Factors that can Undermine or Even Block Efforts to Achieve Decoupling
History shows that successful efforts to decouple economic growth from environmental pressures have been underpinned by effective government policies and strategies which address a range of market, institutional and information failures, as outlined in our first book, The Natural Advantage of Nations: Business Opportunities, Innovation and Governance in the 21st Century. Such efforts are usually initiated through a response to some form of disaster, or to respond to growing costs or political pressure related to an environmental issue. For instance, after the famous December 1952 smog in London, which killed thousands of people as a result of the high level of pollution, new regulations were put in place restricting the use of fuels in industry and households to ensure that cleaner forms of energy were used to reduce air pollution. These included the Clean Air Acts of 1956 and 1968, and the City of London (Various Powers) Act of 1954.1 Reflecting on this situation, Grossman and Krueger state:
Even for those dimensions of environmental quality where economic growth seems to have been associated with improving conditions, there is no reason to believe that the process has been an automatic one. In principle, environmental quality might improve automatically when countries develop if they substitute cleaner technologies for dirtier ones, or if there is a very
pronounced effect on pollution of the typical patterns of structural transformation … However, a review of the available evidence on instances of pollution abatement suggests that the strongest link between income and pollution in fact is via an induced policy response …2
Governments have a key role to play in guiding, preparing and, in some cases, policing societies to effectively reduce environmental pressures while continuing to grow economies. From reducing perverse subsidies that exacerbate environmental pressures, to providing incentives for low-impact alternatives, there is much that governments can do to underpin efforts by business and industry to prepare for and capture the opportunity of the ‘next wave of innovation’, that of sustainable development.