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What is wrong with current economics? The Post Oil Economy – Green Economics

What is wrong with current economics? The Post Oil Economy – Green Economics. Andrea M.Bassi , Ph.D . Founder and CEO, KnowlEdge Srl Astana, November 13, 2013. Introduction.

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What is wrong with current economics? The Post Oil Economy – Green Economics

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  1. What is wrong with current economics? The Post Oil Economy – Green Economics Andrea M.Bassi, Ph.D. Founder and CEO, KnowlEdgeSrl Astana, November 13, 2013

  2. Introduction During the last two decades, much capital was poured into property, fossil fuels and structured financial assets with embedded derivatives. However, relatively little in comparison was invested in renewable energy, energy efficiency, public transportation, sustainable agriculture, ecosystem and biodiversity protection, and land and water conservation (UNEP, 2009).

  3. Oil production Source: IEA, WEO, 2010

  4. Oil prices

  5. Agriculture

  6. Food prices +100%

  7. Climate change Source: NASA, 2013.

  8. Climate change Source: UNEP, 2012.

  9. Historical trends and current situation • There is increasing evidence that the economic growth of the last few decades has been achieved at the expense of natural capital. • Value has been created, but stocks have been greatly depleted and costs are rising. • This has led to higher vulnerability and reduced resilience.

  10. Reaching planetary boundaries Publication by Rockstrom et al. “A safe operating space for humanity”

  11. Historical trends and current situation Meeting the dual goals of sustainability: High human development and low ecological impact Source: WWF Living Planet Report 2006 Meets minimum criteria for sustainability

  12. Why has this happened? Historically, production (Y) has been calculated as a function of: • Human capital (H): stock of human competencies embodied in the ability to perform labor so as to produce economic value • Built Capital (K): Material goods, i.e. houses, equipment, infrastructure, food etc. Y= f (H; K)

  13. Why has this happened? • In 1957, Robert Solow proposed the inclusion of Total Factor Productivity (TFP) into the production function. • TFP is the measure of the efficiency of all inputs to a production process. • It is calculated as the part of total production that is not explained by the amount of inputs used. Therefore, it represents an economy’s long-term technological dynamism: an essential part of economic growth Y= f (H, K,TFP)

  14. Why has this happened? Total investment (or share of investment of GDP) BAU investment Green investment Time

  15. Why has this happened? (costs are rising) GDP growth rate Business as Usual Tailing dams, environmental safety (e.g. land degradation and reclamation), resource efficiency… Present History Future Time

  16. What has not been considered?

  17. The outlook Prevent dangerous climate change Eridicate hunger Protect Ecosystems Source: PBL, 2012

  18. Food security 2080 0% -50% -15% +15% +35%

  19. Water Source: McKinsey and Company, 2009

  20. Emergence of alternative options Oil price shock Wind power investments Wind power cumulative installed capacity (1996 – 2012)

  21. Why a green economy? “We encourage each country to consider the implementation of green economy policies in the context of sustainable development and poverty eradication, in a manner that endeavoursto drive sustained, inclusive and equitable economic growth and job creation, particularly for women, youth and poor”. The Future We Want, Outcome Document of the Rio+20 Conference on Sustainable Development, 2012

  22. Shiftto a New Development Model Labor Capital • TFP Production Practices GDP (Human Economy)

  23. Shiftto a New Development Model Labor Capital Environmental Function Ecosystem Services • TFP Production Practices GDP (Human Economy) Natural Capital Environmental Function Ecosystem Goods

  24. Shiftto a New Development Model Labor Capital Environmental Function Ecosystem Services • TFP Production Practices GDP (Human Economy) Natural Capital Genuine savings (Net change in the value of Natural Capital) Inclusive economy (human health and welfare) Environmental Function Value of Ecosystem goods Ecosystem Goods

  25. Shift to a New Development Model Total investment (or share of investment of GDP) BAU investment Green investment Time

  26. Shift to a New Development Model GDP growth rate Green Economy Interventions Business as Usual Present History Future Time

  27. The FiveCapitalsasEnablers Source: EMG, 2011

  28. Definitions UNEP (2011): “A Green Economy is one that results in increased human well-being and social equity, while significantly reducing environmental risks and ecological scarcities”. OECD (2011): “Green Growth means fostering economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies” Various definitions follow GE and GG concepts (e.g. Green Jobs)

  29. Thank you!For more information you can find me at:andrea.bassi@ke-srl.com

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