Engineering Economics Assignment: Green Growth

What is Green Growth?

The problem of sustaining a growing population using scarce and finite resources is a challenge for many economists, government officials, business managers, consumers and other stake holders. This paper is an individual study that reviews the concept and types of different mechanisms for economy-wide “green growth”. In the context of longer-term growth, green growth is defined as the conventionally measured income and production of goods and services without unsustainable deterioration of the environment that is deterioration that is large scale and essentially irreversible. For nearer-term goals, we can view it as growth in conventional income with “modest” negative impacts on the environment.

The best way to describe the prime objectives of green growth is by comparison with conventional economic growth systems. Typical industrial economic growth is the increase in what a country produces over time and is measured by the Gross Domestic Product (GDP) and driven by the four factors of production; Labour, Land, Entrepreneurship and Capital. However, green growth can be described as a path of economic growth that uses natural resources in a sustainable manner and the difference between the two (Economic Growth and Green Growth) is better illustrated with an example in the next subsequent paragraph.One example that illustrates a key difference between green growth and typical industrial economic growth in the energy sector is Solar Energy. If Country X wishes to grow its economy and provide more energy to its industries and/or households, and if it subscribes to the old conventional means of economic growth, then Country X may employ the usage of coal in its industries and homes to cheaply provide the energy required but at the expense of that countries environment. But if said country uses the green growth model, it could opt to using solar energy instead and undergo green growth of the economy. Solar energy allows economies to provide energy without risking provision of critical life support services – Clean air and water, and the resilient biodiversity needed to support food production and human health compared to other energy sources such as coal. Such Green growth strategies can become within reach if there is good substitution, a clean backstop technology, a small share of natural resources in gross domestic product, and green directed technical change.

Green growth strategies aim to include the omitted aspects of resources in decision making processes in order to arrive at plans and policies that both benefit the economy and either minimize or annul the negative impacts from poor economic decisions on society and the environment. Policies that arise from such decisions avoid past idioms of “grow first, clean up later” and strive to implement solutions that require no clean up. Therefore, Green growth practices are driven by economic growth but in a more sustainable or “green” manner. However, the terms “sustainable development” and “green growth” despite being somewhat closely related are not the same and are often confused. The concept of “sustainable development” was developed during the 80s and was based on three pillars: economy, environment and society whereas the concept of “green growth” is more recent. Another difference is that, from sustainable development to green growth, there is a degradation of the objectives because the latter loses the social component of the former, as green growth is based only on the environment and the economy. Green growth may be attained using several sub-strategies such as: sustainable development, clean or renewable energy generation, life-cycle approach to manufacturing and design, and many others. Each sub-strategy applies the goals of green growth to a specific market sector. For example, sustainable development seeks to create buildings that will generate significant profit during their lifetime but do so in a way that consumes less energy and water than conventional buildings and buildings that are aesthetically pleasing at the same time. Some sustainably developed projects have gone as far as reversing the negative impacts on the environment from previous generations via carbon sequestration and onsite energy generation. How these strategies are measured and evaluated is presented in the following paragraphs.

Green Growth Indicators

According to the former OECD (Organisation for Economic Co-operation and Development) deputy Secretary-General, Rinkaro Tamaki; “Governments that pursue policies designed to promote green growth need to catalyse investment and innovation that underpin growth and give rise to new economic opportunities and also need indicators that can help raise awareness, measure progress and identify opportunities and risks.” Normal Economic growth is typically analyzed by observing GDP or GDP per capita. Although this indicator does not always represent growth that is useful for a country, it does a good job of providing an overall economic status of a country. It is also a good economic indicator to use because it is based on a lot of data and is available for most countries. Typically with GDP measurements, several defining metrics for an economic system are selected and monitored in order to evaluate the efficiency and effectiveness of Economic systems. Green growth is no different in this regard. To evaluate Green growth strategies, economic and environmental indicators are selected and compared and an effective green growth strategy causes these indicators to increase positively and consistently. A brief review of such indicators are in the following paragraph.The OECD uses ten indicators to measure green growth and they include;

1. Environmentally adjusted multifactor productivity
2. Low land consumption
3. Low air pollution exposure
4. Environmentally related innovation
5. Environmentally related taxation
6. GDP per capita
7. Low income inequality
8. CO2 productivity (production-based)
9. CO2 productivity (demand-based)
10. Material productivity.

This paper will focus on the OECD indicators because Canada is a member of the OECD. More details about each of these indicators has been included in the appendix. Other Metrics to measure Green growth include the GGKP 2014. Such indicators are generally very similar to the indicators used by the OECD. Denmark one of the OECD countries uses these indicators in question to measure their green growth like the rest of other OECD Countries. And in terms of overall Green growth, Denmark is one of the leading countries in this regard as 90 percent of the best green innovations originate from Denmark and other OECD countries. Figure 1 below shows how Denmark is improving green growth and the paragraph below it explains the meaning of the chart.

Comparing economic growth of a country with the green development of different industries provides basis for accepting or changing green growth policies. If data continuously shows correlation between economic growth and social or environmental benefits, it can be said that specific strategies or policies caused green growth. How much data and how much correlation is needed, differs based on the evaluating party. Other countries that have developed advanced systems for evaluating how well they are performing in terms of green growth and have the most advanced evaluating systems; are in Eastern and Central Europe, specifically in countries such as Germany, Sweden and The Netherlands. This development is mirrored by the amount of green technologies that originates in these countries.

Role of engineers

There are many players involved in making green growth happen for a country. A key role is played by engineers in this process as they provide the technical solutions that enable more efficient financial investments. The magnitude of this impact will vary by industry and by country two brief examples of how Engineers do this are provided below. Structural Engineers play a huge role in design of green buildings and the participation of structural engineers in sustainability used to be disproportionally low based on the percentage of structural engineers holding LEED Accredited Professional (LEED AP) designations. However, these numbers have been increasing drastically over the years. Moreover, sustainability aspects related to structural design that were currently ignored in the rating systems have been identified and discussed and improved such as selection of green materials (materials which contribute to low impact buildings) and that create structures that over their lifetime require less maintenance and consume less energy and resources as part of necessary structural operations. Buildings and structures can be sustainable, in the true spirit of the terminology as long as it satisfies the guiding principle of reducing the burden on natural resources and the environment.

Another example is the development of cheaper or more efficient solar panels. Electrical and Computer Engineers as well as Mechanical and industrial Engineers have and continue to play a huge role in the advancement of solar technology which has had a significant impact for countries that can afford solar power stations, but more work and development needs to be done for Solar energy to have a bigger impact in countries that have limited sunlight. Other examples include design of better zero emission cars by Mechanical Engineers and so forth.

Overall, Engineers are present in many different industries and are able to contribute to economic growth and create positive environmental impacts. The biggest impacts can be made in the energy generation, building and transportation sectors as they are the among the largest consumers of materials and energy. These sectors are large contributors to negative environmental and social impacts through pollution and waste. By implementing sustainable technologies and practices into these industries, engineers are able to both increase economic growth and reduce negative environmental impacts. However, it is a common fallacy that green development (e.g. green buildings) costs more to build and maintain. It is true that the cost up front for better materials can be higher than conventional materials, but the long term payoff in reduced maintenance and energy costs, more than covers this expense. It is important to consider that the payoff for green growth is not always monetary and positive impacts on the environment have to be considered. Looking back to part 2 of this paper: some green growth policies discussed in that part have proven to cause green growth development thanks to the Engineers, Scientists and designers. These policies should be emulated and considered as priorities in investments even if the initial costs seem higher than conventional policies and strategies

Incorporating natural capital

There are several methodologies used to evaluate natural capital as a conventional commodity or service. The two primary methods are: to either calculate the cost of replacing the service provided by a natural system with the aid of technology or to calculate the cost of mitigating damages caused by the conversion of natural capital to goods and services. The first method is more effective for natural systems that provide a service to people naturally, like wetlands that treat water or underground hot spots used for geothermal energy generation. These services can be priced the same way as a water treatment facility can be priced. Although this doesn’t fully account for the full benefits of a wetland such as wildlife habitat, it brings the price of demolishing a wetland much closer to its true value to society.

The second method is more applicable for natural systems that provide environmental services that can’t be currently replaced with technology. For example a large forest provides habitat for many species, cleans the surrounding air and water, and reduces erosion in the area. Clear cutting the forest will remove all of those benefits and only provide a one-time benefit of a large supply of lumber. The cumulative damage of large clear cuts can have significant repercussions on surrounding communities. The economic impacts that can come from polluted water, mudslides, reduced hunting and fishing, reduced tourism, all need to be accounted for in the cost of the forest. In most cases a mixture of the two methods is used, paired with information of other projects that have already been completed. Trying to convert natural capital into conventional capital is not the best way to promote green growth and sustainable decision making. It is definitely better than not taking natural capital into account, but it is just the bare minimum. Trying to monetize natural capital conforms to the system that is based on destroying the environment for economic gains.

In Conclusion, a better system would be to upgrade all economic analysis to a three tier system. All goods and services would need to be evaluated for their economic, social and environmental benefits as well detriments associated with their use. This type of system would drive green growth rather than just economic growth. Decisions to implement archaic systems or policies that are cheap but harm the environment would be over-ruled by more sustainable solutions.