14.

15. Naylor and Burke, op. cit. note 14. 22. WorldFish Center, “Rice-Fish Culture: A Recipe for Higher Production,” at www.world 16. Ibid. fishcenter.org, viewed 4 September 2006; projections are Worldwatch estimates based on ibid. 17. Campaign from Don Staniford, Pure Salmon Campaign, discussion with Brian Halweil, 16 July 23. Randall E. Brummett et al., “Targeting Aqua- 2007; world’s largest salmon farming company culture Development in Africa: A Case Study from from Marine Harvest, “Pan Fish Aquires Marine Cameroon,” Humid Forest Ecoregional Center, Harvest to Form the World’s Largest Fish Farm- Yaoundé, Cameroon, unpublished report; Randall ing Company,” press release (Oslo, Norway: 6 E. Brummett, WorldFish, Humid Forest Ecore- March 2006). gional Center, Yaoundé, Cameroon, e-mail to Brian Halweil, 17 September 2007. 18. Costa-Pierce, op. cit. note 7; Maeve Kelly et al., “Nutrient Re-cycling or Utilising ‘Waste’ in 24. Environmental Working Group (EWG), Open Water Aquaculture,” Scottish Association for Corn Subsidies in the United States 1995–2005 Marine Science, presentation at Soil Association and Soybean Subsidies in the United States conference, Stirling, U.K., March 2006; syner- 1995–2005, Farm Subsidy Database, at gies and 50 percent from Shawn Robinson, farm.ewg.org/farm, 12 June 2007; Organisation research scientist, Fisheries and Oceans Canada, for Economic Co-operation and Development Aquaculture Division, St Andrews Biological Sta- (OECD), Agricultural Policies in OECD, Moni- tion, St Andrews, NB, discussion with Brian Hal- toring and Evaluation 2006 (Paris: 2006). weil, 19 September 2007. 25. EWG, op. cit. note 24; EWG, Livestock Sub- 19. Cleaner fish from Per Gunnar Kvenseth, Villa sidies in the United States 1995–2005, Farm Sub- Salmon, Vikebukt, Norway, discussion with Brian sidy Database, at farm.ewg.org/farm, 12 June Halweil, 31 August 2007; “Lice from Fish Farms 2007. Called Threat,” Associated Press, 20 September 2007; benefits of integrated system from Costa- 26. Ussif Rashid Sumaila and Daniel Pauly, Pierce, op. cit. note 7. Catching More Bait: A Bottom-up Re-estimation of Global Fisheries Subsidies, Fisheries Centre Research 20. Cost of removing nitrogen from the water Report (Vancouver, BC: Sea Around Us Project, from Bob Rheault, Moonstone Oysters and East Fisheries Centre, University of British Columbia, Coast Shellfish Growers Association, discussion 2006). with Brian Halweil; Rowan Jacobsen, A Geogra- phy of Oysters (New York: Bloomsbury USA, 2007); 27. Daniel Pauly and Jay Maclean, In a Perfect M. A. Rice, “Environmental Impacts of Shellfish Ocean (Washington, DC: Island Press, 2006), p. Aquaculture: Filter Feeding to Control Eutroph- 68; OECD, op. cit. note 24. ication,” in M. Tlusty et al., eds., Marine Aqua- culture and the Environment: A Meeting for 28. Fleet fuel use from Cornelia Dean, “Fishing Stakeholders in the Northeast (Falmouth, MA: Cape Industry’s Fuel Efficiency Gets Worse as Ocean Cod Press), pp. 77–84. Stocks Get Thinner,” New York Times, 20 Decem- ber 2005; energy provided by fish from Peter H. 21. Rowan Jacobsen, “Restoration on the Half Tyedmers et al., “Fueling Global Fishing Fleets,”

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Ambio, December 2005, pp. 635–38. Wider Net,” Christian Science Monitor, 3 April 2006; Henry Lovejoy, president and founder, 29. Ussif Rashid Sumaila, “Running on Empty,” EcoFish, Dover, NH, discussion with Brian Hal- from “10 Solutions to Save the Ocean,” Conser- weil, 21 August 2006; Tim O’Shea, chairman and vation, July-September 2007; University of British CEO, CleanFish, San Francisco, discussion with Columbia, “Gov’t Subsidies Make Ocean ‘Strip- Brian Halweil, 4 September 2006. mining’ Economically Viable: UBC Researchers,” press release (Vancouver, BC: 17 November 2006). 40. Lovejoy, op. cit. note 39.

30. FAO, “Loss of Biodiversity in Livestock— 41. Jerry Hirsch, “Animal Welfare Issue Boil- Policy Options,” at virtualcentre.org. ing,” Los Angeles Times, 2 July 2007.

31. Pauly and Maclean, op. cit. note 27, p. 72. 42. “Buyers Navigate Sustainable Seafood,” SeaFood Business, October 2004, pp. 22–23; 32. Wayne Arnold, “Surviving Without Subsi- Moser, op. cit. note 39; Wal-Mart Stores, Inc., dies,” New York Times, 2 August 2007. “Wal-Mart Stores, Inc. Introduces New Label to Distinguish Sustainable Seafood,” press release 33. Ibid. (Bentonville, AR: 31 August 2006); Carol Ness, “Wal-Mart to Push Sustainable Shrimp,” San 34. Tundi Agardy, “A Separate Peace,” from “10 Francisco Chronicle, 23 May 2007. Solutions to Save the Ocean,” Conservation, July- September 2007. 43. Hirsch, op. cit. note 41; Whole Foods, “Farm Animal and Meat Quality Standard,” 35. James A. Bohnsack, Southeast Fisheries Sci- at www.wholefoodsmarket.com, viewed August ence Center, University of Miami, FL, discussion 2007. with Brian Halweil, 15 May 2006; James A. Bohn- sack, “Marine Reserves: They Enhance Fisheries, 44. Eat Wild, Directory of Pasture-raised Farm- Reduce Conflicts, and Protect Resources,” ers, at www.eatwild.com, viewed August 2007. Oceanus, vol. 36, no. 3 (1993). 45. Cape Code Commercial Hook Fishermen’s 36. Andrew Balmford et al., “The Worldwide Association, at www.ccchfa.org; Eric Hesse, Cape Costs of Marine Protected Areas,” Proceedings of Blueﬁn and Cape Code Commercial Hook Fish- the National Academy of Sciences, 29 June 2004, ermen’s Association, discussion with Brian Halweil, pp. 9694–97; D. Zeller, “From Mare Liberum to 30 January 2006. Mare Reservarum: Canada’s Opportunity for Global Leadership in Ocean Resource Gover- 46. Doug Woodby et al., Commercial Fisheries of nance,” in A. Chircop and M. McConnell, eds., Alaska, Special Publication No. 05–09 (Anchor- Ocean Yearbook (Chicago: University of Chicago age, AK: Alaska Department of Fish and Game, Press, 2005), pp. 1–18. June 2005); Nick Joy, managing director, Loch Duart Ltd., Scotland, presentation at Seafood 37. Marine Stewardship Council (MSC), Summit 2006: Sustainability and the Future of “History of MSC” and “About MSC,” at Seafood, Seattle, WA, 29–31 January 2006; shift www.msc.org, updated 14 September 2006. in fishers’ mindset from Rod Fujita, scientist, Environmental Defense, Oakland, CA, discus- 38. MSC membership from www.msc.org and sion with Brian Halweil, 24 July 2006; Hesse, op. from Jessica Wenban-Smith, communications man- cit. note 45. ager, MSC, London, e-mail to Brian Halweil, 12 January 2005. 47. Harry Aiking, Joop de Boer, and Johan Vereijken, eds., Sustainable Protein Production 39. Kate Moser, “Sustainable Seafood Casts a and Consumption: Pigs or Peas? (Berlin: Springer,

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2006); C. T. Hoogland et al., “Spoiling the “Shark Fin Soup: An Eco-Catastrophe?” San Fran- Appetite? Changing Patterns of Meat and Fish cisco Chronicle, 20 January 2003; $200 a bowl, Consumption and the Role of Knowledge about $700 per kilogram, and Ecuador from Juan Forero Production—A Qualitative Investigation,” pre- and Alyssa Lau, “Hidden Cost of Shark Fin Soup: sentation at the 6th Biennial Conference on Envi- Its Source May Vanish,” New York Times, 5 Jan- ronmental Psychology, Bochum, 19–21 September uary 2006; roughly 100 million shark deaths from 2005; Carolien T. Hoogland, Joop de Boer, and IUCN–World Conservation Union, “Threatened Jan J. Boersema, “Transparency of the Meat Chain Shark Species Receive International Focus,” press in the Light of Food Culture and History,” release (Queensland, Australia: 6 March 2003). Appetite, August 2005, pp. 15–23. 57. Active Conservation Awareness Program, 48. Slow Food International, at www.slow WildAid, at wildaid.org; Thai Airways Interna- food.com; Slow Fish, “The Return of Slow Fish: tional Public Company Limited, “THAI Cancels Sustainable Seafood Salone Back in Genoa,” press Shark Fin Soup Service on Board,” press release release (Bra, Italy: Slow Food International, 2005); (Bangkok: 2000); Maria Cheng, “More Than We see also Slow Fish Web site, at www.slowﬁsh.it. Can Chew: Environment Groups Are Trying to Change Hong Kong’s Destructive Eating Habits. 49. Sarah Weiner, “Slow Food and Fishing,” in Can They Pull It Off?” Asiaweek, 27 October The Slow Food Companion (Bra, Italy: 2005), p. 33. 2000; The Walt Disney Company, Enviroport 2005 (Burbank, CA: 2005); Doug Crets and Mimi 50. Daniel Pauly, “Babette’s Feast in Lima,” Sea Lau, “HKU Bans Shark Fin Dishes,” The Standard Around Us Project Newsletter, November/Decem- (Hong Kong), 3 November 2005. ber 2006; Patricia Majluf, Center for Environ- mental Sustainability, Cayetano Heredia University, 58. Ayrshire Farm Veal Flyer, at www.ayrshire Lima, Peru, e-mail to Brian Halweil, 20 August farm.com, viewed August 2007. 2007.

51. Pauly, op. cit. note 50; Majluf, op. cit. note Chapter 6. 50. Building a Low-Carbon Economy

52. Martin Hall, “Eat More Anchovies,” from 1. “Summary for Policymakers,” in Intergov- “10 Solutions to Save the Ocean,” Conservation, ernmental Panel on Climate Change (IPCC), Cli- July-September 2007. mate Change 2007: The Physical Science Basis (New York: Cambridge University Press, 2007), p. 2. 53. Martin Fackler, “Waiter, There’s Deer in My Sushi,” New York Times, 25 June 2007. 2. Figure 6–1 from the following: K. W. Thon- ing et al., Atmospheric Carbon Dioxide Dry Air 54. Marion Burros, “The Hunt for a Truly Grand Mole Fractions from quasi-continuous measure- Turkey, One that Nature Built,” New York Times, ments at Barrow, Alaska; Mauna Loa, Hawaii; 21 November 2001; “Poultry,” Heritage Foods American Samoa; and South Pole, 1973–2006 USA, at www.heritagefoodsusa.com, viewed (Boulder, CO: Earth System Research Labora- August 2007; Heritage Foods customer service tory, National Oceanic and Atmospheric Admin- representative, discussion with Danielle Nieren- istration, October 2007); C. D. Keeling and T. P. berg. Whorf, “Atmospheric CO2 Records from Sites in the SIO Air Sampling Network,” and A. Neftel et 55. Patrick Mulvany and Susanne Gura, al., “Historical CO2 Record from the Siple Station “Reclaiming Livestock Keepers’ Rights,” Seedling, Ice Core,” both in Carbon Dioxide Information January 2007. Analysis Center (CDIAC), Trends: A Compendium of Data on Global Change (Oak Ridge, TN: Oak 56. Increased demand from Hank Pellissier,

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Ridge National Laboratory, U.S. Department of domestic product growth to 0.6 percent for 2030 Energy, 2007). to 2050; U.S. Department of Energy, Interna- tional Energy Outlook 2007 (Washington, DC: 3. E. Jansen et al., “Palaeoclimate,” in IPCC, 2007), pp. 5, 73; Barker et al., op. cit. note 8, pp. op. cit. note 1, p. 449. 39, 42.

4. IPCC, op. cit. note 1, pp. 342, 350, 537, 10. Recent and historical carbon emissions 543; M. Serreze et al., “Perspectives on the Arc- derived from BP, op. cit. note 6, and from Mar- tic’s Shrinking Sea-Ice Cover,” Science, 16 March land et al., op. cit. note 6; Table 6–2 calculated by 2007, pp. 1533–36. Worldwatch with data from BP, op. cit. note 6, from Marland et al., op. cit. note 6, from Popu- 5. Alan Greenspan, The Age of Turbulence: lation Reference Bureau, 2006 World Population Adventures in a New World (New York: Penguin Data Sheet (Washington, DC: 2006), from U.S. Press, 2007); Nicholas Stern, The Economics of Bureau of the Census, “Population, Population Climate Change: The Stern Review (Cambridge, Change and Estimated Components of Population U.K.: Cambridge University Press, 2007). Change: April 1, 2000 to July 1, 2006,” Wash- ington, DC, December 2006, and from Interna- 6. “Summary for Policymakers,” op. cit. note 1; tional Monetary Fund (IMF), World Economic International Energy Agency, Key World Energy Outlook (Washington, DC: April 2007); energy Statistics, (Paris: 2007), p. 6; recent carbon emis- demand growth estimated in Bressand et al., op. sions by Worldwatch based on G. Marland et al., cit. note 9, p. 11.

“Global, Regional, and National Fossil Fuel CO2 Emissions,” in CDIAC, op. cit. note 2; BP, Sta- 11. “Growth and Responsibility in the World tistical Review of World Energy (London: 2007). Economy,” G–8 Summit Declaration, Heiligen- damm, Germany, June 2007, p. 15; approximate 7. J. Hansen et al., “Dangerous Human-made share of emissions by source provided in Barker et Interference with Climate: A GISS ModelE Study,” al., op. cit. note 8, p. 28. Atmospheric Chemistry and Physics, vol. 7, no. 9 (2007), pp. 2287–312; 0.8 degrees Celsius is the 12. Worldwatch Institute estimate of required midpoint of estimates of warming, as reported in industrial-country emissions reductions. IPCC, op. cit. note 1, p. 5. 13. S. Pacala and R. Socolow, “Stabilization 8. T. Barker et al., “Technical Summary,” in Wedges: Solving the Climate Problem for the IPCC, Climate Change 2007: Mitigation (New Next 50 Years with Current Technologies,” Sci- York: Cambridge University Press, 2007), p. 39. ence, 13 August 2004, pp. 968–72.

9. In Table 6–1, business-as-usual case described 14. National Petroleum Council, Hard Truths: in International Energy Agency, Energy Technol- Facing the Hard Truths about Energy (Washington ogy Perspectives—Scenarios and Strategies to 2050 DC: July 2007), pp. 127, 135. (Paris: 2006), pp. 44–46, 451–52, and “stabilization” scenario based on Category II emission 15. IPCC Working Group III, IPCC Special mitigation scenarios described in Barker et al., op. Report on Carbon Dioxide Capture and Storage cit. note 8, on G. A. Meehl, “Global Climate Pro- (New York: Cambridge University Press, 2005), jections,” in IPCC, op. cit. note 1, and on annual pp. 201–04; MIT Energy Initiative, The Future of energy growth of 0.7 percent for 2006 to 2030, Coal: Options for a Carbon-Constrained World described in F. Bressand et al., Curbing Global (Cambridge, MA: Massachusetts Institute of Tech- Energy Demand Growth: The Energy Productivity nology, 2007), p. 52. Opportunity (McKinsey Global Institute, May 2007), p. 13, declining in proportion to gross 16. MIT Energy Initiative, op. cit. note 15, pp.

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STATE OF THE WORLD 2008 Notes xi–xii; International Energy Agency, op. cit. note ference for Renewable Energies, Bonn, Germany, 9, p. 24. January 2004. Table 6–3 from Mark S. Mehos and Brandon Owens, An Analysis of Siting Opportu- 17. Remarks by U.S. Vice President Cheney at nities for Concentrating Solar Power Plants in the the Annual Meeting of the Associated Press, Southwestern United States (Golden, CO, and Toronto, Canada, April 2001; World Energy Boulder, CO: National Renewable Energy Labo- Council, Energy and Climate Change Executive ratory and Platts Research and Consulting, 2004); Summary (London: May 2007), p. 5. International Energy Agency, Photovoltaic Power Systems Programme, Potential for Building Inte- 18. U.S. Department of Energy, Monthly Energy grated Photovoltaics, 2002 Summary (Paris: 2002), Review (Washington, DC: September 2007), p. 16; p. 8; Richard Perez, Atmospheric Sciences energy productivity based on data from IMF, op. Research Center, State University of New York at cit. note 10; International Energy Agency, op. Albany, e-mail to Janet Sawin, Worldwatch Insti- cit. note 9, pp. 48–57; U.S. Department of Energy, tute, 11 July 2006; Battelle/Paciﬁc Northwest International Energy Annual 2004 (Washington, Laboratory, An Assessment of Available Windy DC.: 2006), Table E.1; BP, op. cit. note 6; esti- Land Area and Wind Energy Potential in the Con- mate of useful energy from G. Kaiper, US Energy tiguous United States (Richland, WA: August Flow Trends—2002 (Livermore, CA: Lawrence 1991), based on 2004 U.S. end-use demand from Livermore National Laboratory, 2004). U.S. Energy Information Administration, “Annual Electric Power Industry Report,” Table 7.2, in 19. Bressand et al., op. cit. note 9, p. 9. Electric Power Annual 2005 (Washington, DC: 2005); Robert Perlack et al., Biomass as Feedstock 20. B. Grifﬁth et al., Assessment of the Technical for a Bioenergy and Bioproducts Industry: The Tech- Potential for Achieving Zero-Energy Commercial nical Feasibility of a Billion Ton Annual Supply Buildings (Golden, CO: National Renewable (Oak Ridge, TN: Oak Ridge National Labora- Energy Laboratory, 2006); Bressand et al., op. tory, April 2005); Massachusetts Institute of Tech- cit. note 9, p. 13. nology, The Future of Geothermal Energy (Cambridge, MA: 2006), p. 1-1; John D. Isaacs 21. S. Mufson, “U.S. Nuclear Power Revival and Walter R. Schmitt, “Ocean Energy: Forms and Grows,” Washington Post, September 2007. Box Prospects,” Science, 18 January 1980, pp. 265–73. 6–1 from the following: Worldwatch Institute nuclear energy database compiled from statistics 23. B. Parsons et al., Grid Impacts of Wind Power from the International Atomic Energy Agency, Variability: Recent Assessments from a Variety of press reports, and Web sites; “Nuclear Dawn,” Utilities in the United States (Golden, CO: The Economist, 6 September 2007; “Atomic National Renewable Energy Laboratory, 2006); Renaissance,” The Economist, 6 September 2007; P. B. Eriksen et al., “System Operation with High Satu Hassi, European Parliament member, e-mail Wind Penetration,” IEEE Power & Energy Mag- to Christopher Flavin, 19 February 2007; The azine, November/December 2005, pp. 65–74; Keystone Center, Nuclear Power Joint Fact-Find- C. Archer and M. Jacobson, “Supplying Baseload ing (Keystone, CO: 2007), p. 30; MIT Energy Ini- Power and Reducing Transmission Requirements tiative, The Future of Nuclear Power (Cambridge, by Interconnecting Wind Farms,” Stanford Uni- MA: Massachusetts Institute of Technology, 2003), versity, February 2007. p. 25. 24. K. Yeager, “Facilitating the Transition to a 22. Figure 6–2 based on data from United Smart Electric Grid,” testimony to the Subcom- Nations Development Programme, World Energy mittee on Energy and Air Quality, Committee on Assessment: Energy and the Challenge of Sustain- Energy and Commerce, Washington, DC, May ability (New York: 2000), and from T. B. Johans- 2007. son et al., “The Potentials of Renewable Energy; Thematic Background Paper,” International Con- 25. D. Marcus, “Moving Wind to the Main-

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STATE OF THE WORLD 2008 Notes stream: Leveraging Compressed Air Energy Stor- tainable Energy Investment (London: 2007); Ves- age,” Renewable Energy Access, October 2007; tas WindSystems, AS, Vestas Annual Report 2006 TXU, “TXU Halts Efforts to Obtain Permits for (Randers, Denmark: 2007); EESI, op. cit. note 28. Eight Coal-Fueled Units,” press release (Dallas, TX: 1 March 2007); TXU, “Luminant and Shell 31. Sasha Rentzing, “Sun Aplenty,” New Energy, Join Forces to Develop a Texas-Sized Wind Farm,” June 2007. press release (Dallas, TX: 27 July 2007). 32. Boston Consulting Group, The Experience 26. Willett Kempton and Jasna Tomiç “Vehicle- Curve Reviewed (Boston: reprint, 1972). to-Grid Power Implementation: From Stabiliz- ing the Grid to Supporting Large-scale Renewable 33. European Climate Exchange, “Historical Energy,” Journal of Power Sources, 1 June 2005, pp. Data—ECX CFI Futures Contract,” at www.euro 280–94. peanclimateexchange.com, viewed 11 October 2007; photovoltaic cost forecast based on Travis 27. U.S. Department of Energy, “Brazil,” in Bradford, Prometheus Institute, e-mails to Janet Country Analysis Briefs (Washington, DC: Sep- Sawin, 5–8 April 2007. tember 2007); Martin Bensmann, “Green Gas on Tap,” New Energy, April 2007, pp. 66–69; Inter- 34. Equivalent carbon price calculated using national Energy Agency, IEA—PVPS Annual crude oil price for September 2007 and Septem- Report 2005 (Paris: 2005), p. 66. ber 2002 from U.S. Department of Energy, “World Crude Oil Prices,” Washington DC, 28. Environmental and Energy Study Institute updated 11 October 2007, and approximate crude (EESI), “FY 08 Appropriations for Renewable oil carbon content from U.S. Department of Energy and Energy Efﬁciency: Full House and Energy, Emissions of Greenhouse Gases in the United Senate Committee Vote for Increase in EE/RE States 1998 (Washington DC: November 1999), Funding,” Issue Update (Washington, DC, 18 Table B4; Senator Jeff Bingaman, “Low Carbon July 2007). Economy Act of 2007,” proposed legislation, Washington DC, July 2007. 29. Worldwatch Institute calculation of 2004–06 renewable energy growth rates based on data from 35. Douglass C. North, Institutions, Institu- American Wind Energy Association, “Wind Power tional Change, and Economic Performance (Cam- Capacity in U.S. Increased 27% in 2006 and Is bridge, U.K.: Cambridge University Press, 1990). Expected to Grow an Additional 26% in 2007,” press release (Washington DC: 23 January 2007), 36. Feng An et al., Passenger Vehicle Greenhouse from Birger Madsen, BTM Consult, e-mail to Gas and Fuel Economy Standards: A Global Update Janet Sawin, 8 March 2007, from European Wind (Washington, DC: International Council for Clean Energy Association, “European Market for Wind Transportation, 2007), pp.18, 24, 32; Assembly Turbines Grows 23% in 2006,” press release, Member L. Levine, Assembly Bill 722, Sacra- (Brussels: 1 February 2007), from Christoph Berg, mento, California, introduced February 2007; F.O. Licht, e-mails to Rodrigo G. Pinto, World- “World First! Australia Slashes Greenhouse Gases watch Institute, 20–22 March 2007, from Global from Inefficient Lighting,” press release (Can- Wind Energy Council, “Global Wind Energy Mar- berra, Australia: Department of the Environment kets Continue to Boom—2006 Another Record and Water Resources, 20 February 2007). “Chi- Year,” press release (Brussels: 2 February 2007), nese Agree to Nix Incandescents,” Greenbiz.com, and from Prometheus Institute, PV News, April 3 October 2007. 2007, p. 8. Figure 6–3 from REN21, Renewables Global Status Report 2007 (draft) (Paris: May 37. North Carolina Solar Center and the Inter- 2007). state Renewable Energy Council, Database of State Incentives for Renewables & Efﬁciency, at 30. New Energy Finance, Global Trends in Sus- www.dsireusa.org, 14 October 2007; Environ-

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STATE OF THE WORLD 2008 Notes mental Technologies Action Plan, Spain’s New nership Announces its Fourth Membership Expan- Building Energy Standards Place the Country sion,” press release (Washington, DC: Septem- Among the Leaders in Solar Energy in Europe (Brus- ber 2007); European Council, “The Spring sels: European Commission, September 2006); European Council: Integrated Climate Protec- “First Heating Law for Renewable Energy in Ger- tion and Energy Policy, Progress on the Lisbon many,” Energy Server (Newsletter for Renewable Strategy,” press release (Brussels: 12 March 2007); Energy and Energy Efﬁciency), 2 August 2007. National Development and Reform Commission, China’s National Climate Change Programme 38. Figure 6–4 is a Worldwatch calculation based (Beijing: June 2007); Pew Center on Global Cli- on California Energy Commission, California mate Change, “Climate Change Initiatives and Electricity Consumption by Sector (Sacramento: Programs in the States,” press release (Arlington, California Energy Commission, 2006), on U.S. VA: 11 September 2006); “Statement of H. E. Department of Energy, State Energy Consump- Luiz Incio Lula da Silva, President of the Feder- tion, Price, and Expenditure Estimates (SEDS) ative Republic of Brazil, at the general debate of (Washington, DC: 2007), on U.S. Department of the 62nd Session of the United Nations Gen- Energy, Annual Energy Review 2006 (Washington, eral,” press release (New York: Ministry of Exter- DC: 2007), on A. Gough, California Energy Com- nal Relations, 25 September 2007). mission, e-mail to James Russell, Worldwatch Institute, 31 August 2007, and on Census Bureau estimates. Chapter 7. Improving Carbon Markets

39. John S. Hoffman, “Limiting Global Warm- 1. The Kyoto Protocol covers six greenhouse ing: Making it Easy by Creating Social Infra- gases that affect the climate with differing structure that Supports Demand Reductions strengths: carbon dioxide, methane, nitrous oxide, Through More-Effective Markets,” unpublished hydrofluorocarbons, perfluorocarbons, and sul- paper, 2007. fur hexafluoride.

40. J. Sawin, “The Role of Government in the 2. Carbon to become the world’s biggest com- Development and Diffusion of Renewable Energy modity market from James Kanter, “In London’s Technologies: Wind Power in the United States, Financial World, Carbon Trading Is the New Big California, Denmark and Germany, 1970–2000,” Thing,” New York Times, 6 July 2007. Doctoral Thesis, The Fletcher School of Law and Diplomacy, September 2001. 3. U.N. Framework Convention on Climate Change (UNFCCC), “Kyoto Protocol,” at 41. M. Ragwitz and C. Huber, Feed-In Systems unfccc.int; UNFCCC, “Status of Ratiﬁcation,” at in Germany and Spain and a Comparison (Karl- unfccc.int, viewed 1 October 2007. sruhe, Germany: Fraunhofer Institut fr Sys- temtechnik und Innovationsforschung, 2005); 4. Emissions scenarios linked with warming ranking based on Bradford, op. cit. note 33. projections from “Summary for Policymakers,” in Intergovernmental Panel on Climate Change, 42. Stern, op. cit. note 5, pp. 233–34. Climate Change 2007: Mitigation of Climate Change (New York: Cambridge University Press, 43. E. Shuster, Tracking New Coal-Fired Power 2007), p. 15. Plants (Washington, DC: National Energy Tech- nology Laboratory, U.S. Department of Energy, 5. Chad Damro and Pilar Luaces-Méndez, “The October 2007). Kyoto Protocol’s Emissions Trading System: An EU-US Environmental Flip-Flop,” Working Paper 44. “Germany to Close its Coal Mines,” Spiegel No. 5 (Pittsburgh, PA: University of Pittsburgh Online, 30 January 2007; United States Climate European Union Center and Center for West Action Partnership, “U.S. Climate Action Part- European Studies, August 2003).

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6. UNFCCC, at unfccc.int, viewed 1 October Reduction Commitment,” at www.chicagoclima 2007. tex.com, viewed 20 July 2007. All CCX members must commit to reduce greenhouse gas emissions 7. UNFCCC Secretariat, “Kyoto Protocol Par- to 6 percent below their baseline—the average of ties Move Closer to Trading Emission Allowances,” their annual emissions between 1998 and 2001; press release (Vienna: 30 August 2007). Chicago Climate Exchange, “Membership Cate- gories,” at www.chicagoclimatex.com, viewed 1 8. Table 7–1 from World Bank, State and Trends October 2007. of the Carbon Market 2007 (Washington, DC: May 2007), p. 3, and from Katherine Hamilton et 16. United States Climate Action Partnership al., State of the Voluntary Carbon Markets 2007: (USCAP), “Major Businesses and Environmental Picking Up Steam (San Francisco: Ecosystem Mar- Leaders United to Call for Swift Action on Global ketplace, July 2007), p. 5. Climate Change,” press release (Washington, DC: 22 January 2007); USCAP, “About Our Mem- 9. World Bank, op. cit. note 8, p. 3. bers,” at www.us-cap.org, viewed 19 September 2007; Alex Dewar et al., Natural Resources 10. European Communities, “EU Action Against Defense Council (NRDC), Cap and Trade Policy Climate Change,” brochure, September 2005; in the United States (draft) (Washington, DC: European Union reduction target from UNFCCC, August 2007), p. 3. cited in International Financial Services London (IFSL) Research, Carbon Markets & Emissions 17. Steven Mufson, “Europe’s Problems Color Trading (London: June 2007), p. 1. U.S. Plans to Curb Carbon Gases,” Washington Post, 9 April 2007; “Australia PM Pledges Climate 11. World Bank, op. cit. note 8, p. 3; IFSL Plan,” BBC News, 3 June 2007. Box 7–1 based on Research, op. cit. note 10, p. 3; European Com- the following: Regional Greenhouse Gas Initiative, munities, op. cit. note 10, pp. 5–6; numbers and “About RGGI,” viewed 20 July 2007, at registry from European Union, “ETS: Community www.rggi.org; 10 states from Hannah Fairfield, Independent Transaction Log,” at ec.europa.eu, “When Carbon is Currency,” New York Times, 6 viewed 9 August 2007. May 2007; Dewar et al., op. cit. note 16, pp. 4, 6; Felicity Barringer, “Officials Reach California 12. European Communities, op. cit. note 10, p. Deal to Cut Emissions,” New York Times, 31 7; European Commission, “Climate Change: August 2006; Point Carbon, “Carbon Market Commission Proposes Bringing Air Transport into North America,” 1 August 2007, at www.point EU Emissions Trading Scheme,” press release carbon.com; Ricardo Bayon, “A Green Thumb for (Brussels: 20 December 2006). the Invisible Hand,” Milken Institute Review, February 2007, p. 24; Ontario Ministry of the 13. Ricardo Bayon, Amanda Hawn, and Kather- Environment, “Ontario to Explore Joining Forces ine Hamilton, Voluntary Carbon Markets (London: with U.S. States on Climate Change Initiative, Earthscan, 2007), pp. 9–10; Hamilton et al., op. March 30,” press release (Ottawa: 30 March cit. note 8, p. 14; World Bank, op. cit. note 8, pp. 2007). 3, 17. 18. Dewar et al., op. cit. note 16, p. 12. Figure 14. Chicago Climate Exchange, “Auditing and 7–1 from European Climate Exchange, at euro Compliance,” at www.chicagoclimatex.com, peanclimateexchange.com, viewed 11 October viewed 20 July 2007; Chicago Climate Exchange, 2007, converted to dollars using historical exhange “Chicago Climate Exchange Surpasses 2006 Vol- rates at oanda.com. ume in First Half of 2007,” press release (Chicago: 2 July 2007). 19. IFSL Research, op. cit. note 10, p. 3; Dewar et al., op. cit. note 16, pp. 11–12; British and 15. Chicago Climate Exchange, “Emissions German windfall profits from Jörg Haas and Peter

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Barnes, “Who Gets the Windfall from Carbon 27. CDM statistics and Figure 7–2 from Jørgen Trading?” unpublished, at www.boell.de/down Fenhann, “CDM Pipeline,” U.N. Environment loads/oeko/EU_Sky_trust_ﬁnal.pdf, p. 1. Dollar Programme (UNEP) Risø Centre, database, amount converted from euros using exchange rate updated 1 October 2007. on 1 October 2007. Box 7–2 from Cameron Hep- burn et al., “Auctioning of EU ETS Phase II 28. Ibid. Allowances: How and Why?” Climate Policy, no. 6 (2006), pp. 137–60; Lehman Brothers, The 29. IFSL Research, op. cit. note 10, p. 5; “The Business of Climate Change II (London: Septem- Nairobi Framework—Catalyzing the CDM in ber 2007), pp. 50–54. Africa,” at cdm.unfccc.int/Nairobi_Frame work/index.html, viewed 3 August 2007. 20. Haas and Barnes, op. cit. note 19, p. 3. 30. IFSL Research, op. cit. note 10, p. 5; 50 21. World Wide Fund for Nature–UK percent of credits is a Worldwatch calculation (WWF–UK), Emission Impossible: Access to based on Fenhann, op. cit. note 27. JI/CDM Credits in Phase II of the EU Emissions Trading Scheme (Godalming, Surrey, U.K.: June 31. Perverse incentive problem from “Kudos for 2007), pp. 3–4; Philippe Ambrosi, World Bank, e- a Working Eco-treaty,” Christian Science Monitor, mail to Zoë Chafe, 3 October 2007. 17 September 2007; Michael Wara, “Is the Global Carbon Market Working?” Nature, February 22. IFSL Research, op. cit. note 10, p. 3; Decem- 2007, pp. 595–96. Euros converted to dollars ber 2008 carbon price from Point Carbon, updated using exchange rate of 1 October 2007. 28 September 2007. 32. IFSL Research, op. cit. note 10, p. 5. World- 23. Dewar et al., op. cit. note 16, p. 11; 100 per- watch analysis of HFC-23 project trends based on cent auctions from Melanie Nakagawa, NRDC, Fenhann, op. cit. note 27. Figure 7–3 from ibid. and Tomas Wyns, Climate Action Network Table 7–2 includes only registered CDM project Europe, e-mail to Zoë Chafe. activities and is based on cdm.unfccc.int/Projects and on ji.unfccc.int/JI_Projects unless otherwise 24. Fairfield, op. cit. note 17; Point Carbon, noted: Pearl River Basin from Unasylva, “World “Maine Governor Signs RGGI Legislation,” Car- of Forestry,” vol 57, no 225 (2006); BRT Bogotá bon Market North America (Washington, DC: 20 from “TransMilenio Integrates Kyoto Protocol June 2007), p. 2; Dewar et al., op. cit. note 16, p. Clean Development Mechanism,” Transport Inno- 3; Haas and Barnes, op. cit. note 19, p. 1; Peter vator, September-October 2006; Lawley fuel Barnes, Who Owns the Sky? (Washington, DC: switch from “Statkraft Signs CDM Deal in South Island Press, 2001); “The Lieberman-Warner Africa,” Statkraft, press release (Oslo: 21 April America’s Climate Security Act of 2007: Annotated 2005); Osorio from Elecnor, “Elecnor Group Table of Contents,” 2 August 2007. Records Consolidated Net Proﬁts of 32.8 Million Euros for the First 9 Months of 2006,” press 25. UNFCCC Secretariat, “Annual Green Invest- release (Madrid: 13 November 2006); Donetsk ment Flow of Some 100 Billion Dollars Possible District Heating from Foundation Joint Imple- as Part of Fight against Global Warming,” press mentation Network, “District Heating System release (Vienna: 19 September 2006); development Rehabilitation in Donetsk, Ukraine,” at aid from Organisation for Economic Co-operation www.jiqweb.org/rehabilitation.htm; Podilsky and Development (OECD), at www.oecd.org. Cement from TÜV SÜV Group, “First Joint Implementation Project Worldwide Registered,” 26. Katia Karousakis, Joint Implementation Cur- press release (Ukraine: Kamyanets-Podilsky, May rent Issues and Emerging Challenges (Paris: OECD, 2007). October 2006), pp. 7–8; World Bank, op. cit. note 8, pp. 3–4. 33. UNFCCC, “Land Use, Land Use Change,

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STATE OF THE WORLD 2008 Notes and Forestry: Background,” at unfccc.int; 42. Adam Stein, “Terrapass Launches Partnership UNFCCC, “LULUCF—Developments at Past with Expedia to Bring Carbon Balanced Flight COP and SB Sessions: Marrakesh Accords and to All Travelers,” 28 August 2006, at www.terra COP 7,” at unfccc.int. pass.com; Terrapass, “Projects,” at www.terra pass.com, viewed 2 August 2007; “Carbon Off- 34. U.S. Environmental Protection Agency, setting,” Jiva Dental, at www.jivadental.co.uk, Greenhouse Gas Mitigation Potential in US Forestry viewed 2 August 2007. Box 7–3 based on the and Agriculture (Washington, DC: November following: “Carbon Neutral: Oxford Word of the 2005); Robert T. Watson et al., Land Use, Land Year,” Oxford University Press, at blog.oup.com/ Use Change, and Forestry: Special Report of the 2006/11/carbon_neutral_; Kevin Smith, The Intergovernmental Panel on Climate Change (Cam- Carbon Neutral Myth (Amsterdam: Transnational bridge, U.K.: Cambridge University Press, 2000); Institute, February 2007); GHG Protocol Initia- World Bank, op. cit. note 8, p. 30; Biocarbon tive, at www.ghgprotocol.org. Fund and Forest Carbon Partnership Facility from World Bank, “Carbon Finance at the World Bank: 43. Michael Gillenwater, Redefining RECs: List of Funds,” at www.carbonﬁnance.org. Untangling Attributes and Offsets, Discussion Paper (Princeton, NJ: Woodrow Wilson School of 35. Climate, Community, and Biodiversity Public and International Affairs, Princeton Uni- Alliance, at www.climate-standards.org. versity, August 2007).

36. World Bank, op. cit. note 8, pp. 24, 29. 44. Smith, op. cit. note 42.

37. Ibid., p. 4. 45. Ibid.

38. Michael Wara, Measuring the Clean Devel- 46. See Clean Air–Cool Planet, A Consumers’ opment Mechanism’s Performance and Potential, Guide to Retail Carbon Offset Providers Working Paper No. 56 (Stanford, CA: Program on (Portsmouth, NH: 2006). Energy and Sustainable Development, Stanford University, July 2006); Mark Trexler, EcoSecuri- 47. Dan Milmo, “EasyJet Slams ‘Snake Oil Sell- ties Global Consulting Services, e-mail to Zoë ers’ in Offset Market and Goes it Alone,” Chafe, August 2007. Guardian (London), 30 April 2007.

39. Bayon, Hawn, and Hamilton, op. cit. note 48. Hamilton et al., op. cit. note 8, p. 39; Trexler, 13, p. 12; small projects from UNFCCC, “Way op. cit. note 38. Cleared for Kyoto Mechanisms to Boost Green Investment in Developing Countries–CDM Exec- 49. Hamilton et al., op. cit. note 8, p. 43. utive Board,” press release (Vienna: 27 June 2007), and from Sebastian Mallaby, “Carbon Policy That 50. Ibid., pp. 40–41; 40 organizations from Works,” Washington Post, 23 July 2007; bundling “Gold Standard: Rationale” and “Gold Standard: from “Greenhouse Gas Emission Reduction and How Does it Work?” at www.cdmgoldstan Industry,” World Bank, powerpoint, February dard.org. viewed 3 August 2007. 2007. 51. World Business Council on Sustainable 40. WWF–UK, op. cit. note 21, pp. 7–9; “U.N. Development, “Completion of the Voluntary Car- Rejects Big Kyoto Project in Equatorial Guinea,” bon Standard Framework,” press release (Geneva: Reuters, 31 July 2007. 31 July 2007).

41. IFSL Research, op. cit. note 10; Hamilton et 52. “UN Climate Debate Tries to Kick-Start al., op. cit. note 8, p. 5. New Treaty,” Reuters, 6 August 2007; Nicholas Stern, The Economics of Climate Change: The Stern

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Review (Cambridge, U.K.: Cambridge Univer- Africa, IUCN, 1999); Randall A. Kramer et al., sity Press, 2007), p. 325. “Ecological and Economic Analysis of Watershed Protection in Eastern Madagascar,” Journal of 53. UNFCCC Secretariat, “Vienna UN Confer- Environmental Management, March 1997, pp. ence Shows Consensus on Key Building Blocks for 277–95. Effective International Response to Climate Change,” press release (Vienna: 31 August 2007); 2. World Water Assessment Programme, The U.S. carbon dioxide emissions from fossil fuel United Nations World Water Development Report burning is a Worldwatch estimate based on British 2: Water, A Shared Responsibility (Paris: UNESCO, Petroleum, BP Statistical Review of World Energy 2006); forecast from International Water Man- (London: 2007), and on G. Marland et al., agement Institute (IWMI), World Water Supply and Demand 1995–2025 “Global, Regional, and National Fossil Fuel CO2 (Colombo, Sri Lanka: Emissions,” Trends: A Compendium of Data on 2000); current status and river systems from David Global Change (Oak Ridge, TN: Oak Ridge Molden, ed., Water for Food, Water for Life: A National Laboratory, 2007); “UN Climate Debate Comprehensive Assessment of Water Management in Tries to Kick-Start New Treaty,” op. cit. note 52. Agriculture (London and Colombo, Sri Lanka: Earthscan and IWMI, 2007), chapter 2 and p. 54. Environmental Defense, CDM and the Post- 551; implications of scarcity in the value of water 2012 Framework, Discussion Paper (New York: from W. M. Hanemann, “The Economic Con- August 2007), p. 2; Joanna Lewis and Elliot ception of Water” in Peter P. Rogers, M. Ramon Diringer, Policy-based Commitments in a Post- Llamas, and Luis Martinez-Cortina, eds., Water 2012 Climate Framework, Working Paper (Arling- Crisis: Myth or Reality (London; New York: Tay- ton, VA: Pew Center on Global Climate Change, lor & Francis, 2006), pp. 61–92. May 2007), pp. 13–14; UNFCCC, op. cit. note 39; Trexler, op. cit. note 38. 3. Figure 8–1 from Molden, op. cit. note 2, p. 11.

55. WWF-UK, op. cit. note 21, p. 10; Environ- 4. Table 8–1 from World Resources Institute mental Defense, op. cit. note 54, p. 3; Stern, op. (WRI), EarthTrends: Environmental Information, cit. note 52, p. ix; Paul Kelly, “Carbon the Cur- online database, 2007; reliance of the poor on rency of a New World Order,” The Australian, 21 agriculture from Molden, op. cit. note 2, p. 551. March 2007. 5. With regard to beef production, it is impor- 56. Daniel Bodansky, International Sectoral tant to note that in some contexts livestock can be Agreements in a Post-2012 Climate Framework, fed crop residues or graze in rangeland unsuitable Working Paper (Arlington, VA: Pew Center on for more proﬁtable uses, making them efﬁcient Global Climate Change, May 2007). users of otherwise uneconomic water. See Molden, op. cit. note 2, p. 487; comprehensive assessment 57. Bayon, op. cit. note 17. results in Molden, op. cit. note 2.

6. See Molden, op. cit. note 2, Chapter 2. Chapter 8. Water in a Sustainable Economy 7. Sectoral water use data from WRI, op. cit. note 4. 1. L. Emerton et al., The Present Economic Value of Nakivubo Urban Wetland, Uganda (Nairobi: 8. Water access data from U.N. Development Eastern Africa Regional Office, IUCN–The World Programme (UNDP), Human Development Conservation Union, September 1999); J. Turpie Report 2006 (New York: Palgrave Macmillan, et al., Economic Valuation of the Zambezi Basin 2006), p. 7; Annette Prüss-Üstün et al., “Unsafe Wetlands (Harare: Regional Office for Southern Water, Sanitation and Hygiene,” in M. Ezzati et al., eds., Comparative Quantification of Health

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Risks: Global and Regional Burden of Disease 15. Important examples of work on reforming Attributable to Selected Major Risk Factors (Geneva: economic decisionmaking include David W. World Health Organization, 2004), pp. 1321–51. Pearce, Blueprint 3: Measuring Sustainable Devel- opment (London: Earthscan, 1993); Herman Daly 9. Millennium Development Goals, at www.un and J. B. Cobb, For the Common Good (Boston: .org/millenniumgoals; costs of meeting goals from Beacon Press, 1989); John Dixon and M. M. James Winpenny, Financing Water for All: Report Hufschmidt, eds. Economic Valuation Techniques of the World Panel on Financing Water Infra- for the Environment (Baltimore, MD: Johns Hop- structure, Third World Water Forum, World Water kins University Press, 1986); and Kirk Hamilton, Council and Global Water Partnership, 2003; Where Is the Wealth of Nations? (Washington, DC: U.N. Population Division, World Population World Bank 2006). Groundwater abstractions Prospects: The 2004 Revision (New York: 2006); from Molden, op. cit. note 2, p. 395. United Nations, MDG Goals Report 2006 (New York: Department of Economic and Social Affairs, 16. Box 8–2 from Mark Smith, Dolf de Groot, 2006); cost of infrastructure maintenance from the and Ger Bergkamp, eds., PAY—Establishing Pay- World Business Council on Sustainable Develop- ments for Watershed Services (Gland, Switzerland: ment, Water Facts and Trends, at www.wbcsd.org, IUCN, 2006). August 2005. 17. Box 8–3 from Dublin Statement on Water 10. Millennium Ecosystem Assessment (MA), and Sustainable Development, adopted at the Ecosystems and Human Well-being: Synthesis (Wash- International Conference on Water and the Envi- ington, DC: Island Press, 2005); Megan Dyson, ronment: Development Issues for the 21st Cen- Ger Bergkamp, and John Scanlon, eds., FLOW— tury, Dublin, Ireland, 26–31 January 1992. The Essentials of Environmental Flows (Gland, Switzerland: IUCN, 2003). 18. To follow the rapid innovations in industry, see Water Environment Federation Web site, at 11. Technical Advisory Committee, Integrated www.wef.org; potential in rainfed agriculture from Water Resources Management, TAC Paper 4 Molden, op. cit. note 2, pp. 315–17. (Stockholm: Global Water Partnership, 2000). 19. See PUB Singapore, at www.pub.gov.sg/ 12. Meredith A. Giordano and Aaron T. Wolf, home/index.aspx. “The World’s Freshwater Agreements: Historical Developments and Future Opportunities,” in 20. See Lucy Emerton and Elroy Bos, VALUE— U.N. Environment Programme, International Counting Ecosystems as Water Infrastructure Freshwater Treaties Atlas (Nairobi: 2002); Claudia (Gland, Switzerland: IUCN, 2004); Lucy Emer- W. Sadoff and David Grey, “Beyond the River: the ton, Counting Coastal Ecosystems as an Economic Beneﬁts of Cooperation on International Rivers,” Part of Development Infrastructure (Colombo, Sri Water Policy, vol. 4, no. 5 (2002), pp. 389–403; Lanka: IUCN, 2006); Jenny Jarvie, “Coastal Buy- Jerome Delli Priscoli and Aaron T. Wolf, Man- out Talk Roils Lives in Mississippi Striving for a aging and Transforming Water Conflicts (New Comeback,” Los Angeles Times, 2 October 2007. York: Cambridge University Press and UNESCO, forthcoming). 21. For current developments see the Newslet- ter of the Global Environmental Flows Network, 13. J. A. Allan, “Virtual Water—The Water, at www.iucn.org/themes/wani. Food, and Trade Nexus: Useful Concept or Mis- leading Metaphor?” Water International, March 22. World Commission on Dams, Dams and 2003, pp. 4–11. Development: A New Framework for Decision-Mak- ing (London: Earthscan, 2000); Robin Gregory, 14. UNDP, op. cit. note 8. Tim McDaniels, and Daryl Fields, “Decision Aid- ing, Not Dispute Resolution: Creating Insights

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Through Structured Environmental Decisions,” Chapter 9. Journal of Policy Analysis and Management, sum- Banking on Biodiversity mer 2001, pp. 415–32. 1. Box 9–1 from the following: data and Figure 23. Sustainable Agriculture Initiative, at www from Millennium Ecosystem Assessment, Ecosys- .saiplatform.org. tems and Human Well-being: Biodiversity Synthe- sis (Washington, DC: World Resources Institute, 24. For better-targeted pricing schemes, see, for 2005), pp. 2–4, 47; E. O. Wilson, “TED Prize example, John J. Boland and Dale Whittington, Wish: Help Build the Encyclopedia of Life,” TED “The Political Economy of Water Tariff Design in Conference, March 2007; population forecast Developing Countries: Increasing Block Tariffs from U.N. Population Division, World Population Versus Uniform Price with Rebate,” in Ariel Dinar, Prospects: The 2004 Revision (New York: 2006). ed., The Political Economy of Water Pricing Reforms (New York: Oxford University Press, 2000), pp. 2. Eileen Campbell, “The Case of the $150,000 215–35. For Box 8–4, for a thorough exposition Fly,” Ecosystem Marketplace, 26 April 2006. on water subsidies see Kristin Komives et al., Water, Electricity, and the Poor: Who Beneﬁts from 3. Ibid. Utility Subsidies? (Washington, DC: World Bank, 2005). 4. Edward O. Wilson, The Diversity of Life (New York: W. W. Norton & Company, 1992); Camp- 25. United Nations, Handbook of National bell, op. cit. note 2. Accounting: Integrated Environmental and Eco- nomic Accounting 2003 (New York: 2003); U.N. 5. Jessica Wilkinson, Ecosystem Marketplace, Statistics Division, “Handbook on Integrated discussions with author, 2007. Environmental and Economic Accounting for Water Resources,” draft (New York: United 6. Clean Water Act, 33 U.S.C. § 1251. Nations, May 2006). 7. K. ten Kate, J. Bishop, and R. Bayon, Bio- 26. See Hamilton, op. cit. note 15, and Kirk diversity Offsets: Views, Experience, and the Business Hamilton and Michael Clemens, “Genuine Savings Case (Gland, Switzerland, and London: Rates in Developing Countries,” World Bank Eco- IUCN–World Conservation Union and Insight nomic Review, vol. 13, no. 2 (1999), pp. 333–56. Investment, 2004).

27. A. K. Chapagain, A. Y. Hoekstra, and 8. For more on the CWA and its Section 404, H. H. G. Savenije, “Water Saving Through Inter- see www.epa.gov/watertrain/cwa. national Trade of Agricultural Products,” Hydrol- ogy and Earth System Sciences, vol. 10, no. 3 9. Box 9–2 from Alice Kenny, “Parthenon Cap- (2006), pp. 455–68. ital Fuels Wildlands, Inc. Rapid Growth,” Ecosys- tem Marketplace, 23 April 2007. 28. Table 8–2 and payment for environmental services categorization from Smith, de Groot, and 10. Wilkinson, op. cit. note 5. Bergkamp, op. cit. note 16. 11. Deborah Fleischer, “Wetland Mitigation 29. Molden, op. cit. note 2; MA, op. cit. note 10; Banking: Environmentalists Express Concerns,” Organisation for Economic Co-operation and Ecosystem Marketplace, 25 April 2005. Development, Water Management: Performance and Challenges in OECD Countries (Paris: 1998). 12. Alice Kenny, “Ohio Study Shows Mitigation Banks Not Living Up to Potential,” Ecosystem 30. Molden, op. cit. note 2; MA, op. cit. note 10. Marketplace, 24 August 2006.

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13. Ibid. Up to Bank on the Bush,” Ecosystem Marketplace, 13 September 2006, from Gary Stoneham, dis- 14. Deborah L. Mead, “History and Theory— cussion with author, and from Department of The Origin and Evolution of Conservation Bank- Sustainability and Environment, State of Victoria, ing,” in Ricardo Bayon, Jessica Fox, and Nathaniel “Bush Broker: Native Vegetation Credit Regis- Caroll, eds., Conservation & Biodiversity Banking tration and Trading, An Information Paper,” 2006. (London: Earthscan, in press). 24. Wilkinson, op. cit. note 5. 15. Various government ofﬁcials, discussions with author. 25. Erik Ness, “The Big Red Barn in the Great Green Field: Green Payments and American Agri- 16. Box 9–3 from Ronald Bailey, “Who Pays for culture,” Ecosystem Marketplace, 21 March 2006. the Delhi Sands Fly?” Reasononline, 27 July 2005. 26. Ten Kate, Bishop, and Bayon, op. cit. note 17. Ricardo Bayon, “A Bull Market in Wood- 7; Joshua Bishop et al., Building Biodiversity Busi- peckers,” Milken Institute Review, 2005. ness: Report of a Scoping Study (Gland, Switzerland, and London: IUCN and Shell International Lim- 18. Ecosystem Marketplace ﬁgures provided by ited, October 2006). Wilkinson, op. cit. note 5. A comprehensive database of species banks will soon be available from 27. Careesa Gee, “Grain for Green,” Ecosystem the Ecosystem Marketplace. See also J. Fox et al., Marketplace, 24 February 2006. “Conservation Banking,” in J. M. Scott, D. D. Goble, and F. W. Davis, eds., The Endangered 28. Ricardo Bayon, “Case Study: The Mexico Species Act at Thirty: Conserving Biodiversity in Forest Fund,” Ecosystem Marketplace, 2004. Human-dominated Landscapes (Washington, DC: Island Press, forthcoming). 29. Ibid.

19. Campbell, op. cit. note 2. 30. Cameron Walker, “Taking Stock: Assessing Ecosystem Services Conservation in Costa Rica,” 20. Ibid. Ecosystem Marketplace, 21 May 2007.

21. Ibid. 31. Mark Eigenraam, “EcoTender: Paying for Ecosystem Services, not Lemons,” Ecosystem Mar- 22. Jessica Fox, “Conservation Banking: Moving ketplace, 12 October 2005. Beyond California,” Ecosystem Marketplace, 2004; Robert Bonnie, “Guest Feature: Bankng on 32. Ibid. Endangered Specieds Conservation,” Ecosystem Marketplace, 16 November 2004; Wilkinson, op. 33. For information on the Business and Biodi- cit. note 5. versity Offset Program, see www.forest-trends .org/biodiversityoffsetprogram. Note that Forest 23. Table 9–1 from K. ten Kate and M. Inbar, in Trends is the parent organization of Ecosystem Bayon, Fox, and Caroll, op. cit. note 14, from ten Marketplace. Kate, Bishop, and Bayon, op. cit. note 7, and from Bruce McKenney, “Environmental Offset 34. Ten Kate, Bishop, and Bayon, op. cit. note Policies, Principles, and Methods: A Review of 7; list of beneﬁts to companies adapted from ten Selected Legislative Frameworks” Biodiversity Kate and Inbar, op. cit. note 23. Neutral Initiative, 30 March 2005. Australia examples from Louisa Mamouney, discussion with 35. BBOP, op. cit. note 33. author, from Jane Scanlon, “Australians Revving

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Chapter 10. mons,” Science, 13 December 1968, pp. 1243–48. The Parallel Economy of the Commons 13. Thompson, op. cit. note 11, p. 107. 1. J. Stephen Lansing, Perfect Order: Recog- nizing Complexity in Bali (Princeton, NJ: Prince- 14. Ostrom, op. cit. note 9, pp. 69–82. ton University Press, 2006). 15. Ibid., pp. 82–88; James Kho and Eunice 2. Ibid. Agsaoay-Saño, Country Study on Customary Water Laws and Practices: Philippines (Rome: U.N. Food 3. Ibid. and Agriculture Organization, undated), pp. 7–9.

4. Ibid. 16. Ostrom, op. cit. note 9.

5. “Knowledge to the People” (interview with 17. Ibid., pp. 61–65. Jimmy Wales), New Scientist, 3 February 2007, pp. 44–45; Yochai Benkler, The Wealth of Networks 18. Ibid. (New Haven, CT: Yale University Press, 2006), pp. 70–74; “About Wikipedia,” at en.wikipedia.org/ 19. Robert Higgs, “How the Western Cattle- wiki/Wikipedia:About. men Created Property Rights,” The Freeman, March 2005, pp. 36–37. 6. Quote from Benkler, op. cit. note 5, p. 71. 20. Garrett Hardin, “The Tragedy of the Com- 7. “Knowledge to the People,” op. cit. note 5. mons,” in David R. Henderson, ed., The Concise Encyclopedia of Economics (Indianapolis, IN: Lib- 8. “About Wikipedia,” op. cit. note 5; Nature erty Fund, Inc., 2002); Joanna Berger, “The cited in Benkler, op. cit. note 5, p. 73. Tragedy of the Commons,” Environment, Decem- ber 1998. 9. Elinor Ostrom, Governing the Commons (New York: Cambridge University Press, 1990). 21. Hardin, op. cit. note 20; compare Lawrence R. Heaney, The Causes and Effects of Deforestation 10. Herbert Gintis et al., eds., Moral Sentiments (Chicago: The Field Museum, 2007). and Material Interests (Cambridge, MA: The MIT Press, 2005). 22. M. Scott Taylor, Buffalo Hunt: Interna- tional Trade and the Virtual Extinction of the 11. Box 10–1 from the following: E. P. Thomp- North American Bison, Working Paper No. 12969 son, Customs in Common (New York: The New (Washington, DC: National Bureau of Economic Press, 1993); Eric Kerridge, The Common Fields of Research, March 2007); Rebecca Clarren and England (New York: Manchester University Press, William deBuys, articles in “Taking on Goliath,” 1992); Liam Clare, Enclosing the Commons Orion, November/December 2006; “Coalbed (Dublin: Four Courts Press, 2004); William B. Methane BOOM,” High Country News, Special Weeden, Economic and Social History of New Eng- Report, undated; Charlie Leduff, “Last Days of the land, 1620–1789 (Williamstown, MA: Corner Baymen,” New York Times, 29 April 1997. House Publishers, 1978; orig published 1890); Steven Hahn, The Roots of Southern Populism (New 23. Adam Smith, Theory of Moral Sentiments York: Oxford University Press, 1983), pp. 239–68; (Indianapolis, IN: Liberty Fund Press, 1982), pp. Mark Dowie, “The Fate of the Commons: Priva- 116–17. tization v. the Public Trust,” Orion, July/August 2003. 24. Geoffrey Gray, “Mogul Dick Parsons Likes Cigars, Believes in Terror,” New York Magazine, 12. Garrett Hardin, “The Tragedy of the Com- 17 September 2007, p. 12.

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25. David Harris interview, Living on Earth, ment of Agriculture, “USDA Releases New Farm- National Public Radio, 29 March 1996. ers Market Statistics,” press release (Washington, DC: 5 December 2006). 26. Ibid. 36. Mark Lakeman, cofounder, City Repair Pro- 27. Ibid. ject, discussion with author, 5 April 2007; Com- munity Greens Web site, at www.community 28. Adam Smith, The Wealth of Nations (New greens.org/ExistingGreens/existinggreens.htm. York: Bantam Classic Edition, 2003), p. 941. 37. Colin Woodard, The Lobster Coast (New York: 29. Bureau of Labor Statistics, “Union Mem- Penguin Books, 2004), p. 269. See also James bers Summary,” 26 January 2007. M. Acheson, The Lobster Gangs of Maine (Hanover, NH: University of New England Press, 1988). 30. See, for example, Thomas D. Peacock and Donald R. Day, “Nations Within a Nation: The 38. Woodard, op. cit. note 36, pp. 240–41. Dakota and Ojibwe of Minnesota,” Daedalus, June 2000, p. 137; David A. Kaplan, “Born Free, 39. For pressures at local level, see, for example, Sold Dear,” Newsweek, 6 May 1991, p. 52; Chris Gary Washburn, “If Price Is Right City Sights Clarke, “The Battered Border: Immigration Pol- Will Carry New Name Tags,” Chicago Tribune, 29 icy Sacrifices Arizona’s Wilderness,” Earth Island April 2006, and Stuart Elliot, “Town Square as Journal, autumn 2006, p. 21. Billboard: Short on Cash, Municipalities Are Rent- ing Out Public Spaces to Marketers,” New York 31. Marian Burros, “Plan Would Expand Ocean Times, 23 June 2003. Fish Farming,” New York Times, 6 June 2005; “Congressman Proposes Ads on NASA Assets,” 40. See generally Peter Barnes, Who Owns the Wall Street Journal, 11 April 2007. Sky? (Washington, DC: Island Press, 2001), and Peter Barnes, Capitalism 3.0 (San Francisco, 32. Sarah Alexander, American Community Gar- Berrett-Koehler, 2006). Box 10–2 from the fol- dening Association, discussion with author, 22 lowing: Pacific Forest Trust Web site, at www.paci June 2007; Rhoda Amon, “A Stop-and-Grow ficforest.org; Marin Agricultural Land Trust Web Lifestyle: Older Residents Plant the Seeds of site, at www.malt.org; “Cooperative Solutions, Friendship by Tending a Community Garden,” Healthy Streams,” Oregon Water Trust, at Newsday, 16 September 2007; Lauren E. Baker, owt.org; Robin Finn, “A Serious Obsession with “Tending Cultural Landscapes and Food Citi- Playgrounds,” New York Times, 27 July 2007; zenship in Toronto’s Community Gardens,” The Robert Fox Elder, “Protecting New York City’s Geographical Review, July 2004; Diane Wang, A Community Gardens,” New York University Envi- Study of Community Gardens as Catalysts for Pos- ronmental Law Journal, vol. 13, issue 3 (2006), itive Social Change (Chicago: Environmental Stud- pp. 769–800. ies Program, University of Chicago, 19 May 2006); Bill Lohman, “Community Gardens Grow More 41. Barnes, Who Owns the Sky?, op. cit. note 39. Than Plants: Improvements Include Economic and Social Issues,” Richmond Times-Dispatch, 12 42. Ibid., pp. 50–53. August 2001. 43. Stephen Castle with James Kanter, “Europe 33. Project for Public Spaces Web site, at Moves to Make Big Polluters Pay for Emissions,” www.pps.org. New York Times, 5 June 2007; Testimony of Dal- las Burtraw, senior fellow, Resources For the 34. Ibid. Future, before the Subcommittee on Global Cli- mate Change, House Committee on Energy and 35. Agricultural Marketing Service, U.S. Depart- Commerce, 29 March 2007; “Tories Plan to Fight

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Climate Change with Taxes and Green Tape,” tershire, U.K.: Severn Wye Energy Agency Guardian (London), 14 September 2007; Han- (SWEA): June 2006); Kierson Wise, project man- nah Fairfield, “When Carbon Is Currency,” New ager, SWEA, e-mail to Joy Chen, Worldwatch York Times, 6 May 2007; Scott Allen and Beth Institute, 12 September 2007; nine tons from Daley, “Patrick to OK Fees for Power Plants,” Department for Environment, Food, and Rural Boston Globe, 18 January 2007. Affairs, Experimental Statistics on Carbon Dioxide Emissions at Local Authority and Regional Level 44. Churchill quote from Willis Mason West, (London: October 2005). The Story of World Progress (Boston: Allyn and Bacon, 1922), p. 530. 6. “The Findhorn Ecovillage: Renewable Energy Systems,” at www.ecovillagefindhorn.com, 45. Robert V. Andelson, ed., Land Value Taxa- viewed 3 October 2007; 40 percent from Jonathan tion Around the World (Malden, MA: Blackwell Dawson, president of the Global Ecovillage Net- Publishing, 2001); Tom Condon, “Filling in the work and resident of Findhorn Ecovillage, e-mail Blanks to Aid Comeback,” Hartford Courant, 3 to author, 27 September 2007. September 2006; Walter Rybeck, “Transit-Induced Land Values: Development and Revenue Impli- 7. Table 11–1 from the following: Inverie from cations,” Commentary (Council on Urban Eco- Angela Williams, Development Manager, Knoydart nomic Development}, 24 October 1981. Foundation, e-mail to Joy Chen, Worldwatch Institute, 6 August 2007, and from “Knoydart 46. Alan Thein Durning and Yoram Bauman, Renewables,” at www.knoydart-foundation.com, Tax Shift: How to Help the Economy, Improve the viewed 3 October 2007; ZEGG (Center for Exper- Environment, and Get the Tax Man off Our Backs imental Culture Design) at www.zegg.de, viewed (Seattle, WA: Northwest Environment Watch, 3 October 2007; Hammarby Sjöstad from Timo- 1998), pp. 62–63. thy Beatley, “Circular Urban Metabolism in Stock- holm,” in Worldwatch Institute, State of the World 2007 (New York: W. W. Norton & Company, Chapter 11. Engaging Communities 2007), p. 19; Kibbutz Lotan from www.kibbut- for a Sustainable World zlotan.com, viewed 3 October 2007; Christie Walk from Douglas Farr, Sustainable Urbanism: 1. Visit to Los Angeles Ecovillage, 16–18 May Urban Design With Nature (Hoboken, NJ: John 2007; Lois Arkin, co-founder of Los Angeles Wiley & Sons, in press); Berea College Ecovillage Ecovillage, discussion with author, 17 May 2007; from visit, 29 January 2007, from Richard Olson, Los Angeles Eco-Village Overview (Los Angeles: director of Berea College Sustainable and Envi- CRSP Institute for Urban Ecovillages, 2003). ronmental Studies, discussion with author, 29 January 2007, and from Meghan Bihn, “Berea 2. Arkin, op. cit. note 1; Los Angeles Eco-Village College’s Ecovillage Provides Educational Oppor- Overview, op. cit. note 1. tunities and Green Housing for Students,” Spire, February 2006; Ecoovila from Jonathan Dawson, 3. Visit to Los Angeles Ecovillage, op. cit. note Ecovillages: New Frontiers for Sustainability (Bris- 1; Arkin, op. cit. note 1; Los Angeles Eco-Village tol, U.K.: The Schumacher Society, 2006), pp. Overview, op. cit. note 1. 32–33; The Solaire from Edward A. Clerico, “The Solaire—A Case Study in Urban Water Reuse,” in 4. Box 11–1 from Graham Meltzer, Sustainable Business Sustainability: Planning for a Responsible Communities: Learning from the Cohousing Model Future, Conference Proceedings (Philadelphia, (Victoria, BC: Trafford, 2005), pp.1–3. PA: Temple University, February 2007), p. 6; BedZED from Jonathan Dawson, “BedZED and 5. Community Renewables Initiative, Lydney Findhorn: How Do They Compare?” Permacul- Local Power: A Market Town Energy Project Gen- ture Magazine, No. 49, pp. 48–52; Farr, op. cit. erating Benefits for the Whole Community (Glouces- this note.

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8. Quote from Robert and Diane Gilman, Ecov- 16. Kenneth Mulder, Robert Costanza, and Jon illages and Sustainable Communities (Holte, Den- Erickson, “The Contribution of Built, Human, mark: Gaia Trust, 1990); Stephen Tinsley and Social and Natural Capital to Quality of Life in Heather George, Ecological Footprint of the Find- Intentional and Unintentional Communities,” horn Foundation and Community (Forres, U.K.: Ecological Economics, August 2006, pp. 13–23. Sustainable Development Research Centre, August 2006); Dawson, Ecovillages, op. cit. note 7, p. 17. Olson, op. cit. note 7; “Green Steps: Berea 29. College’s Movement Toward Sustainability,” informational ﬂyer (Berea, KY: Berea College, 21 Octo- 9. Meltzer, op. cit. note 4. ber 2004).

10. Number of ecovillages from Global Ecovil- 18. Ray Oldenburg, The Great Good Place (New lage Network, at gen.ecovillage.org/index.html, York: Marlowe & Company, 1999), pp. xvii–xix. viewed 11 October 2007; number of co-housing communities from The Cohousing Association of 19. Judy Wicks, “In Business For Life,” Yes! the United States, “US Cohousing Communi- winter 2007, pp. 46–49; Justin Martin, “Judy ties,” at directory.cohousing.org, viewed 4 April Wicks, Owner: White Dog Cafe, Philadelphia,” 2007, from Canadian Cohousing Network, “Com- Fortune Small Business, June 2003, p. 87; Ann munity Summary,” at cohousing.ca/summary.htm, Karlen, White Dog Community Enterprises, dis- viewed 4 April 2007, from Greg Bamford, “‘Liv- cussion with author, 8 February 2007; White Dog ing Together on One’s Own’: Cohousing for Community Enterprises, at www.whitedogcafe- Older People, A New Housing Type in Denmark foundation.org, viewed 4 October 2007. and the Netherlands,” conference paper, 2004, from UK Co-housing Network, at www.cohous- 20. History from William H. Ukers, All about ing.org.uk, viewed 4 April 2007, and from Dick Coffee (New York: The Tea and Coffee Trade Urban Vestbro, Chair of National Association of Journal Company, 1922), pp. 18, 102, 110–11; Collective Housing Units, Kollektivhus NU, Swe- millions from National Coffee Association of den, e-mail to author, 9 March 2007 (note: the U.S.A. Inc., National Coffee Drinking Trends number of co-housing communities includes those 2007 (New York: 2007), p. 33, and “Coffee: The that are still under construction or being planned). Standard Breakfast Drink Grows Up,” Nation’s Restaurant News, 19 August 2002; Green Café 11. Phinney Ecovillage from Alex Fryer, “Neigh- Network, at www.greencafenetwork.org, viewed 3 borhoods Battle Global Warming on a Small October 2007; Kirstin Henninger, founding direc- Scale,” Seattle Times, 15 May 2007, and from tor, Green Café Network, discussion with author, Web site, at www.phinneyecovillage.net, viewed 3 7 September 2007. October 2007. 21. Edie Farwell, resident at Cobb Hill, discus- 12. Robert D. Putnam, Bowling Alone: The Col- sion with author, 1 October 2007; Cobb Hill lapse and Revival of American Community (New Cheese Web site, at cobbhill.org/cheese, viewed York: Simon & Schuster, 2000), p. 19. 1 October 2007; visit to Lakabe, 17–18 Septem- ber 2007; Mabel Cañada, co-founder of Lakabe, 13. Ibid.; Miller McPherson, Lynn Smith-Lovin, discussion with author, 17 September 2007; visit and Matthew E. Brashears, “Social Isolation in to Earthaven Ecovillage, March 2007; Diana Leafe America: Changes in Core Discussion Networks Christian, Earthaven Ecovillage, discussion with over Two Decades,” American Sociological Review, author, 15 March 2007; Earthaven Web site, at June 2006, pp. 353–75. www.earthaven.org/agriculture/Red_Moon_Herbs .php, viewed 1 October 2007; localization bene- 14. Putnam, op. cit. note 12, pp. 327–32. ﬁts from Michael H. Shuman, The Small-Mart Revolution: How Local Businesses Are Beating the 15. Meltzer, op. cit. note 4, pp. 137–45. Global Competition (San Francisco: Berrett-Koehler

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Publishers, Inc., 2006). cisco: Global Exchange, 1993); The Community Solution, The Power of Community: How Cuba 22. Matthew Hora and Judy Tick, From Farm to Survived Peak Oil (Yellow Springs, OH: 2006); Table: Making the Connection in the Mid-Atlantic Mario Gonzalez Novo and Catherine Murphy, Food System (Washington, DC: Capital Area Food “Urban Agriculture in the City of Havana: A Pop- Bank, 2001); Rich Pirog et al., Food, Fuel and Free- ular Response to a Crisis,” Growing Cities Grow- ways: An Iowa Perspective on How Far Food Trav- ing Food: Urban Agriculture on the Policy Agenda: els, Fuel Usage, and Greenhouse Gas Emissions A Reader on Urban Agriculture (Resource Cen- (Ames, IA: Leopold Center for Sustainable Agri- tres on Urban Agriculture & Food Security, 2001) culture, June 2001); David S. Reay, “Costing Cli- pp. 329–47. mate Change,” Philosophical Transactions: Mathematical, Physical and Engineering Sciences, 28. Erik Assadourian, “Cultivating the Butterﬂy 15 December 2002, pp. 2947–61. Effect,” World Watch Magazine, January/Febru- ary 2003, pp. 28–35. Box 11–2 from the follow- 23. Dorothy Blair, Carol C. Giesecke, and San- ing: visit to Can Masdeu, 15 September 2007; dra Sherman, “A Dietary, Social and Economic Luke Cordingley, “Can Masdeu: Rise of the Rur- Evaluation of the Philadelphia Urban Gardening bano Revolution,” in Brett Bloom and Ava Project,” Journal of Nutrition Education, vol. 23, Bromberg, eds., Making Their Own Plan no. 4 (1991), pp. 161–67; Donna Armstrong, (Chicago, IL: White Walls, Inc. 2004); James “A Survey of Community Gardens in Upstate Howard Kunstler, The Long Emergency: Surviving New York: Implications for Health Promotion the Converging Catastrophes of the Twenty-First and Community Development,” Health and Place, Century (New York: Atlantic Monthly Press, December 2000, pp. 319–27. 2005).

24. Farmers’ markets from Agricultural Market- 29. Relocalization Network, 2006 Relocaliza- ing Service, “USDA Releases New Farmers Mar- tion Network Report (Sebastopol, CA: Post Carbon ket Statistics,” press release (Washington, DC: Institute, 2007); Relocalization Network, “Alpha- U.S. Department of Agriculture, 5 December betical List of Groups,” at www.relocalize.net, 2006); community-supported agriculture from viewed 5 October 2007. Robyn Van En Center, online database, at www .wilson.edu/wilson/asp/content.asp?id=1645, 30. Business Alliance for Living Local Economies, viewed 4 October 2007; Brian Halweil and at www.livingeconomies.org, viewed 9 October Danielle Nierenberg, “Farming the Cities,” in 2007. Worldwatch Institute, op. cit. note 7, p. 53. 31. Willits Economic LocaLization, “WELL 25. Growing Power, at www.growingpower.org, Overview,” at www.willitseconomiclocalization.org, viewed 5 October 2007; Erika Allen (Growing viewed 9 October 2007; Transition Towns wiki, Power) and Anthony Flaccavento, “Funding Your at transitiontowns.org, viewed 9 October 2007. Community Food Projects with Social Enter- prises,” presented at Southern Sustainable Agri- 32. Stuart Gillespie, “Scaling Up Community culture Working Group: Practical Tools and Driven Development: A Synthesis of Experience,” Solutions for Sustaining Family Farms Confer- Food Consumption and Nutrition Division Dis- ence, 27 January 2007. cussion Paper No. 181 (Washington, DC: Interna- tional Food Policy Research Institute, June 2004); 26. Rooted in Community, at www.rootedin The Goldman Environmental Prize, “Hammer- community.org, viewed 5 October 2007. skjoeld Simwinga: Transforming Communities through Sustainable Development,” at www.gold 27. Peter Rosset and Medea Benjamin, Two Steps manprize.org, viewed 9 October 2007. Backward, One Step Forward: Cuba’s Nationwide Experiment with Organic Agriculture (San Fran- 33. Hilary French, “Sacred Mountain,” World

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Watch Magazine, May/June 2004, pp. 18–25; González Mariño, “Las Gaviotas: Sustainability Nancy Chege, Kenyan National Coordinator of in the Tropics,” World Watch Magazine, May/June COMPACT, discussion with author, March 2006. 2007, pp. 18–23.

34. Social Investment Forum (SIF), 2005 Report 42. The Ecovillage Training Center, at www.the on Socially Responsible Investing Trends in the farm.org, viewed 5 October 2007; Gaia Univer- United States (Washington, DC: January 2006); sity at www.gaiauniversity.org, viewed 5 October p. 28; CDP Publication Committee, Providing 2007. Capital, Building Communities, Creating Impact (San Francisco: National Community Capital Asso- 43. Homeowners associations from Caitlin Car- ciation, undated), p. 4. penter, “As an Energy-saver, the Clothesline Makes a Comeback,” Christian Science Monitor, 24 Ecovillages 35. SIF, op. cit. note 34; Dawson, , op. August 2007; carbon dioxide (CO2) emissions cit. note 7, p. 48. are a Worldwatch calculation based on Energy Information Administration, End-Use Consump- 36. ShoreBank Paciﬁc, at www.eco-bank.com/ tion of Electricity, 2001 (Washington, DC: U.S. services/commercial/lending.html, viewed 9 Department of Energy, May 2005) (assuming October 2007; David C. E. Williams, CEO of 500-megawatt coal-ﬁred power plants running at

ShoreBank Paciﬁc, Letter to Stakeholders of Shore- 90 percent capacity and 0.703 kilograms of CO2 Bank Paciﬁc, 30 June 2006. emissions per kilowatt-hour generated); Right to Dry Campaign from Project Laundry List, at 37. Scott Malone, “New Age Town in U.S. www.laundrylist.org, viewed 5 October 2007. Embraces Dollar Alternative,” Reuters, 19 June 2007; 4,000 from Ravi Dykema, “Complementary 44. Box 11–3 from the following: price of orig- Currencies for $ocial Change: An Interview with inal purchase from Chris Ling, Katherine Thomas, Bernard Lietaer,” Nexus, July/August 2003. and Jim Hamilton, “Triple Bottom Line in Prac- tice: From Dockside to Dockside Green,” Com- 38. Colin C. Williams et al., “Local Exchange and munity Research Connections, undated; Trading Schemes (LETS): A Tool for Community contamination history from Hans Tammemagi, Renewal?” Community, Work & Family, Decem- “Victoria Project Goes from Brown to Green,” ber 2001, pp. 355–61; fureai kippu from Dykema, Seattle Daily Journal of Commerce, 26 October op. cit. note 37. 2006; timeline for completion from Thomasina Barnes, “Green Credentials Take Center Stage,” 39. “Greyston Bakery: Let ‘Em Eat Cake,” 60 (Toronto) Globe and Mail, 13 July 2007; number Minutes, CBS, broadcast 11 January 2004; of units, excess energy, and green technology sum- Greyston Bakery, at www.greystonbakery.com, mary from Dockside Green, Annual Sustainable viewed 9 October 2007; Population and Com- Report 2006 (Vancouver, BC: 2006), pp. 4, 7, munity Development Association, www.pda.or.th/ 30–31; penalty pledge and harbor industry heritage eng, viewed 9 October 2007; Birds & Bees Resort, from Dockside Green, at www.docksidegreen.com, at www.cabbagesandcondoms.co.th, viewed 9 viewed 2 August 2007; sewage treatment savings October 2007; Kit Snedaker, “A Restaurant with from Chris Wood, “Global Warming’s Threat to a Mission: Cabbages and Condoms, Bangkok,” BC: Seeking Solutions,” The Tyee, 31 August GoNOMAD.com, 2007, at www.gonomad.com/ 2006. features/0011/snedaker_cabbages.html, viewed 9 October 2007. 45. LEED for Neighborhood Development, at www.usgbc.org, viewed 5 October 2007; Jennifer 40. Visit to Los Angeles Ecovillage, op. cit. note Henry, program manager, LEED for Neighbor- 1; Arkin, op. cit. note 1. hood Development, U. S.Green Building Coun- cil, discussion with author, 21 June 2007. 41. Richard E. White and Gloria Eugenia

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46. Database of LEED projects available at for EROS, U.S. Geological Survey, e-mail to www.usgbc.org, viewed 5 October 2007; LEED author, 11 October 2007. for Neighborhood Development, op. cit. note 45; Henry, op. cit. note 45. 4. McGahuey et al., op. cit. note 2.

47. Sarah James and Torbjorn Lahti, The Nat- 5. Yamba Boubacar et al., Sahel Study: Niger ural Step for Communities: How Cities and Towns Pilot Study Report (Washington, DC: Interna- Can Change to Sustainable Practices (Gabriola tional Resource Group, 2005); Chris Reij, “More Island, BC: New Society Publishers, 2004); Sus- Success Stories in Africa’s Drylands Than Often tain Dane, “Eco-municipalities,” at www.sustain Assumed,” in Forum sur la Souveraineté Alimen- dane.org, viewed 5 October 2007. taire (Niamey, Niger: Resau des Organisations Paysannes et de Producteurs Agricoles de L’Afrique 48. Local Works, “Campaign for the Sustainable de L’Ouest, 2006). Communities Bill,” at www.localworks.org, viewed 9 October 2007; “The Sustainable Communities 6. Deepa Narayan et al., eds., Voices of the Poor: Bill,” at www.neweconomics.org/gen, viewed 9 Crying Out for Change (New York: Oxford Uni- October 2007. versity Press, 2000).

49. Bill McKibben, Deep Economy: The Wealth of 7. Polarized positions from Jeffrey D. Sachs, Communities and the Durable Future (New York: The End of Poverty: Economic Possibilities for Our Times Books, 2007), p. 149; Bernhard Poetter, Time (New York: Penguin Press, 2005), and from “People Power, Danish-style,” OnEarth, summer William Easterly, White Man’s Burden: Why the 2007, p. 20. West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (London: Penguin Books, 50. “Million Solar Roofs Bill (SB 1) Signed into 2006). Law,” press release (Los Angeles: Environment California, 21 August 2006). 8. Poor record of western-inspired development plans from William Easterly, The Elusive Quest for Growth (Cambridge, MA: The MIT Chapter 12. Mobilizing Human Energy Press, 2002); quote from World Bank, Economic Growth in the 1990s: Learning from a Decade of 1. U.S. Agency for International Development Reform (Washington, DC: 2005). Box 12–1 from and Comité Inter-Etate pour la Lutte contre la the following: donors becoming selective from Sécheresse au Sahel, Investing in Tomorrow’s Dollar and Levin (2004), as cited in Carol Lan- Forests: Toward an Action Agenda for Revitalizing caster, Foreign Aid: Diplomacy, Development, Forests in West Africa (Washington, DC: 2002); Domestic Politics (Chicago: University of Chicago Lydia Polgreen, “In Niger, Trees and Crops Turn Press, 2007), p. 53; on reform of development Back the Desert,” New York Times, 11 February assistance, see, for example, The Carter Center, 2007. Development Cooperation Forum: Achieving More Equitable Globalization (Atlanta, GA: 2007), David 2. Figure 12–1 from Institut Géographique Gouldsbrough, Does the IMF Constrain Health National du Niger (1975) and Center for EROS, Spending in Poor Countries? (Washington, DC: U.S. Geological Survey (2003); Mike McGahuey, Center for Global Development, 2007), and Chris Reij, Tony Rinaudo, George Taylor, and Oxfam International, Oxfam International Sub- Bob Winterbottom, e-mails to author, 9 Septem- mission to the World Bank/IMF 2005 PRS Review ber to 1 October 2007. (Oxford, U.K.: June 2005); data on decline in absolute poverty from World Bank, World Devel- 3. Polgreen, op. cit. note 1; McGahuey et al., opment Indicators 2004 (Washington, DC: 2004); op. cit. note 2; data on estimated tree coverage varying progress of nations from Dani Rodrik, from G. Gray Tappan, geographer, SAIC, Center ed., In Search of Prosperity: Analytic Narratives on

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Economic Growth (Princeton, NJ: Princeton Uni- 16. Deepa Narayan, Empowerment and Poverty versity Press, 2003). Reduction: A Sourcebook, 1st ed. (Washington, DC: World Bank, 2002), pp. 13–29. 9. Dani Rodrik, “Goodbye Washington Con- sensus, Hello Washington Confusion? A Review of 17. Jobless growth in India from Bhattacharya the World Bank’s Economic Growth in the 1990s: and Sakthivel (2004), as cited in Deepa Narayan Learning from a Decade of Reform,” Journal of and Elena Glinskaya, eds., Ending Poverty in South Economic Literature, December 2006, pp. 973–87. Asia: Ideas That Work (Washington, DC: World Bank, 2007). 10. Amartya Sen, Development as Freedom (New York: Alfred A. Knopf, 2000); Michael Woolcock 18. John Blaxall, “Collective Action by Women and Deepa Narayan, “Social Capital: Implications Workers,” in Narayan and Glinskaya, op. cit. note for Development Theory, Research, and Policy,” 17, p. 68–103. World Bank Research Observer, August 2000, pp. 225–49; World Bank, World Development Report 19. Ibid. 2000/2001 (New York: Oxford University Press, 2001). 20. Bhatt quoted in ibid., p. 70.

11. Paolo Freire, Pedagogy of the Oppressed (New 21. Daniel Taylor-Ide and Carl Taylor, Just and York: Seabury Press, 1970); Ghazala Mansuri and Lasting Change: When Communities Own Their Vijayendra Rao, Community-Based and -Driven Futures (Baltimore, MD: Johns Hopkins Univer- Development: A Critical Review, Working Paper sity Press, 2002); Daniel Taylor, Carl Taylor, and 3209 (Washington, DC: World Bank, 2004); Jessie Oak Taylor-Ide, A Future of Hope: From Seeds Robert Chambers, Whose Reality Counts: Putting of Human Energy to the Scale of Social Change the First Last (Warwickshire, U.K.: ITDG Pub- (New York: Columbia University, in press). lishing, 1997). 22. Taylor-Ide and Taylor, op. cit. note 21; Box 12. Limited impact of community-based 12–3 from ibid. approaches from Jason Clay, Borrowed from the Future: Challenges and Guidelines for Commu- 23. Arjun Appadurai, “The Capacity to Aspire: nity-Based Natural Resource Management (New Culture and the Terms of Recognition,” in York: Ford Foundation, 2004). Box 12–2 from the Vijayendra Rao and Michael Walton, eds., Culture following: lessons of integrated rural development and Public Action (Stanford, CA: Stanford Uni- programs from John Farrington et al., Do Area versity Press, 2004), pp. 59–84. Development Projects Have a Future, Natural Resource Perspectives No. 82 (London: Overseas 24. “Beginning Social Change: The Principles of Development Institute, December 2002); struc- Seed-Scale as Shown in Arunachal Pradesh, India,” tural change from Bill Cooke and Uma Kothari, in Taylor, Taylor, and Taylor-Ide, op. cit. note eds., Participation: The New Tyranny? (New York: 21. Zed Books, 2001). 25. Ibid. 13. Cooke and Kothari, op. cit. note 12. 26. Ibid. 14. For complexity of communities, see, for example, Irene Gujit and Meera Kaul Shah, The 27. Daniel Taylor, president, Future Genera- Myth of Community: Gender Issues in Participatory tions, discussion with author, 1 August 2007; Development (London: Intermediate Technology Tage Kanno, program director, Future Generations Publications, 1998). Arunachal, e-mail to author, 12 October 2007.

15. Narayan et al., op. cit. note 6. 28. Box 12–4 is adapted from Taylor-Ide and

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Taylor, op. cit. note 21, pp. 47–61. Development Cooperation (Atlanta, GA: 2002); for trade policy, see Joseph E. Stiglitz, Globaliza- 29. Negative impacts of explosion approach from tion and Its Discontents (New York: W. W. Norton Laurie Garrett, “Do No Harm: The Global Health & Company, 2002); Kevin Watkins and Penny Challenge,” Foreign Affairs, January/February Fowler, Rigged Rules and Double Standards: Trade, 2007, and from Celia W. Dugger, “CARE Turns Globalization, and the Fight Against Poverty (Lon- Down Federal Funds for Food Aid,” New York don: Oxfam International, 2002); Paul Collier, The Times, 16 August 2007; Taylor-Ide and Taylor, op. Bottom Billion (New York: Oxford University cit. note 21; Hassan Zaman, “Microfinance in Press, 2007). Bangladesh: Growth, Achievements, Lessons,” in Narayan and Glinskaya, op. cit. note 17; Lídia 37. For U.S. tied aid percentage, see data in the Cabral, John Farrington, and Eva Ludi, The Mil- Center for Global Development, 2007 Commit- lennium Village Project—A New Approach to End- ment to Development Index (Washington, DC: ing Rural Poverty in Africa? Natural Resource 2007); for reduction in value of tied aid, see Perspectives 101 (London: Overseas Develop- Department for International Development, Back- ment Institute, August 2006). ground Brieﬁng: Untying Aid (London: Septem- ber 2001). 30. Scott Guggenheim, World Bank, “Crises and Contradictions: Understanding the Origins of a 38. Deepa Narayan, Measuring Empowerment: Community Development Project in Indonesia,” Cross Disciplinary Perspectives (Washington, DC: 2003, at siteresources.worldbank.org/INTIN World Bank, 2005). DONESIA. 39. Easterly, op. cit. note 7. 31. Patrick Barron, Rachael Diprose, and Michael Woolcock, Local Conﬂict and Community Devel- 40. Collier, op. cit. note 36. opment in Indonesia: Assessing the Impact of the Kecamatan Development Program (Jakarta: World Bank, 2006). Chapter 13. Investing for Sustainability

32. World Bank, “Afghanistan’s National Soli- 1. Anthony Ling et al., Introducing GS SUS- darity Program: Overview & Challenges,” 2007, TAIN (New York: Goldman Sachs Global Invest- at web.worldbank.org, viewed 31 July 2007. ment Research, 22 June 2007); Anthony Ling et al., Introducing the Goldman Sachs Energy Envi- 33. Samiullah Naseri, former National Solidarity ronmental and Social Index (New York: Goldman Program community facilitator, discussion with Sachs Global Investment Research, 24 February author, 11 June 2007. 2004); Goldman Sachs, Environmental Policy (New York: November 2005); Goldman Sachs, 34. “Going to Scale: Nature Conservation in Goldman Sachs Environmental Policy: 2006 Year- Tibet—Empowerment, Not Enforcement,” in End Report (New York). Taylor, Taylor, and Taylor-Ide, op. cit. note 21. 2. Ling et al., Introducing GS SUSTAIN, op. cit. 35. Ibid.; recovery of fauna populations in Robert note 1; Marjorie Kelly, “Holy Grail Found,” Busi- J. Fleming, Dorji Tsering, and Liu Wulin, Across ness Ethics, winter 2004. the Tibetan Plateau: Ecosystems, Wildlife, and Con- servation (New York: W. W. Norton & Company, 3. Intergovernmental Panel on Climate Change, 2007) Climate Change 2007: Mitigation of Climate Change (New York: Cambridge University Press, 36. For more on the global development archi- 2007). tecture, see The Carter Center, Development Coop- eration Forum: Human Security and the Future of 4. Thanks to David Myers of Lehigh University

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STATE OF THE WORLD 2008 Notes for the definition of investing as delayed con- 12. Ibid. sumption; discussion with author, Green Moun- tain Summit on Investor Responsibility, Newport, 13. U.N. Environment Programme (UNEP) RI, 19 July 2007. Finance Initiative, The Materiality of Social, Envi- ronmental and Corporate Governance Issues to 5. Stacy A. Teicher, “A Quick History of Values- Equity Pricing: 11 Sector Studies by Brokerage House based Investing,” Christian Science Monitor, 9 Analysts at the Request of the UNEP Finance Ini- February 2004. tiative Asset Management Working Group (Geneva: June 2004). 6. Peter Kinder, “Socially Responsible Invest- ing”: An Evolving Concept in a Changing World 14. William Baue, “Enhanced Analytics Initiative (Boston: KLD Research & Analytics, September Offers Sell-Side Analysts Cash to Cover Intangi- 2005). bles,” SocialFunds.com, 23 November 2004.

7. “Pax History,” Pax World Web site, at pax 15. Bill Baue, “Citigroup, Lehman Brothers, world.com, viewed 24 September 2007; “Our and UBS Report on Climate Risks and Opportu- Story—History,” Shorebank Web site, at nities for Investing,” SocialFunds.com, 27 Febru- www.shorebankcorp.com, viewed 24 September ary 2007; “Climate Change Investment Research,” 2007; Calvert Social Investment Foundation, JPMorgan Web site, at www.jpmorgan.com/ Calvert Community Investment Note Prospectus pages/jpmorgan; Ling et al., Introducing GS SUS- (Bethesda, MD: 30 April 2007). TAIN, op. cit. note 1.

8. Social Investment Forum, 2005 Report on 16. Michael Kramer, Natural Investment Ser- Socially Responsible Investing Trends in the United vices, e-mails to author, 12 and 13 July 2007. States (Washington, DC: January 2006); Nelson Information, Directory of Investment Managers 17. Natural Investment Services, Natural Invest- (Port Chester, NY: 2005). ment News, spring 2004; Michael Kramer, Natural Investment Services, e-mail to author, 14 July 9. Corporatemonitor, Sustainable Responsible 2007. Investment in Australia–2006 (Evans Head, Aus- tralia: September 2006), p. 4; Social Investment 18. Stephen Davis, Jon Lukomnik, and David Forum, 2005 Report on Socially Responsible Invest- Pitt-Watson, The New Capitalists: How Citizen ing Trends in the United States: 10-Year Review Investors are Reshaping the Corporate Agenda (Washington, DC: January 2006), p. v; Social (Boston: Harvard Business School Publishing, Investment Organization, Canadian Social Invest- 2006), pp. 3, 175. ment Review 2007 (Toronto, ON: March 2007), p. 5; Eurosif, European SRI Study 2006 (Paris: 19. Stacy A. Teicher, “A Quick History of Values- 2006), p. 11. based Investing,” Christian Science Monitor, 9 February 2004. 10. McKinsey Global Institute, Mapping the Global Capital Market 2006: Second Annual 20. Martine Costello, “One Stockholder’s Mis- Report, January 2006. Table 13–2 drawn from sion,” CNN/Money, 19 December 1997. Web sites and annual reports of Social Investment Forum, Eurosif, Social Investment Organization, 21. Anne Moore Odell, “Executives and the Corporatemonitor, and Cangen Biotechnologies. Environment: Looking Back at Proxy Season 2007,” SocialFunds.com, 27 July 2007. 11. Joe Keefe, “From Socially Responsible Invest- ing to Sustainable Investing,” Green Money Jour- 22. Edward Iwata, “Boardrooms Open Up to nal, summer 2007. Investors’ Input; More Companies Listening to

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Their Concerns, Taking Action,” USA Today, 7 Angeles Times, 7 May 2007; Berkshire Hathaway, September 2007. “Shareholder Proposal Regarding Berkshire’s Investment in PetroChina,” May 2007; Investors 23. Discussion with author. Against Genocide, “Berkshire Hathaway Sells Over $1 Billion of PetroChina Since July 11; Steady 24. Social Investment Forum, “SaveSharehold- Series of Sales a Clear Indicator that Buffett is on erRights.org Reveals Investor Backlash Against Divestment Path,” 20 September 2007. Potential Curbing of Shareholder Rights,” 19 September 2007, at www.socialinvest.org; Social 28. Flaherty cited in Toby Webb and John Rus- Investment Forum, “Record 22,500 Investors sell, “A Point of Principle,” Special Report on Speak Out Against Potential SEC Curbs on Share- Financial Sector Responsibility, Ethical Corpora- holder Resolutions, Role in Board Nominations,” tion, November 2006. press release (Washington, DC: 10 October 2007). 29. Andrew Newton, “A Convenient Truce,” 25. Rainforest Action Network, Dirty Money: Special Report on Financial Sector Responsibility, Citi, at ran.org; Collevecchio Declaration on Finan- Ethical Corporation, November 2006. cial Institutions and Sustainability, January 2003, available at www.foe.org. 30. Number of banks from Equator Principles Web site, at www.equator-principles.com, viewed 26. “FAQ,” The Equator Principles, at www 24 September 2007; share of finance capacity .equator-principles.com, viewed 24 September from International Finance Corporation, “IFC 2007. Welcomes Adoption of Equator Principles by Banco Galicia,” press release (Washington, DC: 29 27. William Baue, “The Equator Principles: Can March 2007); Bill Baue, “Revised Equator Prin- They Deliver Social and Environmental Respon- ciples Fall Short of International Best Practice for sibility from Banks?” Green@Work, July/August Project Finance,” SocialFunds.com, 12 July 2006. 2003; Arvind Ganesan, Is 2007 the End for Vol- untary Standards? (New York: Human Rights 31. World Bank, Striking a Better Balance—The Watch and Business for Social Responsibility, World Bank Group and Extractive Industries: The December 2006); Cary Coglianese and Jennifer Final Report of the Extractive Industries Review. Nash, Beyond Compliance: Business Decision Mak- World Bank Group Management Response (Wash- ing and the US EPA’s Performance Track Program ington, DC: September 2004); Bill Baue, “Com- (Cambridge, MA: Regulatory Policy Program, munities, Corporations, and the Difference Mossavar-Rhamani Center for Business and Gov- Between Consent and Consult,” The CRO, July ernment, Kennedy School of Government, Har- 2007. vard University, 2006). Box 13–2 from the following: Bill Baue, “Bank of China Interna- 32. Box 13–3 from the following: Jim Kharouf, tional Investment Managers Launches First SRI “Commentary,” Environmental Markets Newslet- Fund in China,” SocialFunds.com, 6 June 2006; ter, 13 June 2007; Thomas Kostigen, “The Green Michelle Chan-Fishel, Time to Go Green: Envi- in Hedge Funds Isn’t All about Money,” Mar- ronmental Responsibility in the Chinese Banking ketWatch, 29 June 2007; William Hutchings, Sector (Washington, DC: BankTrack and Friends “Man Group Raises Green Hedge Fund, eFinan- of the Earth–US, May 2007); Michelle Chan- cialNews.com, 3 September 2007. Fishel, discussion with author; Andrew Newton, “How the Other Half Lends,” Special Report on 33. John Hill and Graham Wark, Coal: Missing Financial Sector Responsibility, Ethical Corpora- the Window (Citigroup Global Markets, 18 July tion, November 2006; Bill Baue, “Fidelity Divests 2007); Francesca Rheannon, “Jitters About Reg- Large Chunk of Sudan-Related Holdings,” Social- ulatory Outlook Rile Conﬁdence in Coal Mining Funds.com, 22 May 2007; Charles Piller, “Buffett Stocks,” SocialFunds.com, 12 August 2007. Box Rebuffs Efforts to Rate Corporate Conduct,” Los 13–4 from the following: Bill Baue, “TXU Share-

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STATE OF THE WORLD 2008 Notes owners File Three Resolutions Questioning Wis- to the Poorest: A Realistic Objective?” Focal Point dom of Pulverized Coal Plants,” SocialFunds.com, for Microfinance (Asian Development Bank), 19 December 2006; Felicity Barringer and Andrew March 2004. Ross Sorkin with Matthew L. Wald, “In Big Buy- out, Utility to Limit New Coal Plants,” New York 41. William Baue, “Fonkoze Helps Transform Times, 25 February 2007; Jim Marston, “TXU Microfinance to Reach the Poorest of the Poor in Buyout Tied to Environmental Agreement,” Cli- Haiti,” SocialFunds.com, 18 November 2005. mate 411, 27 February 2007; “TXU to Set New Direction As Private Company; Public Benefits 42. Bill Baue, “Microfinance Crosses Continen- Include Price Cuts, Price Protection, Investments tal Divide with $100 Million Commitment from in Alternative Energy and Stronger Environmen- TIAA-CREF,” 9 October 2006. tal Policies,” press release (Dallas: TXU, 26 Feb- ruary 2007); “TXU Plans to Build Biggest Nuclear 43. Nicholas Kristof, “You, Too, Can Be a Banker Plants in US-WSJ,” Reuters, 9 April 2007. to the Poor,” New York Times, 27 March 2007.

34. Data and Figure 13–1 from Chris Green- 44. Satterthwaite quoted in “Quotes from wood et al., Global Trends in Sustainable Energy the Field,” Green Microfinance Web site, at Investment 2007 (Nairobi: UNEP Sustainable www.greenmicrofinance.org, viewed 25 Septem- Energy Finance Initiative and New Energy Finance, ber 2007. June 2007); Bill Baue and Sanford Lewis, “Will Nuclear Power Save Us from Global Warming?” 45. George Monbiot, “Selling Indulgences,” The Corporate Watchdog Radio, 6 September 2006; Guardian (London), 19 October 2006; Bill Baue, William Baue, “Nuclear Power: Still an Environ- “Carbon Offsets: Modern-Day Indulgences to mental Scourge or Now a Climate Change Miti- Assuage Carbon Guilt or Market Mechanism for gator?” SocialFunds.com, 9 June 2005. Supporting Clean Energy,” Socialfunds.com, 4 April 2007. 35. Greenwood et al., op. cit. note 34. 46. Bill Baue and Francesca Rheannon, “Biofu- 36. James Stack et al., Cleantech Venture Capi- els—Pros and Cons,” Corporate Watchdog Radio, tal: How Public Policy Has Stimulated Private 5 July 2007; Lester Brown, “Distillery Demand for Investment (San Francisco: CleanTech Venture Grain to Fuel Cars Vastly Understated; World Network and Environmental Entrepreneurs, May May Be Facing Highest Grain Prices in History” 2007). (Washington, DC: Earth Policy Institute, January 2007); George Monbiot, “A Lethal Solution,” 37. Bill Baue, “Nobel Prize Links Microfinance The Guardian (London), 27 March 2007. to Peace,” SocialFunds.com, 17 October 2006. 47. Cynthia A. Williams and John M. Conley, 38. Adam Smith, Nobelprize.org, “Poverty in “Triumph or Tragedy? The Curious Path of Cor- the World is an Artificial Creation,” interview with porate Disclosure Reform in the U.K.,” William Professor Muhammad Yunus, 13 October 2006. and Mary Environmental Law and Policy Review, winter 2007, pp. 317–62. 39. Daniel Pearl and Michael M. Phillips, “Grameen Bank, Which Pioneered Loans for the 48. William Baue, “Film Depicts Environmental Poor, Has Hit a Repayment Snag,” Wall Street and Social Reporting Disappearing in SEC Black Journal, 27 November 2001; Vivek George, Hole,” SocialFunds.com, 7 January 2004; Frente “Uncovering the Truth Behind Poverty—Is Mico- de Defensa de la Amazonia, “Chevron Using finance the Answer to Poverty?” at www.abra Unethical Tactics to Avoid Judgment in $10 Bil- hamgeorge.blogspot.com. lion Rainforest Trial; Series of Legal Setbacks in Ecuador Haunt Company; Charges of Fabricating 40. Nimal Fernando, “Microfinance Outreach Evidence,” 8 August 2007; “FAQ,” Corporate

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Sunshine Working Group Web site, at www.cor Relations Internationales and International Insti- poratesunshine.org/faq.html, viewed 25 Septem- tute for Sustainable Development (IISD), Paris, 5 ber 2007. July 2007.

49. Ceres, “Major Investors, State Officials, Envi- 2. Jagdish Bhagwati, Arvind Panagariya, and ronmental Groups Petition SEC to Require Full T. N. Srinivasan, Lectures on International Trade, Corporate Climate Risk Disclosure,” press release 2nd ed. (Cambridge, MA: The MIT Press, 1998); (Washington, DC: 18 September 2007). Edward D. Mansfield and Brian M. Pollins, eds., Economic Interdependence and International Con- 50. Felicity Barringer and Danny Hakim, “New flict: New Perspectives on an Enduring Debate (Ann York Subpoenas 5 Energy Companies,” New York Arbor: University of Michigan Press, 2003); Oli Times, 16 September 2007. Brown et al., eds., Trade, Aid, and Security : An Agenda for Peace and Development (Sterling, VA: 51. William Baue, “Lighthouse G3: Third Gen- Earthscan, 2007); Robert O. Keohane and Joseph eration GRI Guidelines Shine a Beacon for Sus- S. Nye, Power and Interdependence, 2nd ed. (Glen- tainability Reporters,” SocialFunds.com, 30 view, IL: Scott Foresman and Company, 1989). September 2005; “2500 Comply with GRI Search Box 14–1 draws on U.N. Economic and Social of 15,008 CSR Reports for ‘GRI Adherence’ Commission for Asia and the Pacific, “What Is Yields 2,492 Reports,” CorporateRegister.com, Good Governance?” at www.unescap.org, undated; viewed 25 September 2007; Halina Szejnwald see also Philippe Sands, Lawless World (London: Brown, Martin de Jong, and Teodorina Lessi- Penguin Books, 2006), Chapter 1. drenska, The Rise of the Global Reporting Initia- tive (GRI) as a Case of Institutional Entrepren- 3. Sylvia Ostry, The Post–Cold War Trading Sys- eurship, Working Paper No. 36 (Cambridge, MA: tem: Who’s on First? A Century Foundation Book Corporate Social Responsibility Initiative, Kennedy (Chicago: University of Chicago Press, 1997); School of Government, Harvard University, May Jagdish Bhagwati, Free Trade Today (Princeton, NJ: 2007). Princeton University Press, 2002).

52. “Carbon Disclosure Project and Wal-Mart 4. Bhagwati, Panagariya, and Srinivasan, op. Launch Climate Change Partnership; President cit. note 2; Mansﬁeld and Pollins, op. cit. note 2; Clinton to Speak at CDP Fifth Global Annual Brown et al., op. cit. note 2; Keohane and Nye, op. Forum Today; Latest Findings on Corporate Cli- cit. note 2. mate Data to be Announced,” Carbon Disclo- sure Project, 24 September 2007; McKinsey 5. Preamble to the General Agreement on Global Institute, op. cit. note 10. Tariffs and Trade 1947 agreement, at www.wto.org/english; Gary P. Sampson, The 53. Matthew Kiernan, Innovest, discussion with WTO and Sustainable Development (Tokyo: United author, 30 August 2007. Nations University Press, 2005).

54. Anne Moore Odell, “Principles for Respon- 6. Quote cited in World Trade Organization sible Investment Quadruples Assets in First Year,” (WTO), “Relevant WTO Provisions: Text of 1994 SocialFunds.com, 1 June 2007. Decision,” at www.wto.org.

7. WTO, The Legal Texts: The Results of the Chapter 14. Uruguay Round of Multilateral Trade Negotiations New Approaches to Trade Governance (Cambridge, U.K.: Cambridge University Press, 1994). 1. Luis Eduardo Derbez, Keynote Address, Emerging Powers in Global Governance Confer- 8. Ambassador Nobutoshi Akao, Japanese nego- ence, Institut du Développement Durable et des tiator in the Uruguay Round, discussion with

252 WWW.WORLDWATCH.ORG

STATE OF THE WORLD 2008 Notes author; see also Howard Mann and Stephen 18. Dani Rodrik, Harvard University, “Good- Porter, The State of Trade and Environment Law: bye Washington Consensus, Hello Washington Implications for Doha and Beyond (Winnipeg, MB: Confusion?” prepared for Journal of Economic IISD, 2003), and Sands, op. cit. 2. Literature, January 2006; William Finnegan, “The Economics of Empire—Notes on the Washington 9. Mann and Porter, op. cit. note 8. Consensus,” Harper’s Magazine, May 2003.

10. See Sylvia Ostry, “The Uruguay Round 19. For details of the Integrated Framework, see North-South Grand Bargain: Implications for www.integratedframework.org. Future Negotiations,” in Daniel L. M. Kennedy and James D. Southwick, eds., The Political Econ- 20. World Trade Organization, Recommenda- omy of International Trade Law (Cambridge, U.K.: tions of the Task Force on Aid for Trade, Geneva, Cambridge University Press, 2002), pp. 285–300. 27 July 2006.

11. Robert Wolfe, “Crossing the River by Feel- 21. For information on these partnerships, see ing the Stones: Where the WTO is Going after www.eitransparency.org, www.dams.org, and Seattle, Doha and Cancun,” Review of Interna- www.fsc.org/en. tional Political Economy, August 2004, pp. 574–96. 22. See Robert Wolfe, “Decision-Making and Transparency in the ‘Medieval’ WTO: Does the 12. Statement by Pascal Lamy, Director General Sutherland Report Have the Right Prescription?” of the WTO to the High-level Segment, Journal of International Economic Law, Septem- Substantive Session of U.N. Economic and Social ber 2005, pp. 631–45, and Robert Wolfe, Can the Council, Geneva, Switzerland, 5 July 2007; see also Trading System Be Governed? Institutional Impli- Faizel Ismail, “A Development Perspective on the cations of the WTO’s Suspended Animation, Work- WTO July 2004 General Council Decision,” Jour- ing Paper No. 30 (Waterloo, ON: Centre for nal of International Economic Law, June 2005, pp. International Governance Innovation, September 377–404. 2007); Oxfam, “WTO: Open Letter on Institu- tional Reforms in the World Trade Organization,” 13. For membership information, see www Oxford, U.K., October 2005; Dani Rodrik, Har- .wto.org. vard University, “The Global Governance of Trade As If Development Really Mattered,” prepared 14. For invitation to committees, see WTO Min- for the U.N. Development Programme, October isterial Declaration, WT/MIN(01)/DEC/1, 20 2001; Philip I. Levy, “Do We Need an Undertaker November 2001, WTO, paragraph 51. for the Single Undertaking? Considering the Angles of Variable Geometry,” October 2004. 15. See Mark Halle, “The WTO and Sustain- able Development,” in Yasuhei Taniguchi, Alan 23. See Robert Wolfe, “Comment: Adventures in Yanovich, and Jan Bohanes, eds., The WTO in WTO Clubland,” Bridges, June-July 2007, pp. the Twenty-ﬁrst Century—Dispute Settlement, Nego- 21–22. tiations, and Regionalism in Asia (Cambridge, U.K.: Cambridge University Press, 2007). 24. In Box 14–2, “bottom billion” from Paul Collier, The Bottom Billion (New York: Oxford 16. See Susan Ariel Aaronson, Taking Trade to the University Press, 2007). Streets: The Lost History of Public Efforts to Shape Globalization (Ann Arbor: University of Michigan 25. For information on these organizations, Press, 2001) see www.eviangroup.org, www.ictsd.org, and www.chathamhouse.org.uk/research/eedp. 17. Sampson, op. cit. note 5; Halle, op. cit. note 15.

WWW.WORLDWATCH.ORG 253 Index

Abalone, biomimicry of, 42 Australia accountability in good trade governance, 19 7, 202 biodiversity offsets in, 132, 135 Adbusters, 59 carbon credit markets in, 94, 95 additive approach to development, 175 eco-efficiency in, 34 Advanced Micro Devices, 29 energy efficiency in, 58, 88 advertising to children, 59 natural resources, accounting for, 13 Afghanistan, 176 property tax, commons-based approach to, agriculture. See also commons management; 150 meat and seafood industries simplicity movement in, 52 community gardens, 145, 148, 151, 157–59 socially responsible investing in, 183 development programs, 166–67, 177 automobiles, 16, 82, 84, 88 farmers’ markets, 145–46, 158 global trade in, 119 Balinese water temples, Indonesia, 138–39 pollution from animal feed production Bangladesh, 67, 175, 191, 192 runoff, 63 Bangladesh Rural Advancement Committee, trust model for farmland, 148 192 water use in, 109–10, 116, 117, 119 Bank of America, 188 Aid for Trade, 205 banking environmental credits AIDS, 162 biodiversity. See biodiversity, economic air pollution, 147–49 value of Alaska carbon. See carbon credits and carbon markets Native Claims Settlement Act, 144 commons-based vs. market-based approach public oil royalties (Alaska Permanent Fund), to air pollution, 147–49 98, 149 as investment for sustainability, 193 wild salmon fishery, 71 banking for sustainability. See investment for Algeria, 79 sustainability allowance-based carbon trading, 92–98 BankTrack, 187, 188 American Indians, 142, 144 Barnes, Peter, 14–15, 96, 98, 147 anchovy industry, Peru, 73 batteries, long-life, 84 Anderson, Ray, 41 beef industry. See meat and seafood industries AngloAmerican, 34, 136 behavioral economics, 140 Annan, Kofi, 32 benefit-cost analysis, 30 antibiotics used in meat industry, 70, 71 Benyus, Janine, 40, 42 Appadurai, Arjun, 172 Berea College Ecovillage, KY, 156 architecture, energy efficiency of, 29, 37–38, BerkShares, 161 80, 163, 164 Berkshire Hathaway, 189 Army Corps of Engineers, U.S., 127, 128, 129 Bernoulli, Daniel, 5 Arunachal Pradesh, India, 173–74 Bhatt, Ela, 172

WWW.WORLDWATCH.ORG 255 STATE OF THE WORLD 2008 Index

Bhutan, 12, 25, 60 California BioBanking (New South Wales, Australia), 132 carbon emissions trading in, 95, 97 BioCarbon Fund, 99 endangered species and habitats, protecting, biodiversity, economic value of, 123–37 125–27, 131–32 cap-and-trade schemes, 124, 132 Marin Agricultural Land Trust, 148 endangered species and habitats, protecting, Million Solar Roofs initiative, 165 125–27, 130–32 regulation of energy market in, 88 government determination of, 124 wetlands mitigation banking in, 128 government-mandated programs, benefits Calvert Social Investment Fund, 182 and drawbacks of, 132–35 Cameron, Rondo, 18 loss of biodiversity, problem of, 125 Cameroon, 67 voluntary offsets, 135–36 campaign or explosion approach to voluntary transactions determining, 124 development, 174, 175 wetlands development, 116 Can Masdeu, Spain, 159 wetlands mitigation banking, 127–30 Canada biofuels, 17, 84, 85, 88, 110, 188, 190, 193 carbon capture and storage in, 79 biogas (methane), 29, 65, 75–77, 84, 99, 142, carbon credits and carbon market in, 95 189 community gardens in, 145 biological approach to development, 174, 175, green accounting systems in, 24 176–77 socially responsible investing in, 183 biomass power, 81–83 sustainable communities in, 163 biomimicry, 40–42 women’s unpaid work, value of, 15 “bird of gold” in India, 44, 48 workplace well-being in, 29–30 blueprint approach to development, 175–76 cap-and-trade schemes Boesky, Ivan, 143 biodiversity, valuing, 124, 132 Boton, Alain de, 50 carbon credits and carbon markets, 93–98 bottom trawling, 68 water, 121 Bourbon Red turkeys, 73 Cape Cod Commercial Hook Fishermen’s Brazil, 17, 59, 84, 88, 90, 133 Association, 71 Brinker, Jeffrey, 42 capital, natural resources as, 113 British Petroleum, 16, 85 carbon capture and storage, 78–79 Brown, Gordon, 193 carbon credits and carbon markets, 87, 91–106 Buddhist model for sustainable lifestyles, 52, 60 allowance-based, 92–98 Buffett, Warren, 189 California Climate Action Registry, 95, 97 buildings, energy efficiency of, 29, 37–38, 80, cap-and-trade schemes, 93–98 163, 164 certification and verification schemes, Bulgaria, 100 104–05 Burger King, 71 Chicago Climate Exchange, 94–95, 102 Burlington, VT, 155 Clean Development Mechanism, 92, 93, 96, bus rapid transit, 17 98–102, 106 Bush Administration, 145 commons-based vs. market-based approach BushBroker (Victoria, Australia), 132 to, 149 BushTender (Victoria, Australia), 135 Ecosystem Marketplace, 102 Business Alliance for Living Local Economies, emissions trading, 92 160 EU emissions trading scheme, 10, 14, 87, Business and Biodiversity Offsets Program, 136 92–94, 95–97, 106, 149 Business for Social Responsibility, 30 fugitive emissions, 98–99 Buy Nothing Day, 53 future of, 104–06 as investment for sustainability, 193 Cabbages and Condoms, Thailand, 162 Joint Implementation, 92, 93, 96, 98, cafes as “third places,” 156–57 100–02

256 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

Kyoto Protocol, 90, 91, 92, 97, 98–101, low-carbon economics in, 77, 79, 81, 90 105–06 seafood diet in, 61, 74 land use, land use change, and forestry sustainable economics in, 8, 16–17, 22–24 projects, 99–100, 101, 103–04 sustainable lifestyles and consumer econom - New South Wales market (Australia), 94 ics in, 47, 48, 49 origins and current mechanisms, 92–93 China Methane Recovery Fund, 189 permission to emit, 96–98 China National Petroleum Corporation, 189 project-based transactions, 93, 98–101 Churchill, Winston, 149 public distribution of emissions permit Citi, 184, 186–90, 192 income, 98 civil society Regional Greenhouse Gas Initiative, 95, 97 development, role in, 178 renewable energy credit, 103 investment for sustainability and, 185 voluntary markets, 100–04, 105 progress, redefining, 21, 30 Western Climate Initiative, 95 sustainable economics and, 17 Carbon Disclosure Project, 194–95 trade governance and, 201–02, 206, 209 carbon emissions, reducing. See low-carbon Clean Development Mechanism, 92, 93, 96, economy 98–102, 106 carbon footprint, 23, 25, 47–48, 58 Clean Water Act, U.S., 127, 128 carbon neutrality, 28, 29, 103 CleanFish, 70 carbon offsets. See carbon credits and carbon cleantech, investment in, 16–17, 190–91 markets climate change carbon taxes, 31, 87, 106 carbon emissions and, 75–77, 89–90 Carroll, Lewis, 54 economic effects of, 6–7 cars, 16, 82, 84, 88 political will to address, 89–90 cattle industry. See meat and seafood industries sustainable communities and, 159 cellulosic ethanol, 190 sustainable lifestyles and, 46 cement manufacturing, 76 Climate, Community and Biodiversity Alliance, Ceres, 194 99–100, 105 certification of sustainability Climate Group, 105 carbon credits and carbon markets, 104–05 co-housing communities, 154. See also meat and seafood industries, 69–71 sustainable communities progress, redefining, 27–28 coal, 78–79, 83, 84, 89, 189, 190, 194 water transactions, 121 Cobb Hill Cohousing community, Hartland, Chambers, Robert, 170 VT, 157 Chan-Fishel, Michelle, 188 Collevecchio Declaration on Financial Chen Shui-bian, 74 Institutions and Sustainability, 186–87 Cheney, Dick, 79 Collier, Paul, 178, 179, 208 Chevron, 194 Colombia, 134, 162 Chicago, IL, local sustainable food system in, 157 Colton, CA, 125–27, 131–32 Chicago Climate Exchange, 94–95, 102 commons management, 138–50 Chicago Manufacturing Center, 36–37 community-based, 146–47 child marriage in India, 174 corporatization/privatization, adverse effects children, advertising to, 59 of, 142–45 China enclosure, reversing, 144–46 biodiversity requirements in, 134, 135 government ownership, 147 carbon credits and carbon markets activity, market-based approaches, 147–49 98, 99 open access regimes, 142 development programs in, 169, 177 population control and, 142 happiness and wealth levels, 11 property, commons as form of, 140 investment for sustainability in, 186–87, property tax and land use, 149–50 187, 188–89 scaling up, 146–50

WWW.WORLDWATCH.ORG 257 STATE OF THE WORLD 2008 Index commons managment ( continued ) Dalits of India, 54 social behavior leading to, 138–42, 146–47 Damanhur, Italy, 161 sustainable economics aiming at Darden Restaurants, 70–71 revitalization of, 14–15 Davis, Stephen, 185 “tragedy of the commons,” concept of, Dawes Act (U.S.), 144 14–15, 140–42 Dawkins, Richard, 55 trust model, 147–49 Delhi Sands Flower-loving Fly (U.S.), 125–27, communities. See also sustainable communities 131–32 defined, 152 Denmark, 13–14, 88–89, 165 vitality as indicator of economic progress, Derbez, Luis Ernesto, 196 28, 30 Detroit, MI, 145 community banks, 161 Deutsche Bank, 149, 184 community-based commons management, development, 166–79 146–47 additive approach to, 175 community-based development, 168, 170–71 biological approach to, 174, 175, 176–77 community currencies, 161–62 blueprint approach to, 175–76 community development financial institutions, changes in programs for, 168–71 161 community-driven vs. community-based, community-driven development, 160–61, 168, 168, 170–71, 172 170–71, 172. See also development explosion or campaign approach, 174, 175 community gardens, 145, 148, 151, 157–59 freedom of choice and action, programs community-supported agriculture, 158 increasing, 171–74 compact fluorescent lightbulbs, 16 globalization and, 178 COMPACT program, 160–61 growth vs., 5–6, 10, 11–12. See also progress, Compuware Corporation, 145 redefining Cone, Ben, 131 international donor assistance issues, 178–79 Conservation International, 136 participatory techniques, problems with, consumer economics, 48–50. See also sustainable 170–71 lifestyles progress, sustainable development as key to Cornell University, 37–38 redefining, 21–22 corporate microeconomics indicators, 20, scaling up, 174–78 43–44 social aspect of, 168 Corporate Sunshine Working Group, 194 top-down, expert-driven approaches, 170, CorporateRegister.com, 194 174–75 corporatization/privatization of commons, trade and trade governance, sustainable 142–45 development paradigm for, 178, 200–09 Costa Rica, 13, 15, 116, 134–35 diet. See meat and seafood industries “cradle to cradle” concept, 38–40 digital electrical grids, 83–84 credits and banking Dockside Green Victoria, BC, Canada, 163 biodiversity. See biodiversity, economic Doha Round, WTO, 119, 198, 200, 202, 205, value of 206 carbon. See carbon credits and carbon Dow Chemical, 89, 185 markets downshifting, 52, 53 commons-based vs. market-based approach Downshifting Downunder, 53 to air pollution, 147–49 drinking water, 110 as investment for sustainability, 193 Dublin Principles, 113–15 Csíkszentmihályi, Mihály, 52 Dunlap, Al, 39 Cuba, 158, 159 DuPont, 32, 34, 39, 40, 85 Cuomo, Andrew, 194 Curitiba, Brazil, 17 Earth Institute, 175 currencies, local or community, 161–62 Earth Summit (1992), 198

258 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

Easterly, Bill, 179 carbon capture and storage, 78–79 EasyJet, 104 climate change and carbon emissions, 75–77 Eatwild.com, 71 coal, 78–79, 83, 84, 89, 189, 190, 194 eco-efficiency, 28, 29, 33–38 electric power industry, 87 Eco-magination (GE), 35, 43 electricity grid, 82–84 eco-municipality, 164 ethanol, 84, 190–91 EcoCover Limited, 41 geothermal power, 81, 82, 83 EcoFish, 70 global energy needs, increase in, 77–78 ecological concerns regarding trade governance government mandates on, 88 and WTO, 199, 203–04, 207, 208 hydropower, 81, 82, 83, 110 ecological footprint analysis, 23, 26 markets for new energy technologies, 86–89 economic localization, 23, 26–27, 157–61 nuclear power, 81, 190 economics. See also prices; sustainable economics oil, gas, and petroleum, 78, 85, 87, 98, 149 behavioral economics, 140 photovoltaics, 86 conventional economic theory, problems of, progress redefined by renewable energy 4–6, 39–40, 87, 113 metrics, 23, 25 indicators of progress. See progress, redefining solar power, 81–82, 83, 84, 165 of sustainable communities, 161–62 storage of power, 82, 84 ecosystem degradation sustainable communities, energy efficiencies biodiversity loss, 125 practiced by, 152, 165 economic systems and, 7–8 sustainable lifestyles and, 58 sustainable communities reversing, 151, 162 wind power, 81–82, 82, 84, 86 water, 112 Energy, U.S. Department of, 77, 79 Ecosystem Marketplace, 102, 105 Engineers, U.S. Army Corps of, 127, 128, 129 ecotaxes. See taxation Enhanced Analytics Initiative, 185 EcoTender (Victoria, Australia), 135 Environmental Defense, 190 ecovillages. See sustainable communities Environmental Entrepreneurs, 191 Ecuador, 74, 188, 194 Environmental Protection Agency, U.S., 36, Edison, Thomas, 89 127–29 Edwards, Andres, 21 Environmental Working Group, 67 Ehrlich, Paul, 46 Epstein, Bob, 191 ejido system of land tenure in Mexico, 144 Equator Principles, 16, 187 electric power industry, 87 equity. See poverty and wealth inequality electricity grid, 82–84 Esty, Daniel C., 31 Electronic Product Environmental Assessment ethanol, 84, 190–91 Tool framework, 29 Etzioni, Amitai, 52 eminent domain, 128 European Union emissions trading, 92. See also carbon credits biodiversity requirements in, 134 and carbon markets eco-efficiency in production processes, 34 enclosure of commons, reversing, 144–46 emissions trading scheme, 10, 14, 87, End Poverty Now, 11 92–94, 95–97, 106, 149 Endangered Species Act, U.S., 126, 127, 130 energy efficiency mandates, 58, 88 endangered species and habitats, protecting, as governance model, 207 125–27, 130–32 investment for sustainability in, 183, 193 energy and energy industry low-carbon economics in, 79, 81, 88, 90 biofuels, 17, 84, 85, 88, 110, 188, 190, 193 meat and seafood production in, 67 biogas (methane), 29, 65, 75–77, 84, 99, sustainable lifestyles in, 58 142, 189 Evian Group, 209 biomass power, 81–83 evolutionary psychology of consumerism, 53–55 buildings, energy efficiency of, 29, 37–38, exotic (nonlocal) breeds, discouraging use of, 68 80, 163, 164 Expedia, 102

WWW.WORLDWATCH.ORG 259 STATE OF THE WORLD 2008 Index explosion or campaign approach to Gandhi, Mahatma, 52 development, 174, 175 gas and oil, 78, 85, 87, 98, 149 Extractive Industries Transparency Initiative, 205 gene pool, privatization/corporatization of, Exxon-Mobil, 194 144–45 General Agreement on Tariffs and Trade, 197, Farmers’ markets, 145–46, 158 198, 199, 201, 207 farming. See agriculture General Electric, 10, 35–36, 39, 40, 43, 85 feebates, 12 General Motors, 84, 90, 145, 185 Fernando, Nimal, 192 Generation Investment Management, 184 Fidelity Investments, 189 genuine progress indicator, 22–24 Financial Accounting Standards Board, 44 George, Abraham, and George Foundation, 192 financial incentives in meat and seafood geothermal power, 81, 82, 83 industries, 67–69 Germany Findhorn Ecovillage, UK, 52, 152, 154 ecotaxes, 12 Finland, 29, 81 low-carbon economics in, 80, 84, 88, 89 Fischer, Irving, 19 sustainable communities in, 153, 154 Fish and Wildlife Service, U.S., 131 Gilbert, John and Lewis, 185 fishing and fish farming. See marine ecosystems; GINI coefficient of social equity, 23, 25–26 meat and seafood industries Giuliani, Rudolph, 148 Fonkoze (Haiti), 192, 193 Global Development and Environment food miles, 27 Institute, 7 Ford, Henry, 89 global diet. See meat and seafood industries Forest Carbon Partnership Facility, 99 Global Environment Facility, 134, 160–61 Forest Stewardship Council, 205 Global Exchange Associates, 189 Forest Trends, 136 Global Footprint Network, 5, 26 forestry Global Reporting Initiative, 27, 28, 31, 194 carbon credits, projects involving, 99–100, global warming. See climate change 101, 103–04 globalization, 18–19, 178. See also trade and Niger forest code changes, 166–67, 177 trade governance Qomolangma National Nature Preserve, Goldman Sachs, 44, 85, 180, 184, 188, 190 Tibet, 177–78 Gore, Al, 184 fossil fuel emissions. See climate change; energy governance of trade. See trade and trade industry; low-carbon economy governance free trade. See trade and trade governance government mandates Free Trade Area of the Americas, 199 on biodiversity, 132–35 Freire, Paolo, 170 on energy, 88 Friends of the Earth-US, 188 phase-out of incandescent bulbs, 58, 88 Frijns, Johann, 188 governments fugitive emissions, 98–99 biodiversity value, determining, 124 Fuller, Buckminster, 40 climate change, political will to address, fureai kippu (caring relationship tickets) in 89–90 Japan, 161–62 commons management by, 147 Fusaro, Peter, 189 as development aid recipients, 169 Future Generations, 172, 173 sustainable economics, role in, 12, 17 sustainable lifestyles, encouraging or G-8 Economic Summit (2007), 77–78 discouraging, 55–60 G-20 Group, 207 GRAIN, 73–74 Gabriel, Yiannis, 49 Grain for Green (China), 134, 135 Gadjil, Madhav, 49 Grameen Bank, 15, 192 Gaia University, 163 Great Barrington, MA, 161 Galvin Electricity Initiative, 84 green accounting systems, 22–24

260 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

Green Building Rating System, 29 Hill, John, 189 Green Café Network, 157 Hoffman, John, 88 Green Microﬁnance, 193 home-owner associations, 163 Green Mountain Coffee Roasters, 29 Honda, 40 Green Revolution, 138 Hong Kong, 74, 150, 189 green taxes. See ecotaxes or green taxes; taxation HSBC Bank, 46, 58, 184, 188 greenhouse gases, 28–29, 32, 34–35, 43. See huerta system in Spain, 141 also carbon credits and carbon markets Hurricane Katrina, 116 Greenland ice sheet, 76 Hurwitz, Charles, 143 GreenPlants Sustainable Leadership Program, 36 hybrid motor vehicles, 16, 82, 84 Greenspan, Alan, 76 hydropower, 81, 82, 83, 110 Greystone Bakery, New York City, 162 gross domestic product Illocos Norte, Philippines, 141 consumer economics and, 48 Immelt, Jeffrey, 43 inadequacy as measure of progress, 18, 19, index of representational equity, 23, 25–26 20, 22, 30, 59 India water, value of, 112, 118 “bird of gold,” 44, 48 gross national happiness in Bhutan, 12, 25 carbon credits and carbon markets activity, gross world product, 25 98, 99 groundwater abstraction and overuse, 112 climate change, attitudes toward, 46 Growing Power, 157 Dalits, 54 growth vs. development, 5–6, 10, 11–12. development programs in, 169, 171–74 See also progress, redeﬁning energy needs, increasing, 77 sustainable lifestyles in, 45–47, 52, 53, 54 Haas, Jörg, 96 Indians, American, 142, 144 Haiti, 192 individualism and sustainable lifestyles, 56 Hall, Martin, 73 Indonesia, 138–39, 176 Hansen, James, 77 Industrial Research Institute, 57 happiness and wealth levels, 11, 50–52 Industrial Revolution, 5, 7, 15–16, 39, 42–43, happy planet index, 23, 24–25 80 Hardin, Garrett, 140–42, 146 inequity. See poverty and wealth inequality Harris, David, 143 Inglehart, Ronald, 50 Harrisburg, Pennsylvania, 150 innovation and novelty driving consumerism, 57 HCFCs, 98–99 Innovest, 195 health and well-being Institutional Shareholder Services, 186 fureai kippu (caring relationship tickets) in Integrated Framework for Trade-Related Japan, 161–62 Technical Assistance for Least Developed happiness and wealth levels, 11, 50–52 Countries, 204–05 as progress indicator, 23, 24–25, 28, 29–30, Inter-American Tropical Tuna Commission, 73 59 Interface Carpets, 10, 40, 41 social status, relationship to, 54–55 Interfaith Center on Corporate Responsibility, in sustainable communities, 155 185, 186 sustainable economy, creating, 11–12 Intergovernmental Panel on Climate Change, 6, workplace well-being, 28, 29–30 47–48, 77 hedge funds, 187–91 intermittency of alternative electricity sources, hedonics, 21 82–83 Heinrich Böll Foundation, 96 International Centre for Trade and Sustainable Henry, Jennifer, 164 Development, 209 heritage breeds, encouraging use of, 64, 69, 73 International Conference on Financing for Heritage Foods U.S.A., 69, 73 Development (Monterrey, Mexico, HFC-23, 98–99 2000), 169

WWW.WORLDWATCH.ORG 261 STATE OF THE WORLD 2008 Index

International Conference on Water and the Klemm, Kevin, 132 Environment (Dublin, 1992), 113 Klingemann, Hans-Dieter, 50 International Emissions Trading Association, 105 Kohlberg Kravis Roberts & Co., 190 International Finance Corporation, 187 Kramer, Michael, 184–85 international initiatives Kyoto Protocol development aid, 178–79 carbon credits and carbon markets, 90, 91, sustainable economy, creating, 9–10 92, 97, 98–101, 105–06 International Labour Organization, 187 post-2012 target, 105–06 International Organization for Standardization, sustainable economy and, 10 104–05 sustainable lifestyles and, 53 international trade, governance of. See trade and trade governance Labor productivity, 39–40 investment for sustainability, 180–95 labor unions, 144 defined, 181 Lafarge, 34 Equator Principles, 187 Lakabe, Spain, 157 microfinance, 181, 191–93 Lamy, Pascal, 200 obstacles and opportunities, 193–95 land use project finance, 181, 186–87 carbon credits and, 99–100, 101, 103–04 shareowner activism, 182, 185–86 property tax, commons-based approach to, socially responsible investing, 181, 182–85 149–50 venture capital, private equity, and hedge Lang, Tim, 49 funds, 181, 187–91 Las Gaviotas, Colombia, 162 Investors Against Genocide, 189 laundry lines, outdoor bans on, 163 “invisible hand” economic theory, 6 Law of the Sea Treaty, 149 Iowa, pig farming in, 64 Layard, Richard, 52 Islam, sustainable lifestyles under, 60 Le Maire, Isaac, 185 Italy, 161 Leadership in Energy and Environmental Ithaca Hours, 161 Design, 29, 37–38, 163, 164 League for Pastoral Peoples, 73 Jacobsen, Rowan, 66 lean manufacturing, 36, 37 Japan LED lighting systems, 35–36 eco-efficiency in, 34 Lee, Ang, 74 fureai kippu (caring relationship tickets), Lehman Brothers, 184, 190 161–62 liberalization of trade. See trade and trade happiness and wealth levels, 11, 50 governance; World Trade Organization low-carbon economics in, 79, 80, 84, 88 lifestyle. See sustainable lifestyles meat and seafood production in, 67, 73 lighting, eco-efficient, 16, 35–36, 58, 80, 88 women’s wages in, 15 livestock. See meat and seafood industries Jiva Dental, 102–03 living wages, promoting, 30 Jobra, Bangladesh, 191 Loblaws, 70 Joint Implementation, 92, 93, 96, 98, 100–02 lobster fisheries in Maine, 146 Jones, Dan, 36 localization, economic, 23, 26–27, 157–61 JPMorgan, 184 Los Angeles, CA, 14, 151–52, 162, 164 Los Angeles Ecovillage, 151–52, 162, 164 Kasser, Tim, 50 low-carbon economy, 75–90 Kecamatan Development Program, Indonesia, 176 climate change and, 75–77, 89–90 Keefe, Joe, 183 electricity grid, 82–84 Kenmar Global ECO Fund, 189 energy markets, 86–89 Keystone Center, 81 global energy needs and, 77–78 Kierman, Matthew, 195 integration of new technologies into existing Kiva.org, 192–93 energy system, 82–84

262 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

investment in, 84–86 financial incentives and subsidies, 67–69 storage of power in, 82, 84 food chain, moving down, 71–74 strategies leading to, 78–79 heritage breeds, 64, 69, 73 tax or regulatory cap on carbon emissions, 87 marine reserves, establishing, 69, 72 viability of alternative technologies, 79–82 pollution from animal feed production Lukomnik, Jon, 185 runoff, 63 Lydney, UK, 152 price of product, 62, 63, 71–72 rates of consumption, 61, 62, 63 Maastricht Treaty, 13 shellfish farming, ecological advantages of, Mack, John, 129 66–67 Madagascar, 107 sustainable production methods for, 63–67 Maine lobster fisheries, 146 Merrill Lynch, 184 Man Group, 189 methane (biogas), 29, 65, 75–77, 84, 99, 142, Marin Agricultural Land Trust, 148 189 marine ecosystems. See also meat and seafood Mexico, 13, 134, 135, 144 industries micro-generators, 84 bottom trawling, 68 MicroCapital.org, 193 certifications of sustainable practices, 27 microcredit and microfinance, 11, 16, 175, 181, commons-based approach to seabed mining, 191–93 149 Microcredit Summit Campaign, 11 economic effects of resource scarcity, 5 “miles to market” indicator of economic local - Law of the Sea Treaty, 149 ization, 23, 26–27 Maine lobster fisheries, 146 Milken, Michael, 143 reserves, establishment of, 69, 72 Millennium Development Goals, 11, 110, 168, “tragedy of the commons” and, 142, 145 169, 174 Marine Harvest, 66 Millennium Ecosystem Assessment, 7–8, 125 Marine Stewardship Council, 27, 70 Millennium Village Project, 175 markets Million Solar Roofs initiative (California), 165 carbon markets. See carbon credits and Milwaukee, WI, 157 carbon markets Mondi South Africa, 34 commons-based vs. market-based approach Monterrey International Conference on to air pollution, 147–49 Financing for Development, 169 economic concept of market efficiency, 6, 12 Morgan Stanley, 190 energy markets, 86–89 Morgan, Steve, 128 water management, market-based tools for, motor vehicles, 16, 82, 84, 88 117–21 Motorola, 36 Marrakesh Agreements, 198–99 Mountain Equipment Co-op, 29 Marston, Jim, 190 Murphy, A. S., 143 Massachusetts, 71, 145, 146, 161 Myanmar, 15 materialism, 21 McDonough, William, 33 Nairobi Framework, 98 McKibben, Bill, 21 Narayan, Deepa, 179 McKinsey Global Institute, 80, 194 National Environmental Trust, 65–66 meat and seafood industries, 61–74 National Forestry Trust Fund, 134 antibiotics, use of, 70, 71 National Renewable Energy Laboratory, 82 certification and labeling programs, 69–71 National Solidarity Program, Afghanistan, 176 changes in production methods increasing, Native Americans, 142, 144 62–63 Natural Capitalism, 33, 36 ethical practices, consumer and business natural resources. See also commons demand for, 69–71 management, and specific resources exotic (nonlocal) breeds, 68 as capital, 113

WWW.WORLDWATCH.ORG 263 STATE OF THE WORLD 2008 Index natural resources ( continued ) Ogive Index, 23, 26 economic accounting for, 5, 12–13 Ohio, 129 progress redefined as protection and oil and gas, 78, 85, 87, 98, 149 restoration of, 23, 26 Oldenburg, Ray, 156 Natural Resources Defense Council, 190 Operating and Financial Review (UK), 193 Neal, Larry, 18 Oregon, 145, 146, 148 Nelson Information, 182 Oregon Water Trust, 148 neoclassical economic theory, problems of, 4–6, organic foods, 16 39–40, 87, 113 Organisation for Economic Co-operation and Nestlé, 117 Development, 12, 30, 34, 59 Netflix, 10 Netherlands, 72 Pacala, Stephen, 78 New South Wales carbon credit market Pacific Forest Trust, 148 (Australia), 94 Pacific Lumber, 143–44 New Urbanism, 146 Pacific Northwest Laboratory, 82 New York City, 145, 147, 148, 162 Pack, Jules, 188 New York State, 145, 157 Pago por Servicios Ambientales Hidrológicos, New Zealand, 10–11, 68–69 Mexico, 134, 135 NGOs. See nongovernmental organizations Pago por Servicios Ambientales, Costa Rica, Niger, 166–68, 177 134–35 Nochol, Toby, 104 Parsons, Richard, 143 nongovernmental organizations participation and good trade governance, 197 development programs. See development participatory development techniques, critiques investment for sustainability and, 185, of, 170–71. See also development 186–87, 190 Pauly, Daniel, 67 progress, redefining, 24, 27, 30 Pax World Balanced Fund, 182, 183 sustainable communities and, 158–60, 162, peace, contribution of trade to, 197, 198 164 Pembina Institute, 24 trade governance and global power shifts, Pennsylvania, 150 206 per capita income as measure of progress, 19–20 North American Free Trade Agreement, 144, Peru, 73 199, 205 PetroChina, 188–89 North, Douglass, 87 petroleum industry, 78, 85, 87, 98, 149 North Luangwa Wildlife Conservation and Philadelphia, PA, 156, 157 Community Development Programme, Philippines, 64, 139, 141, 142, 145 Zambia, 160 Phinney Ridge Ecovillage, Seattle, WA, 154 Norway, 59, 65, 66, 68, 79 photovoltaics, 86 Novartis, 30 phthalates, 13–14, 36 novelty and innovation driving consumerism, 57 Pitt-Watson, David, 185 nuclear power, 81, 190 Plum Village, France, 52 pollution, 63, 121, 147–49 Oakey, David, 41 Population and Community Development Offer, Avner, 56–57 Association, 162 offsets population growth, 46, 142, 166, 177 biodiversity. See biodiversity, economic pork industry. See meat and seafood industries value of PortionPac Chemical Corporation, 36–38 carbon. See carbon credits and carbon Portland, OR, 145, 146 markets poultry industry. See meat and seafood commons-based vs. market-based approach industries to air pollution, 147–49 poverty and wealth inequality as investment for sustainability, 193 commons management, social equity in, 147

264 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

community vitality as indicator of economic social equity, 23, 25–26 progress, 30 sustainable development as key to, 21–22 development to aid poor. See development traditional indicators, inadequacy of, 19–21 economic systems and, 6, 8–9, 10–11, 15 zero waste, 27–29 natural capital, protecting and restoring, project-based carbon trading, 93, 98–101 23, 26 project finance as investment for sustainability, per capita income as measure of progress, 20 181, 186–87 progress defined by social equity, 23, 25–26 Project Laundry List, 163 social enterprises, 162 property, commons as form of, 140 water management, 111–12 property tax and land use, 149–50 women, valuing work of, 15 Pure Salmon Campaign, 66 power industry. See energy and energy industry Putnam, Robert, 154 precautionary principle, 10, 13–14 prices Qomolangma National Nature Preserve, inclusion of ecological costs in, 10, 12 Tibet, 177–78 in meat and seafood industries, 62, 63, 71–72 R ainforest Action Network, 186–87 of water, 112, 117–18 red cockaded woodpeckers, 131 private equity investing for sustainability, 181, Red Lobster, 70–71 187–91 Redefining Progress, 22 privatization/corporatization of commons, Regional Greenhouse Gas Initiative, 95, 97 142–45 religion and sustainability, 52, 59–60, 185 production processes, rethinking, 32–44. See Relocalization Network, 159–60 also meat and seafood industries renewable energy. See energy industry biomimicry, 40–42 renewable energy credit, 103 corporate microeconomics indicators, 43–44 Ricardo, David, 4, 196 eco-efficiency, 33–38 Riverside Land Conservancy, 131 Industrial Revolution processes, 39, 42–43 Rodrik, Dani, 168 labor productivity, 39–40 Rooted in Community, 157 as new wave in industrial innovation, 42–44 Royal Dutch Shell, 34, 40, 85 product longevity, 28, 29, 38–40 Royal Institute for International Affairs (UK), progress, redefining, 18–31 209 certification of sustainability, 27–28 Russia, 78, 100, 206 community vitality, 28, 30 corporate microeconomics indicators, 20, Salmon farming and fishing, 65–66, 71, 73. 43–44 See also meat and seafood industries eco-efficiency, 28, 29 San Francisco, CA, 14, 157 economic localization, 23, 26–27 Sandia Labs, 42 encouraging use of new indicators, 30–31 sanitation, use of water for, 110 genuine progress indicator and other green São Paulo, Brazil, 59 GDPs, 22–24 Satterthwaite, David, 193 globalization, 18–19 Save Darfur Coalition, 189 gross domestic product, 18, 19, 20, 22, 30, 59 Savitz, Andrew, 27, 31 growth vs. development concepts, 5–6, 10, scale 11–12 commons management, scaling up, 146–50 health and well-being indicators, 23, 24–25, development programs, scaling up, 174–78 28, 29–30, 59 of global economy, 9–11 new macroeconomic indicators, 22–27 Scott, Lee, 36 new microeconomic indicators, 27–30 Scott Paper, 39 renewable energy/carbon footprint, 23, 25 the Sea Around Us Project, 67 reporting and disclosure, role of, 31 seabed mining, commons-based approach to, 149

WWW.WORLDWATCH.ORG 265 STATE OF THE WORLD 2008 Index seafood industry. See meat and seafood industry storage of power, 82, 84 Seattle, WA, 154 subsidies in meat and seafood industries, Securities and Exchange Commission, 185, 67–69 186, 194 Sudan, 189 Seed-Scale, 172–74, 177 Sudan Divestment Task Force, 189 Self-Employed Women’s Association, 171–72 Summertown, TN, 162 sexuality and consumerism, 54 Summit Polymers Inc., 37 shareowner activism, 182, 185–86 sustainability shark finning, 74 of carbon use. See carbon credits and carbon Shedge, Vidya, 46, 47, 49 markets shellfish farming, ecological advantages of, certification programs. See certification of 66–67 sustainability ShoreBank (Chicago, IL), 182 in development. See development Shorebank Pacific (Washington State), 161 investment in. See investment for sustainability Sieben Linden Ecovillage, Germany, 154 of meat and seafood consumption. See meat Simplicity Forum, 52–53 and seafood industries simplicity movement, 52–53 Natural Capitalism framework, 33 Singapore, 116, 150 of production process. See production site value taxation, 149–50 processes, rethinking Six Sigma System, 36 progress, as redefinition of, 21–22. See also Sky Trust, 147–49 progress, redefining Sloping Lands Conversion Program, China, religion and, 52, 59–60, 185 134, 135 social enterprises, 162 Slow Food International, 72 Stahel’s five pillars of, 38–40 smart growth, 163–64 trade governance and WTO, sustainable Smith, Adam, 4, 6, 143, 144 development paradigm for, 205–09 Smithfield Foods, 65, 69, 71 Sustainable Agriculture Initiative, 117 social behavior sustainable communities, 151–65 commons management resulting from, co-housing, 154 138–42, 146–47 definition of community, 152 corporations not exhibiting, 143 economic localization in, 157–61 sustainable lifestyles and, 55–60 energy efficiencies practiced by, 152, 165 social capital, 152, 154–55, 168 examples of, 153 Social Carbon, 105 financing, 161–62 social construct, property as, 140 health and well-being in, 155 social enterprise, 162 mobilizing wider society via, 162–65 social equity and inequity. See poverty and physical design of, 152–54 wealth inequality shared resources, 155–56 Social Investment Forum, 186 social capital, 152, 154–55 social status, relationship of health and well- “third place” concept, 156–57 being to, 54–55 Sustainable Communities Act (UK), 164 socially responsible investing, 181, 182–85 Sustainable Consumption Roundtable, 49, Socolow, Robert, 78 57–58 solar power, 81–82, 83, 84, 165 sustainable economics, 3–17 South Africa, 134, 185 adjusting economic scale, 9–11 Spain, 88, 89, 141, 157, 159 biodiversity and. See biodiversity, economic Sprint Corporation, 12 value of Stahel, Walter, 38–40 commons management, revitalizing, 14–15 Stern, Nicholas, and Stern Report, 6–7, 58, conceptual reform leading to, 9–15 76, 89 consumer economics, 48–50 STMicroelectronics, 34–35 consumer power in, 16

266 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

conventional economic theory, problems of, TIAA-CREF, 192 4–6, 39–40, 87, 113 Tibet, 177–78 development vs. growth, 5–6, 10, 11–12 Tomales Bay Institute, 14–15, 96, 147 government role in, 12, 17 Törbel, Switzerland, 142 low-carbon. See low-carbon economy Toronto, Canada, 145 market efficiency, concept of, 6, 12 total economic value, 113, 114 microcredit and microfinance, 11, 16, 175, Toyota, 16, 34, 36, 37, 42, 84 181, 191–93 trade and trade governance, 196–209. See also natural resources, accounting for, 5, 12–13 World Trade Organization nature and economic activity, interaction of, 5 accountability, 197, 202 as new wave in industrial innovation, 15–17 benefits of trade, 196–98 precautionary principle, 10, 13–14 characteristics of good trade governance, 197 prices, inclusion of ecological costs in, 10, 12 developing nations and, 178, 200–09 risks to conventional economies, 3–4, 6–9 ecological concerns regarding, 199, 203–04, of water. See water 207, 208 women, valuing work of, 10, 15 environmental concerns and, 199 sustainable lifestyles, 45–60 General Agreement on Tariffs and Trade, carbon footprint, 47 197, 198, 199, 201, 207 consumer economics and, 48–50 global change, accepting, 206–08 evolutionary psychology and, 53–55 goals of, 198–99, 202–03, 208 happiness and wealth levels, 50–52 hostility toward, 198, 199, 207 individualism and, 56 participation, 197 mathematics of, 46–48 progress, trade volume as measure of, 19–20 means of supporting development of, 57–60 sustainable development paradigm for, 205–09 religion and, 52, 59–60 transparency, 197 simplicity movement, 52–53 “tragedy of the commons,” concept of, 14–15, social and political institutions encouraging 140–42. See also commons management or discouraging, 55–60 Transition Towns, 53, 160 Sweden, 12, 15, 17, 34, 59, 65 Transnational Institute, 103 Switzerland, 139, 141–42, 146 transparency in good trade governance, 197 System of Environmental and Economic triple bottom line, 27, 31, 44 Accounting, 118 Trust for Public Land, New York City, 148 trust model of commons management, 147–49 Taxation tuna farming and fishing, 65, 68, 71, 72, 73, carbon taxes, 31, 87, 106 199. See also meat and seafood industries concept of ecotaxes or green taxes, 12 TXU, 84, 190 property tax and land use, 149–50 Tyson Foods, 70 tax shifting, 40 water use, 121 UBS, 184 Taylor, Daniel, 172 Uganda, 103, 107 technological efficiency and carbon footprint, Ukraine, 100 47–48 Unilever, 27, 34, 70 TerraPass, 102 unions, 144 Texas Pacific Group, 190 United Kingdom Thailand, 52, 60, 162 cattle production in, 65 The Farm, Summertown, TN, 162 climate change, attitudes toward, 46 Thich Nhat Hahn, 52 commons management and enclosure, “third place” concept, 156–57 140, 144 Thompson, E. P., 141 happiness and wealth levels, 50, 51 Three Gorges Dam, China, 187 investment for sustainability in, 193 3M, 28–29, 40 sustainable communities in, 152–54, 160, 164

WWW.WORLDWATCH.ORG 267 STATE OF THE WORLD 2008 Index

United Kingdom ( continued ) venture capital sustainable lifestyles and consumer as investment for sustainability, 181, 187–91 economics in, 46, 49–51, 53, 54, 57–58 low-carbon economy, technological United Nations investment in, 86 Convention on Biological Diversity, 26 sustainable economy, creating, 16–17 corporate responsibility summit, 184 Vermont, 155, 157 development conferences, 169 Vestas Wind Systems, 85 Development Programme, 8, 112, 160–61, Victoria, Australia, 132, 135 168 Victoria, BC, Canada, 163 Environment Programme, 34, 184 Viet Nam, 52, 71 Food and Agriculture Organization, 68 voluntary biodiversity offsets, 135–36 Principles for Responsible Investment, 195 voluntary carbon markets, 100–04, 105 structure and global power shifts, 206 Voluntary Carbon Standard Framework, 105 System of Environmental-Economic voluntary simplicity, 52 Accounting for Water, 118 Vulcan Materials Corporation, 131–32 United States Climate Action Partnership, 94–95, 190 Wal-Mart, 16, 35–36, 71 United States. See also speciﬁc cities and states Wales, Jimmy, 138–39 Army Corps of Engineers, 127, 128, 129 Walters, Dale, 37–38 biodiversity, valuing. See biodiversity, Washington Consensus, 168, 204 economic value of Washington, D.C., metropolitan area, 150 carbon credits and carbon market in, 92, Washington state, 15, 37, 150, 154, 161 94–95, 97–98, 102–03 waste minimization and zero waste, 10, 27–29, climate change, attitudes toward, 46 34–35 commons management and enclosure in, water, 107–22 140, 142, 144, 145, 147 aligning economic and water policies, Department of Energy, 77, 79 121–22 development assistance provided by, 178 as capital, 113 Environmental Protection Agency, 36, commons management of, 138–39, 141 127–29 Dublin Principles, 113–15 Fish and Wildlife Service, 131 environmental ﬂow requirements, 110–11 GPI and GDP in, 22, 24 equitable access, 111–12 happiness and wealth levels, 50, 51 groundwater abstraction and overuse, 112 investment for sustainability in, 183, 194 health and safety standards for, 119 low-carbon economics in, 79, 81, 88, 89, 90 hydropower, 81, 82, 83, 110 Mayors Climate Protection Agreement, 53 innovations regarding, 115–21 meat and seafood production in, 64, 65, 67 management of, 111–12, 116–21 per capita income as measure of progress, 20 markets, 117 precautionary principle at work in, 14 payment schemes, 119–21 Superfund legislation, 31 pollution credits, 121 sustainable communities in. See sustainable pollution from animal feed production communities runoff, 63 sustainable lifestyles and consumer prices, 112, 117–18 economics in, 46, 47, 52, 57 scarcity of, 107–09 women’s wages in, 15 uses of, 109–11 Universities Superannuation Scheme (U.K.), 184 valuation of, 112–15 Uruguay Round, WTO, 200, 201 Waveriders, 31 U.S. Green Building Council, 164 wealth inequality. See poverty and wealth inequality Value-enhancing SRI, 182 Weber, Karl, 27, 31 Varkey, George, 45–47, 49 Weida, William, 64

268 WWW.WORLDWATCH.ORG STATE OF THE WORLD 2008 Index

Welch, Jack, 39 World Commission on Dams, 117, 205 well-being. See health and well-being World Commission on Environment and WELL (Willits Economic LocaLization) Development, 21 initiative, 160 World Economic Forum, 4, 105 Western Climate Initiative, 95 World Energy Council, 3, 79 wetlands, 116, 127–30 World Health Organization, 29, 59 White Dog Cafe, Philadelphia, PA, 156 World Parks Congress (2003), 69 Whole Foods, 69, 71 World Summit on Sustainable Development Wicks, Judy, 156 (2002), 69 Wikipedia, 138–39 World Trade Organization, 197–98 WildAid, 74 developing nations and, 200–09 Wildlands Inc., 128 Doha Round, 119, 198, 200, 202, 205, 206 Willits, CA, 160 ecological concerns regarding, 199, 203–04, Wilson, E. O., 125, 126 207, 208 wind power, 81–82, 82, 84, 86 global change, accepting, 206–08 Winston, Andrew, 31 goals of, 198–99, 202–03, 208 Womack, James, 36 governance crisis of, 200–02 women hostility toward, 198, 199, 207 development programs involving, 171–72, Marrakesh Agreements establishing, 198–99 173–74 overexpansion of, 200 economic opportunity for, 10, 15 responding to crisis at, 204–06 investment for sustainability and, 182 sustainable development paradigm for, microﬁnance programs for, 191 205–09 in Niger, 166, 167 Uruguay Round, 200, 201 unpaid work, valuing, 15 on water, 119 Woodard, Colin, 146 World Values Survey, 50 World Bank World Wide Fund for Nature-UK, 96–97, 188 beneﬁt-cost analysis, use of, 30 World Wildlife Fund, 70, 105 development, involvement in, 168, 169, Wright, Ronald, 26 175–76 on economic indicators, 21 Yamagata, Tadashi, 73 on economic localization, 26 Yeager, Kurt, 84 on ecosystem degradation, 7 Yunus, Muhammad, 191–92 forestry and land use projects funded by, 99 global power shifts and structure of, 206 Zambia, 160 International Finance Corporation, 187 zanjera system in Philippines, 141 on poverty and wealth inequality, 8–9 zero-net-energy buildings, 80 World Business Council for Sustainable zero waste, 10, 27–29, 34–35 Development, 34, 36, 103, 104, 105 Zero Waste New Zealand, 10