ABSTRACT
The concept of a “green economy” is that improved human well-being and reduced inequality can be driven by investments to reduce environmental impacts. It is based on the finding that economic growth is compatible with protecting the environment.
The relationship between the economy and the environment can be analyzed based on several theories. The environmental Kuznets curve (EKC) hypothesis is that economic growth eventually leads to a reduction in environmental impacts. The empirical evidence supports the EKC hypothesis for some pollutants, but it does not apply to other environmental impacts, most importantly to carbon emissions. The Porter hypothesis states that well-designed environmental regulations can actually result in lower costs for firms. Again, the theory is valid in some cases, but the evidence finds it does not apply to all regulations. The concept of decoupling suggests that economic growth can be “delinked” from negative environmental impacts. Absolute decoupling has occurred in some instances, particularly the decoupling of carbon emissions from economic growth in some developed countries, but greater decoupling progress is needed to achieve sustainability targets.
The field of industrial ecology seeks to maximize resource efficiency and recycling. It promotes using the wastes from one industry as the inputs into additional production. Through dematerialization, products can be constructed using a smaller volume of materials. Another focus of industrial ecology is to use materials that are nontoxic, recyclable, and low-polluting.
The common perception that protecting the environment harms the economy is not borne out by numerous studies. The evidence indicates that the benefits of environmental regulations far exceed their costs. Rather than leading to job losses, protecting the environment through well-designed policies can actually be a source of net job creation. Environmental protection does not harm international competitiveness and has little effect on GDP growth rates.
While creating a green economy will entail short-term costs, the long-term economic and environmental benefits are projected to be significant. The transition to a green economy will require strong policy action, including increasing investment, 425eliminating harmful subsidies, training workers, using economic policy instruments such as taxes and tradable permits, and international agreements that protect the environment.
