Population, income and consumption growth has fundamentally changed the environment in which we live. The demand for water and energy is expected to rise by 40 percent and demand for food by 50 percent by 2030, leading to an increased global scarcity of land, water and carbon space. The challenges are increasingly complex and interrelated: for example, even when biofuels solve the carbon space constraint, they put a strain on other resources. Environmental pressures jeopardise inclusive and sustainable growth, particularly in Africa.
To confront these challenges we need a fundamental rethink of our economic policies, to accept green economy approaches, involving challenges as well as opportunities, and to agree actions in four areas, albeit with different priorities for different countries. Firstly, new incentives and regulations need to promote inclusive growth while reducing the consumption of natural resources (so-called 'absolute decoupling'). We need new, innovative ways of engaging with consumers.
Secondly, resource stresses may occur because of economic rather than physical scarcity, hence the need for partnerships for more and better quality supply of soils, renewable energy, and water storage. Thirdly, as the new environmental challenges become more evident, resource productivity is becoming a binding constraint on the growth of business. Therefore, business opportunities in the area of resources become greater. Innovation for land, water or energy efficiency will become increasingly profitable for companies depending on ecosystem services. The public sector can help to direct the pattern of technical change through pull mechanisms.
Finally, countries, communities, and especially the poorest need to be resilient against shocks: this requires good quality land policies, social protection systems and inclusive business models.
We highlight two practical policy implications. First, because of the integrated nature of the problems, we need integrated solutions to manage the water-energy-land nexus. An illustrative micro example comes from Lake Naivasha in Kenya. This river basin is home to the world's largest flower farms, but other users such as the local population, tourists, energy providers and small scale farmers also depend on and affect the quality of the lake. Dependent on good quality water resources, flower farms have begun to grow more sustainably and with greater resource-efficiency. And more recently, through the water users association they have provided payments for ecosystem services to upstream farmers for more sustainable agricultural practices, providing win-win solutions for both sets of farmers.
The second issue concerns trade policy. Most reports, including a recent study by the World Bank on inclusive green growth, examine the challenges from a closed economy perspective: market and co-ordination failures limit economic growth and green growth can be enhanced by addressing those policies that both promote investment in natural assets and lead to economic growth.
However, from an international perspective, it is possible to promote green growth through a better allocation of economic activities across countries. For example, undertaking water and land intensive activities in countries that have water and land seems logical, but this is not always happening. While we argue that it is globally resource-efficient to use land intensive economic activities in land-rich African countries, such opportunities to move towards a greener global economy are not always reaped, because of economically and environmentally distortionary agricultural policies in the North, trade protectionism and the failure of land (and water) markets to work properly in many African countries. We need a fundamental overhaul of subsidy, pricing and trade policies to realise such opportunities in a global green economy.
Dirk Willem te Velde is head of the International Economic Development Group at the Overseas Development Institute