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ISSN 1809-8185

POLTICA AMBIENTAL
N 8 June 2011

GREEN ECONOMY

Challenges and opportunities

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Challenges and opportunities

Conservao Internacional is a private non-profit organization, founded in 1987, with the objective of promoting human well-being by strengthening societys role in the responsible and sustainable care of nature our global biodiversity supported by a solid foundation in science, partnerships and field experiences. President: Jos Alexandre Felizola Diniz-Filho Executive Director: Fbio Scarano Director of Environment Policy: Paulo Gustavo Prado Director of Communications: Isabela de Lima Santos Conservao Internacional Av. Getlio Vargas, 1300, 7 andar 30112-021 Belo Horizonte MG tel.: 55 31 3261-3889 e-mail: info@conservacao.org www.conservacao.org Poltica Ambiental is an electronic journal issued by Conservation International that publishes scientific and technical articles about the main topics of current environmental policy. POLTICA AMBIENTAL Green economy: challenges and opportunities N 8 June 2011 Editorial coordination: Camila L. Gramkow Paulo Gustavo Prado Coordination of edition: Gabriela Michelotti Translation: Ceclia Barsk Romero

(Pages 24 to 35, 96 to 107, 120 to 126 - Elza Suely Anderson) (Pages 86 to 95, 108 to 119 - Janana Mendes)

Cover photographs: Larger photograph: CI/Haroldo Castro Smaller photographs (top down): CI/Luciano Candisani, CI/Luciano Candisani, CI/M. de Paula, Wild Wonders of Europe/Laszlo Novak, iStockphoto, Cortesia UNICA, CI/John Martin, CI/Sterling Zumbrunn, CI/Enrico Bernard and CI/Christine Dragisic Design and graphic editing: Grupo de Design Grfico Ltda.
Catalog card prepared by Librarian Nina C. Mendona CRB6/1288

P769 Poltica Ambiental / Conservao Internacional - n. 8, jun. 2011 Belo Horizonte: Conservao Internacional, 2011. n. 1 (maio 2006) ISSN 1809-8185 1. Poltica ambiental Peridicos. I. Conservao Internacional Brasil.

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CONTENT
Acronyms ............................................................................................................. Preface ................................................................................................................. Executive Summary ............................................................................................ Delineations of a green economy Helena Pavese ..................................................................................................... 4 6 9 16

Challenges and opportunities

The necessarily systemic character of the transition to a green economy Alexandre DAvignon and Luiz Antnio Cruz Caruso ............................................ 24 Green economy and/or sustainable development? Donald Sawyer ..................................................................................................... 36

International perspectives of the transition to a low-carbon green economy Eduardo Viola ....................................................................................................... 43 Green economy in Latin America: the origins of debate in ECLAC work Mrcia Tavares ..................................................................................................... The role of inclusive growth for a green economy in developing countries Clvis Zapata ....................................................................................................... 57 69

Brazil and the green economy: a panorama Francisco Gaetani, Ernani Kuhn and Renato Rosenberg ..................................... 76 Growth potential of the green economy in Brazil Carlos Eduardo F. Young ..................................................................................... Brazil and the green economy: foundations and strategy for transition Cludio Frischtak ................................................................................................. 86 96

Innovation and technology for a green economy: key issues Maria Ceclia J. Lustosa ...................................................................................... 108 Agriculture for a green economy Ademar R. Romeiro ............................................................................................. 120 Green economy and a new cycle of rural development Arilson Favareto ................................................................................................... 127 Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan P. Reydon .............................................................................................. 138 The transition to a green economy in Brazilian law: perspective and challenges Carlos Teodoro Irigaray ........................................................................................ 151 Market mechanisms for a green economy Peter H. May ........................................................................................................ 165 Valuation and pricing of environmental resources for a green economy Ronaldo Seroa da Motta ...................................................................................... 174 The role of financial institutions in the transition to a green economy Mrio Srgio Vasconcelos .................................................................................... 186 Measurement in policies for transition to a green economy Ronaldo Seroa da Motta and Carolina Dubeux .................................................... 192

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ACRONYMs

Challenges and opportunities


BASIC Brazil, South Africa, India and China BNDES National Bank of Economic and Social Development BRIC Brazil, Russia, India and China CNI National Industrial Confederation CU Conservation Unit ECLAC Economic Commission for Latin America and the Caribbean EMBRAPA Brazilian Agricultural Research Company GDP Gross Domestic Product GE Green Economy GMO Genetically Modified Organism FAO United Nations Food and Agriculture Organization FEBRABAN Brazilian Federation of Banks GHG Greenhouse Gases HIV/AIDS Human immunodeficiency virus/acquired immunodeficiency syndrome IBAMA Brazilian Institute of Environment and Renewable Natural Resource IBSA India, Brazil, South Africa IBGE Brazilian Institute of Geography and Statistics ICMBio The Chico Mendes Institute for Biodiversity Conservation Imazon Amazon Institute of People and the Environment INCRA National Institute of Colonization and Agrarian Reform INPE National Institute for Space Research IPCC Intergovernmental Panel on Climate Change IPC-IG - International Policy Center for Inclusive Growth IPEA Institute of Applied Economic Research
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MCT Ministry of Science and Technology MDA Ministry of Agrarian Development Mercosul Southern common market

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MMA Ministry of the Environment MME Ministry of Mines and Energy NGO Non-Governmental Organization OECD Organization for Economic Co-operation and Development OTCA Amazon Cooperation Treaty Organization R&D Research and Development

Challenges and opportunities

Acronyms

PES Payment for Environmental Services REDD Reducing Emissions from Deforestation and Forest Degradation REDD+ Reducing Emissions from Deforestation and Forest Degradation, including conservation, sustainable forest management, afforestation and re-forestation. Rio 92 United Nations Conference on Environment and Development Rio+10 World Summit on Sustainable Development that took place in 2002 in Johannesburg Rio+20 United Nations Conference on Sustainable Development that will be held in 2012 in Rio de Janeiro TEEB The Economics of Ecosystems and Biodiversity UN United Nations UNASUR Union of South American Nations UNIDO United Nations Industrial Development Organization UNDP United Nations Development Programme UNEP United Nations Environment Programme

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PREFACE
Environmental issues have become increasingly incorporated in the scientific agendas of the most diverse fields of knowledge and in local, national, regional and global political agendas. Its growing relevance originates from the widespread understanding that environmental sustainability is indispensable to the long term development of societies. On one hand, from an alarmist perspective, neglecting this issue would probably result in perverse effects on human beings and development, as pointed out currently by many studies1. From a strategic perspective, possibilities and opportunities have been identified deriving from its effective incorporation, once it could contribute to achieving more sustainable development processes in various dimensions (economic, social and environmental)2. The challenge of moving towards a more egalitarian and sustainable society is, more than ever, on the agenda. It is in this context that the green economy concept has emerged. Defined by the UNEP as that which results in improved human well-being and social equality, while significantly reducing environmental risks and ecological scarcity3, green economy will be one of the key topics4 of Rio+20, the United Nations Conference on Sustainable Development that will take place in 2012 in Rio de Janeiro. The challenge is not simple and discussions are only beginning. Despite having a formal conceptualization, precise delineations are still to be determined. After all, what is a green economy? Which economies are closer to reaching it? How to measure the degree of greening of an economy? What does it mean, concretely, to achieve transition to a green economy? What is the role of the state in this transition? How to finance the transition? Which sectors will be most affected? Which will be most benefitted? How would the transition affect the daily lives of citizens? What are the risks of not transforming to a green economy? And in the case of Brazil, what has the country done and what is left to do to advance towards a green economy? How is the country doing, compared to the others? What are the main obstacles and challenges? How to address them? What would a transition mean for society, productive sectors, for government, for consumers? How can developed and developing countries cooperate in this transition? How can international promotion and cooperation organizations align themselves with these objectives? How can United Nations

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1. In global terms, see Stern (2007) and IPCC (2007). For an analysis of the Brazilian case, see World Bank (2010), Marcovitch (coord.) (2010) and NAE (2005). 2. TEEB (2011) and UNEP (2011). 3. UNEP (2011). 4. The two key topics to guide the Conference are: (i) green economy in the context of sustainable development and poverty eradication; and (ii) institutional framework for sustainable development.

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priority international initiatives, such as the Climate Change and the Biodiversity Conventions, encourage and implement common agendas aimed at achieving these objectives? Green economy raises many questions that do not have simple and straight answers. We know, however, that the transition requires substantial efforts and engagement from all segments of society, especially government and the private sector. It demands that governments level the playing field for greener products by removing perverse incentives, revising policies and incentives, strengthening market infrastructure, introducing new market mechanisms, redirecting public investment and greening public procurement. The private sector, on the other hand, will need to respond to these policy reforms through increased financing and investments, as well as by creating innovation skills and capabilities to make the best of green economy opportunities. The timing to discuss an alternative paradigm, where the generation of wealth does not increase social disparities or produce environmental risks, nor ecological scarcities, could not be more opportune. The 2008 crisis, from which the global economy is still trying to recover, could be an opportunity to think about and formulate the economic model that we wish to follow. The transition to a green economy could benefit Brazil in various ways. The green economy demands greater social equity, something that is especially necessary in Brazil, which is among the ten countries with the worst income distribution on the planet5. The transition could, thus, serve as a platform for poverty eradication. Furthermore, Brazil has greatly favorable natural conditions: the richest biodiversity on the planet, ample water resources, large continental and coastal areas, ocean resources yet to be discovered; that is, a natural that albeit threatened is still abundant. In a green economy, natural capital becomes an asset that generates dividends and produces a competitive edge. Thus, the pre-requisites are in place that enable Brazil to be more than a beneficiary, but rather capable of leading the green economy transition, and assuming a role as global agent for change. Change can already be seen in various parts of the world6. The transition to a green economy is both a global and a national movement, where cooperation and coordination are paramount. The reversal of the processes of natural capital loss and increased social inequality require the efforts of all nations. These efforts tend to convert themselves into competitive advantages, a situation that already has become reality in some economies and sectors today. Developing countries, as keepers of a large portion of the planets natural capital, could exercise a more strategic role. Developed countries, despite already having consumed a large share of their natural capital, are developing significant

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Preface

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5. UNDP (2010). 6. TEEB (2011).

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advances in so-called green technologies, which tend to be a differential. Political, technical, scientific-technological, financial and economic cooperation between the two, in the more than necessary race towards a green economy, could generate mutual benefits. This special edition presents ideas for advancing in the direction of a green economy. It brings reflections from some of the main Brazilian specialists and Brazilianists on the subject, in a search to respond to the key questions raised by the green economy in general and in a country such as Brazil. Eighteen articles gather the contributions of experts from diverse affiliations and origins. Elements that may form the basis for the green economy discussion in Brazil are hereby released. Enjoy the reading!

Challenges and opportunities

Preface

References World Bank (2010). Estudo de baixo carbono para o Brasil. Available at: <http:// go.worldbank.org/U6KDQAWYI0>. IPCC (2007). IPCC fourth assessment report: climate change 2007. Available at: <http:// www.ipcc.ch>. Marcovitch, Jacques (coord.) (2010). Economia da mudana do clima no Brasil: custos e oportunidades. So Paulo: IBEP Grfica. NAE - Ncleo de Assuntos Estratgicos da Presidncia da Repblica (2005). Cadernos NAE, srie mudana do clima, n. 3, February. Braslia: Ncleo de Assuntos Estratgicos da Presidncia da Repblica, Secretaria de Comunicao de Governo e Gesto Estratgica. Stern, Nicholas (2007). The Economics of Climate Change: the Stern review. Cambridge: Cambridge University Press. TEEB (2011). The economics of ecosystems and biodiversity: mainstreaming the economics of nature: a synthesis of the approach, conclusions and recommendations of TEEB. Available at: <www.teebweb.org>. UNDP (2010). Actuar sobre el futuro: romper la transmisin intergeneracional de la desigualdad. Informe regional sobre desarrollo humano para Amrica Latina y el Caribe 2010. New York: UNDP. UNEP (2011). Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication - A Synthesis for Policy Makers. Available at: <www.unep.org/ greeneconomy>.

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EXECUTIvE SUMMARY
The first article, written by Helena Pavese, puts forth the concept of green economy and main results of the report Towards a green economy: pathways to sustainable development and poverty eradication, launched in February 2011. Starting from the finding of elevated levels of ecosystem services degradation and, therefore, of natural capital, the author presents the Green Economy Initiative, launched with the intention of identifying the social and economic risks and costs generated by current standards of excessive natural resource use, as well as the opportunities for a transition to more sustainable practices. From this Initiative, the Report on green economy emerged, whose main results Pavese succinctly outlines. It is concluded that green economy is possible and desirable, as it is capable of aligning income and employment generation with poverty eradication and natural capital conservation. Alexandre DAvignon and Luiz Antnio Cruz Caruso analyze the UNEP report from a critical perspective. They affirm that the Report represents a qualitative leap in the sense of introducing values that go beyond maximizing utility. They reveal the necessity of thinking about the green economy transition in a systemic way, where human activities are merely a subsystem of civil society, which in turn is a subsystem of the universe (or the biosphere and its set of living and inanimate matter). They argue that other theoretical lines, in addition to the neo-classical theory, can provide important insights about the issues in question. Ecologic economics would offer a more systemic approach and schumpeterian and neo-schumpeterian theories could assist in rethinking the economy from the perspective of technology as a vector of transformation of human societies. These approaches give consideration to alternative solutions that are flexible and of a local character, and conducive to an effective transition to a green economy. Donald Sawyer analyzes the relationship between green economy and sustainable development concepts. Sawyer draws attention to the risk of green economy acquiring an exclusively economic (or economistic) shape, where market instruments and pricing of natural resources would prevail to the detriment of measures of a different nature. Thus, Sawyer asserts that other dimensions are relevant to the green economy, such as social, ethical, cultural, political and judicial, etc. The author claims that the green economy should necessarily be public in a greater sense, implemented through policies

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that guarantee rights to all and maintain ecosystem functions interlinked, so that this concept becomes concrete, instrumental and popular, in complementarity to and connection with the sustainable development concept, that is more abstract, diplomatic and governmental.

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Eduardo Viola presents a panorama of current international circumstances in terms of transition to a green economy with a focus on low-carbon characteristics. Based on recent GHG emissions data of large and medium powers, Viola presents the main policies and measures that these groups of countries have practiced, and indicates future prospects based on the current juncture. The large powers, the United States, China and the European Union, are countries that: provide elevated contributions to global emissions, possess essential technological and human capital for decarbonizing the economy and have veto power over international agreements. The medium powers, such as India and Brazil, have limited influence on the aspects considered. A similar exercise is carried out for South America in particular, where the triple negative effect of deforestation in the region (loss of natural heritage, informality and public demoralization) and the favorable position of the region, whose economies are not extensively based on fossil fuels, with some exceptions, are highlighted. The author also surveys the main techno-economic vectors of a low-carbon transition, and concludes with a reflection on future prospects. Mrcia Tavares surveys the main contributions of ECLAC to the green economy field due to its role in drafting documents and leading research and through its function as political mediator for the Latin American and Caribbean countries in international discussions. The author describes, in chronological order, the documents produced and their political and historical contexts. Tavares argues that these documents enable us to evaluate the complexity of environmental problems in the region and their direct links with economic and social structures and processes, an indispensable step to advance in solving the environmental, economic and social problems of the region. It is concluded that in order for Latin America to effectively transition to a green economy, there must be coordination between actors and institutions in different spheres, removal of barriers to change and strong and permanent institutions that prioritize sustainability. Clvis Zapata highlights the role of inclusive growth in the transition to a green economy in developing countries. The author starts from the observation that there are similarities between the UNEP green economy concept and the concept of inclusive growth. Zapata defends a holistic approach in which the transition to a green economy should be thought out and planned according to its various dimensions (environmental, social, economic, political, etc), which have different windows of opportunity that should be taken into appropriate consideration. The author argues that policies of a social nature and policies of an environmental nature have not been sufficiently coordinated, when in

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Executive Summary

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fact, they should act in complementarity. Zapata asserts that promotion of structured policies is necessary, as exemplified by the analysis of the Brazilian Biodiesel Program. The author also highlights the importance of South-South debate, and concludes with a reflection on the importance of inclusive growth

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and the contributions of international organizations and the private sector to the transition to a green economy in developing countries. Francisco Gaetani, Ernani Kuhn and Renato Rosenberg provide an overview of the situation in Brazil with regards to green economy. They argue that Brazil is an environmental energy power, due to the abundant availability of natural resources and policies and measures aimed at environmental conservation. From an international perspective, the authors claim that the country has one of the highest GHG emissions in the world, but that Brazil is changing this situation by assuming voluntary emissions reduction targets. They outline the main actions that Brazil has been implementing in the direction of a green economy in sectors such as forestry, solid waste treatment, water resources, among others. The main challenges of the transition are also presented. The authors conclude that Brazil starts from a privileged position in the transition to a green economy from various aspects, but that most of the current actions can be considered as the beginning of the institutional structuring and creation of economic mechanisms that compose the agenda of a country that is increasingly focused on the development of markets related to a green economy. Carlos Eduardo F. Young carries out analytical exercises that aim to study the impact of a greening of Brazilian economy, that is, the transition to a growth model driven by sectors with low environmental impacts, on the economic and social performance of the country. Based on the finding that, over the past ten years, there has been a re-specialization in primary products of Latin American and Brazilian export bundles, Young shows evidence that there has also been a specialization in pollution, since the sectors with the most pollution potential have grown above average. From the results of an input-output matrix model, the author arrives at the conclusion that the greening of the Brazilian economy could bring better results in employment and income generation than the current model specialized in exporting natural resources through predatory extraction or industrial goods with high levels of pollution in production processes. The author concludes that, based on the results obtained, the dichotomy between economic growth and environmental conservation is false. Cludio Frischtak analyzes the foundations and strategies of the transition to a green economy in Brazil. The author starts with the proposal that this transition requires an inversion of the dominating logic that well-being and intensive (and unsustainable) use of natural resources are inseparable; and adopt the idea that higher growth becomes (necessarily) dependent on and is accompanied by increased conservation or sustainable resource use. Frischtak develops an analytical structure composed of supply (market or structured) and demand (induced or spontaneous), that results in a 2x2 matrix. From that analytical structure, the transition towards a green economy is analyzed with a focus on certain topics (ecosystem conservation, transportation, sanitation, energy and product life-cycles). The author also proposes transition strategies based on the

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establishment of a working group, a reference framework, a set of norms and the restoration of natural capital. It is concluded that a new paradigm is emerging and that, with support from adequate government policies, Brazil is fully capable of being one of the first countries to enter into a green economy. Maria Ceclia J. Lustosa analyzes the importance of environmental innovations as means of changing the current technological model, intensive in raw materials and energy from fossil fuels, in a more ecologically correct direction. Lustosa presents the historical emergence of environmental issues and their relations to economic production. Then, the author highlights the importance of the innovative process in technological change and paradigm shift, and presents the circumstances under which such changes could occur and in which directions, with a focus on EST (Environmentally Sound Technologies). Internal and external constraints of the capabilities of businesses to become innovative are also presented. Lustosa further conducts analysis of innovation linked to environmental issues in Brazilian businesses, and identifies its main characteristics. Ultimately, the author concludes that environmental innovations are necessary to enter into a green economy and that building business capacity is fundamental, and when appropriate, associated with incentives promoted by the State. In the case of Brazil, low innovation investment in the productive sector is certainly a factor that further inhibits the search for environmental innovation. Ademar R. Romeiro investigates the topic of agriculture in a green economy. The work offers a description of what agriculture should be in a green economy. Romeiro begins with the definition of what is understood as green economy from the perspective of a given long-term sustainability concept, and moves on to presenting the conditions for making agriculture compatible with this definition of a green economy. The author seeks to show that an agriculture that is sufficiently productive to attend to current agricultural production needs is scientifically and technologically possible, but is chiefly based on management by farmers of the very forces of nature in order to obtain ecosystem services. The main agricultural policy recommendation that results from the analysis is to amplify agro-ecological research efforts by the large public research institutions. Arilson Favareto brings the new cycle of rural development topic to the discussion, by analyzing how it aligns with the green economy. The new cycle of rural development, happening at different intensities around the world and whose distinguishing feature is the transition from an agrarian and agricultural paradigm to a paradigm organized around the environmental rooting of rural development, is in line with the transition to a green economy. Modern agriculture, intensive in natural resource use, generates a lot of income but little employment. Favareto presents the main characteristics of new rurality and analyzes the situation in Brazil, identifying that here, as in the rest of the world, agriculture has a declining tendency in relation to other activities and

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that rural regions are no longer experiencing a general exodus, but rather a heterogeneity of its demographic profile, with elevated levels of schooling and greater social differentiation. The author concludes with ideas for an agenda that aligns this new cycle with the transition to a green economy. Bastiaan P. Reydon conducts an analysis of the causes of and solutions to deforestation in the Brazilian Amazon. Reydon begins by presenting data on deforestation in the Amazon, and highlights the main causes attributed to this deforestation. The author argues that deforestation results from the continued tradition of expanding the Brazilian agricultural frontier, which generally takes the following steps: occupation of virgin land (private or public), extraction of hardwood, installation of livestock farming and, ultimately, development of modern farming and cattle raising. Reydon proposes that land speculation is the principal engine of deforestation in the Amazon rainforest, and presents empirical data that deforestation is associated with land valuation. The author conducts an analysis of the Amazon land tenure situation in its various categories, pointing to the inability of the Brazilian state to govern over the lands in the region. The reasons for which the land issue is not appropriately dealt with in the country are evaluated through a recapturing of the historical evolution of the associated Brazilian institutional framework. Reydon concludes that adequate, participative and effective governance is a necessary, but insufficient, condition to contain deforestation in the region. Carlos Teodoro Irigaray analyzes the prospects and challenges of Brazilian law in the transition to a green economy. Irigaray starts by contextualizing green economy in the realms of sustainable development. The author argues that, from a legal perspective, the transition to a green economy requires measures that involve the structuring of a system that can effectively guide public policy, combining the use of economic instruments and command and control mechanisms, that, necessarily, should be informed by some ethical principles such as environmental justice and intra and intergenerational equity. In the context of Brazil, Irigaray identifies three main challenges to the transition: poverty, deforestation, and agriculture. The author asserts that Brazil already has a solid regulatory framework, and highlights the recognition of the fundamental right to an ecologically balanced environment associated with government and collectivity duty of defending and preserving this right. Nevertheless, some adjustments are necessary, such as institutionalizing REDD. Furthermore, the legislative advances are weakly reflected in practice. In this sense, contradictions between the policies of the Brazilian government are especially relevant.

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Peter H. May brings up the issue of market mechanisms for a green economy. May claims that, from the perspective of ecological economics, instruments of natural resource management are based on two variables: the relative non-substitutability of the resource in question and its resilience (capacity to

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recover from stress or degradation). The author asserts, without ignoring the difficulty of precise their understanding, that these two variables reveal, without resorting to devices of market valuation, the biophysical constraints of human intervention. It is argued that command and control mechanisms can drive the direct regulation of resources, by establishing ceilings for levels of appropriate use (that could be null). Once caps are established, the market can act in a way to achieve efficient allocation (trade). The author specifically analyzes PES and REDD instruments. It is concluded that market mechanisms should assume an important role in the transition to a green economy, in a way that this role is mediated by regulation that defines the criteria of access and control of natural resources, reflected by biophysical limits backed by science and ample previous consultations with populations whose sustenance depends on those resources. Ronaldo Seroa da Motta presents the topic of valuation and pricing of environmental resources in a green economy. It is argued that, due to the lack of secure property and usage rights of natural resources, externalities are not totally captured by the price system, which consequently becomes imperfect and causes inefficient allocations of these resources. Seroa da Motta reveals the components of the Economic Value of Environmental Resources (EVER): the use value (direct use, indirect use, and option) and the non-use (or existence) value. Categories of environmental services are also presented (provision, regulation, support and cultural), and related to the EVER components. The author reveals the environmental economic evaluation methods, which can be grouped into production function methods and demand function methods, and presents the complexity that such exercises involve. Seroa da Motta analyses the possibilities of internalizing environmental externalities by charging or creating markets. The author concludes with an evaluation of the limits to the potential of valuation and economic pricing of the environment. Mrio Srgio Vasconcelos analyzes the role of financial institutions in the transition to a green economy in Brazil. The author argues that starting in the 1990s, a series of voluntary commitments and self-regulation has been implemented by the sector. He asserts that Brazil exhibits a distinguished performance among emerging countries. The author surveys the main pacts and commitments assumed by domestic banks. The Green Protocol is emphasized as an effort to adopt socio-environmental policies that are precursory, multiplicative, demonstrative or exemplary of banking practices and that are in line with the objective of promoting sustainable development. Vasconcelos presents some measures that Brazilian banks have taken to

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promote sustainability in the country. The author argues that these activities result from the fact that environmental risks have generated an actual and growing impact on the four large risks faced by banking institutions. The main

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challenges of the sector are also identified. It is concluded that banks no longer play the passive role of monitoring, but rather an active role of identifying entrepreneurs, technologies and new business models. Ultimately, Ronaldo Seroa da Motta and Carolina Dubeux conduct an analysis of the measurements of policies for the transition towards a green economy. The authors argue that it is possible to understand sustainability as that which allows us to maintain the capital stock, which defines the future fluxes of goods of services, at least constant. They defend that the capacities of ecosystems to generate services have limits, which, once surpassed, cause a collapse. The definition of these limits (that is, the critical level of natural capital) determines the sustainability trajectory of an economy. The green economy is that which produces a continuous increase in the stock of natural capital. The authors analyze the creation of institutional capacity to integrate environmental policies with economic policies and a system of environmental indicators that would be capable of measuring and monitoring the benefits of natural capital investments. They propose, in this sense, a systematization of environmental indicators, the amplification of economic instruments and the removal of perverse incentives. It is concluded that environmental regulation should not be seen as a problem and that, beyond a solution, it could represent a source of economic and social benefits for Brazil.

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Challenges and opportunities

Delineations of a green economy


Helena Boniatti Pavese1

INTRODUCTiON
Over the past 50 years, human beings have been altering ecosystems at an increasingly accelerated and intensive pace than in any other period of human history, especially due to the increasing demand for natural resources, such as food, water, timber, fibers and fuels2. Despite the significant contribution to economic growth and to promoting social well-being, the excessive extraction of these resources led to irreversible losses of global biodiversity and services provided by ecosystems, many of which are considered essential to human survival.

WHAT ARE ENViRONMENTAL SERViCES?


According to the Millennium Ecosystem Assessment Report (MEA)3, environmental (or ecosystem) services are defined as the benefits people obtain from ecosystems. They can be divided into four categories: (i) provisioning services, such as food, water and timber, etc.; (ii) regulating services, such as those that affect climate, flooding, diseases, water quality, among others (iii) cultural services, related to recreational, esthetic and spiritual; and (iv) supporting services, which include soil formation, photosynthesis and nutrient recycling. Also according to the report, close to 60% of these services have been degraded or used unsustainably, including fresh water, purification of air and water, and local and regional climate regulation4. These alterations increase the probability of accelerated, abrupt and irreversible changes with significant consequences for human well-being, and threaten the survival of many communities, especially in developing countries, where in some cases close to 90% of GDP is linked to nature or natural resources5.
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1. Environmental Policy Manager at Conservation International Brazil and former Regional Coordinator for Latin America and the Caribbean at the World Conservation Monitoring Center of the United Nations Environment Programme (WCMC/UNEP). 2. Millennium Ecosystem Assessment (2005). 3. Millennium Ecosystem Assessment (2005), p. V. 4. Millennium Ecosystem Assessment (2005), p.1. 5. UNEP (2011a).

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Despite the proven intrinsic relationship between human well-being and natural resources, unsustainable economic activities still prevail. Currently, around 1-2% of the global GDP are destined to substituting practices that, in many cases, lead to the degradation of natural resources, such as fishing and agriculture6. These investments are motivated by the rapid accumulation of physical, financial and human capital, disregarding natural capital, and thus generating a vicious cycle through which negative impacts exerted on natural resources consequently lead to negative impacts on human well-being and the escalation of poverty. This article aims to point out the main advances in the delineations of a green economy. Beyond this introduction, the article consists of three sections. The first elaborates on the Green Economy Initiative, and the output Report on green economy, launched in February 2011. The second presents some main results raised in this Report. Ultimately, are the final remarks.

Challenges and opportunities

Delineations of a green economy Helena Pavese

THE GREEN ECONOMY INiTiATiVE


Seeking to raise evidence about the social and economic risks and costs generated by current standards of excessive resource use as well as highlight opportunities for a transition to more sustainable practices, the United Nations Environment Programme (UNEP) launched the Green Economy Initiative (GEI) in 2008. The main objective of this initiative is to support the development of a global plan for the transition to a green economy that is dominated by investment and consumption of goods and services that promote the environment.

WHAT iS A gREEN ECONOMY?


Green economy is understood as one that results in the improvement of human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.7 A green economy is based on three main strategies: (1) the reduction of carbon emissions, (2) enhanced energy and resource efficiency and (3) the prevention of loss of biodiversity and ecosystem services. To become viable, these strategies must be catalyzed and supported by targeted public and private investments as well as by political reforms and regulatory changes. Also, natural capital should be maintained, enhanced and, when necessary, rebuilt, especially for poor people whose
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livelihoods and security depend on nature.

6. UNEP (2011a). p.1. 7. How is a Green Economy Defined? (n.d.) Retrieved from: <http://www.unep.org/ greeneconomy/AboutGEI/FrequentlyAskedQuestions/tabid/29786/Default.aspx>.

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The GEI flagship is the development of the Report about green economy, launched in February 2011, Towards a green economy: pathways to sustainable development and poverty eradication. The document contains an analysis of macroeconomic aspects and issues linked to sustainability and poverty reduction related to investments in a range of sectors from renewable energy to sustainable agriculture. It is expected that such analysis will support the formulation of policies that can catalyze an increase in investments in these green sectors. In addition to analyzing this content, GEI provides consulting services to countries and regions and produces research products as well as promotes the establishment of partnerships with a wide range of actors, including academia, non-governmental organizations, the private sector, among others, for the effective promotion and implementation of green economy strategies.

Challenges and opportunities

Delineations of a green economy Helena Pavese

TOwARDS A gREEN ECONOMY: PATHwAYS TO

SUSTAiNABLE DEVELOPMENT AND POVERTY ERADiCATiON


Produced by the UNEP in partnership with global economists and specialists, the report Towards a green economy: pathways to sustainable development and poverty eradication seeks to defend the proposal that making economies green does not necessarily imply a reduction in economic growth and employment levels. On the contrary, such a transition would allow growth to be strengthened through the generation of descent jobs8 and would consist of a vital strategy to eliminate poverty. It is hoped that the evidence raised by this study will encourage decision makers to develop favorable conditions for increased green economy investments, based on three main strategies: 1. Stimulate a change in investments, both public and private, seeking to encourage critical sectors in the transition to a green economy; 2. Demonstrate how a green economy can reduce persistent poverty through a wide range of important sectors, including agriculture, forestry, fishery, water and energy; and 3. Provide guidelines on policies that permit this change; through the elimination of perverse subsidies, identification of market failures, establishment of regulatory frameworks or stimulus for sustainable investments. The report seeks to demystify the idea that there is an inevitable trade-off between social development, economic growth and environmental sustainability and dispel misconceptions that green economy is a luxury whose costs only
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developed countries can bear. The principal message highlighted by the Report is that:

8. Employment that provide an adequate salary, social welfare and respect of workers rights that allow workers to express their opinions about decisions that affect their lives. Source: OIT (2009).

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An investment equivalent to 2% of the global GDP in ten key sectors can combat poverty and generate greener and more efficient growth. According to the Report, such an investment could be the initial kick-off for the transition to a green economy with efficient resource use and low carbon. The authors claim that this amount corresponds to only 1.3 trillion dollars per year and would drive global economic growth to levels that are probably higher than those of current economic models9.

Challenges and opportunities

Delineations of a green economy Helena Pavese

Agriculture, construction, fishery, forestry, energy supply, industry, tourism, transport, waste and water management are the 10 sectors evaluated in the study and identified as fundamental for making the global economy more green. For these sectors to transition to a greener economy, in general terms, the study puts forth the following allocation of resources10: Agriculture: US$ 108 billion, includes small farms Buildings: US$ 134 billion, applied to energy efficiency programs Energy (supply): Above US$ 360 billion Fisheries: US$ 110 billion, includes reducing the capacity of global fleets Forestry: US$ 15 billion to combat climate change Industry: US$ 75 billion Tourism: US$ 135 billion Transport: US$ 190 billion Waste management: US$ 110 billion, includes recycling Water: a similar amount, includes basic sanitation The report also presents results and recommendations for specific sectors, highlighting sectoral opportunities generated by the transition to a green economy, including poverty reduction, job creation, strengthened social equity and the maintenance and restoration of natural capital. Among these, the following stand out:

Agriculture Reducing deforestation and increasing reforestation generate benefits for agriculture and rural communities, through the use of economic mechanisms and existing markets, such as, certifications for wood, payments for
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ecosystem services and potential benefits from REDD+ mechanisms, strategies that can currently be found in national and international discussion forums .
9. UNEP (2011b), p.4. 10. UNEP (2011a).

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Greener agriculture ensures food supply for a growing global population without harming the resource base of this sector. This can be done through the transition from industrial and subsistence agricultural practices to more sustainable models, with more efficient use of water, extensive use of organic or natural soil nutrients and integrated pest control12. The transition to a green economy also requires strengthened institutions and the development of infrastructure in rural areas of developing countries. This aspect includes the removal of ecologically perverse subsidies and the promotion of regulatory reform that incorporates the cost of degradation into food and commodity prices13. Greening agriculture in developing countries, concentrating on small properties, can reduce poverty while permitting investment in natural capital on which the poorest depend. The adoption of sustainable practices (such as agroforestry, integrated management of nutrients and pests) is one of the most efficient ways to increase the availability of food and facilitate access to emerging international markets for green products. Adopting such practices can move agriculture from the position as major greenhouse gas emitter to a neutral position, and also contribute to reducing deforestation and water use by 55% and 35%, respectively14.

Challenges and opportunities

Delineations of a green economy Helena Pavese

Water The growing scarcity of water can be mitigated through fomentation policies and investments aimed at improving the provision and efficiency of water use15. Investments in the provision of drinking water and sanitation services for the poor represent a great opportunity to accelerate the transition to a green economy in many developing countries. Annual investments of 0.15% of the global GDP would enable global water use to be maintained at sustainable levels as well as the achievement of the Millennium Development Goals related to water by 201516. The supply of jobs in the water sector would suffer temporary adjustments due to the necessity of recovering water resources. Improvements in efficiency and reductions in consumption would reduce total water consumption by 20% and employment opportunities by 25% by 2050 compared to current rates. However, such forecasts do not capture new

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11. UNEP (2011b), p.6. 12. UNEP (2011b). p.7. 13. UNEP (2011b). p.7. 14. UNEP (2011b). p.9. 15. UNEP (2011b). p.8. 16. UNEP (2011b). p.10.

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job opportunities generated by infrastructure developments aimed at water efficiency17.

Challenges and opportunities

Energy sector Renewable energy presents great economic opportunities. Greening the energy sector requires a substitution of investments in carbon intensive energy sources to investments in clean energy, as well as improvements in energy efficiency. Many of these investments would be rewarded in the future, considering the growth in the market for renewable technologies and the growing concern over the social costs generated by technologies based on fossil fuels18. Government policies play an essential role in strengthening incentives for investments in renewable energy, including time-bound incentives, feedin tariffs (payments for renewable energy that users produce), direct subsidies and tax credits19. A minimum allocation of 1% of the global GDP to increase energy efficiency and expand the use of renewable energy would create additional jobs and produce more competitive energy20. An annual investment of around 1.25% of the global GDP in energy efficiency and renewable energy could reduce global primary energy demands by 9% by 2020 and 40% by 205021.

Delineations of a green economy Helena Pavese

Tourism The development of tourism, when well designed, can strengthen local economies and reduce poverty22.

Fisheries Investments in the fisheries management, including the creation of protected marine areas, and deactivation and reduction in fleet capacity can recuperate the fishery resources of the planet. Such recuperation entails an increase in catches from the current 80 million tons to 90 million as well as the creation of a significant number of jobs in the sector by 205023.

17. UNEP (2011b). p.13. 18. UNEP (2011b), p.14. 19. UNEP (2011b), p.15. 20. UNEP (2011b), p.12. 21. UNEP (2011a). 22. UNEP (2011b), p.11. 23. UNEP (2011a).

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The benefits from a transition of the fishing industry exceed 3 to 5 times the investment necessary for this transition24. The job supply in the fishery sector would suffer temporary adjustments due to the necessity of recovering fish stocks. Greening the fisheries sector would result in job losses in the short and medium terms, but the long term supply would go back up due to the recuperation of fish stocks25.

Challenges and opportunities

Delineations of a green economy Helena Pavese

Waste management With a 108 billion dollar annual investment in greening the waste sector, the global recycling of waste could triple by 2050. This would imply a reduction of more than 85% of the amounts currently deposited in landfills26. Such investments may result in full recycling of electronic wastes, as compared to current levels of 15%27. A 10% increase in the life-spans of all products produced would lead to a similar reduction in the volume of extracted resources. The job supply in the waste management sector would grow as a result of the increased waste generated by population and income growth, but the challenges related to the generation of descent employment in this sector are considerable. Currently, recycling generates around 12 million jobs in only three countries (Brazil, China and the United States)28. In green investment scenarios, projected growth of the job supply in the waste sector would be 10% compared to current trends.

Transport Annual investments of 0.34% of the global GDP up to 2050 could reduce the use of petroleum by 80%, compared to current patterns, and elevate employment rates by 6%29. The environmental and social costs generated by the transport sector are currently at around 10% of the GDP of a country or region. A greening of the transport sector requires the creation of policies to foster the utilization of public and non-motorized transport, fuel efficiency and the development of less polluting vehicles.

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24. UNEP (2011b), p.11. 25. UNEP (2011b), p.13. 26. UNEP (2011a). 27. UNEP (2011a), p.1. 28. UNEP/ILO/IOE/ITUC (2008). 29. UNEP (2011b), p.23.

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GREEN ECONOMY: POSSiBLE AND DESiRABLE


The final message transmitted by the report is that a green economy is both desirable and possible. This concept possesses the potential to promote the much desired sustainable development and poverty eradication, rapidly and effectively. A green economy favors growth with the generation of income and jobs.

Challenges and opportunities

Delineations of a green economy Helena Pavese

However, such a transformation is subject to two great changes: in the way our economy is structured and in the recognition that the environment forms the basis of our physical goods, which should be managed as sources of growth, prosperity and well-being30. Green investments have great potential to strengthen sectors and technologies that could be the main promoters of economic and social development in the future, including technologies for renewable energy, energy efficient construction and low-carbon transport systems31. Thus, in addition to technologies, complimentary investments in human capital would also be necessary, which includes generating and sharing strategies, mechanisms and policies that promote a transition to a green economy32. Therefore, the transition to a green economy triggers, according to the Report, a series of desirable results in the long term, whether in economic, social or environmental terms. The Report offers clear directives of what can be done in each of the ten sectors analyzed to bring about such a transition. The document supports the proposition that a transition to a green economy would bring benefits in the long term that would compensate for possible short term losses.

References Millennium Ecosystem Assessment (2005). Ecosystems and Human Well-Being: Synthesis. Washington, DC: Island Press, p.1. OIT (2009). Programa Empregos Verdes. Braslia: OIT. UNEP (2011a). Rumo a uma economia verde: caminhos para o desenvolvimento sustentvel e a erradicao da pobreza, Press Release United Nations Environment Programme. Retrieved from: <http://www.unep.org/greeneconomy/Portals/88/ documents/ger/GER_press_pt.pdf>. UNEP (2011b). Towards a Green Economy: pathways to sustainable development and poverty eradication. United Nations Environment Programme, p.4. UNEP/ILO/IOE/ITUC (2008). Green jobs: towards decent work in a sustainable, lowcarbon world. Nairobi: UNEP.

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30. UNEP (2011b), p. 37. 31. UNEP (2011b), p. 37. 32. UNEP (2011b), p. 37.

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Challenges and opportunities

The necessarily systemic character of the transition to a green economy


Alexandre dAvignon1 Luiz Antnio Cruz Caruso2
The green economy as defined in the United Nations Environment Programmes (UNEP) publication, Towards a green economy: pathways to sustainable development and poverty eradication, brings a series of challenges. This economy seeks human well-being and social equity, while reducing environmental risks and resource scarcity, and is characterized by low carbon intensity. Certainly this was not the first expression that captures the aspirations of those who seek structural changes in the capitalist economy, focused on values other than the maximization of profits, in a perfectly competitive market tending to equilibrium. The breakthrough of this approach is essentially in its overcoming the anthropocentric view of nature and the planet, in which these must serve humankind and attend its needs. As Ren Passet (1991) pointed, the order and the cycles of nature must be respected so as not to exhaust its potentialities and energy sources. The biosphere and the interactions of its subsystems (atmosphere, lithosphere, hydrosphere and biota) determine the conditions under which human activities can take place, whether social or economic. Ultimately, it is the biosphere that will determine the limits and possibilities of mutual influence between living beings and the planet. Humans are part of this whole, and an important part because of their ability to intervene in the environment, but there is not a hierarchy in which humans are at the top. The relationship between human societies and the biosphere cannot be reduced to economic or even social dimensions. Human activities such as are analyzed in economics through the relations of production, exchange, consumption, etc. represent only a first sphere of human practices in an ordainment with specific rules established, included in a broader social sphere, civil society, the state, ideologies etc. Yet the latter is circumscribed, in turn, by an even broader universe consisting of inanimate and living matter, which surrounds and extends beyond. It is within these three spheres modes of production, formation of society and the
1. Professor of the Program for Public Policies, Strategies and Development of the Economics Institute of Federal University of Rio de Janeiro (PPED/IE/UFRJ) and researcher at the Program for Energy Planning (COPPE/UFRJ). 2. Doctoral student at the Program for Public Policies, Estrategies and Development of the Economics Institute of Federal University of Rio de Janeiro (PPED/IE/UFRJ).

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biosphere that human activities are inserted. The reproduction and functioning of each sphere are regulated by the other two. Due to the relationship between these three spheres of inclusion, it can be affirmed that the elements of the economic sphere belong to the biosphere and obey its laws, but that all elements of the biosphere do not belong necessarily pertain to the economic sphere of economy and are not subject to its rules. As James Lovelock (2001) states, the earth became what it is through its habitation by living beings and these have been the means but not the purpose for the planets development.

Challenges and opportunities

The necessarily systemic character of the transition to a green economy Alexandre d'Avignon Luiz Caruso

It is interesting to observe, however, that at UNEPs homepage on the internet, where the above publication can be accessed, is a statement in small print: environment for development. Is this not a contradiction of the perception of the program regarding the proposed definition of green economy in the publication? Painting neoclassical economics green is not the solution. We need a structural change in the household management (oikos = house + nomia = management, study or laws, according to Houaiss, 2001), referring to the planet as the home of all living beings and, as such, needing to be preserved and respected. Making the conventional economy green, from UNEPs perspective, is to prioritize growth of income and employment. The latter are to be stimulated by public and private investments that reduce carbon emissions and pollution and promote the efficient use of energy and natural resources, preventing the loss of ecosystem services and biodiversity. These investments will be catalyzed and supported by public policy reforms and regulatory changes. The proposed route of development should maintain, enhance and, where necessary, restore natural capital, since it is a critical economic asset that generates public benefits, especially for poor people whose livelihoods and security depend essentially on nature. Encouraging public and private entities to assume primary responsibility, in which the action of external private or public agents is proposed as the solution, is precisely the approach criticized by Elinor Ostrom (2008). According to her, this option comes from a metaphorical and specific view contained in the Tragedy of the Commons, described by Garrett Hardin in 1968, and the Prisoners Dilemma model proposed by the same author, as well as the Logic of Collective Action developed by Mancur Olson with the idea of free riding in joint activities in a community for the public good. Ostrom questions currently fashionable approaches involving intervention by coercive or regulatory state action or by the definition of ownership through privatization. Empirically, such approaches are associated with a huge list of failures. In Ostroms view, solutions should always be defined on a case-by-case basis through agreement among stakeholders, for managing what she calls the use of common resources, i.e., public goods. The author describes a number of real alternative solutions to external intervention.

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In the UNEP publication, biodiversity, as an example of a public good, would not be valued properly in neoclassical economics. Nor can neoclassical economics properly value environmental services, which contribute to human welfare and family livelihoods and could provide a source of new skilled jobs. Estimating the economic value of ecosystem services is essential for the identification of natural capital. This is one of the dimensions that would support the transition to a green economy, stimulating a change in conventional economic indicators and leading them to account for the loss of natural capital as negative and not positive components of national accounts. Is the correct valuation of these services associated with favorable conditions sufficient conditions for this transition? How can one assign new parameters to a green economy, if the essential discussion of equity and local participation is kept on the sidelines? The voracious consumption of energy and natural resources characteristic of industrialized countries shows that this is not a development model that respects the biosphere, its principles and pace of regeneration. The legacy left by development based on fossil fuels has brought to the forefront global issues such as climate change and ozone layer destruction, revealing economic options that were imposed, causing the abandonment of innovations that could have been stimulated by national innovation systems, which would involve R&D, legal framework of incentives and patent system. An important example would be the intensive use of biomass through the BTL (Biomass to Liquid) or BTG (Biomass to Gas) at a growth rate appropriate to the regenerative capacity of natural resources. Energy from solar and photovoltaic sources, wind power, hydrogen, more efficient batteries were not adequately exploited due to current technological route, causing the abandonment in the past of other options. It is worth recalling that Rudolf Diesel patented his engine to work with vegetable oils, in this case of peanuts, and even before his presentation at the Paris World Fair in 1898, there were manufactures of vehicles with electric motors. The latter have proliferated in public transport with trams, which were later replaced by internal combustion vehicles in several cities. If there had not been an imposition by specific economic sectors, these technologies could have persisted and received a share of investments from national innovation systems. In this case, the options nowadays in terms of development of technologies considered as alternatives would have been much more promising, comprehensive and widespread. This short historical account raises other issues related to the green economy.

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Could the problems generated by the economy practiced today be overcome by adopting the recommendations proposed by UNEP, during the next 20 years, as indicated by the scenario options displayed in Towards a Green Economy: Pathways to Sustainable Development and Eradication Poverty? Shouldnt

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the economic model proposed have been adopted years ago due to the global issues we face today such as global warming? Isnt it now too late? In addition to the balanced access to natural and energy resources by the planets population, there is a need for the development of technologies based on regional vocations and not the imposition of a technological pathway derived from economies of scale and short-term profits. The technologies relating to the burning of liquid or solid fossil fuels in thermodynamic cycles generally capable of using no more than 30% of energy supplied, rather than more elegant alternatives, such as the manufacture of polymers, is an example of the imposition of a single pathway, dominated by large global organizations. Cogeneration of power and fixed systems integrated to generate electricity and heat, for example, are much more efficient and would provide yields up to 50% in automobile engines. Temporal equity is another important element to be taken into account, since it brings us to the origin of the concept of sustainable development contained in Our Common Future, a publication resulting from the 1987 Brundtland Report. This book provides as one definition of the concept: Development that seeks to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. This means enabling people, now and in the future, to achieve a satisfactory level of social and economic development and human and cultural accomplishment, making, at the same time, reasonable use of land resources with preservation of species and habitats. The latter element does not appear explicitly in the green economy concept proposed by UNEP, but it does appear when it proposes to prevent loss or depletion of environmental services and biodiversity. The United Nations Framework Convention on Climate Change (UNFCCC), while incorporating concepts such as the precautionary principle and of common but differentiated responsibilities, also promotes another concept related to an international economy favorable and conducive to sustainable growth and development, particularly in developing countries. This perception of international cooperation is essential for a structural transformation in the economy. The creation of national innovation systems that are integrated with international systems, promote environmentally sound technologies aimed at conserving biodiversity and ecosystem services and reversing the planets degradation and is patents free, is increasingly imperative. Market mechanisms or governmental regulations lack the necessary vitality to drive the radical transformations required to implement a planet-level management that harmonizes the interaction between human activities and the biotic and a-biotic environments. These mechanisms do not provide adequate information or, as in the case of market-defined prices, or do not have enough information, especially in the case of governments. Moreover, these mechanisms do not seem feasible to keep pace with the urgent needs of reversing degradation,

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eliminating poverty and providing quality of life for the biospheres inhabitants. A national system of information with the specific objective of creating agreed alternatives, associating the interested stakeholders, could develop research and technologies with a sustainable and environmentally harmonious bias. Schumpeterian and neoschumpeterian approaches provide some important elements for rethinking the economy. They focus on technology as a vector for transformation of human societies and emphasize the concept of creative destruction, aligned with the idea of using crises as levers for transformation. They do not view an economy as tending toward equilibrium, but as an everchanging system that is redesigned whenever new options or other technological paradigms emerge. In the case of evolutionary economics, the replacement of old technologies with new ones could provoke disruptions to conventional paradigms. From an environmental perspective, the main impulse leading to disruptions would be increasingly clean technological options, which would replace those that have become environmentally and climatically obsolete. This approach certainly would not bring extraordinary profits to entrepreneurs because they would still lack scale and competitiveness, but it would take into account the negative externalities caused by conventional, environmentally obsolete technologies. It would require temporary incentive mechanisms for the new technological to gain scale and autonomy. Such incentives would be extracted from the negative impacts, or in other words, the negative externalities of conventional technologies. For example, the value of hospitalizations caused by the use of private transport in large cities would no longer be paid by the government, if such transport were substituted by collective options without emissions. In the reflections contained in the UNEP publication, the transition to a green economy involves two types of myths. The first refers to a lack of simultaneous co-existence between economic growth and environmental sustainability. The second concerns an interpretation that the transition is a way for rich countries to perpetuate poverty in developing countries. To question the validity of these myths, the papers authors used the projection model T-21 (Threshold 21) and simulated the behavior of some variables, generating scenarios for a green economy. In addition, they compared these results with the results of a business-as-usual trend and concluded that there are numerous advantages to investing in natural capital. The use of scenarios to explore future trends based on current conditions is a useful tool, but it is quite fragile over a 20-year timeframe, as in the present case.

Challenges and opportunities

The necessarily systemic character of the transition to a green economy Alexandre d'Avignon Luiz Caruso

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According to the authors, the T21 model was designed to support a comprehensive and integrated planning process for countries. It consists of three pillars: economic, social and governmental. It is important to emphasize that the economic pillar includes the agriculture, industry and service sectors, which are characterized by Cobb-Douglas production functions with inputs of

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labor, capital and technology (Mahmoud and El Sebaei, 2005). In this general equilibrium model variations were introduced in the dynamics of some sectors to see the impact on future GDP, employment, the intensity of resources used, emissions and environmental impacts. Eight major sectors were chosen as those capable of setting trends for transition to an economy characterized by poverty alleviation, investment in the maintenance and restoration of natural capital, job creation and improved social equity, incentives for renewable energy and energy efficiency, and urban mobility and sustainability. The first sector analyzed was forestry. The transition in this sector would require: reduced deforestation and expansion of reforestation; certification of forest products; payment for environmental services; and REDD+, assuming legal changes and modifications in local governance. Certainly, this would be a promising path, but it is important to remember that there has been no regulation of REDD+ and that the conventional activities such as production of livestock and export led monocultures are large-scale vectors that are basically contrary to this approach. Other related measures would be necessary to encourage the practice of semi- or full-confinement of livestock to reduce pressure on forests, to encourage using animal waste and plant residues for energy generation, etc. The second sector, agriculture, would require changes in family farming and agribusiness in the direction of: practices for managing soil fertility; more sustainable and efficient use of water, seed diversification; management of animal and plant health; appropriate level of mechanization; integrated management of pesticides; and integrated management of nutrients. The reduction or elimination of subsidies that distort the real cost of agricultural inputs is also required. It is interesting to emphasize that the integrated activities, such as agro-silvo-pastoral systems, are non-conventional solutions that, similar to bio-digesters for producing biogas and bio-fertilizer, deserve proper attention. Remember that integrated systems can meet most of a rural activitys needs for energy and raw materials, both in a family and in a business operation. The wastes and residues, when properly used in rural activities, become sources of energy and fertilizer. The third sector is related to the scarcity of water and requires improvements in managing its supply and efficient use. In developing countries, such improvements frequently need to focus on reservoirs and sanitation, associated with changes in institutional arrangements. In this case, the main focus would be the care of water bodies currently threatened by pollution caused by poor sanitation. This would certainly be the main vector for reducing waterborne diseases and creating the necessary conditions to improve the quality of life for the poor in most developing countries. In the fourth sector, fishing, the sustainable management of fisheries is paramount. Steps toward sustainable management of fisheries include strengthening management and financing the reduction of excess fishing

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capacity worldwide. Such steps clearly involve external intervention, which might hinder innovative solutions related to sea culture and other practices aimed at restocking the oceans, rivers and lakes. The fifth sector, ecotourism, improvements would lead to local economic development and poverty reduction. The greening of the sector would increase local community participation, especially the poor, in the tourism value chain, thereby reducing poverty. Tourism activities often have no commitment to local activities and, instead, frequently degrade areas where local communities carry out those activities. It will be necessary to provoke a fairly sharp transformation in the culture of this sector to ensure that tourism becomes a vector for poverty alleviation. With respect to renewable energy and energy efficiency, the sixth sector, the growing supply from renewable sources reduces the risks of increasing the volatile prices characteristic of fossil fuels, and also helps to mitigate emissions of greenhouse gas emissions. There would be considerable potential for growth in this sector, through investments in renewable energy, including second generation bio-fuels. In this case, greening would require that investments migrate from carbon-intensive technologies to clean energy and energy efficiency improvements. Investments in renewable energy and energy policies could improve the living standards and health of populations. Until the outbreak of economic crisis, investments in alternative sources of renewable energies and energy efficiency (excluding nuclear sources and large hydropower projects) were steadily growing. In 2004, they totaled US$ 46 billion and had multiplied almost five times by 2008, reaching US$ 173 billion, or nearly 10% of global investments in energy infrastructure according to the UNEP publication. Just in power generation, renewable and energy efficiency achieved 42 GW of the capacity installed in 2008, nearly a quarter of the total (190 GW) installed that year. The growth of investments, which range from private and public R&D to programs in private companies and government agencies, were closely associated with distributed generation, in which the small decentralized units are prioritized over centralized production. According to the IPCC, to stabilize CO2e concentrations at a level of 450 ppm by 2030 will require a reduction of 60% in CO2e emissions in relation to 1990. This challenge means that, within a few decades, a complete restructuring of the planets energy infrastructure will be required. Although not precisely estimated, according to the Stern Report these changes would absorb approximately 1% of global GDP. If we take into account the overall GDP of 2007 of US$ 54 trillion, this would mean required investments of US$ 540 billion per year. Another estimation in 2008 by the International Energy Agency indicates a need for annual investments of US$ 550 billion in alternative renewable energy sources through 2030 to stabilize concentrations at 450 ppm CO2e. In the case of New

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Energy Finances Global Futures, the estimated average annual investment is US$ 515 billion. Certainly these figures are much higher today than those observed in the years before the crisis, and it would take at least three years of growth at 50% per year to reach the required levels just in the energy sector, taking into account the level of 2009 investments (US$ 162 billion). Forms of distributed power generation associated with other economic activities would be critical for this transition. For distributed generation, this means easing taxation to encourage decentralization and stimulate self-generation. In transport, the seventh sector, improving the energy efficiency of the different modes of transport is a fundamental requirement in the evolution from private to public transport and to non-motorized transport. Urban mobility is closely linked to spatial occupation across the landscape by people. In developing countries, the high urban growth and concentration observed in recent decades undermines the sustainability of cities, which wind up dominating areas far beyond their borders. Planning of urban land occupation and incentives to reverse the flow of migrants seem crucial to halt the continued growth of vehicles and the continued deterioration of public health in these centers. The use of high quality, electric public transport and other alternatives is fundamental for transition to take place. Finally, in the manufacturing industry, the central strategy would be to extend the life of the manufactured products by increased emphasis on redesign, remanufacture and recycling, which constitute the core of closed-circuit production. This eighth sector would be of vital importance. But how to slow the pace of production growth for a population that continues to grow? Respecting natures cycles and generating waste at a pace that can be absorbed by those cycles seems the best path. It is necessary, however, to make use of more sophisticated tools such as life cycle analysis to increase the efficiency in the use of natural resources and, sharply decreasing the amount of raw materials in consumer goods and durables and, as a result, the amount of energy used in manufacturing processes. The European Union has already adopted a 4-factor reduction, i.e. a quarter of the amount of raw materials for new products. Some countries already show a 10-factor reduction. Changing the current preferences from unused to recycled commodities generates substantial conflicts in some sectors. Likewise, changing the established pace of growth in the production of iron ore, soybeans and meat is a Herculean task. Dematerializing contemporary society still seems a distant dream.

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Using changes in the variables proposed by the publication and applying them to the T21 model, result in the scenarios that point to a green economy growing faster than the business-as-usual while also maintaining and restoring natural capital and promoting poverty reduction (UNEP, 2011). This application bears resemblance to the World 3-91 program, established to formulate The Limits to

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Growth, first published in 1972, later reissued as Beyond the Limits in 1992 and finally republished in 2004 under the title Limits Growth: 30-Year Update, which showed that there was still hope because we had not yet exceeded the limits of no return. The limits model, based on the systems dynamics of Jay Forrester, operated in a highly aggregated fashion without taking into account political changes, war or widespread shortages. The second myth discussed in the UNEP publication that the transition

Challenges and opportunities

The necessarily systemic character of the transition to a green economy Alexandre d'Avignon Luiz Caruso

would be a way for rich countries to perpetuate poverty in developing countries has thornier issues to address. According to Kemp and Soete (1992), we are already in a transition from a fossil fuel-based economy to a low-carbon economy. In this phase, greener economic activities would primarily use end of pipe technologies and some cleaner technologies. Moving toward a lowcarbon economy requires investments in the generation and diffusion of cleaner technologies. The diffusion of a range of cleaner technologies is subject to changes in the institutional framework that supports economic activities. A reorientation of policies related to education, and science and technology, and the integration of environmental policies with those of other sectors, would also be necessary. In the long term, many green economic activities will derive from the convergence of technologies such as nanotechnology, biotechnology and information and communication technologies. The UNEP publication calls attention to the fact that the transition from the current economy to a green economy requires a well-planned regulatory framework that creates incentives to drive green economic activities, as well as to remove barriers to green investments. However, the transition depends not only on institutional but also technological innovations. Some of these innovations are complex, multidisciplinary, and require complementarities between companies and research institutes. Miles and Leite (2010), on citing Roco (2007), identify four generations in the process of developing nanotechnologies: passive nanostructures; active nanostructures; systems of three dimensional nanosystems; and nano-systems comprised of heterogeneous molecules. Only in the first generation do we find some evidence of efforts in research and generation of innovations in developing countries. According to Fonseca, Bianchi and Stallivieri (2010), the core of modern biotechnology is built around the basic knowledge of genetic engineering, i.e., molecular biology, genomics and proteomics. In 2009, however, of the total projects in genomics, 91% were concentrated in the United States, Britain, Japan, France and Germany. If this indicates a trend toward domination of new technologies by developed countries, it is appropriate to add a further reflection regarding socio-technical transition. According to Geels and Schot (2007), the socio-technical regime is an extended version of the technological regime of Nelson and Winter (1982), which refers to shared cognitive routines in an

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engineering community that explain development patterns along technological trajectories. Sociologists of technology expanded this explanation, arguing that scientists, political decision makers, users and special interest groups also contribute to the standardization of technological development. If there is a technological regime dominated by developed countries that strongly condition the technological development of developing countries, windows of opportunity could be built that would be particularly conducive to the development of cleaner technologies in nanotechnology and biotechnology. Certainly there is no guarantee that this will be done, since the ownership of the technology and the pathways for its development adds value to the product of developed countries. Concerning professional training and qualifications, the UNEP publication emphasizes the need to retrain the workforce as part of the restructuring process needed to transition to a green economy. This emphasis is particularly important for the change in the energy matrix that is taking place in developed countries. The publication also highlights that the withdrawal of investments in fishery assets will generate a need to retrain the workers in this sector. Furthermore, it is worth noting that, according to the OECD (2011), qualified people play a crucial role in innovation through the new knowledge that they generate, how they adopt and adapt existing ideas, and their ability to learn new skills and adapt to a changing environment. The OECD also highlights the importance of becoming familiar with the different types of skills that contribute to innovation and better ways to build them, so as to design policies that contribute to the sustainable development of such skills. In this sense, the OECD also points out that the qualifications for innovation could be any skill, proficiency, competency or attribute that contributes to the implementation of new products, processes, marketing methods or methods to organize the workplace. When it comes to establishing some type of measurement, the focus is on the group known as human resources in science and technology (HRST). The HRST are the people involved or who have adequate training to be involved in the production, development, dissemination and application of systematic scientific and technological knowledge. Within the HRST, researchers are an important group, because the effectiveness of spending on R&D critically depends on the efficient allocation of workers directly involved in its implementation. The number of these workers is therefore an important indicator of a nations scientific and technological capacity. In 2006 there were about four million researchers working in R&D in OECD countries, i.e., a ratio of 7.4 researchers per 10,000 employees (OECD, 2011). Although there is not an equivalent indicator for developing countries, and since their rates of completing higher education are lower, we can infer that these countries show a significant difference in their ability to generate innovations in relation to developed countries. Thus, if developing countries do not have clear

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policies, and in the absence of international regulations that promote technology transfer from developed countries to developing countries, the second myth could become a reality. The UNEP document raises another delicate point in discussing this concept and associating it with the sectors that generate the greatest emissions of anthropogenic greenhouse gases in developing countries, such as agriculture and forests, related to land use. Developed countries as a group are still those that emit more and the sectors responsible for most emissions in these countries such as conventional power generation using coal, transport and buildings were practically out of the discussion, with the exception of transport and renewable energy. It is necessary to provide greater details on the emissions of developed countries and suggest solutions to decarbonize their economies, as well as mechanisms to contribute effectively to greening the economies of developing economies. In sum, the UNEP document seems to present an overly optimistic vision about the transition to a green economy. An effective transition would occur if there were a change in the prevailing view about the solutions contained in the UNEP report, such as those associated with the need for governmental regulations or the definition of property rights through privatization as proposed by neoliberals. Local solutions seem to provide a clue and may become an important driver of innovations in the workplace, in association with interest groups. The search for flexible solutions, in which there is greater participation of affected communities, seems to be a decisive factor for a desired transition. The questioning of developed countries voracity for energy and natural resources, to the detriment of developing countries, appears to be another essential element. Equity in the use of these resources would build the solidarity required for a transition to an economy that is more harmonious with the environment, while seeking other theoretical lines, beyond the neoclassical, that provide a conceptual foundation for alternatives to the degrading pathway which we are currently following.

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The necessarily systemic character of the transition to a green economy Alexandre d'Avignon Luiz Caruso

References Debier, J. C., Delage, J. P. and Hermery, D. (2002). Uma histria da energia. Braslia: Edunb. Fonseca, M. G. D., Bianchi, C. and Stallivieri, F. (2010). Biotecnologia no Brasil: uma avaliao do seu potencial empresarial e industrial. Braslia: SENAI.

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Geels, F. W. and Schot, J. (2007). Typology of sociotechnical transition pathways. Research Policy, Amsterdam, 36, 399-417. Houaiss, A. (2001). Dicionrio Houaiss da Lngua Portuguesa. Rio de Janeiro: Ed. Objetiva. Kemp, R. and Soete, L. (1992). The greening of technological progress: an evolutionary perspective. Futures, 24(5), 437-457.

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Lovelock, J. (2001). Gaia um modelo para dinmica planetria e celular. In W. I. Thompson (org.), Gaia, uma teoria do conhecimento. 3 ed. So Paulo: Gaia. Mahmoud, A. S. and El Sebaei, N. M. (Ed.) (2005). Proceedings of the Workshop T21 Model as a tool for studying the future of development in developing countries. Cairo: Center for Future Studies. Meadows, D. and Randers, J. (2007). Limites do crescimento, a atualizao de 30 anos. Rio de Janeiro: Qualitymark. Miles, I. and Leite, E. (2010). Nanotecnologia: oportunidades para a indstria e novas qualificaes profissionais. Braslia: SENAI. Nelson, R. R. and Winter, S. G. (1982). An Evolutionary Theory of Economic Change. Belknap Press, Cambridge, Mass. and London. Nobre, M. and Amazonas, M. C. (2002). Desenvolvimento sustentvel: a institucionalizao de um conceito. Braslia: IBAMA. OECD (2011). Skills for innovation and research. Paris: OECD. ONU (1994). CQNUMC. Ostrom, E. (2008) Governing de commons, the evolution of institutions for collective action, 22nd printing. Cambridge: University Press. Passet, R. (1979). Lconomique et le vivant. Paris: Payot. UNEP (2011). Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication - A Synthesis for Policy Makers. Retrieved from: <www.unep. org/greeneconomy>.

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Challenges and opportunities

Green economy and/or sustainable development?


Donald Sawyer1
Green Economy, in addition to international governance and poverty eradication, will be a central theme of the Rio+20 conference in 2012 (UN, 2011). This term, which first emerged in the context of the Earth Summit in 1992 (Adams, 1997), was recently elaborated upon in a United Nations Environment Programme report published in six languages (UNEP, 2011). In short order, an apparent global consensus was reached (Belinky, 2011). Green Economy seems to be an alternative to Sustainable Development, which had been acclaimed in Rio de Janeiro in 1992. Green Economy is directly related to climate change: low carbon, energy efficiency, renewable energy etc. (Gouvello, 2010; ESMAP, 2010). In order to compensate for the strong emphasis on climate since 2007, biodiversity and ecosystems were reincorporated in the international discourse through an initiative called The Economics of Ecosystems and Biodiversity (TEEB), organized by UNEP and funded by the European Commission and European governments2 (Sukhdev, 2010, 2011). However, the environmental impacts of industrial pollution and urban waste (the brown agenda) as well as oceans, surface and ground water (the blue agenda) are not receiving the attention they deserve. Flows of atmospheric water (aerial rivers), which could be the focus of a white agenda, remain invisible in the policy arena (Salati, 2009; Arraut et al., 2011). The treatment given to Green Economy will make big differences for public policies, the role of the State (the governance that we have now) and production and consumption patterns. It will generate a wide variety of repercussions throughout Brazil and the world. The expected positive effects may not materialize and various unexpected negative effects could lead to unpleasant surprises if there is not adequate analysis of all the relevant factors at play.

1. Professor at the Center for Sustainable Development of the University of Braslia (CDS/ UnB) and Associate Researcher at the Institute for Society, Population and Nature (ISPN). The research was carried out with support from the European Union, through the projects on Eco-social Links among Brazilian Forests: Sustainable Livelihoods in Productive Landscapes (FLORELOS) and Environmental Governance in Latin America and the Caribbean (ENGOV), among other sources, but does not necessarily represent the viewpoints of these institutions or sources, being the exclusive responsibility of the author. 2. Germany, the Netherlands, Norway, Sweden and the United Kingdom.

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Caution is required in use of the term Green Economy, apparently instead of Sustainable Development, a term sometimes considered worn out and misused (FASE, 2011). Great care must be taken to avoid outcomes that are insignificant or even perverse, especially by diverting attention to issues and territories that are of secondary importance, without maintaining diverse ecosystems functions or attending to present and future human needs. Despite the similarities, Green Economy runs great risks of being transformed

Challenges and opportunities

Green economy and/or sustainable development? Donald Sawyer

into something very different from Sustainable Development. Although it is vague, the term Sustainable Development (Brundtland, 1987) and its explicit meaning (meeting present needs without compromising the ability of future generations to meet their own needs) were approved by all the countries in the world in 1992. It must be remembered that any consensual diplomatic language, especially as a result of global agreements, is necessarily vague. Green Economy, in addition to lacking strong political support, may be worse than Sustainable Development in terms of its implicit meaning and its possible uses and abuses. Since it requires meeting the needs of present and future generations, i.e establishing both intra- and intergenerational equity, Sustainable Development is necessarily systemic in space and time and among sectors. Green Economy, on the other hand, may not go beyond superficial inclusion of a few new sectors or additional layers. Green activities or projects currently in fashion might not go far beyond photovoltaic panels, wind turbines, remote national parks, recycling schemes, organic farms and jungle lodges, without changing what really counts: unsustainable production and consumption patterns. Green Economy can easily be turned into cosmetic greenwashing, not to mention doing little or nothing to reduce poverty. Green Economy, based on monetary valuation and economic instruments, tends to reduce everything to monetary values, foreseeing payments made by polluters and received by environmental service providers (World Bank, 2010). This does not necessarily imply market environmentalism (FASE, 2011), but it is not true that everything in life is or should be commodities. We cannot avoid cost-benefit calculations and the reality of the financial world, but not everything in society, the population and nature can be reduced to goods or services. There are no markets for human beings, cultures, rights, health, flora, fauna or ecological functions. Worse yet is the probability that there will never be enough money in Brazil or the world to pay for all the existing environmental services. For example, if the Legal Reserves and Permanent Preservation Areas defined in the Brazilian Forest Code have a total area of 100 million hectares and the owners receive only $200 per hectare per year to not deforest these areas, a conservative estimate, the annual total cost would be $20 billion. The Brazilian Family Grant

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(Bolsa Famlia) program costs $10 billion per year. Would government ever spend more on payments for environmental services than on family grants? The World Bank estimates that Brazil would need $21 billion per year to reduce carbon emissions (Agncia Brasil, 2010; World Bank, 2010). Others estimate $13 billion (EFE, 2010). Meanwhile, the government is trying hard to cut $30 billion from its budget. Payment for Environmental Services (PES) has great appeal, but raises

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Green economy and/or sustainable development? Donald Sawyer

various questions (Amazonas, 2010; Pirard et al., 2010). One of the risks of paying producers for their services provided is that it suggests that anyone else not receiving these payments is not obliged to behave correctly. Another risk is the implication that anyone who receives PES has the right to destroy the environment if and when payments are no longer received. Moreover, there is the problem of free-riders. In this case, rural producers who do not protect nature benefit for free from the services provided by producers that sacrifice production for the benefit of nature. There are also fundamental ethical questions. Is it correct to pay someone not to harm others? Should the costs of negative externalities not be assumed by producers, rather than being passed on to taxpayers or consumers? On the other hand, do positive externalities require remuneration? In the event of compensation, as could happen with international payments, is there not a sort of indulgence, i.e. paying a fee to continue living in sin (polluting)? As for international transfers of new and additional financial resources from developed to developing countries, it is certainly possible to make such demands, but it would be unwise to expect much actual payment, especially in the case of relatively developed countries like Brazil, which aspires to play a role of global leadership. It is clear that donors are now giving priority to small islands and Africa. It is important to perceive the economic interests underlying the new proposals. On the one hand, changing the noun from development, with its multiple dimensions (at least social and environmental, if not others) to economy limits the scope to only one of the dimensions. This tends to empower economists and their economic instruments as opposed to state regulation, which is denigrated as command and control. Nature becomes natural capital. This approach seems to be based on professional class interests. On the other hand, many governments, entrepreneurs and NGOs seek to jump on the bandwagon or gravy train of opportunities for green business and managing the new funds.

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International or global governance, in turn, tends to empower UNEP or another agency to receive generous funding and become a specialized international super-agency, with potential international police powers. However, such an agency would be subject to the interests of the donors.

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At the same time, international or global governance contradicts sovereignty, a fundamental and practically sacred principle. Although problematic in practical terms, sovereignty should only be questioned in extreme cases of grave violations, not in diffuse, routine affairs. It would be more coherent and defensible if international interventions were approved by the United Nations, not by a specialized agency. The appeal of the adjective green seems to have been taken over from

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Green economy and/or sustainable development? Donald Sawyer

political movements, including green parties and environmental movements such as Greenpeace, which share few or none of the principles on which the Green Economy is based. At a first glimpse, green would have more in common with the environment than sustainability, but in reality it narrows the scope in various ways. Sustainability is not just green, but includes a whole range of colors, if not lying somewhere over the rainbow. The Green Economy discourse is well developed in terms of natural capital, poverty reduction, low carbon, energy efficiency, innovation and global governance, all of which are interesting features. However, it should be noted that all these concepts or terminologies can also be ingenious ways to replace or relegate sovereignty, equity, nature, ecological functions, sustainable use, fundamental human and citizenship rights and reduction of emissions (which can include use and sequestration of carbon), among other important values. In practice, topical green changes can constitute alternatives that avoid systemic change. Green Economy runs the risk of being limited to tokenism that actually maintains the status quo in environment, society and the economy. It could perpetuate the almost exclusive focus on the Amazon rainforest to the detriment of other biomes and urban areas where the majority of the population lives. Ultimately, it lets governments get off the hook instead of doing what they should or have committed to doing. Thus, there are various possible perverse and unexpected effects of the Green Economy approach that should be taken into account. Existing proposals seem to ignore rebound and backfire effects resulting from increased efficiency. Did the Industrial Revolution not increase efficiency and unleash consumption? A few green jobs, albeit entirely positive when seen in isolation, can eliminate many conventional jobs through the substitution of labor by modern technology (capital). More than promoting innovation and patents, a discourse used to justify investments in scientific research (MCT, 2010a, 2010b), countries like Brazil need application of technologies that are already known. They are in greater

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need of competence than innovation. Brazil does not have enough engineers, qualified construction workers, truck and tractor drivers, trained electricians and teachers at all levels. Bridges and roads collapse or become blocked, electric power is subject to frequent blackouts and the quality of education is

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far from sufficient. Improving this situation does not require new technologies transferred from developed countries. In the final analysis, the Green Economy may favor the rich and central countries. It seems to be a strategy to promote sale of technology from the North to countries of the South. Although it does not confuse sustained growth with Sustainable Development, which is a common error, growth in GDP continues to be the top priority, as long as it is uncritically classified as green (Latouche, 2005). Green Economy leaves out vulnerability and adaption to climate change (Lahsen, 2010) and justifies incentives or subsidies for various green lobbies. In sum, in order to contribute significantly to Sustainable Development rather than avoiding it, Green Economy cannot be limited to isolated, business-oriented initiatives supported by policies with such a narrow focus. Private enterprise needs to be involved, but policies and programs would have to be public in terms of guaranteeing fundamental rights and maintaining interdependent ecosystem functions. Green Economy would have to be a social-ecosystemic strategy adopted by the State and covering all sectors and territories. Some of the participants in the process are aware of these issues. The Chinese diplomat responsible for coordinating the organization of Rio+20, Secretary-General Sha Zukang, insists that we are dealing with Green Economy in the context of Sustainable Development and poverty reduction. To him, who has strong political support, the conference is not about an isolated Green Economy, but one that exists within a broader economic and social context. Various other visions of the future are possible (Bursztyn, 2008; Sachs, 2010; Machado, 2010; Sanwal, 2011; Abramovay, 2009; Lesbaupin, 2010; Prins, 2010; Martins, 2010). Recently, new anti-capitalist proposals have emerged in Latin America, such as the rights of nature and Pacha Mama, against the mercantilization of nature (Bacarji, 2010; UNDP, 2010). Dialogue would be desirable and, from a United Nations perspective, necessary. Most important of all would be to see what could be done here and

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now, without ambitious treaties, global governance agencies, new financial resources and transfer of new technologies (Sawyer, 2011). There is room for action on various levels: national, bilateral, regional and among emerging countries. Otherwise, good intentions could generate innocuous or negative results. In the short run, Sustainable Development could be operationalized in
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terms of already existing fundamental rights, such as human rights, which are universal, or citizenship rights, which are national (ESCR-Net et al., 2010; IISD, 2010; Lusiani, 2010; Santilli, 2005; Sousa, 2010; Varella, Leuzinger, 2008). Rights refer to ethical values (Grasso, 2010) and imply duties. Ones own rights end where the rights of others begin. The rights of future generations to

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meet their needs depend on the duties of present generations and limit their freedom. This realist approach, within existing legal frameworks and institutions, is possible. In conclusion, both Green Economy and Sustainable Development can and should be promoted. Green Economy can be more concrete, instrumental and popular, and Sustainable Development more abstract, diplomatic and governmental. The economic approach labeled as green can generate awareness among decision-makers, appeal to business interests and placate proponents of development, especially in developing countries. However, the advances of 1992, which constitute an historical landmark for humanity, should not be lost from sight, nor should the Earth Charter and the progress achieved over the past 20 years. What really matters are the needs of the planet and present and future generations, all of which depend on functioning ecosystems, with or without additional financial resources, transfer of technologies and new forms of global governance.

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Donald Sawyer

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References Abramovay, R. (2009, December 10). Muito mais que o clima, discute-se o capitalismo. Valor Econmico, p. D10. Adams, W. M. (1997). Green development: environment and sustainability in the Third World. London: Routledge. Agncia Brasil (2010, November 11). Banco Mundial diz que Brasil precisa de R$34,2 bi por ano para reduzir emisses de carbono. Amazonas, M. C. (2010). Pagamento por servios ambientais: dilemas conceituais e normativos. Braslia: Instituto Sociedade, Populao e Natureza (ISPN). Arraut, J., Nobre, C., Barbosa, H. M. J., Obregon, G. and Marengo, J. (2011). Southward moisture flow from Amazonia, seasonal aerial rivers and subtropical rainfall in South America. So Jos dos Campos: INPE. No prelo. Bacarji, C. D. (2010). Direitos da Me Terra: projeto de declarao gera polmica. Envolverde, 22 apr. Belinky, A. (2011). Rumo Rio 2012: consideraes sobre a 1 reunio intersessional preparatria. So Paulo: Instituto Vitae Civilis. Brundtland, G. H. et al. (1987). Nosso futuro comum. Comisso Mundial sobre Meio Ambiente e Desenvolvimento. New York: UN. Bursztyn, M. (2008). Think locally, act globally: new challenges to environmental governance. Cambridge: Sustainability Science Program, Kennedy School of Government, Harvard University. EFE (2010, November 11). Brasil precisa de US$ 20 bilhes por ano para reduzir emisses de gases. Folha de So Paulo, Ambiente. ESCR-Net - International Network for Economic, Social and Cultural Rights and Center of Concern et al. (2010). Guidelines for a human rights approach to economic policy in agriculture. New York: Kuala Lumpur. ESMAP - Energy Sector Management Assistance Program (2010). Low carbon development for Brazil. Washington: World Bank, Low Carbon Growth Country Studies Program, Mitigating Climate Change through Development. FASE (2011). Rio+20: resistir ao ambientalismo de mercado e fortalecer os direitos e a justia ambiental. Rio de Janeiro: Federao de rgos para Assistncia Social e Educacional. Retrieved from: < http://www.fase.org.br/v2/pagina.php?id=3484> Gouvello, C. et al. (2010). Brazil low-carbon: country case study. Braslia: World Bank. Grasso, M. (2010). An ethical approach to climate adaptation finance. Global Environmental Change, 20(1), 74-81.

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IISD (2010). Summary of the Fifth Rights and Resources Initiative (RRI) Dialogue on Forests, Governance and Climate Change, 22 June 2010. Lahsen, M. (2010). Impacts, adaptation and vulnerability to global environmental change: challenges and pathways for an action-oriented research agenda for middle-income and low-income countries. Current Opinion in Environmental Sustainability, n.2, 364-74. Latouche, S. (2005). Vers la dcroissance ou codmocratie. Le Monde Diplomatique, 52(620). Lesbaupin, I. (2010). Por uma nova concepo de desenvolvimento. Le Monde Diplomatique Brasil, nov., p.32. Lusiani, N. (2010). Human rights can fix our broken agricultural system, advocates argue. Retrieved from: <http://www.escr-net.org/news/news_show.htm?doc_ id=1437020>. Machado, T. C. (2010). Ignacy Sachs: a Rio+20 deveria superar a Rio-92. Retrieved from: <www.institutocarbonobrasil.orb.br/?item=240&id=726851>. Martins, A. (2010). Frum Social Mundial: adeus autoreferncia? IPS/Envolverde, 28 jan. MCT (2010a). Consolidao das recomendaes da 4 Conferncia Nacional de Cincia, Tecnologia e Inovao para o Desenvolvimento Sustentvel. Braslia: Ministrio da Cincia e Tecnologia. MCT (2010b). Livro azul: 4 Conferncia Nacional de Cincia, Tecnologia e Inovao para o Desenvolvimento Sustentvel. Braslia: Ministrio da Cincia e Tecnologia. MMA (2010). Plano de ao para produo e consumo sustentveis: PPCS. Braslia: Ministrio do Meio Ambiente. Pirard, R., Bill, R. and Sembrs, T. (2010). Questioning the theory of payments for ecosystem services (PES) in light of emerging experience and plausible developments. Analyses, n.4, 10 jun. Prins, G. et al. (2010). The Hartwell paper: a new direction for climate policy after the crash of 2009. Oxford: Institute for Science, Innovation and Society. Sachs, I. (2010). In search of three-win solutions: the challenges of the 2012 Conference on Environment and Sustainable Development. Paper prepared for the 2nd International Conference on Climate, Sustainability and Development in Semi-arid Regions (ICID 2010). Fortaleza, Cear, August 16-20. Salati, E. (coord.) (2009). Economia das mudanas climticas no Brasil: estimativas da oferta de recursos hdricos no Brasil em cenrios futuros de clima (2015-2100). Revisado. Rio de Janeiro: Fundao Brasileira para o Desenvolvimento Sustentvel (FBDS). Santilli, J. (2005). Socioambientalismo e novos direitos: proteo jurdica diversidade biolgica e cultural. So Paulo; Peirpolis; Braslia: Instituto Internacional de Educao do Brasil (IEB). Sanwal, M. (2011). Vision for the Rio+20 Summit. MEA Bulletin, n.111, p.1.2, 11 mar. Sawyer, D. (2011). A global climate treaty? Ein globaler Klimavertrag? Un trait mondial sur le climat? EuroChoices, 10(1), p.45. Sukhdev, P. (2010). The economics of ecosystems and biodiversity: ecological and economic foundations. Retrieved from: <http://www.teebweb.org>. Sukhdev, P (2011). The economics of ecosystems and biodiversity in national and international policy making. Retrieved from: <http://www.teebweb.org>. Sousa Jnior, J. G. (2010). O direito e a cidadania. Darcy, n.5. nov./dec. UN (2011). Synthesis report on best practices and lessons learned on the objective and themes of the conference. New York: United Nations. Retrieved from: <www. uncsd2012.org/files/intersessional/Synthesis-Report-Final.pdf>. UNDP (2010). World Peoples Conference on Climate Change and the Rights of Mother Earth, Cochabamba, Bolivia, 19-22 April 2010: summary and analysis. New York: United Nations Development Programme. UNEP (2011). Towards a Green Economy: pathways to Sustainable Development and poverty eradication; a synthesis for policy makers. Nairobi: United Nations Environment Programme. Varella, M. D. and Leuzinger, M. D. (2008). O meio ambiente na Constituio de 1988: sobrevoo por alguns temas vinte anos depois. Revista de Informao Legislativa, v.45, no.179, jul./sep., p.397-402. World Bank (2010). Economics of adaptation to climate change: synthesis report. Washington: World Bank. 136p.

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Challenges and opportunities

International perspectives of the transition to a low-carbon green economy1


Eduardo Viola2

INiTiAL CONSiDERATiONS
A fundamental dimension of an international green economy is the low carbon intensity, which will be the focus of this article. A solid transition to a green economy assumes the continuous reduction of carbon emissions in developed countries, an accelerated decrease in the emissions growth curve starting before 2020 and the establishment of a stabilizing year for emerging mid-income countries, in addition to an accelerated decrease in the carbon intensity of GDP globally. In the case of rich countries, there should be an accelerated decrease in per capita emissions, and in the case of mid-income countries, an accelerated reduction in the carbon intensity of GDP and a light and continued fall in per capita emissions. Poor countries would still be allowed space to increase their per capita emissions. Emissions of GHG grew by 3% during the first decade of the 21st century, according to information from the Netherlands Environmental Assessment Agency3. Including figures from diverse sources on deforestation in Brazil and Indonesia, the main emitters in 2009 were: China, responsible for 24% of the global total (and a 5% annual growth over the last decade), the US with 19% of total emissions (and 0.8% annual growth), the European Union (27 countries) with 15% of the total (growing at 0.3% annually), India with 7% of the total (growing at 6% per year), Russia with 5% of the total (and annual growth of 5%), Brazil with 4% of the total (4% annual growth until 2004, which drastically reduced between 2005 and 2009), Indonesia with 4% (growing by 4% per year), Japan with 3.5% (0.4% annual growth), Mexico with 2.5% of the total (growing at 2% annually), Canada with 2% of the total (growing at 1.5% per year), South Africa with 1.5% per year (growing at 2% per year), South Korea with 1.5% of the total (growing by 0.7% annually) and Saudi Arabia with 1.5% of the total (growing at 6% per year).

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1. Article written to be published by Conservation International in a volume about green economy. 2. Full Professor at the Institute of International Relations, University of Braslia, Coordinator of the Climate Change and International Relations Research Network and Senior Researcher at the Brazilian Council for Scientific and Technological Development. 3. The most important institute producing data on greenhouse gas emissions in the world.

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These 13 countries (considering the European Union as one unit) are responsible for over 80% of global emissions and constitute the two crucial groups of great and medium powers. The great powers share three highly relevant characteristics: the first and essential, each one is responsible for a high proportion of global carbon emissions (at least 15%) and of global GDP; secondly, they possess important technological and human capital for decarbonizing the economy; and thirdly, they have veto power over any global international agreement that is effective. The medium powers are of limited relevance in terms of their participation in emissions and the global economy and none of them alone has veto capabilities over a global international agreement. There are three great powers the US, China and the European Union that stand for 54% of global GDP and 58% of global carbon emissions. The European Union is isolated in the defense of an effective global architecture for a rapid transition to a low-carbon economy. The US and China resist a global agreement on a transition to low-carbon. There are ten medium powers: India, Russia, Brazil, Indonesia, Japan, Mexico, Canada, South Africa, South Korea and Saudi Arabia. The severity of the 2008 economic crisis opened a limited window of opportunity for a partial transformation of values in developed and emerging countries in the direction of a diminished importance attributed to immediatism, which favors the perception of the gravity of the climate issue. Since the economic crisis is systemic, the recuperation process currently on course does not imply the return to a situation similar to that existing prior to September 2008. As opposed to what the majority of international economists and analysts had imagined in mid-2008, a substantial part of the economic stimulus packages initiated in November 2008 in various key countries propelled the transition to a low-carbon economy: 65% of the increased spending in South Korea, 35% in China, 20% in the United Kingdom, 20% in Germany and 15% in the United States (Stern, 2009). Brazil, India, South Africa, Indonesia and Russia had very poor progress in this case. This article is organized in four parts. In the first, the current situation and main policies of the great and medium powers in the transition to a low carbon green economy will be analyzed. In the second part, the specific situation of South America in this transition will be summarized. In the third part, the main techno-economic vectors in the transition to a low carbon green economy will be described. Finally, the fourth part contains a reflection on future perspectives of the transition on a global level.

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THE GREAT POwERS AND THE MEDiUM POwERS iN THE


TRANSiTiON TO A LOw CARBON ECONOMY
The US continues to be the most important country in the international climate negotiations, due to its status as second largest emitter and for continuing to have the greatest potential for technological innovation of global impact in the direction of low carbon (Giddens, 2009). The US emits 5.8 billion tons of carbon dioxide equivalent per year, corresponding to 19% of total global emissions, 19 tons per capita and 0.4 tons of carbon for each US$ 1,000 of GDP. It is one of the countries with the highest per capita emissions in the world. In global terms, the US economy operates with a relatively high energy efficiency and low carbon intensity, though presents one of the greatest intensities among developed countries exceeded only by Canada and Australia due to the combination of an energy matrix based on carbon and oil with high utilization of air and personal car transport. Emissions in the US grow at 0.8% per year in this century. There is a marked difference between the first six months of the Obama government and the previous period. At the beginning, there were signs that the new administration would focus on the economic and climate crises as interconnected processes that should be solved simultaneously, and thus giving a decisive push to decarbonize the economy. The emergency economic program for short term recuperation of the economy was compatible with the medium and long term goals of the Obama platform: expansion of renewable energies, upgrade of national electrical grid, promotion of public transport (especially high speed trains) in metropolitan regions and incentives for all economic sectors that created new green jobs in general. The emergency program differed from a classic program of government spending expansion and was compatible with the strategic objective of increasing energy security (Friedman, 2009). The Waxman bill of energy and climate that imposed a system of ceilings and quotas for carbon emissions was approved by the House of Representatives in June 2009 and then paralyzed in the Senate during the second term due to priorities given by the Obama administration to healthcare reform, only to be officially abandoned by the democrats in July 2010. At the beginning of 2011, the picture was very different from the first months of the Obama government, with the failure of his first initiatives. Various factors explain this failure: extreme bipartisan polarization in Congress with the subsequent legislative paralysis and governance crises; high unemployment rates eroding Obama's popularity; Democrat Party defeat in the 2010 legislative elections; Republican Party offensive against the IPCC due to some errors in the 2007 report and dubious proceedings of consensus building; a wave of extreme cold on the American east coast during the 2010 winter, that was used by the Republican Party as a demonstration of the exaggerations in evaluating the dangers of global warming; aggressive offensive of petroleum, carbon,

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cement, steel and electricity lobbies against approval of the climate bill, as it supposedly would imply competitive losses for North American industry; limits to the promotion of green investments due to severe fiscal deficits and growing government debt; and various surveys showing strong growth in the proportion of the North American population that believes the risks of global warming are being exaggerated (Viola, 2010). Important resistance is expressed in Congress with respect to emissions

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reduction. The majority of these derives from the non-existence of reduction commitments by large emerging countries, especially China. There is also a more structural resistance, championed by strong economic sectors associated with the fossil energy matrix: states that produce coal, oil, steel; and electric energy businesses based on the production of coal fired power. On the other hand, almost all the big businesses from the lower carbon intensity sectors have favorable positions for significantly reducing emissions. In the communication and information sectors, there are Google, Apple, Microsoft, Oracle and CNN; in biotechnology, renewable energies and nuclear there is General Electric; among the large retail chains is Wall Mart; producers of inputs for green building are also among those that support emissions reductions, among others. The United States has an important margin for reducing emissions through: a technological change from coal fired power to clean coal (cleaner technologies) and the use of carbon capture and storage; the expansion of wind, solar, biofuel and nuclear power; decreased size and increased efficiency standards for automobiles; modernization of the electrical grid and the establishment of new green standards for construction (buildings and houses designed or renovated to reduce emissions) The European Union, composed of 27 countries, emits 4.5 billion tons of carbon equivalent, corresponding to 15% of the world total, 10 tons per capita and 0.3 tons of carbon for each US$ 1,000 of GDP. The European Union is very heterogeneous, both in terms of per capita emissions from 22 tons in Luxemburg to 4 tons in France and Portugal and in carbon intensity, which is low in the Nordic countries, Germany, the United Kingdom and France; average in Spain, Belgium and Italy; and high in Poland, Czech Republic, Romania, Bulgaria and the Baltic countries. European Union emissions grew by 0.5% per year, as a result of the almost stable emissions of Germany, the United Kingdom and Sweden and the accelerated growth in emissions of Spain, Portugal, Greece and the Eastern European countries (even though the latter ones are below their 1990 base year).

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The main political leaders of the European Union have over recent years been in favor of an incisive action to mitigate global warming, in particular the governments and public opinions in the United Kingdom, Germany, Sweden, France and Denmark, joined by although with less emphasis the Netherlands, Belgium and Finland. However, the 2008-9 economic crises and

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the subsequent eurozone instability greatly eroded the European capacity to lead the transition to a green economy. China emits 6.5 billion tons of carbon equivalent per year, which corresponds to 24% of global emissions, 6 tons per capita and 1.5 tons of carbon for each US$ 1,000 of GDP. This is a very carbon intensive economy due to its energy matrix being based substantially on coal and petroleum, and notably, its low energy efficiency. Even though the carbon intensity of the Chinese GDP has been falling by 5% per year over the past decade, the country still maintains a carbon intensity that is nine times greater than Japans and four times greater than the US. Contrary to common sense, the per capita emissions in China are average as opposed to low. The cost of reducing emissions in China is high in the case of a continuation of the current industrialization model, but would be viable in the case of a reoriented model based more on the internal market and productivity growth, instead of the model based on export expansion. In the year 2007, global emissions of GHG grew by 3.3% in relation to 2006 and 50% of this increase took place in China, since 2/3 of the growth in China was based on burning coal. Even more important than reducing the consumption of oil in the world is the reduction of coal burning and, consequently, a drastic change in how the Chinese carbon (and also the Indian) is consumed is decisive. Technologies of carbon capture and sequestration, of clean carbon and nuclear power are very important for China. The position of the Chinese government in national energy and climate policies, as well as in international negotiations was negligent up to 2006, when there were changes based on the evaluation of China's vulnerability to climate change. The government strongly encouraged growth in wind and solar energy and announced an objective to reduce the growth rate of emissions. This objective was reflected by the National Climate Change Plan and the anti-crises economic stimulus package approved in November 2008, with a proportion of 35% of public spending aimed at transitioning to a low-carbon economy. There is a cleavage in China between globalist and nationalist forces, and the power of the prior is growing continuously and exhibits an intention to change the Chinese position in the sense of global responsibility. However, the Chinese position in international negotiations has remained delayed in comparison with its new energy policy. China continues refusing to assume commitments related to establishing an emissions peak and a stabilizing year prior to 2020, as demanded by the international scientific community and by the EU, the US and Japan this being one of the factors that increases the firepower of conservatives in the American Congress. In the technological area,

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what stands out is the great technological advances, efficiency and productivity of Taiwanese businesses in the field of solar photovoltaics and the formation of joint ventures for massive investment in an extensive program in China called low carbon cities. As of 2009, it is possible to say that two Chinas exist

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in terms of carbon: on one hand, a traditional and highly predominant China that is a production machine and exporter of carbon emissions; and on the other hand, a new, low-carbon and of the minority China that is growing at an extraordinary pace due to the country's high capacity to save and invest, and that creates a new low carbon business community with interests that contradict traditional China. Next, the medium powers will be analyzed.

Challenges and opportunities

International perspectives of the transition to a low-carbon green economy Eduardo Viola

India emits 2.2 billion tons of carbon equivalent per year, corresponding to 6% of total global emissions, 1.7 tons of carbon per capita and 1.4 tons for each US$ 1,000 of GDP. However, per capita emissions rate is low and carbon intensity is high due to low energy efficiency and the heavy weight of coal and oil in the energy matrix. However, the country has developed photovoltaic solar and wind power at much higher proportions than Brazil, although less than China. India has partially developed ethanol production due to being the largest producer of sugar in the world, although the majority of this production is destined for food purposes. Emissions grow at 6% per year in India, which is expected to substitute China as the country that emits most GHG in the world during the 2010 decade. The Indian government position has been historically negligent, like the Chinese, and has not changed until this day. Some comparisons should be made between India and China, since the behaviors of their societies are crucial for the present and the future, due to the dramatic growth of their contributions to global warming. India is much more vulnerable to climate change than China, considering that a fundamental part of its population depends on water originating in the Himalayas, under sovereignty of China, a country with growing temptations to divert the rivers for consumption of its immense population, and furthermore, whose glaciers are receding because of global warming. In addition, an important part of India's population is living in lowlands subject to monsoons and devastating clashes between the terrestrial and oceanic atmospheric circulation. India has a democratic regime even though of low quality due to cast inheritance with the presence of an important environmental movement that has contested, though ambivalently, the official position to this day. The Indian population on average has a less materialist lifestyle than the Chinese due to religious factors and thus being more sensitive to the state of the planet. The Indian government is very fragmented and inefficient, which makes it much more difficult for a change in the direction of lower carbon intensity to occur there than in China. India, with 1.7 tons of carbon per capita, cannot be pushed internationally to the same degree of China (6 tons per capita) and Brazil (10 tons per capita) and therefore has significant room for carbon to occupy to the detriment of developed and mid-income countries. Russia emits 2 billion tons of carbon equivalent per year, corresponding to 5% of global emissions, 14 tons per inhabitant and 1.3 tons of carbon for each

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US$ 1,000 of GDP. Russia has an economy with high per capita emissions and high carbon intensity, constituting a unique profile among large economies in the world. Russian society has enriched significantly over the past decade, but through low energy efficiency and an energy matrix that is strongly based on fossil fuels, given that the country is a large exporter of oil and gas. Russia occupies an extremely unique position in the global arena. As an economy whose main heritage is the superabundance of fossil fuels, it can be seen as potential looser in the transition to a low carbon economy. However, an important part of the elite and opinion-makers perceive at least until the extremely warm summer of 2010 that global warming could favor Russia because of an extraordinary increase in arable land. Japan emits an annual 1.6 billion tons of carbon equivalent, corresponding to 3.5% of the global total, 12 tons per inhabitant and 0.15 tons of carbon for each US$ 1.000 of GDP. Japan is, along with European Union countries such as France, Sweden and Denmark, among the economies with lesser carbonintensity in the world, due to very high energy efficiency and a heavy weight of nuclear energy in electricity generation. Public opinion and an important part of the business community (Honda and Toyota being symbolic) are in favor of a rapid transition to a low-carbon economy, but Japan's leadership position in the international arena is below its potential due to its low-profile foreign policy and, more recently, to the negative effects of the Fukushima nuclear accident. Indonesia increased its emissions during the first decade of the century, due to significant deforestation of peat forests with large carbon stocks. Canada has made the least progress among developed countries. The large increase in oil production in the Alberta province and the fact that natural resource extraction is regulated at a provincial as opposed to federal level, are the main factors that explain the Canadian delay. Mexico adopted a national climate change plan in 2007 under the Presidency of Calderon, and assumed an international vanguard position, but the new rhetoric does not correspond closely with the behaviors of economic actors. In 2008, South Africa announced goals related to emissions stabilization and peak, and thus taking the lead among emerging countries belonging to G77. Over recent years, South Korea has maintained a profile that puts it at the forefront of the transition to a low-carbon economy. Saudi Arabia has maintained a very conservative historical position in international negotiations and has exercised a decisive role in regulating the oil price thanks to its superior capacity to extract and refine, which allows it to rapidly increase production in response to demand or supply shocks. This is of fundamental importance, because the international oil price level is essential to extensive

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investment growth in clean energy. It could be argued that Saudi Arabia will always act in defense of its strict national interest, by avoiding an excessive increase in the oil price for a prolonged period, which would greatly accelerate investments in renewable energy.

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In summary, from a May 2011 perspective, the formation of a victorious decarbonization alliance in the world depends on, firstly, positive changes in the United States, and secondly, an acceleration in the new Chinese energy policy initiated in 2008. Changes in the US would positively affect China, relatively fast. Once these changes in the US and China are achieved, a coalition of the US, the EU, Japan, China, Brazil, South Korea, Mexico and South Africa can put pressure on Russia, India, Saudi Arabia and Indonesia to accelerate decarbonizing measures in their respective economies. The extensive negotiations of this process would take place in multiple arenas bilateral USChina, China-EU and US-EU, trilateral (US, China, EU) and plurilateral (G20, where South Korea and Brazil could play an active and crucial reformist role against conservative medium-powers) and finally, these negotiations would be legitimized in a multilateral UN level.

Challenges and opportunities

International perspectives of the transition to a low-carbon green economy Eduardo Viola

SOUTH AMERiCA iN THE TRANSiTiON TO A LOw


CARBON ECONOMY
South America emits approximately 3 billion tons of carbon dioxide equivalent annually. Emissions of carbon dioxide (industry, energy, transport, deforestation and changes in land use); methane (livestock farming, waste, hydroelectric reservoirs) and nitrous oxide (agricultural fertilizers) summed together for the region totaled approximately 7% of the global carbon emissions in 2009. A unique aspect in South America is that carbon dioxide emissions derived from deforestation and land use change were proportionally very high up to 2005. The deforestation rate over the past five years has grown a lot in Bolivia, Ecuador and Paraguay; increased moderately in Peru and Colombia; remained stable in Venezuela and fell slightly in Argentina and dramatically in Brazil. Deforestation rates (as a proportion of total forest cover) oscillated from 1% per year in Bolivia to 0.1% per year in Argentina and has remained at 0.2% per year in Brazil over recent years. Uruguay is the only country with a positive balance, with an increasing forest cover due to reforestation and forestation. Venezuela and Argentina each account for approximately 1% of global emissions. Per capita emissions in Venezuela are 7 tons and in Argentina, 5 tons. Venezuela emits 1.3 tons of carbon per US$ 1,000 of GDP and Argentina emits 1 ton. Colombia, Peru and Chile are each responsible for approximately 0.5% of global emissions. Deforestation in South America has a triple negative effect on societies. Firstly, deforestation implies a great destruction of natural resources and a
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very inefficient conversion of forests. Secondly, it causes the proportion of the informal economy to be high throughout the economy, with great systemic inefficiencies due to the fact that the economy associated with deforestation is, in general, small-scale and illegal or semi-legal. Thirdly, deforestation undermines government authority and the rule of law, and thus generates an

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environment favorable to a growth in other illicit activities such as: corruption, smuggling, drug trafficking, prostitution, trafficking of arms and wild animals and even murder. Although South America is highly vulnerable to climate change, as a whole the region finds itself in a favorable position for transitioning to a low carbon economy. The situation is very different in large emerging countries in other regions of the world China, India, Russia, South Africa, Mexico , that produce the majority of their electricity from fossil fuels. South American electricity is the most hydro-intensive in the world: 85% of the total in the case of Brazil, 37% in Argentina, 67% in Venezuela, 75% in Colombia, 53% in Chile, 80% in Peru, 62% in Ecuador, 64% in Bolivia, 99% in Uruguay and 100% in Paraguay. Even Venezuela, which has a more carbon intensive economy due to transport inefficiencies and oil low prices has a large hydro weight in its electricity generation. Brazil emitted approximately 1.8 billion tons of carbon equivalent in 2009, corresponding to around 4% of global emissions, 10 tons per capita and 0.9 tons of carbon for each US$ 1,000 of GDP. Emissions in Brazil over the years 2005-2010 suffered a large reduction compared to the 2001-2004 period, due to a dramatic fall in the Amazon deforestation rate from an annual average of 20,000 km2 to an annual average of 11.000 km2 between 2005 and 2010, arriving at a low figure in 2010 (6,200 km2). Similar to Brazil, most of the countries in South America (Colombia, Ecuador, Peru, Bolivia and Paraguay) could significantly decrease their carbon emissions by reducing deforestation. Argentina and Uruguay have a lot to gain in terms of energy conservation and as such, could grow economically with stabilized emissions. The price structure of energy in Argentina is irrational both from an economic point of view and from a carbon emissions perspective. Chile, the richest country in South America, has a lot of margin to increase energy efficiency and vehicle emissions standards. Chile already has greater energy efficiency and above average economic productivity that allows a more rapid incorporation of new climate technologies that are emerging in developed countries. Venezuela also has a good margin for lowering carbonintensity through three vectors: eliminating direct and indirect subsidies for oil consumption, which make the vehicle fleet of this country one of the most irrational in the world; increasing electric energy conservation where there is a lot of room for gain; and reducing deforestation. Up to now, regional integration structures in South America Mercosur,

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Andean Community, Union of South America and Organization of the Treaty for Amazonian Cooperation have not been dedicated to the issue of transitioning to a low-carbon economy. The Amazonia Treaty, institutionalized in 2004, existed on a solely formal level until 2009, especially due to the low interest of the Brazilian government. This is yet another paradox of Brazil's South

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American policy, since the productivity of financial and institutional resources allocated in this cooperative structure could be very high, by combining the combat of illicit transnational activities and illegal deforestation and promoting the rule of law. As of 2010, the governments of Brazil, Colombia and Ecuador started giving more importance to the Treaty, which tends to strengthen the organization. Brazil should assume the cost of leadership through policies and Brazilian financial resources in several dimensions: promotion of public safety in frontier zones and combat of illicit transnational activities; promotion of transportation infrastructure of all types, but especially waterway, railway and air transportation; promotion of integrated energy development, especially in the hydroelectric sector, in which Brazil and the region have a competitive advantage on a global scale; and promotion of a regional network of biodiversity/ biotechnology laboratories with contributions from American, European and Japanese capital. A decisive task of international cooperation in the Amazon is the establishment of an Amazon Panel of Climate Change and Biodiversity molded after the IPCC. This institutionalism is fundamental to develop regional governance in the Amazon.

Challenges and opportunities

International perspectives of the transition to a low-carbon green economy Eduardo Viola

GLOBAL TECHNO-ECONOMiC VECTORS FOR THE TRANSiTiON TO A LOw-CARBON gREEN ECONOMY


For the solid and rapid transition to an international low-carbon economy, a large international agreement would be necessary (on a much greater scale than the Kyoto Protocol) that should be supported by a series of behavioral changes, as well as simultaneous and complementary technological and economic developments. The literature over the past few years calls for a series of vectors for this transition. The below list of vectors has been synthesized by the author: 1. Accelerate the growth pace of energy efficiency (this growth takes place normally in the history of capitalism, but the pace needs to be increased) for residential and industrial use, in transport and urban planning. Increase recycling at all levels of the supply chain and in consumption; 2. Increase the proportion of non-fossil renewable energies (wind, solar, biofuels and hydroelectric) in the global energy matrix. Hydroelectric energy has been completely competitive during the past century and the competitiveness of wind, solar and biofuel power developed extraordinarily in the past decade due to advances in large and medium powers, only missing, in a majority of the countries, appropriate regulatory frameworks that create incentives for more
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vigorous growth. Recent experiences with biofuels show that only ethanol from sugarcane is very effective in terms of reducing emissions; ethanol from corn and beetroot and all biodiesel exhibit important limitations up to now. Second generation ethanol from cellulose appears as a fundamental alternative

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(the issue in this case concerns the speed at which this technology will be available on a large scale); 3. Increase the proportion of nuclear power in the global energy matrix, taking advantage of significant improvements in reactor technologies from an operation security perspective, despite the remaining problem of final disposal of nuclear waste and the life-spans of old and unsafe reactors; in addition to this, there are prospects for developing fourth generation nuclear reactors. The expansion of nuclear energy is fundamental to accelerate decarbonization in various powers, such as the US, China, India, Russia, Indonesia and Mexico; 4. Develop regulatory frameworks that promote the use of hybrid cars (gasoline-electric and gasoline-ethanol) that have already reached full maturity in terms of competing with conventional cars. Increase the use of public transport and diminish car use. Utilize smaller and lighter cars; 5. Drastically reduce deforestation (currently responsible for 14% of global emissions), reforest cleared areas and plant in areas that never had forests, but that today are appropriate for homogeneous rapid-growing forests; 6. Increase the use of livestock farming techniques that are suited to the carbon cycle, such as no till farming, precision irrigation and animal feed that generates less methane. Reduce consumption of beef in high and medium income countries, and thus enabling an increased consumption of this product among global emerging middle class without imposing excessive pressures on methane emissions; 7. Efficient use of water in domestic, agricultural and industrial consumption and expanded basic sanitation across the planet. Appropriate disposal of waste and sewer and a dramatic increase in methane power plants; 8. Promote rapid stabilization of the global population, between 2020 and 2025, and retirement schemes that correspond with life expectancies (approximately 68 years for men and women in high and medium income countries) and health systems that promote healthy life-styles, longevity with quality of life and that minimize gigantic expenditures to prolong life with abysmal quality in the final year, as is currently the case; 9. Accelerate the development of carbon capture and sequestration technologies, separating the carbon dioxide both in coal and petroleum and injecting it back into the already mined and empty coal fields that are highly stable from a geologic perspective; 10. Reduce the proportion of face meetings (especially those that involve

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air travel) and increase meetings via teleconferencing. Slow down the growth of air transport. Develop airplanes with lighter materials, more aerodynamic design and greater energy efficiency;

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11. Accelerate the development of the hydrogen cell, which will certainly be the energy of the future. It will probably not play a significant role before 2050 but its development would give a clear signal that the transition to a low-carbon economy is profound and irreversible; 12. Establish international accords that promote integrated inter-institutional research to develop new advanced technologies to decarbonize the energy matrix. Some of these are already at the initial stage, such as the utilization of ocean and wave power; high altitude wind turbines; and solar nano cells. Create a global cultural and institutional environment favorable to synergies between new energy technologies and the revolutions in information technology, communication and nanotechnology. Promote the development of climate geoengineering research with the objective of having a plan B alternative in the event of an exponential acceleration of global warming. 13. The transition to a low-carbon green economy assumes a profound transformation of dominant values in international society (hyper materialism, consumerism, immediatism, and disregard for long-term thinking) and, therefore, transformation at all levels of formal education and media activities (classically referred to as environmental education, but that nowadays should be called education for a sustainable low-carbon society) will always play an important role, to generate awareness among populations of these value changes and the extraordinary gains in quality of life and happiness to be derived from them much more important than some short term losses in irrational consumption, which would be a consequence of the transition to a decarbonized society, feared by large segments of populations in the world.

Challenges and opportunities

International perspectives of the transition to a low-carbon green economy Eduardo Viola

FUTURE PROSPECTS
The year 2009 significantly changed the international political economy of climate change. The legacy of Kyoto, that left the US and other large emerging countries outside the carbon constraint, has disintegrated (Ladislaw, 2010; Barret, 2010). The Copenhagen agreement is extremely weak from a judicial standpoint, but almost universal from a carbon emissions constraint perspective. It is practically impossible to advance in the sense of a new comprehensive and legally binding treaty, until the US approves climate legislation that demands quantified emissions reductions. Given current political dynamics, this is unlikely to happen, even in best case scenario, before 2013-14: assuming the reelection of president Obama in November 2012, a democrat victory in both chambers of Congress and a decision by Obama to prioritize climate legislation at the
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beginning of his second term. Another factor that influences the prospects for this very important global agreement is the tension between the US and the EU on the one hand and China on the other, due to Chinas resistance to the revaluation of the Yuan. The issue of reevaluation of the Yuan could generate an anti-Chinese coalition among the countries that are invaded by Chinese

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merchandise due to its increased export capacity. Countries that are threatened by the Chinese export machine include the majority of G20 members. Brazil, as a significant exporter of commodities to China, is in an intermediary position: its mining and food production sectors are favored by the Chinese dynamics, and the manufacturing sector is threatened. The economic and security dimensions of the international system have a decisive impact on the climate dimension and it is necessary to take them into priority consideration in any realistic analysis of the future of climate negotiations. Tensions between countries with international trade surpluses and deficits, especially in relation to China, can limit or even stop the G20 advances in global economic governance that took place in 2009. The international system could be reversing the dynamics of cooperative depolarization that occurred in 2008 and 2009. In the case of the predominance of a dynamics of moderate increases of conflicts in the international system over the coming years, this would be sufficient to block advances in a new international climate treaty, even if a comprehensive climatic legislation were to be approved in the US in 2013. In this context, the global transition to a low-carbon economy will be very slow and one of its principal international instruments will be the establishment of trade barriers for carbon-intensive products. In the case of Russia and India, a majority of the sectors are threatened. In the case of China, the scenario would be more complex considering that, due to the great advances in wind and solar power, the proportion of products with low-carbon intensity (currently very low) would increase rapidly on the agenda of Chinese exports. In the case that a tendency towards cooperation and continued depolarization of the international system prevails over the coming years and Obama becomes reelected in 2012, it is probable that the American position will change from being a great conservative power to a great reformist power in regard to a global agreement to constrain carbon. Also probable is that an alliance between the European Union, Japan, Canada, South Korea, Brazil, Mexico, South Africa and the United States is able to persuade China, Russia and India to establish emission peaks and different stabilizing years prior to 2020 for China and Russia and between 2025 and 2030 for India, considering that the per capita emissions in Russia are almost double that of the Chinese and five times greater than that of India; and Chinese emissions are three times greater than Indian emissions (Viola and Machado Filho, 2010). In an international system where forces of convergence predominate, Chinas globalization and decarbonization forces are favored.. From the perspective of low-carbon technology, there are some small countries that will have global impact due to their technological advances: Israel, Taiwan, Singapore, Switzerland and Norway. The principal variable to increase cooperation and produce a decarbonizing agreement in the international system is more flexible intellectual property rights in the area of low-carbon technologies. The scenario

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is not simple, since some emerging countries are already at the forefront of low-carbon technology in some areas. For example, China would need a more flexible system in the areas of nuclear energy and second generation ethanol, but not in wind and solar in which several mid and low income countries would need Chinese-Taiwanese technology transfers. Brazil would need a relaxation of intellectual property laws in the areas of wind and photovoltaic solar energy, but would be at the forefront and should transfer technology in the areas of hydroelectricity and first generation ethanol to medium and low income countries. A new and great question is how long Brazil will maintain the discrepancy between a climate policy with emissions reduction targets and an international negotiations position that follows China and India, which have more conservative climate policies. Due to the relative power interests of various economic sectors in Brazil and the dynamics of public opinion, it is probable that this inconsistency will not be maintained for long and that the Brazilian negotiating position would converge with that of the European Union, Japan and South Korea.

Challenges and opportunities

International perspectives of the transition to a low-carbon green economy Eduardo Viola

References Barret, S. (2010). Contrasting future path for an evolving climate regime. Global Policy, 1. Friedman, T. (2009). Hot, flat and crowded. Why we need a green revolution and how it can renew America. New York: Farrar, Strauss and Giroux. Giddens, A. (2009). The politics of climate change. London: Polity Press. La Via, A. (2010). Ways forward after Copenhagen: reflections on the climate change negotiations process by the REDD-plus facilitator. Manila: Foundation for International Environmental Law and Development. Ladislaw, S. (2010). A post-Copenhagen pathway. Washington: Center for Strategic and International Studies. Stern, N. (2009). The global deal. Climate change and the creation of a new era of progress and prosperity. New York: Public Affairs. Viola, E. (2010). A poltica climtica global e o Brasil, 2005-2010. Tempo do Mundo, vol. 1, n. 2. Braslia: IPEA. Viola, E. and Machado Filho, H. (2010). Os BICs (Brasil, ndia e China) e as negociaes de mudana climtica. Rio de Janeiro: Centro de Estudos de Integrao e Desenvolvimento, Breves 35.

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Challenges and opportunities

Green economy in Latin America: the origins of debate in ECLAC work


Mrcia Tavares1
The exact meaning of the term green economy is still being discussed, and other articles in this volume certainly will contribute to this debate. It is likely that the term will acquire different meanings in different countries and contexts. In the context of the preparatory process for the United Nations Conference on Sustainable Development (Rio+20), resolution 64/236 of the General Assembly specifies that the term to be used is green economy in the context of sustainable development and the eradication of poverty (italics added). This qualification reflects four decades of dialogue between governments of developed and developing countries about the environment, economics and development, through the sequence of global conferences on the subject: the 1972 United Nations Conference on the Human Environment in Stockholm, the 1992 United Nations Conference on Environment and Development in Rio de Janeiro and the 2002 World Summit on Sustainable Development, and now the preparatory process for Rio+20. All these landmark conferences were marked by resistance to the imposition of the manner in which these relations should be handled by each country, how priorities should be defined in national policy and the relative importance attributed to different challenges of development and the protection of the environment. This tension, along with different views on the role of international cooperation and the importance of historic responsibilities, is visible in the definition of sustainable development by the Brundtland Commission, in various of the principles of the Rio Declaration on Environment and Development, in the difficulties in reaching an agreement on climate change and currently in the debates between governments on green economy. Since the beginning of the 1970's, ECLAC has undertaken two functions in regard to the relations between economics and environment and as of the end of the 1980's, sustainable development. Firstly, ECLAC supports governments of the Latin American and Caribbean region in intergovernmental processes. This role was reinforced by Agenda 21 in 1992, the Johannesburg Plan of Implementation in 2002 and the reformulation of the modus operandi of
1. Mrcia Tavares is Economic Affairs Officer of the Sustainable Development and Human Settlements Division of the Economic Commission for Latin American and the Caribbean (ECLAC). Opinions expressed in this article are the responsibility of the author and do not necessarily coincide with those of ECLAC.

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the Commission on Sustainable Development (CSD) in 2003. Today, ECLAC is the United Nations agency responsible for the regional preparatory process for Rio+20 in Latin America and the Caribbean. Secondly, since its foundation in 1948, ECLAC has been a think tank on Latin American (and as from 1984, Caribbean) economies and their insertion in the international context.2 In exercising these two functions, a number of ECLACs institutional publications and works by authors associated to the institution have addressed the relations between environment and economics either directly or indirectly when dealing with other aspects of development in the region. This article extracts some of the main ideas from works undertaken within ECLAC from the beginning of the 1970's to the beginning of the 1990's, at key moments in the debate about relations between economics and environment or about sustainable development. Some of the issues dealt with, the approaches adopted, or even the language of these documents may now be outdated, but the central arguments continue important to inform the debate about green economy and the shape that this concept will take in Latin America. They can be helpful in assessing the complexity of environmental problems in the region and their direct link to economic and social structures and processes. The references below do not do justice to the wealth of the original texts, but will hopefully raise interest in them as historical references.

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1. IN PREPARATiON FOR THE STOCKHOLM CONFERENCE: HUMAN ENViRONMENT AND ECONOMiC DEVELOPMENT iN LATiN AMERiCA, 1971
One of ECLACs first incursions in the environmental issue area was the work related to the organization, in 1971, of a preparatory meeting for the Stockholm Conference (1972). For this meeting, ECLAC published a study in collaboration with the Latin American Institute of Economic and Social Planning (ILPES) and the regional office of the Food and Agriculture Organization (FAO) (ECLAC, 1971). The document identified low development and deficient income distribution as the main sources of the poor environmental conditions of the region. Industrialization, though necessary for development, had generated new problems. Thus, it was argued, there coexisted in Latin America, to a greater degree than in other regions, environmental problems associated with underdevelopment and those associated with technological progress. The document addressed the issue through the perspective of relations of dependency, the regions peripheral nature and structural heterogeneity,
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elements that had dominated ECLAC thinking during the previous decade (Bielschowsky, 1998).

2. For an overview of ECLAC thought up to the 1990s, see Bielschowsky (1998) and (2009).

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Influenced by the Founex report written some months before3, the dominant argument in this 1971 document was that development is a condition for ensuring desirable environmental conditions. Implicitly, the document reacted to theses that saw growth as detrimental to environmental quality, including that of the limits to growth. On the other hand, it addressed the dilemma of resource allocation between environmental and development objectives. This dilemma applied both to public resource allocation and to private sector business decisions. One example of the latter was the difficulty companies in the region found to develop and adopt more modern and less polluting technology, due to insufficient technological capacity and the need to maintain competitiveness (low costs and prices) in the international market. The 1971 document discussed the main environmental problems in urban and rural areas; the difficulties in ensuring a sufficient expansion of urban public services to meet the needs of a growing urban population; and the problems of industrial pollution. It also showed the relation between the agricultural production structure and the generation of large numbers of un- or underemployed, which were forced to occupy marginal lands with little capacity to generate surplus production or to integrate the increasing marginalized urban population. The text goes on to discuss other problems that still today dominate regional and international agendas, such as the challenges of securing energy for growing populations and economies; the effects of mining on the environment and the health of workers; the inefficient use of water; and the difficulty of developing domestic technology compatible with the local context and its environmental challenges. As would later be consolidated in both the 1992 instruments and in the Seventh Millennium Development Goal (environmental sustainability), the document supports the need to integrate environmental issues in public policymaking. The life-cycle logic in production and consumption is mentioned and used to show how natural materials such as cotton would be considered more competitive than synthetic materials if the costs of adequate disposal were considered. This was still a relevant subject on the agenda of the CSD in 2011. The conclusions lead to the debate about the means of implementation of international environmental and sustainable development commitments, an issue that is still significant in the preparations for Rio+20, including the debates on green economy. These include the issue of trade restrictions; the capacity of industry to adapt to a new paradigm; the need for technology transfer and financial assistance; and the inseparability between economic development, social development and the environment, which came to be the basis of the

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concept of sustainable development.

3. Founex Report on Development and the Environment, presented by a group of specialists summuned by the Secretary General of the United Nations Conference on the Human Environment, 4 to 12 June, Founex, Switzerland.

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2. DEVELOPMENT STYLES AND THE ENViRONMENT, 1980


During most of the 1970's, the work of ECLAC was centered on what would become known as styles of development.4 This line of work originated in the perception that although the region had obtained good results in terms of growth and industrialization, this had taken place with the exclusion of large sectors of society, aggravating unemployment, underdevelopment and poverty, and accumulating political tension. The aim of this approach was to understand and respond to the development styles of countries in the region, seen in the context of the internationally prevalent styles. It was understood that an ascending, transnational, development was imposed over the dominant development styles of each country. This confrontation of styles, together with existing social forces, contributed to the structural heterogeneity5 that characterizes peripheral countries within the capitalist system, another key concept of ECLAC thought in the 70's (Bielschowsky, 1998; Sunkel, 1980). Mainstream work about development styles did not explicitly consider the environmental dimension. Responding to this deficiency, between 1978 and 1980, ECLAC and the United Nations Environment Programme (UNEP) developed a project entitled Development Styles and the Environment. This formed the basis for work by ECLAC in the environmental issue area over the 20 years that followed (Gligo, 2006). The results of the initial project were joined into two volumes published in 19806 and summarized in an introductory article by Osvaldo Sunkel (1980). This article relates environmental problems in the region to the Latin American development process between the colonial period and the end of the 1970's, and particularly to the emergence of the transnational style after the post-war era. According to Sunkel (1980), the development styles of the countries that are developed today (including consumption choices, infrastructure, technological pathways) have been generated over time based on a world vision where natural resources were seen as unlimited. Colonial powers saw in the then apparently infinite resources of the colonies, a source for that which lacked or became scarce inside national boundaries. The United Statess ample territory generated the same perception. The depletion of the best natural resources
4. There have been various definitions of development styles over time. Sunkel (1980) quotes complementary definitions to those by Anbal Pinto and Jorge Graciarena (free translation): the manner in which human resources and materials are organized and assigned within a certain system with the purpose of resolving the questions of what, for whom and how to produce goods and services and the concrete and dynamic modality adopted by a system in a defined area and at a determined historical moment. 5. The term structural heterogeneity refers to the intra and inter sectoral asymmetries in terms of productivity (Pinto, 1970). These asymmetries are the hard core from which other inequalities are transmitted to all of society ECLAC (2010). 6. Sunkel, Osvaldo and Gligo, Nicolo (compilers) (1980), Estilos de Desarrollo y Medio Ambiente en la Amrica Latina, Fondo de Cultura Econmica, Mxico. The two volumes of this compilation contain 37 articles about development styles and the environment in general, and the development of the agriculture, livestock and forestry industries, urbanization and marginalization, energy and industrialization, and policies, strategies and planning sector. A special edition of the CEPAL Review (No. 12, December 1980) gathered some of these articles.

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(high grade, best location for extraction) and the degradation of renewable ones was not seen as a problem for these countries as technological progress and expansion to new territories always made new resources available. Upon gaining independence, ex-colonies reproduced development models based on a perception of unlimited natural resources, not necessarily compatible with their factor endowments and structural conditions, and without managing to generate autonomous processes of technological progress.

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Up to the 1940's, environmental problems in Latin America were, according to the study, mainly related to agricultural practices associated with a structure that combined large, under-utilized estates with overexploited smallholdings. In parallel, the expansion of the agricultural frontier generated its own problems, as did the exploitation of natural resources, a basic sector of the economies in the region. Revenue generated from mineral extraction was not being reinvested in local development. On the contrary, revenues were for the most part sent abroad. Additionally, as early as the 1940's, environmental problems existed in relation to the marginalization of segments of society both in rural and urban areas, despite industrial pollution being dispersed and of limited significance. By the end of the Second World War, the hegemony of the United States had extended the North American development style referred to as transnational to the rest of the world. The ascendance of this style in Latin America generated new environmental problems. The transnational style was characterized by, among others, the dominant role of transnational companies; the generation of irreversible transformations in national economies and societies that reduced the policy space of governments in the pursuit of autonomous development processes; the homogenization of production, marketing and consumption patterns; the internationalization of industrial production; and the intensification of natural resource exploitation and growing dependence on oil. The expansion of the use of the automobile influenced the dynamics of urban expansion and generated a growing demand for land in residential areas and for transportation infrastructure. Against the background of this ascending style, in the post war period policies of a breadth seldom seen since then were adopted in many countries to promote the development of basic industries such as the petroleum and automobile industries, as well as the infrastructure necessary to support these new sectors. The financial surplus derived from the exploitation of natural resources that remained predominant in economic structures was sent abroad or used to finance imports of consumer goods.

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One of the main characteristics of development in the region as understood through the lens of the ascendance of the transnational style was high-energy intensity and dependence on petroleum, the relevance of which much exceeds the problems of atmospheric pollution. The contribution of Raul Prebisch to the ECLAC/UNEP project collection (Prebisch, 1980) shows among other things, how

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the era of cheap petroleum influenced the direction of technological research. Investments allowed for the increase of productivity but not improvements in energy efficiency. The expanded use of petroleum as a raw material led to the substitution of natural fibers and wood by synthetic materials, to the detriment of employment. In agriculture, mechanization generated unemployment and migration to cities, which contributed to a massive and precarious urbanization process. The use of fertilizers and pesticides from petrochemical origins contributed to soil contamination. Also inherent to the ascendance of the transnational style was the geographical concentration of the industrial, political and bureaucratic administrative centers. This partly explains the repeated failure of regional decentralization policies between 1960 and 1980. Similarly, the dynamics of massive and precarious migration always undermined policies aimed at addressing the housing deficit or extending basic services to the poorest. While the most privileged groups retreated to suburban neighborhoods, occupying land previously employed in agriculture and requiring investments in the development of infrastructure for the new areas, within the cities the poorest groups occupied increasing areas of marginal land. The oil crisis at the beginning of the 1970's led to a crisis of the transnational style. However, by then its models of consumption, production, infrastructure and urban development, as well as social structures, had already been firmly established and still prevail to a great extent today. There were, by then, few alternatives for substantial changes in development paths. The oil crisis at the beginning of the 1970's, for instance, did not cause economies to shift to other sources of fuels despite significant initiatives such as Pr-lcool (Pro-Ethanol) in Brazil. Rather, it generated even more pressure on export sectors to be able to finance petroleum imports. For an alternative development style compatible with the satisfaction of the basic needs of the majority of the population and the preservation of the natural resource base and the environment, the following recommendations emerged from the research on styles of development and the environment: less dependence on fossil fuels and a greater use of renewable and less polluting energy sources; development of more labor intense technologies that are adjusted to the local natural resource base; recycling and reuse of waste; natural resource management with ecologically based knowledge and technology; institution of decentralized administrative and political processes grounded in local communities; and deterrence of the continued expansion of large cities and excessive consumption. In addition, no development effort should leave out consideration of the environmental dimension. It was recommended that development planning and science and technology policies have as central concerns the knowledge and assessment of natural resources and ecosystems, the need for permanent monitoring, the development of alternative technologies

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and diversification of production based on ecologically adequate techniques. Lastly, the document recommended, the establishment of mechanisms that enable the participation of society in decision-making, which later became consolidated as Principle 10 in the Rio Declaration. The following citation draws attention to similarities with certain definitions of the concept of green economy, or green growth as adopted by the OECD7. In the words of Sunkel (1980) (free translation):

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Policies aimed at conserving, improving and expanding natural resources and their productivity, and those that seek to conserve, improve and expand the artificial environment and its productivity, are a part of development policies, as they make development sustainable in the long term. But they can also make positive contributions to solve problems characteristic of the current development style () Conservation projects for soil and forests, reforestation, dredging and conservation of irrigation channels, maintenance and construction of roads that penetrate rural areas and the self-construction of housing and community equipment in urban zones, if adequately designed, can contribute to alleviate problems such as unemployment and underemployment, at the same time as they promote social organization at the base of society, increasing productivity and improving living conditions.

3. THE DEBT CRiSiS AND THE BRUNDTLAND COMMiSSiON: REFLECTiONS BETwEEN 1985 AND 1990
The World Commission on Environment and Development, also known as the Brundtland Commission, was created in 1983. In 1987, the Commission published its report, which defines sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. During this period and the years that followed, Latin Americas international economic relations and thereby the focus of ECLAC were dominated by financial asphyxia due to indebtedness (Bielschowsky, 1998). Two articles by Osvaldo Sunkel one before and one after the Brundtland report refer to the relation between the debt crisis and sustainable development. They make a call for the global debate on the environment and sustainable development not to disconsider the great challenges of the economic context in Latin American countries and of the way in which they were inserted in the international economic system. Sunkel suggested that the debt crisis was an opportunity to
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7. A way to pursue economic growth and development, while preventing environmental degradation, viodiversity loss and unsustainable natural resource use. This refers to strategies that emerged in response to the global crisis and that sought sources of growth that could contribute simultaneously to economic efficiency, environmental integrity and social equality (OECD, 2010).

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improve the relation between economy and environment, which is reminiscent of the concepts of green economy within the context of the United Nations, and green growth within the context of the OECD, later emerged largely as a reaction to the global crisis that reached its summit in 2008. The 1985 article describes the effects of the crisis on the environment and environmental institutions, an aspect that had allegedly not been adequately addressed by the Brundtland Commission up to that point (Sunkel, 1985). Environmental institutions were still weak and their role still the object of much uncertainty when they were hit by the crisis. The budget constraints stemming from the crisis and an economic and financial outlook that focused on the short term further weakened the environmental institutions that had emerged since the Stockholm Conference. Furthermore, the pressure to raise hard currency to cover debt servicing and the political consequences of adjustments increased poverty levels and contributed to aggravate problems of over-exploitation of land and natural resources, as well as migration from rural areas to cities and the consequent increase in urban poverty. Within cities, informal housing and activities expanded. Running counter to sustainable development, the pressure to raise hard currency led to the favoring of activities with visible short-term results, to the detriment of long-term investments (such as those related to environmental protection). Similarly, in a compilation of Latin American perspectives on the Brundtland report, Sunkel (1990) again demonstrates how the debt crisis, the deterioration in the terms of trade and the conditions of international financing introduced or helped to perpetuate despite what was promoted internationally, the precedence of the short term. It shows how the crisis reduced the capacity of the State to invest and attend to the basic necessities of the population (health, education). Investments that resulted in high exports were favored, which in turn generated resources that were channeled to pay off debts. Resources allocated to environmental protection, whose results were not tangible or only materialized in the long term, became scarce. However, just like the oil crisis at the beginning of the 70's, the debt crisis was also presented as an opportunity to change the style of economic growth and to make development compatible with the environment. Again similar to the first documents on green economy during the reactivation efforts of the global economy in 2008, Sunkel proposed, in 1985, a vision of the new crisis as an opportunity to change paths (free translation): It is possible to face the issue of environmental resources, the resources

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given by nature and the constructed ones, as a way to establish a link between short term economic policies and the need for medium and long term development policies. In other words, what I am suggesting is that we face the crisis as an opportunity. An opportunity to mobilize resources in a way that enables change in the style of growth, taking into consideration the need to

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satisfy the essential necessities of the population and introduce a sustainable, or conscious, development process. The article argues for an expansive, but selective, policy rather than recessive adjustment; relates macroeconomic policies to the environment; and includes specific policies for social issues, for small and medium businesses and for industrial development. It also promotes the attachment of value to environmental and natural resources in order to ensure that present and future needs are met, This would influence the way in which the productive sectors, instrumental in shaping development patterns, view the environment. The 1990's took a different direction.

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4. PRODUCTiVE TRANSFORMATiON, EQUALiTY AND THE ENViRONMENT, 1991


The issue of productive transformation was a central them in ECLAC work over most of the 1990's. Building on the theoretical base developed since the end of the 1940's, in 1990 ECLAC proposed the concept of productive transformation with equality as a regional priority over the coming decade (ECLAC, 1990, 2008; Bielschowsky, 1998). A productive transformation was proposed that would be sustained by the deliberate and systematic incorporation of technical progress and increased productivity as factors necessary for authentic international competitiveness8. The systemic character of competitiveness was emphasized, as well as links between businesses, the education system, technological, energy and transport infrastructures, relations between employers and employees, the public and private institutional apparatus and the financial system. It was argued that a suitable and stable macroeconomic environment and a policy to correct prices, though necessary, would not be sufficient to trigger productive transformation. Macroeconomic management should be combined with sectoral policies, which could induce productive transformation. It was necessary to secure links between different sectors (exploitation of raw materials, industry, services) in order to generate a progressive homogenization of levels of productivity. Equality, democracy and environmental sustainability were seen as key factors in a productive transformation process. ECLACs document to support regional preparations for the Rio Summit in 1992, Sustainable development: productive transformation, equity and environment (ECLAC, 1991), was written in this context. The document deals with various issues related to sustainable development in the region,
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among them that of the relationship between productive transformation and sustainability, based on the results of a study specifically dedicated to the topic (ECLAC/UNIDO, 1991).
8. Concept construed in opposition to that of spurious competitiveness, based on the degradation of natural resources and low valuation of human resources.

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The latter demonstrates that the traditional focus on productive development on the one hand, and ecology on the other, emphasized different and apparently irreconcilable objectives: growth and international competitiveness as opposed to equity and environmental sustainability. The link that could make these objectives converge would be the incorporation and diffusion of technical progress (ECLAC/UNIDO, 1991). The dependence of Latin American economies on natural resource extraction was seen as a concern; not only because of the related environmental problems, but also because the way in which these industries were organized was not conducive to overcoming sectoral encapsulation, that is, the lack of productive links between different sectors (primary, secondary, tertiary). The Latin American experience differed from that of some OECD countries whose economies were also based on natural resources, but whose industrial development had taken place mainly as a result of the transformation of these resources, in a context that enabled a wide range of technological innovation. Overcoming sectoral encapsulation required strong and coordinated policies; however, these were not sufficiently put into practice throughout the 1990's. A 2008 assessment demonstrated that, despite a greater diversification of exports and economic benefits due to price increases in raw materials, the region had not managed to reduce dependence on traditional exports, nor incorporate more knowledge and aggregate value to activities and supply chains. The increase in manufactured exports had not been translated into an increase in activities of higher aggregate value, technology diffusion or generating technological capabilities. Innovation efforts continue being rare, especially if compared to Asian competitors (ECLAC, 2008). In the green economy debates, the development of new green sectors is mentioned as a way to stimulate economies, as a new technological paradigm. It is important to consider, when defining the instruments to be adopted nationally and internationally, that the challenge of productive transformation has persisted in the region for decades. Managing to use the green economy as a motor of economic expansion requires efforts of great magnitude in terms of policies related to education, innovation and productive development, which cannot be managed nor implemented solely by governmental agencies related to the environment.

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5. POiNTS FOR REFLECTiON


Among the questions that this compilation of documents raises for the green
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economy debate, the following are highlighted due to their importance and link to the second theme of Rio+20, the institutional framework for sustainable development.

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As a group, the documents mentioned are a reminder that the relation between environmental, social and economic problems in Latin America is profound and complex. The reflection on how to change these relations and solve the great environmental problems in the region, that disproportionately affect the poorest, must consider these roots. In this sense, green economy strategies will tend to be insufficient if managed and implemented separately by entities governments, civil society, businesses and their representative entities that deal with the environment as a specialized area. Secondly, seen with the benefit of hindsight, the documents show the importance of identifying and removing barriers to change. Already in 1971, solutions were suggested that continue to be debated internationally, but that are only marginally implemented, such as the adoption of a life-cycle approach to production.9 Two ideas found at the origins of the international projection of the green economy concept that of transforming crisis into opportunity to redirect development towards greater sustainability and that of making environmental protection a source of economic opportunities had already emerged in 1980 (Sunkel, 1980), if not before. Why did these ideas of which ECLAC was only a small exponent not have significant practical consequences? It is known that there are, among others, technological, entrepreneurial, legal, institutional and information barriers, including the difficulties of valuation of natural capital. There is an inertia derived from investments made under a paradigm that did not attribute value to the environment: investments in technology, energy sources, monitoring systems, industrial plants, business models, methods for calculating the cost-benefit of projects, public institution mandates, etc. To ensure that the green economy under whichever precise concept comes to be adopted internationally and by each country goes beyond a set of well-intended declarations, it will be necessary to overcome these barriers in a coordinated manner among institutions and actors in different spheres. On the other hand, as shown through the experience in the 1980's, if there are not strong and permanent institutions that can ensure that between two options the sustainable one is favored, the progress is nullified in times of crisis when choices have to be made between objectives. Finally, the green economy has been mentioned as an opportunity for a new technological and innovation cycle. This could mean, for Latin American countries, the entrance into new markets and a new opportunity to participate in sectors with higher value added, that diffuse technology, in some cases linked to the natural resource sectors that are so important in the economies of the region. When considering this argument, it is important to keep in mind the experiences in the region with productive transformation mentioned previously in relation

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9. In addition to debates on green economy, see the reports from the 18th and 19th sessions of the Commission on Sustainable Development, particularly with regards to the topic of consumption and sustainable production.

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to the documents from the beginning of the 1990's and the lessons learned: to take advantage of opportunities such as this active policies are needed, with clear strategic objectives. This includes an articulated combination of policies addressing education, and industry, science and technology, among others. A necessary condition is a clear choice, by a relevant and articulated group of public institutions, to prioritize a sustainable development path.

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References Bielschowsky, R. (1998). Cincuenta aos del pensamiento de La CEPAL: una resea. In CEPAL, Cincuenta Aos de Pensamiento en la CEPAL: Texto Seleccionados. Mexico: ECLAC/Fondo de Cultura Econmica. Bielschowsky, R. (2009). Sesenta aos de la CEPAL: estructuralismo y neoestructuralismo. In Revista de la CEPAL, n. 97. April, 173-194. ECLAC (1971). El medio ambiente humano y el desarrollo econmico en Amrica Latina. Seminrio Regional Latinoamericano sobre los Problemas del Medio Ambiente Humano y Desarrollo, ST/ECLA/Conf.40/L.2, August 25, Santiago de Chile. ECLAC (1990). Transformacin productiva com equidad: la tarea prioritaria del desarrollo em Amrica Latina y el Caribe em los aos noventa (LC/G.1601-P). Santiago de Chile: United Nations Publication. ECLAC (1991). El desarrollo sustentable: transformacin productiva, equidad y mdio ambiente (LC./G.1648(CONF.80/2)/Rev.1.). Santiago de Chile: United Nations Publication. ECLAC (2008). La transformacin productiva 20 aos despus: viejos problemas, nuevas oportunidades (LC/G.2367(SES.32/3). United Nations Publication. ECLAC (2010). La hora de la igualdad: brechas por cerrar, caminos por abrir (LC/ G.2432(SES.33/3). Santiago de Chile: United Nations Publication. ECLAC/UNIDO (1991). Tecnologa, Competitividad y Sustentabilidad (LC.L/608). Santiago de Chile: United Nations Publication. Gligo, N. (2006). Estilos de desarrollo y medio ambiente en Amrica Latina, un cuarto de siglo despus. Serie Medio Ambiente y Desarrollo, n. 126, May. ECLAC. OECD (2010). Interim report of the green growth strategy: implementing our commitment for a sustainable future. Paris: OECD. Pinto, A. (1970[2000]). Natureza e Implicaes da Heterogeneidade Estrutural da Amrica Latina. In Bielschowsky, R. (org.), Cinquenta anos de pensamento da CEPAL. Rio de Janeir; So Paulo: ed. Record, ECLAC, Cofecon, vol.2. Prebisch, R. (1980). Bisfera y desarrollo. In Sunkel, O. and Gligo, N. (comp.), Estilos de Desarrollo y Medio Ambiente en la Amrica Latina. Mexico: Fondo de Cultura Econmica. Sunkel, O. (1980). Introduccin: la interaccin entre los estilos de desarrollo y el medio ambiente en la Amrica Latina. In Sunkel, O. and Gligo, N. (comp.), Estilos de desarrollo y medio ambiente en la Amrica Latina. Mexico: Fondo de Cultura Econmica. Sunkel, O. (1985). Dvida, desenvolvimento e meio-ambiente. Espaos & Debates Revista de Estudos Regionais e Urbanos, ano V, no. 16. Sunkel, O. (1990). El difcil contexto internacional para un desarrollo sustentable. In Maihold, Gnther and Victor L. Urquidi (comp.), Dialogo con nuestro futuro comun: perspectivas latinoamericanas del Informe Brundtland. Mexico: Fundacin Friedrich Ebert- Editorial Nueva Sociedad.

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Challenges and opportunities

The role of inclusive growth for a green economy in developing countries


Clvis Zapata 1

INTRODUCTiON
The proposition that anthropogenic emissions of greenhouse gases have dangerously modified global climate is already consensually accepted. One may ask, however, what the economic impacts are of necessary measures to achieve reductions in emissions levels and environmental degradation capable of minimizing such effects. Environmental economists agree that public policies based on economic incentive instruments can alleviate the effects caused by climate change at an acceptable cost. According to the 2011 UNEP report Towards a green economy: pathways to sustainable development and eradication of poverty, in a green economy income and employment growth is fostered by public and private investment that reduces carbon emissions and pollution, improves efficiency in the use of energy and natural resources, and avoids the loss of biodiversity and ecosystem services. These investments should be supported by directed public expenditure, policy reform and regulatory changes. This development path should maintain, improve and, where necessary, rebuild natural capital as a critical economic asset and source of public benefits, especially for poor people whose survival and security depend strongly on nature. The essential notion advocated by the green economy concept is that public policy coupled with changes in key sectors can conduce national economies to admissible levels of environmental degradation, without drastic changes in consumption patterns. Despite the theoretical possibility, the practical challenge is tremendous for developing economies, since public policy makers must already associate economic growth with other areas, such as increased consumption patterns to the poorest segments of society. In this sense, Gunningham et al. (2003) point to the importance of combining economic, social, environmental and political dimensions in the design of both economic incentive instruments and commandand-control measures for environmental policy , which is a fundamental issue
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for developing economies willing to enter the green economy.

1. Senior researcher at the International Policy Centre for Inclusive Growth of the United Nations Development Programme (IPC-IG/UNDP) and professor of Finance at the University of Braslia.

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THE gREEN ECONOMY


The green economy can be defined as a paradigm shift that proposes a reduction of current environmental risks and ecological limitations, coupled with an increased human well-being and social equity (UNEP, 2011). Thus, the concept can be easily connected to the notion of inclusive growth, which proposes improved quality of life for all those that live in an economy. In this sense, both are of fundamental importance for policy makers in developing countries.

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The role of inclusive growth for a green economy in developing countries Clvis Zapata

In order for an economy to move from the current model to the desirable green, investments in strategic areas of natural capital that minimize environmental risks are fundamental. Despite the issue having been presented extensively in the academic literature, governments have only recently started to take more proactive measures to translate the rather vague green economy concept into practical actions. It is worth emphasizing the role played by international organizations, such as the United Nations, which provide a forum for permanent debate, disseminating successful cases of developed and developing countries and presenting innovative policy proposals. The Green Initiative, for instance, was launched in 2009 by the UNEP, as part of the nine UN-Wide Joint Crisis Initiatives that involve all 21 UN agencies, including the Bretton Woods institutions. Contributions are also made in the area of public policy proposals. The most prominent example has been the UNEP report that broadly defends that annual investments equivalent to 2% of the global GDP (close to US$ 1.3 trillion) until 2050 would fuel the development and transition of 11 key sectors to a green economy (UNEP, 2011). These are: 1- agriculture, 2- buildings, 3- renewable energy, 4- forestry, 5- manufacturing industry, 6- fishery resources, 7- tourism, 8- transport, 9- water resources, 10- solid waste management and 11- cities. According to the defended thesis, investments coupled with political reforms should foster change in the selected industrial sectors, which would improve the industries competitive position in the long term. As a consequences, sustainability transformation could be driven by eco-efficient solutions, which propose more efficient utilization of scarce natural resources and present innumerable social benefits, such as employment in 'green jobs'. From a social perspective, this process can conduct emerging countries to a situation where a growing green economy unfolds into the desired inclusive growth. The development of these key sectors can reduce poverty and minimize income discrepancies. To achieve this, the policy menu is diverse, including direct generation of green jobs, increased access to environmental products

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and services in needy communities, design of conditional cash transfers, direct subsidies to certain industrial sectors and restructure of national public spending policies.

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Many developing countries have already incorporated sustainable development concepts, at least in certain sectors, that link various key policy areas such as pro-poor and pro-employment economic growth. In this sense, a fundamental aspect for developing countries is that the inclusion of a green economy can connect dimensions that were previously perceived as antagonistic. According to Gunningham et al., (2003), environmental, social, economic and

Challenges and opportunities

The role of inclusive growth for a green economy in developing countries Clvis Zapata

political dimensions should be taken into account when designing public policies capable of modifying environmental progress in industrial sectors. An analysis of the 'license to operate' model indicates the relevance of the interaction between dimensions as the starting point for influencing the environmental progress of industry. . As such, these diverse dimensions should be taken into account by countries that are interested in developing certain sectors of the economy. This holistic understanding goes beyond the interpretations offered by authors of corporate strategy such as Porter and Van der Lind (1995) and Hart (1997), who were pioneers in the idea that the private sector can benefit from environmental regulation in competitive terms. Such concepts were thereafter modified by Reinhardt (2000) and Orsato (2009), that indicate conditions where gains could be realized. Despite the great relevance of such literature, few industrial sectors have actually awoken to the new areas of green economy, especially in developing countries. Many of the efforts have been solely focused on the green discourse and green packaging of old unsustainable practices. Thus, the role that governments and international organizations play in promoting the agenda for developing a green economy is essential, since the combination of fiscal incentives and regulations can accelerate the process of change through technological innovation and the creation of green markets. If left to the exclusive will of the private sector, as has been the case, economies turn out to be incapable of actually entering into a green economy. It is important to note that social, economic, political and environmental dimensions follow different mecanisms that should be carefully understood for developing countries. Despite the existence of potential synergies and strong interactions between these dimensions, it cannot be assumed that the dynamics and responses of each one can be identical. Each country faces the challenge of finding solutions that drive economic growth in a way that is environmentally sustainable, socially inclusive and politically feasible, within their unique contexts.

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THE COMPLEMENTARiTY BETwEEN SOCiAL AND


ENViRONMENTAL DiMENSiONS
In terms of public policy, the economic and social dimensions have been on the centre of policy making in developing countries. Although the development

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of social policies should be coupled with the development of the green economy, the evolution seen in the field of social program design was not accompanied by environmental concerns. In the social field, Brazil and other developing countries recently adopted a series of innovative social protection strategies to improve the lifestyles of the poorest. Brazil, for example, implemented the Family Grant program (Bolsa Familia), and Mexico the Oportunidades. Such programs have generated significant benefits in combating poverty, raising the living standards of the population in certain areas and guaranteeing benefits in the fields of education and health. However, the interaction between social and environmental policies still requires more robust debate. One of the options presented by some countries is the payment for environmental services, which utilizes conditional cash transfer instruments to rural landowners that preserve part of their land, as was done in Costa Rica. Such programs have generated positive effects, but still have not been widely adopted in other countries. In Brazil, for example, despite the success of the Family Grant program and the efforts by the Brazilian Ministry of the Environment, the country has not been capable of introducing a payment for environmental services program in an effective large scale manner. It is noteworthy that the generation of green jobs through the sectors highlighted by UNEP (2011) is essentially different, as it is based on the belief that the market is capable of generating such positions, with support provided by the public sector. Conditional cash transfer programs are designed to tackle a different issue, since they are better equipped to eliminate distortions relative to extreme poverty and to families in great need for financial resources. Green jobs focus on substituting unsustainable processes with cleaner more advanced alternatives. The 'license to operate' framework presented by Gunningham et al. (2003) notes that the interaction between social, environmental, economic and political licenses is intricate and should be analysed case by case. In a very simplified way, conditional cash transfer programs can be seen as inducers of a non-trivial response. Such programs serve to solve poverty issues, but still have not been able to fully incorporate exit strategies nor the environmental dimension.. However, policies of productive inclusion can be designed to attend to environmental needs and promote key sectors in the green economy.

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INDUSTRiAL DEVELOPMENT AND PRODUCTiVE iNCLUSiON: THE CASE OF THE BRAZiLiAN BiODiESEL PROgRAM
Beyond social strategies, the development of a green economy requires structured growth policies, which generate jobs and include marginal populations in supply chains with high aggregate values. Social strategies can serve as complements to deal with specific social aspects, but as sources of

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development and 'green' innovation. As such, the combination of expansionist macroeconomic policies capable of generating employment and income, coupled with national structures that encourage industrial development, is fundamental. In this section, these issues will be briefly contextualized with the use of the Brazilian Biodiesel Program case. Biodiesel is an area of great debate in the development of renewable energy for transport. Brazil is internationally recognized as one of the leaders in the research and development of biofuels for the automotive industry. In this context, the Brazilian Biodiesel Program brings important elements to the debate, as it relates both to the areas of sustainable transport and renewable energy, as well as presents a political structure to address the social dimension. The Brazilian Biodiesel Program has been developed to structure the productive supply chain and incorporate small family farmers in the production of raw materials for the production of biodiesel. The program was designed so that small farmers could contribute with a series of vegetable sources such as soy, castor bean, sunflower, palm and cotton. Despite the extensive background the country possess in this area, the inclusion of small family farmers in the biofuel supply chain was an innovative policy effort that turned out to be disappointing, due to innumerable problems related to the program design and implementation (Zapata et al., 2010). In 2010, the government, perceiving the need to redirect the program to increase the participation of small farmers, remodeled the program structure and placed Petrobras Biofuels as principal stakeholderr. After this change, positive anecdotal evidence has have emerged. . It is expected that consolidated data will be available this year. The Brazilian Biodiesel Program has shown that the policies that t seek to reduce poverty through the productive inclusion of small family farmers is complex, but feasible. Lessons can be taken and applied in other countries that wish to follow similar paths. Despite the effort of combining the environmental and social dimensions, Brazil takes timid steps in the development of technologies and radical innovation strategies, such as hydrogen and electric or hybrid vehicles. The transport strategy is based on incremental modifications of internal combustion engines with marginal environmental effect (Zapata and Nieuwenhuis, 2010).

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The role of inclusive growth for a green economy in developing countries Clvis Zapata

THE SOUTH-SOUTH DEBATE


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Beyond the central importance of social and environmental dimensions for the development of a green economy in developing countries, the political dimension is also crucial. Interest groups can influence governments and society to take measures that generate profound changes in determined areas of the economy and can strengthen the elements necessary for the development of

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the green economy. As such, f international organizations can play a central role that presents feasible opportunities to shape the political dimension in accord with the interests of wider society and not just specific interest groups. The United Nations system, for example, has achieved highly significant results in the political sphere through the promotion of international discussion forums. Experiences with rural and urban inclusive production that drive development in sectors specific to the development of a green economy should be better studied and shared between countries with similar characteristics. In the field of productive inclusion policies or conditional cash transfers, the sharing of experiences among southern countries is fundamental. In this context, it is important to emphasize the efforts made in the IBSA (India, Brazil and South Africa) and BRIC (Brazil, Russia, India and China) countries through IPC-IG, which has acted as catalyst in the debate and experience sharing in specific forums for these two groups.

Challenges and opportunities

The role of inclusive growth for a green economy in developing countries Clvis Zapata

CONCLUSiON
The green economy is an ample concept that should be better translated into measures that modify the current structure of national economies. The current debate is lead by UNEP is based on the premise that incremental modifications in selected industrial sectors would be sufficient to conduct humanity towards sustainability. However, the demands from developing countries are pressing, as aside from the critical environmental dimension, the social dimension is also in desperate need. In this sense, the concept of inclusive growth should be fundamentally incorporated in the green economy discussion. In general terms, the discourse of international organizations and many countries is substantially optimistic, and based on the dissemination of successful cases in certain areas. However, it is important to note that the international replicability of such experiences is very limited, since each strategic sector exists within specific local and national conditions, with particular social, environmental, economic and political dimensions. The efforts made by the United Nations and other international organizations are essential, but still incipient in the area of green economy. The private sector should play a leading role in this context. However, It should be noted that the consensus among environmental economists disappears regarding the time necessary to achieve such transformations. A process of profound change in production and consumption, based on radical innovation, is not on the agenda, because much more substantial investments would be required.
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Thus, we should ask if the current debate on the green economy encompasses the sense of urgency necessary to solve the environmental problem within the required time-frame.

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References Gunningham, N., Kagan, R. and Thornton, D. (2003). Shades of green: business, regulation, and environment. Palo Alto: Stanford University Press. Hart, S. (1997). Beyond greening: strategies for a sustainable world. Harvard Business Review, 75(1), 6676. Orsato, R. (2009). Sustainability strategies. New York: Palgrave MacMillan and INSEAD Business Press. Porter, M. and Van der Linde, C. (1995). Towards a new conception of the environmentcompetitiveness relationship. Journal of Economic Perspectives, 9(4), 97-118.

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The role of inclusive growth for a green economy in developing countries Clvis Zapata

Reinhardt, F. (2000). Down to earth, applying business principles to environmental management. Cambridge: Harvard Business School Press. UNEP (2011). Towards a green economy: pathways to sustainable development and poverty eradication. Retrieved from: <www.unep.org/greeneconomy>. Zapata, C. and Nieuwenhuis, P. (2010). Exploring innovation in the automotive industry: new technologies for cleaner cars. Journal of Cleaner Production, 18(1), 14-20. Zapata, C., Vazquez-Brust, D. and Plaza-beda, J. (2010). Productive inclusion of smallholder farmers in Brazils biodiesel value chain: programme design, institutional incentives and stakeholder constraints. International Policy Centre for Inclusive Growth Working paper 73.

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Challenges and opportunities

Brazil and the green economy: a panorama


Francisco Gaetani1 Ernani Kuhn2 Renato Rosenberg3

1. INTRODUCTiON
Upon seeking to understand the situation in Brazil as relates to the green economy (GE) and its perspectives, some crucial questions arise. What are the main advances already achieved in relation to GE? How is Brazil doing in comparison to other countries? What are the main challenges that need to be addressed? These questions are ample, current and narrowly related to discussions about the impacts of climate change and new formulations in the sphere of economic theory. According to the document Green Economy: synthesis for policy makers, elaborated by the UNEP in 2011, green economy can be defined as that which results in improvements to human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In other words, GE can be thought of along the lines of low carbon, efficient resource use and social inclusion. Productive restructuring efforts towards a greener economy are part of government programs both in developed and emerging countries. Development of new markets guided by cleaner energy sources, sustainable arrangements of economic activities and socio-economic inclusion, dominated the debate in the second half of the 20th century, though the 2008 financial crisis and the democratic revival in the Arab world have re-introduced the regressive scenario of predatory growth on the agenda.

2. BRAZiL AS POTENTiAL ENViRONMENTAL ENERgY


SUPERPOwER
To analyze the GE potential of Brazil, it is fundamental to also understand the distinguished role of the country in relation to its privileged environmental conditions of natural resources abundance. The national territory encompasses
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the second largest forest area on the planet, which occupies around 4.8 million square kilometers; representing 56% of national territory and 10% of global
1. Deputy Minister of the Brazilian Ministry of the Environment. 2. Program Director at the Brazilian Ministry of the Environment. 3. Technical Advisor to the Brazilian Ministry of the Environment.

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forests (Governo Federal, 2008). Beyond these great dimensions, the forests are also rather diversified, ranging from the Amazon rainforest, the Araucarias Forests (Brazilian pine forests), the seasonal forests, the tropical Atlantic Forests, the Caatinga (Brazilian dry forests), the Campinaranas (Brazilian heath forests), to the Cerrado (Brazilian savannahs), making this the most bio-diverse country on the planet the other two with similar characteristics are Indonesia and the Democratic Republic of the Congo.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

In terms of water resources, Brazil also exhibits indicators of global relevance: the country has approximately 12% of the surface water available on the planet according to the Brazilian National Water Agency, to which the Amazon region contributes almost 75% (MMA, 2010). In addition to the genetic wealth derived from the countrys biodiversity, an enviable natural resource endowment has also been recorded in the volume of deposits and heterogeneity of resources comparable only to Russia, the United States, Canada and Australia. Brazil has been developing a series of institutional, economic and technological instruments aimed at preserving and utilizing these resources in a more rational and sustainable way. This is a recent effort, though it has been gathering force over the past 25 years. The challenge today is to benefit from the accumulated efforts in favor of environmental preservation and socio-economic development, by taking advantage of the global window of opportunity that is opening through and for Brazil. One example of a distinguished initiative is the Brazilian experience with using combustible alcohol, more commonly known as ethanol fuel. Research to utilize ethanol derived from sugarcane in automotive engines began in the 1920s (Magalhes and Schartzman, 1981). By the 1930s, Decree n. 19.717 (20 February 1931) made the addition of ethanol to gasoline mandatory. The first oil crisis in 1973 brought an energy shortage to the country. Through the National Ethanol Program (Pr-lcool), Brazil was mobilized to produce ethanol to be mixed with gasoline as a first step, and subsequently to be utilized directly as fuel on a large scale, which put Brazil in a unique position in relation to the rest of the world. In recent years, cars called flex (bio-fueled) have already reached a relevant share of the vehicle fleet sold in the country, and thus significantly changing the fuel consumption profile, by consolidating the possibility of using ethanol as a substitute to gasoline and by affecting the demand characteristics in this market by suddenly offering consumers a choice. Such initiatives did not have environmental protection as an objective. Today, however, they are of significant importance in the Brazilian strategy to achieve a transition to a green economy. In the case of ethanol, this fuel emits much lower levels of greenhouse gases than its main competitor, gasoline. According to the Brazilian Ministry of Mines and Energy, between 1970 and 2007 the consumption 854 million barrels of petroleum was avoided due to the

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utilization of ethanol, and thereby withholding the emission of 800 million tons of CO2 into the atmosphere (MME, 2008). Aggregated to this is the public health benefit due to reduced emissions of atmospheric pollutants. The increased agricultural and industrial productivity in the ethanol sector, a result of intensive research and development, to a certain extent contributed to reduce pressure on forests being converted into agricultural land. Despite increased productivity, the recent higher levels of demand made the adoption of mitigative measures a necessity in order to preserve areas with important environmental capital. In addition to technological progress, there were a series of measures of an institutional character that enabled Brazil to capitalize on its enormous potential to generate environmental benefits. Among these, the Forest Code (1965) and the National Environmental Policy (1981) stand out historically. More recently, a presidential decree was issued to approve the Agroecological Zoning of sugarcane, which prohibited plantations in environmentally sensitive areas, such as forest remnants, sand dunes, mangroves and strategic biomes and hydrographic basins, more specifically in the Amazon, the Pantanal and the Alto Paraguai basin. Also established were standards to encourage mechanical harvesting as a way to curb the burning of straw from sugarcane. These are some examples of GE in Brazil: develop economic, technological and institutional instruments to benefit efficiently from the excellent natural conditions of the country and ensure that the benefits gained through these activities are inclusively incorporated into Brazilian society.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

3. BRAZiL ON THE iNTERNATiONAL SCENE


However, in spite of favorable natural and geographic conditions, Brazil is a large emitter of CO2. In 2005, total global emissions of GHG reached 44.130 billion metric tons of carbon equivalent (MtCO2eq) and increased at an annual rate of 1.24% between 1990 and 2005 (ECLAC, 2010). In this context, Latin America and the Caribbean contributed to 12% of total global emissions, with an amount of 5.390 MtCO2eq, and exhibited a growth rate similar to the global average of 1.19% between 1990 and 2005. It can also be noted that the emissions per country in the region are very heterogeneous, with a strong relative concentration in some countries. Furthermore, there are differentiated behaviors based on emission sources, with growth in energy sources and the relative dominance of emissions resulting from changes in land use (deforestation) (ECLAC, 2010). During the period 1990-2005, Brazil exhibited a percentage growth in
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emissions below the average for the region. Nevertheless, Brazil is the largest GHG emitter in the region, corresponding to more than 50% of emissions during the mentioned period (ECLAC, 2010). Considering total equivalent CO2 emissions during the same period, excluding emissions from land use (Barbier,

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2009), the country is in 7th place globally (2.6%), behind China (18.6%), the United States (18%), the European Union (13%), Russia (5.1%), India (4.8%) and Japan (3.5%). It is worth pointing out that in Brazil, the greatest part of GHG emissions stems from change in land use that, if included in this calculation, would certainly elevate the country to one of the greatest global emitters. The main sources of emissions at a global level are concentrated in the energy sector (65%), followed by the agricultural sector (14%) and emissions caused by changes in land use (12%). Emission sources in Latin America and the Caribbean have a unique structure in that emissions originating from changes in land use represent almost half of the regional total, while the energy sector makes up 28% and agriculture 20% (ECLAC, 2010). This demonstrates that mitigation strategies in Latin America should consider both emissions related to energy consumption and, primarily, the levels of deforestation and land degradation. When considering per capita emissions of GHG in 1990 and 2005, Brazil occupied 4th place among the greatest regional emitters, behind only Bolivia, Venezuela and Trinidad and Tobago. Considering CO2 emissions from energy consumption and the production of cement (2005), Brazil is below the levels of the countries in Latin America and the Caribbean (ECLAC, 2010). When speaking about climate change in Brazil, as a large emitter of GHG, the country has already adopted a pro-active stance by assuming voluntary goals within the United Nations Framework Convention on Climate Change and the Kyoto Protocol. The country committed to, through its National Policy on Climate Change (Governo Federal, 2008), reduce between 36.1% and 38.9% of its projected emissions for the year 2020. In concrete terms, this means reducing close to 6% of its emissions relative to the base year 2005, by the year 2020, which is equivalent to around 132 million tons of carbon equivalent. This attitude should have a positive impact, if not fundamental, on future Kyoto Protocol negotiations.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

4. PRiNCiPAL ACTiONS4
4.1 Forests With regards to the National Policy on Climate Change, important advances were recorded for the year 2010, most noteworthy being the National Fund on Climate Change regulation, in which it was established that part of the funds would be derived from the petroleum supply chain. Among the objectives of
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fund are combating desertification, education and training projects, with the development and diffusion of technologies, support for sustainable supply chains and payment for environmental services.
4. The source of the mentioned actions is Presidncia da Repblica do Brasil (2011).

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Another sensitive point is preventing and controlling deforestation and burning. In the important Amazon biome, between 1st August 2009 and 31 July 2010, an area of 6,451 km was deforested according to Brazilian National Institute for Space Research. The rate represents a 13.6% reduction compared to the previous period and close to 75% in relation to data from 2003. The so-called Action Plan for Prevention and Control of Deforestation in the Amazon centralized its efforts in 43 municipalities responsible for the highest deforestation rates. Close to 90% succeeded in reducing this process. Furthermore, in order to accelerate the process of environmental regularization of rural properties in the Amazon, 94 municipalities initiated Rural Environmental Registration activities. Just in the states of Mato Grosso and Para, this registration has already been implemented on more than 40,000 properties. Command and control mechanisms, especially enforcement instruments, have also been utilized in the region. Over the analyzed period, the Brazilian Institute of Environment and Renewable Natural Resource with help from the National Public Security Force, the Federal Police and the Federal Highway Police, issued close to 5,400 fines for a total value of R$ 1.8 billion. Close to 86 thousand m of timber were seized and 170 thousand hectares embargoed. In the Cerrado biome, measures are also planned to reduce deforestation rates, burning, and forest fires through the Action Plan for Prevention and Controlling Deforestation and Burning in the Cerrado. Highlights include the systematic monitoring system of the Cerrado forest cover, the training of 4.5 thousand firefighters, the drafting of the Ecologic and Economic Macro-zoning for Cerrado regions, the creation of 2.5 million hectares of protected areas (or conservation units, the term used in Brazil), the inclusion of more than seven socio-biodiversity products in the Minimum Price Guarantee Policy, the provision of credit lines for recovery of degraded pastures and increase of planted forests in already open areas. The Plan to Prevent and Control Deforestation in the Caatinga Biome, which is in elaboration phase by the Federal Government, will be concluded in 2011. With the increased monitoring of national territories that stems from the Monitoring Deforestation of Brazilian Biomes via Satellite Project, more recent data will be provided for Caatinga, Pantanal and Atlantic forest biomes. The challenges are great, but changes are taking place.

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Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

4.2 Macro-zoning
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Ecological-economic macro-zoning in the Legal Amazon, which comprises the territories of nine Brazilian states, was institutionalized by decree in December 2010. The same year, physical, biotic and socio-economic diagnoses were published for the hydrographic basin of the Sao Francisco River. Currently, close to 50% of the territory has already received some directive on land use

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and occupation, at the scale of 1:250.000. More than 2/3 of the national area is covered by this zoning. Such zoning is important to make agricultural production compatible with environmental issues, aiming to avoid disordered expansion and the resulting environmental damage. Macro-zoning is a fundamental instrument for implementing an environmental policy that necessarily is linked to territories. The migration of portions of the Brazilian economy towards a green economy has various dimensions with implications for regional development that should be anticipated through the incorporation of these concerns in the sustainability dimension beyond microentrepreneurial viewpoints. The macro-regions that have guided environmental policy the six biomes: the Amazon, Caatinga, Cerrado, Atlantic Forest, Pantanal and Pampa require analyzes that overlap them with other vectors of economic and social development, such as the Accelerated Growth Program and its infrastructure investments, local productive arrangements, settlements and others, in order to permit the planning of environmental, economic and social responses to each specific context.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

4.3 Solid waste treatment Another thematic area acting as important catalyst in the development of a green economy in Brazil is the treatment of urban solid waste. The National Solid Waste Policy was endorsed on 2 August 2010 and its regulation enacted on 23 December the same year. With the 2011 drafting of the National Solid Waste Plan, the implementation of the National Waste Management Information System and the realization of Sectorial Accords, which should consider the reverse logistics implementation mechanisms of main products and the packaging of each activity, there is a context of great expectations and a lot of activity for the government and the diverse actors involved. The development of these markets and the change in operational levels indicate a new scale in the greening process of the economy, with implications for business areas that are traditionally influenced by local and state governments. Basic sanitation, solid waste and reverse logistics are important pillars of the (new) green economy. These are markets whose growth rates will be substantially greater than the average for the economy.

4.4 Water resources The year 2010 was characterized by a strengthened National Water
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Resources Policy and National Water Resources Management System. Relevant events took place, such as the 1st National Water Conference and the first revision of the National Water Resources Plan. Other actions stand out, such as the development of a matrix of technical coefficients for water

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consumption in production processes and a general equilibrium model; the strategic planning of National Water Resources Management System and the development of strategies for strengthening the National Water Resources Council; and the development of the National Water Resource Plan Information System, that will be integrated with the National System of Water Resources Information. Other initiatives deserve to be mentioned. The Hydrographic Basin

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

Revitalization Program seeks to contribute to minimizing environmental degradation and recuperating the natural state of water resources. The Program is decentralized and carried out through partnerships with states and municipalities. In 2010, actions in the Sao Francisco river basin were prioritized, which included the implementation of a water supply system in riverain communities in 106 municipalities, sewage system works in 194 municipalities and solid waste treatment system projects in 13 inter-municipal consortiums. Charging for water use has been implemented in Brazil since 2001. For rivers controlled by the Union, charges have already been established for the Paraba do Sul river basin (southeast region of Brazil) since 2003, the rivers basins of Piracicaba, Capivari and Jundia (southeast region of Brazil) since 2006 and the Sao Francisco river basin since 2010. The raised resources fully return to the water agencies or delegated entities.

4.5 Forest management In the field of public forest management, the forest concession, among others, has started to be adopted as a way to protect public property and structure a sustainable economy with a forest basis. The Brazilian Forest Service has already provided more than a million hectares for forest management, an activity that can generate jobs and move the economy in places that need sustainable development. This is the beginning of a process to capitalize on a business area with great potential. Forest management is simultaneously perceived as an alternative action

to economic exploitation, environmental preservation and socio-productive inclusion. The dissemination of good practices in this sphere is conditioned on factors such as a) the development of forest research that indicates viable and economically feasible alternatives to exploitation; b) business modeling so that the Brazilian Forest Service, the Brazilian Institute of Environment and Renewable Natural Resource and the Chico Mendes Institute for Biodiversity
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Conservation work in harmony to construct partnerships with the private sector; and c) demonstrating the economic viability of this type of venture, however, not at the expense of environmental protection and social concerns.

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4.6 Conservation unit management The Chico Mendes Institute for Biodiversity Conservation is responsible for administering conservation units (CUs) in Brazil, which occupy 8.5% of national territories. There are 12 unit categories national parks, ecological stations, biological reserves, wildlife refuges, natural monuments, integral protection CUs, areas of relevant ecological interest, areas of environmental preservation, areas of national forests, extractive reserves, areas of sustainable development and sustainable use CUs of which 32% already have management plans and 27% have draft plans in process. In the context of disseminating practices associated with GE, there is current discussion about the menu of institutional arrangements likely of being adopted in these CUs in order to identify business models capable of reconciling the premise of preservation, as well as the development of other activities such as research (basic and applied), tourism, sustainable forest management, extractivism, sustainable economic exploitation and others. Preservation largely depends on society perceiving that it is conscious, planned and careful use of the countrys natural patrimony that guarantees its conservation and expansion.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

5. CHALLENgES
The challenges that Brazil faces in the environmental area are proportional to their potentials. They involve rethinking the countrys economic development strategies, taking into account growing imperatives of a socio-environmental nature. Developing a strong and structured green economy with an increased generation of green jobs is fundamental. This is a national issue that transcends the jurisdiction of the Brazilian Ministry of the Environment and for which society and various levels of government are responsible. There are pressing issues, such as the reconciliation of the need to improve the combat against deforestation with the strong pressure of agricultural and cattle raising expansion. Even the management of the national energy matrix brings important dilemmas, such as those associated with changing the equilibrium between renewable and non-renewable sources, an issue that cannot be addressed without an analysis of the costs and competitive advantages associated with each alternative. The coordination of environmental policies in the area of federal government administration and the cooperative federalism pact related to the process of implementation of these policies are permanent challenges. The Ministry of
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the Environment interacts with almost all the other ministries in the federal public administration and bilateral agendas are being formed with each one. In the area of inter-governmental relations, it is worth registering that Brazilian environmental issues are national, not federal. But the capital needed for coordination is, without a doubt, a very scarce resource in any government.

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Dialogues with the business sector, social movements and NGOs can be found in the DNA of the environmental agenda and it is not surprising that all are moving rapidly in the direction of a greener society and economy. The history of the Ministry of the Environment is the result, to a large extent, of these dialogues. The challenge is to deepen them so that they become more and more qualified and produce developments in the sphere of environmental public policies, especially the inclusive sort.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

Finally, it is necessary to mention that today Brazil is known internationally as a global environmental power that dialogues with rich, developing, emerging and poor countries in relation to the global environmental agenda. In the area of large global conferences, in the sphere of international technical cooperation and South-South platforms (Ibas, Basic, Bric, Unasul, etc), a leadership position is increasingly being expected from Brazil. But leadership requires example: therein lies the importance of the whole nation engaging itself in addressing these simultaneous challenges in an extensive and coordinated way.

6. CONCLUSiON
From various geopolitical aspects, Brazil starts from a privileged situation in the direction of a green economy. The natural characteristics and their past use are already driving one of the cleanest energy matrices in the world. Recent initiatives, herein focused on the scope of government activities, mainly compose the beginning of a consolidated development effort in different areas. In most cases, institutional structuring is only beginning, as well as the creation of economic mechanisms that compose the agenda of a country that is increasingly focused on evolving markets related to a green economy. Some initiatives are already presenting good progress, such as the reduction of deforestation in the Amazon biome, though that does not mean to say that there is not a long road ahead, in particular for this one, but also for other biomes. The best protection should be combined with proper biodiversity use integrated with the process of national development. GE is included in the context of a national development project that is sustainable and inclusive and does not accept, from the point of view of government policy proposals, artificial trade-offs that do not serve in the national interest, such as growth versus sustainability or social inclusion versus environmental preservation. The Brazilian Ministry of the Environment, integrated with the federal
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government administration, has become a strategic actor in the economic agenda of the country, because the government understands that there is no development that does not seek sustainability and biodiversity.

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References Barbier, E. B. (2009). Rethinking the economic recovery: a global green new deal. Report prepared for the Economics and Trade Branch of the Division of Technology, Industry and Economics of UNEP. University of Wyoming: Department of Economics and Finance. Decreto Federal n. 19.717, 20 February 1931. ECLAC (2010). La Economa del Cambio Climtico en Amrica Latina y el Caribe. Sntesis 2010. Santiago de Chile: United Nations Publication. Governo Federal (2008). Plano Nacional sobre Mudana Global do Clima PNMC Brasil. Comit Interministerial sobre Mudana do Clima. Magalhes Castro, M. H and Schwartzman, S. (1981). Tecnologia para a Indstria: a histria do Instituto Nacional de Tecnologia. Retrieved from: <http://www.schwartzman.org.br/simon/int/int1.htm> en el 19 de setiembre de 2007. MMA (2010). Tabela de Indicadores do MMA. Retrieved from: <http://www.mma.gov. br/estruturas/219/_arquivos/texto_indicador1_relao_entre_demanda_e_oferta_de_ gua_2010_219.pdf> en el 08 de abril de 2011. MME (2008). Biocombustveis: instrumento para incluso social e fator de desenvolvimento econmico com respeito ao meio ambiente. Retrieved from: <http://www. mme.gov.br/mme/galerias/arquivos/Artigos/Biocombustxveis_instrumento_para_inclusxo_social.pdf> en el 08 de abril de 2011. Presidncia da Repblica do Brasil (2011). Mensagem ao Congresso Nacional 2011: 1 Sesso Legislativa Ordinria da 54 legislatura. Braslia. UNEP (2011). Towards a green economy. Pathways to sustainable development and poverty eradication. A synthesis for policy makers. St-Martin-Belleveu, France: UNEP.

Challenges and opportunities

Brazil and the green economy: a panorama Francisco Gaetani Ernani Kuhn Renato Rosenberg

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Challenges and opportunities

Growth potential of the green economy in Brazil1


Carlos Eduardo Frickmann Young2

1. GREEN ECONOMY AS A NEw PATTERN OF


DEVELOPMENT
The concept of green economy suggests that the dynamism of the economy must be set by the expansion of sectors with low environmental impact by promoting actions such as clean technology, renewable energy, green transportation, waste management, green buildings, sustainable agriculture, forest management and payment for environmental services. The reason for that is that this process of reconfiguration of economic activity provides better return on investments in natural, human and economic capital, while reducing the pressure on the environment and contributing to greater social equity3. Therefore, the green economy offers the opportunity to reconcile the traditional goals of economic policy, especially growth of income and employment with the social and environmental objectives of sustainable development: a strategy to enter into a development process based on the endogenous capacity of generation and incorporation of technical progress while social issues (including environmental protection) receive the same importance as economic goals. The aim of this paper is to show that the greening of the Brazilian economy through the expansion of economic activities with low environmental impact, can bring better results to the generation of employment and income than the current model of specialization of exports of natural resources exploited predatorily or industrial goods with a high degree of pollution in their production processes. That is to say that the adoption of an alternative model, based on the expansion of clean sectors, can bring more social and economic benefits than the current path of specialization in dirty activities. To demonstrate this, the results of an input-output matrix model will be presented so as to compare alternative options of economic growth (green or brown) in terms of capacity to generate employment and income (Young, 2010). The growth scenarios based on spurious depletion or degradation of natural resources bring worse results than the scenarios where the production
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1. This article is the result of the research project Transicin de Amrica Latina y el Caribe hacia un modelo de crecimiento verde e inclusivo, with the support of UNEP and ECLAC. I would like to thank Mr. Leonardo Barcellos de Bakker and Mr.Andr Falkenbach Santoro for their comments and help in the elaboration of this text. 2. Profesor of the Institute of Economics of the Federal University of Rio de Janeiro (IE/UFRJ). Email: young@ie.ufrj.br 3. UNEP (2011).

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dynamism is concentrated in sectors that are less harmful to the environment: the creation of employment and wages are higher in scenarios where the dependence on natural resources and degradation are reduced, proving that the dichotomy between environmental conservation and improvement of economic conditions is false.

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

2. THE RESPECIALIZATION OF LATIN AMERICA ON


NATURAL RESOURCE EXPORTS
The increasing dependence on exports based on natural resources or pollution-intensive goods is a structural problem in Latin American countries, whose exports are increasingly concentrated in natural resources or industrial goods characterized by a relatively high degree of pollution in their production processes (Young, 1988; Lustosa and Young, 2001, 2002, Malavasi et al., 2005). This trend has been accentuated in recent years, both in terms of the relative share of natural resources in the exports basket and specialization in pollutionintensive industrial goods. The results obtained by Young (2010), using the international trade database TradeCan and coefficients of potential emission of industrial pollutants (ILITHA) of the Industrial Pollution Projection System - IPPS (Hettige et al., 1994) show that there is a clear trend of increasing dependence of the export basket on primary goods, which has rapidly accelerated in the 2000s. Figures 1 and 2 present the results for Brazil.

Figure 1 Participation of primary products in exports (%), Brazil and Latin America

Primary/total Brazil

Primary/total Latin America

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Source: Young (2010), based on data from TradeCan.

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Figure 2 Average intensity of potential pollution of industrial exports (ILITHA/IPPS), Brazil and Latin America

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

ILITHA/Industrials Brazil

ILITHA/Industrials Latin America

Source: Young (2010), based on data from IPPS and TradeCan (Hettige et al., 1994)

These results are associated with the hypothesis of deindustrialization, showing that the liberalization process initiated in the 1990s, along with the boom in commodity prices in the 2000s, resulted in structural change in the region, returning to a position where the dynamism of foreign markets is based on direct sales of natural resources or of goods whose production is intensive in pollutant emissions. Combining both results, in the 2000s exports from Brazil and Latin America have become increasingly dependent on the spurious competitiveness based on depletion of the natural resource base, instead of a virtuous cycle in which the commercial gain would be obtained from technical progress and innovation. This issue is particularly problematic, because consumers in developed countries are increasingly aware of environmental footprints of the products they buy and the position of Latin America can be seen as fragile if this awareness is reflected in trade restrictions against products harmful to the environment. Despite these problems, it is common to find defenders of the current growth trend supported by natural resources or emissions-intensive products arguing that environmental losses are a necessary cost of economic development. This hypothesis, usually called environmental Kuznets curve, would justify that, at certain stages of development, the sacrifice of natural resources is an inevitable price to improve the material conditions of life. The next section presents a
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model to test the validity of this hypothesis in the Brazilian context.

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3. INDUSTRiAL POLLUTiON AND SOCiAL iNCLUSiON:


SCENARiOS FOR THE FUTURE
In the previous session, it was shown that Brazil and the rest of Latin America increased their structural dependence of primary goods and pollution-intensive goods in their export basket. Obviously this brings negative consequences for the environment. Even so, exports have been a major engine of economic growth and, therefore, some argue that it is necessary to accept some environmental damage in order to increase the pace of economic activity. The implicit hypothesis in this argument is that economic activity and environmental conservation are necessarily in opposition and that, consequently, policymakers have to decide between (i) increase employment and income levels, or (ii) weaken economic growth in pursuit of environmental preservation. The purpose of this session is to show that an alternative path of economic growth is possible, exemplifying how the priority to the green economy, besides conserving the environment, will bring beneficial effects to the levels of employment and income. This session examines the problem, testing whether a growth based on degradation of natural resources would bring better or worse results than the economical alternative to concentrate the product in higher value added activities, which bring less harm to the environment. To illustrate this point, scenarios have been constructed using the input-output matrix of 2005 (the most recent) of Brazil, comparing different possibilities of economic growth, using the generation of jobs and wages as a measure of economic growth. Among other reasons, employment and wages are good indicators of growth with social inclusion, since they express better the evolution of welfare than GDP growth. Furthermore, given the extreme concentration of income in Latin America, it is more important to avoid growth measures that do not consider the redistribution of income. The exercises performed sought to answer the following questions: What generates higher growth: the expansion of activities intensive in natural resources or those based on manufactured goods or services? Within the manufacturing sector, which generates higher growth: the expansion of activities more or less pollution-intensive? The advantage of using the input-output matrix is that it allows the perception of the entire production chain. In order to make the scenarios comparable, all of them must all be based on similar expansions of final demand, by means of an exogenous increase in exports. There are a number of limitations on the use of an input-output matrix. Technical coefficients and relative prices are assumed to be constant, as if the economy remained static during the period under analysis. In addition, there are

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

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no observed coefficients of emissions, only potential estimates based on older models such as the Industrial Pollution Projection System (IPPS), elaborated by the World Bank and on which this analysis is based. Despite all the problems reported above, the exercise of input-output based on a real economy provides important results, since it allows the consideration of inter-sectoral chains and are a more effective way to simulate an alternative growth of possibilities than ungrounded assumptions or tests on the consistency of its results.

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

a. Methodology The exercise simulated an expansion of final demand of R$ 40 billion (at 2005 prices), or approximately 12% of exports in 2005 - this figure was chosen because it was the average annual growth of Brazilian exports between 2000 and 2005. Each scenario has distributed the expansion of that same amount (R$ 40 billion) in different combinations of final demand in economic sectors. The first question that arises is which sector generates more growth, as measured by employment and wage growth. The economy was divided into three major sectors (primary products, manufactured goods and services) and the total expansion of final demand (R$ 40 billion) was distributed according to the following criteria: In Scenario 1 the expansion of final demand took place only in primary activities. In Scenario 2 the expansion of final demand occurred only in manufactured products. In Scenario 3 the expansion of final demand was distributed among the service, industrial utilities and civil construction sectors. The second question is whether there are differences between the growth led by the most clean or dirty industries in terms of employment and income generation. To answer this, the Scenario 2 was divided into two sub-scenarios in which the growth of industrial activity was distinguished by the intensity of potential pollution in accordance with the IPPS coefficients: the 10 most polluting industries, according to the IPPS were separated from the rest of the industry. In Scenario 2.1, it has been assumed that most of the growth of final demand (R$ 30 billion) was concentrated in the 10 most polluting activities, while growth of exports from the least polluting activities has been of only R$10 billion. In Scenario 2.2, the opposite scenario has been simulated, assuming that the 10 most polluting activities grew by only R$10 billion, while the least polluting grew R$30 billion.

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The 10 most polluting industrial activities under the IPPS are: Wood products, excluding furniture Paper and pulp Oil refineries and coking Chemicals Resins Chemicals and its derivatives - various Cement Other non-metallic products Manufactures of metal Non-metallic metallurgy The total production associated with each of these scenarios has been obtained by multiplying the Leontief Matrix by expansion of the respective increases in final demand. Hence, the increase in employment (personnel employed) has been calculated by multiplying the job/income coefficient (the coefficient between employment and value of production per activity) by the coefficient of expansion of product by sector. The equation below summarizes the procedure:

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

Ei = (E/VP). (I-A)-1. Xi
Where: Ei: Employment expansion in the scenario i E/VP: Employment/value of production (I-A)-1: Leontief Matrix for Brazil (2005), calculated by the Brazilian Institute of Geography and Statistics Xi: Expansion of export in scenario i

The increase in wages (including social contributions) has been estimated in a similar manner by multiplying the salary/income coefficient (the coefficient between wages, including social security contributions, and value of production per activity) by the coefficient of expansion of output by sector. The equation below summarizes the procedure:

Wi= (W/VP).(I-A)-1. Xi
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Where: Wi: Expansion of salary under scenario i W/VP: Wages/Value of production

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b. Results Table 2 presents the aggregated results for each scenario. Interestingly enough, although the expansion of aggregate exports is the same in all scenarios (R$ 40 billion), the results vary considerably, both in terms of employment generation and generation of income.

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

Table 1 Employment and wages created by scenario Scenario Scenario 1 Expansion in primary activities Scenario 2 Expansion in the manufacturing industry linear increase in all sectors Scenario 2.1 Expansion in the manufacturing industry concentrated increase in the most polluting sectors Scenario 2.2 Expansion in the manufacturing industry concentrated increase in the least polluting sectors Scenario 3 Expansion in services, industrial utilities and civil construction Employment creation 2,476,906 Wage creation (R$ Bi) 11,182

1,351,194

13,186

1,050,523

11,747

1,409,478 2,008,166

13,464 15,220

Source: Authors calculations based on data from the Brazilian Institute of Geography and Statistics (Input-Output Matrix, Brazil 2005).

At a first glance, it seems that, under Scenario 1, the expansion of primary activities have benefited more employment growth, since it presented the highest number of jobs creation. However, two factors must be considered. The expansion in primary activities generates the lowest wage growth, indicating that the quality of jobs created by these sectors is of the worst quality among all scenarios. The results of Scenario 3, characterized by activities identified with the dematerialized growth, shows that the total salary would have been 36% greater than in Scenario 1, even though employment would have increased 19% less. Dynamic effects: models based on input-output matrices design the patterns for the future, keeping all the technical parameters constant over time. However,
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the rapid mechanization in agricultural production and the increasing capital intensity in the mining sector have had the effect of replacing more work, reducing the demand for manpower. Therefore, these sectors are responsible for liquid unemployment, rather than employment. This can be proven by

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looking at the Brazilian National Accounts: the rapid expansion of primary activities, increasing its share in GDP from 7.2% to 8.4% in 2000-2006, was accompanied by a steady reduction in total work force, from 22.4% to 19.8% during the same period (Table 2).

Challenges and opportunities

Table 2 Relative participation (%) of primary activities in GDP and Employment, Brazil % Primary activities on total GDP

Growth potential of the green economy in Brazil Carlos Eduardo Young

2000 7.2

2001 7.4

2002 8.2

2003 9.1

2004 8.8

2005 8.2

2006 8.4

% Primary activities on total employment 2000 22.4 2001 21.3 2002 21.1 2003 21.1 2004 21.5 2005 21.0 2006 19.8

Source: Authors calculations based on data from the Brazilian Institute of Geography and Statistics (Input-Output Matrix, Brazil 2005).

On the other hand, the expansion in Scenario 3 shows a good performance of the employment (the second largest volume of jobs created) and the largest increase in total salary. Note that Scenario 3 is the most identified with the greening of the economy as it expands the civil construction industry (investment in the cleaning of economy require civil construction works, such as sanitation) and services, the basis of dematerialization of growth (also known as decoupling) based on knowledge, culture, technology and tacit components. A similar trend is also observed within the manufactory industry. Export expansion is concentrated in the group of less-polluting industries (Scenario 2.2), which would generate 34% more jobs and pay 15% more than in Scenario 2.1, where the dynamic sectors are the most polluting ones. This is related to the fact that most of the sectors with high pollution potential, such as intermediate goods, are very intensive on capital and require relatively few jobs. The message of the analysis of these results is clear: it is a fallacy to think that developing countries like Brazil have to decide between economic growth and environmental quality. The scenarios that showed the most consistent results for improving economic activity, as measured by job and wage creation, are precisely those where the dependence on natural resource consumption and
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degradation are reduced. So there is no reason to believe that, as predicted by the environmental Kuznets curve, the decline in environmental quality is necessary to achieve a greater economic activity: scenarios with more pollution and resource depletion would lead to reduced growth compared with scenarios of green growth.

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CONCLUSiON
This study has shown that the green economy initiatives consist on an opportunity to start a new pattern of development based on the endogenous capacity of generation and incorporation of technical progress, while being socially inclusive and environmentally responsible. In this sense, there are many similarities with the original concept of industrialization proposed in the Center-Periphery System (Prebisch, 1949): long-term development can only

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

be achieved when the economy becomes more intense in innovation and less dependent on extensive exploitation of natural resources. This concept was further deepened by Fajnzylber (1988) through the concept of authentic or systemic competition. Nevertheless, the empirical exercises have shown that there is a clear trend, since the late 1990s, of increasing dependence of exports of primary commodities and industrial goods that are intensive on pollution during their production process. This result is of great concern because it shows that Brazil and other Latin American economies are doing the opposite of what is required by the principles of sustainable development. Moreover, there is an increasing risk that the mechanisms of punishment may be established in the dirty products in international trade, with obvious damage to the countries whose exports are associated with degradation or depletion of natural resources. The main argument for those who defend the status quo is that developing countries must decide between economic growth and environmental quality. The implicit assumption behind this view is that economic activity and environmental conservation are necessarily in opposition and therefore decision makers have to choose between one or the other, as if preserving natural resources automatically blocks the growth of income and employment. This argument, known as environmental Kuznets curve is commonly quoted in literature, although no definite evidence that a pattern of dirty growth would bring better results than the one of greening of the economy. In order to test the differences in terms of job creation and wage standards in dirty and clean scenarios input-output techniques have been created to simulate the consequences of using different patterns of natural resources use. In each scenario, the same amount of final demand has been considered, but with different sectoral distribution. Employment and wages have been considered as a measure of growth because they are better indicators of social inclusion than GDP. The results are very consistent, showing that the spurious growth based

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on consumption of natural resources or degradation can bring much worse results than other economic options that focus on producing higher value added products, which are less harmful to the environment. The scenarios of increased employment and wage creation are exactly those where the dependence on

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natural resources consumption and degradation are reduced. More pollution and depletion of natural resources would lead to unfavorable performances, instead of more inclusive growth, leading to an opposite result to that expected from the environmental Kuznets curve. Finally, it should be noted that the results presented in this report have important limitations related to the methodology and hypothesis used and the quality of data is far from ideal. The improvement of production data and generation of environmental indicators is an important need to improve our understanding of the relationship between trade, competitiveness issues and the environment. Thus, another policy recommendation is to implement an effective system of environmental information related to the economic indicators already available.

Challenges and opportunities

Growth potential of the green economy in Brazil Carlos Eduardo Young

References Fajnzylber, F. (1988). Competitividad internacional: evolucin y lecciones. Revista de la CEPAL, n. 36, December, 7-24. Hettige, H., Martin, P., Singh, M. and Wheeler, D. (1994). IPPS - The industrial pollution projection system. Washington, D.C.: World Bank. Malavasi, L. O., Schuschny, A. R. and Gallopn, G. (2005). Evolucin de las emisiones industriales potenciales en Amrica Latina, 1970-2000. Serie Medio Ambiente y Desarrollo, 97. Santiago de Chile: ECLAC. Prebisch, R. (1949). El desarrollo econmico de la Amrica Latina y algunos de sus principales problemas. Santiago de Chile: ECLAC. Young, C. E. F. (1998). Industrial pollution and export-oriented policies in Brazil. Revista Brasileira de Economia, v.52, 543561. Young, C. E. F. (2010). Transition towards a green and inclusive economic model: a Latin American perspective. Reserach report prepared for the Transicin de Amrica Latina y el Caribe hacia un modelo de crecimiento verde y inclusivo Project (UNEP/ ECLAC). Rio de Janeiro: IE/UFRJ. Young, C. E. F. and Lustosa, M. C. J. (2001). Meio ambiente e competitividade na indstria brasileira. Revista de Economia Contempornea, v. 5, 231-259. Young, C. E. F. and Lustosa, M. C. J. (2002). Competitividade e meio ambiente. In Braga, A. S. and Miranda, L. C. (ed.), Comrcio e meio ambiente: uma agenda para a Amrica Latina e Caribe, 41-60. Braslia: MMA. UNEP (2011). Towards a green economy: pathways to sustainable development and poverty eradication a synthesis for policy makers. Retrieved from: <www.unep. org/greeneconomy>.

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Challenges and opportunities

Brazil and the green economy: foundations and strategy for transition
Cludio R. Frischtak1

INTRODUCTiON
The dominant view about environmental conservation continues to be that, in the process of development, countries ultimately face a choice: more growth or more conservation. To propose foundations for a new economy it is necessary to revisit the basic assumptions underlying the predominant economy and how its results are measured. This is not an easy task, because the fragility of the dominant paradigm is not part of the concrete experience of most countries. After all, the industrial revolution was a predator of natural resources, but at the same time it accelerated growth and generated increasing levels of wellbeing. So why rethink the economy and abandon the connection - apparently more necessary the lower the income level - between growth and intensive (and unsustainable) resource use? First, because exhausting of the capacity of ecosystems to withstand the pressure of economic activities could undermine economic growth itself. From this perspective, economic growth can only be sustained by conserving that capacity. Second, the need to develop new foundations for a transition to a green economy will produce new opportunities. Products and services geared toward this transition will assume an increasing proportion of economic activities. The exhaustion of the old model and the transition to a green economy require a reversal of the predominant assumption: increased growth becomes dependent on and (necessarily) accompanied by greater conservation or sustainable use of natural resources, so that the new trade-off would be between growth and the predatory use of natural capital. The objective of this study is to establish the foundations for a green economy in Brasil as well as a transition strategy.

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1. President of Inter.B International Business Consulting (Inter.B Consultoria Internacional de Negcios).

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THE TRANSiTiON TO A gREEN ECONOMY iN BRAZiL


The green economy has no precedent or model. It proposes a transformation in the mode of production and consumption, redefinition of government planning and policy, and greater emphasis on innovative effort. To enable public policy approaches of sectoral support for the transition to green economy, the study develops the following analytical framework to facilitate the illustrations.

Challenges and opportunities

Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

Supply is organized into two categories. "Market" supply is that which responds autonomously to demand that is either pre-existing or arises in response to supply; in both cases, production results from the normal course of business by incumbent firms and by the entry of new firms. "Structured" supply is that which encounters difficulties in meeting demand, either due to inadequate returns or due to technological or institutional complexity, and as a result requires some level of intervention or support, in the form of R&D, planning, investment, organization of production or pricing. The structuring of supply may involve direct investments by government, fiscal incentives, financial subsidies or changes in the regulatory environment, among other actions. Demand, in turn, can be characterized as spontaneous when it emerges from the basic needs of individuals, being determined primarily by income level and education, the volume and nature of the information that they have access to, through the experience (of consumption) and its surroundings (via demonstration effect). Alternatively, demand can be characterized as "induced", which requires that it be managed or encouraged through the transfer of information, including awareness campaigns and public education, to ensure the creation of markets for goods and services that do not arise spontaneously. These typologies of supply and demand produce a 2x2 matrix, summarized in the form of an analytical framework (Figure 1). In a clockwise direction, starting at the upper left, is Quadrant I, which covers activities that combine a spontaneous demand and a market supply and that, together, constitute the dominant part of GDP in a conventional economy and a small share of Green GDP. Quadrant II is composed of activities that require supply to be "structured" for markets to form and spontaneous demand (potential) be met. Quadrant III brings together activities that depend on both structured supply and induced demand to be economically viable. These activities would presumably take longer and absorb more resources to function. Finally, Quadrant IV includes activities that can be viable if demand is stimulated by a greater flow of information (including information campaigns) to consumers that induce behavioral changes, and by other measures to change the dominant pattern of consumption.

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Figure 1 Matrix of Green GDP activities and the dynamics of public policies
SUPPLY MARKET STRUCTURED

Challenges and opportunities


SPONTANEOUS INDUCED

Cludio R. Frischtak

initial size is limited, but, driven by the "hand of the State" in initially structuring the supply and then inducing demand, expands over time (symbolically, larger concentric circles), characterizing the transition to a green economy. Increasing returns to scale, or accumulated experience reflected by learning curves and the resulting productivity gains, could make some of these activities return back to Quadrant I (or in its direction), having already reached a size that assures economic viability. Below we consider the application of this analytical framework to a set of activities that would comprise part of a Green GDP understood as the set of economic activities that maintain and expand the stock of natural capital and, although not exhausting the Green GDP potential, they are possibly the most emblematic2.

of ecosystems and their ability to provide material support and a wide range of services essential to a decent life for current and future generations.
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2. The area of the circles reflects the relative economic importance of the measured activities as estimated by their contribution to the countrys GDP.

DEMAND

Brazil and the green economy: foundations and strategy for transition

The matrix also illustrates the dynamics of a typically "green" activity, where

Conservation of ecosystems This category consists of economic activities that contribute to the integrity

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Figure 2 Conservation of ecosystems


SUPPLY MARKET STRUCTURED
NATIVE SPECIES REFORESTATION (6)

Challenges and opportunities


SPONTANEOUS
NATURAL PHARMACOS (1)

ORGANIC PRODUCTS (2) NATURAL COSMETICS (4) SUSTAINABLE AGRICULTURE

Cludio R. Frischtak

DEMAND

Brazil and the green economy: foundations and strategy for transition

ECOLOGICAL TOURISM (5) NATIVE SPECIES REFORESTATION (3) SUSTAINABLE ExTRACTIVE ACTIVITIES (FOOD)

REDD / REDD + (7)

Preparation: Inter.B. Sources: 1. Valuation of the Real and the competiveness of exports, 7 April 2010, <http://www. administradores.com.br/informe-se/informativo/valorizacao-do-real-e-competitividade-dasexportacoes/31985/>. 2. Changing habits, 27 May 2009, Valor Econmico. 3. Invasive species cause US$1.4 billion in damages, 28 April 2010, Valor Econmico. 4. Jewels of the forest, 28 April 2010, Valor Econmico. 5. Economic and socio-cultural value of ecotourism and recreational activities provided by the Serra de So Jos Area of Environmental Protection (Minas Gerais state) PIBIC/CNPq, <http://www.sober.org.br/palestra/5/499.pdf>. 6. Harvests from trees, 12 December 2005, Unicamp, <http://www.portaldoagronegocio.com. br/conteudo.php?id=23107>. 7. Discussion about REDD defines the future of the forest, 24/ August 2009, Valor Online.

Note that the activities in Figure 2 are still relatively small in magnitude, have limited support and are concentrated in Quadrant I. There still is not a real forestbased economy, with intelligent extraction at a scale that is not limited to only biodiversity products (pharmaceuticals, cosmetics), but involving sustainable extractivism and ecotourism, among others. The great exception is the planting of eucalyptus on cleared land, or land used for low productivity livestock farming, especially when combined with the restoration of native vegetation. A recent example3 suggests that this latter alternative of restoring native vegetation is economically feasible and, as it gains in scale and experience,
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will become an activity consolidated in Quadrant I.

3. For example, Vale Reflorestar, a fund with R$ 605 million to be used for reforestation. Jornal do Comercio, 6 May 2010.

INDUCED

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Figure 3 Conservation of ecosystems in the transition to a green economy


SUPPLY MARKET
NATIVE SPECIES REFORESTATION (6)

Challenges and opportunities


SPONTANEOUS

STRUCTURED

DEMAND

Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

ORGANIC PRODUCTS (2) NATURAL COSMETICS (4) SUSTAINABLE AGRICULTURE REDD / REDD + (7)

ECOLOGICAL TOURISM (5) SUSTAINABLE ExTRACTIVE ACTIVITIES (FOOD)

Overall, the expansion of these activities depends not only on government policies to structure the supply and occasionally induce demand, but on basic legislation that promotes the protection and sustainable use of ecosystems. In the area of ecosystem protection, Brazil has a fairly comprehensive legislation, focusing primarily on the National System of Conservation Units, the Forest Code, the Water Code and regulations that guide the use of natural resources, economic activities and interventions in the landscape. The system of conservation units (Brazilian term for protected areas) needs to be strengthened by establishing new conservation units in critical areas and, fundamentally, by consolidating existing conservation units. Systems are needed for management, monitoring and supervision to ensure the integrity of the conservation units and inhibit predatory activities inside. Social networks must be established for protection in and around the units, involving traditional communities and providing them with decent living conditions, through for example payments for environmental services and sustainable natural resource extraction. The Forest Code is another basic text that guides conservation activities, and for which an ongoing revision by the Brazilian Congress has generated contentious debate. For many producers in remote frontier areas, obtaining land registration and environmental licensing (in the context of a plan for restoring Permanent Preservation Areas and Legal Reserves), regularizing land tenure and legalizing the use of land for economic purposes, is highly advantageous.
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A powerful but underutilized tool to promote land-use sustainability is rural credit. The 2010-11 Harvest Plan is a step in that direction through the Low Carbon Agriculture Program, even though the program does not absorb more than 5% of the available resources4.
4. See Valor, 7 June 2010 p. B12.

INDUCED

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There are other instruments to promote these sustainable land-use activities. Some measures consist of governmental policies that need to be expanded, such as the inclusion of environmental criteria to municipal value-added tax revenues (such as the ecological tax on operations related to the circulation of goods and the provision of inter-state and inter-municipal transport services and communication). More broadly, companies and individuals should be encouraged to develop and execute projects on sustainable and intelligent use of natural resources, with conservation and restoration of ecosystems. The key is that ecosystem protection is not only a government task, but should actively involve society.

Challenges and opportunities

Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

Transport and sanitation This section analyzes activities that serve to build sustainable cities through targeted investments for improvements in accessibility, mobility and sanitation.

Figure 4 Networks of sustainable cities


SUPPLY MARKET
SANITATION (5) SINGLE TICKET (3)

STRUCTURED

SPONTANEOUS

BICYCLE TRANSPORT (7)

RAPID TRANSIT BUS

DEMAND

ELECTRIC CAR (6)

SUBWAY TRANSPORT (2)

INDUCED

SUBWAY TRANSPORT (3)

Preparation: Inter.B. Sources: 1,2,3,4 Government blames cars and motorcyles for pollution, 26 March 2010, Folha de So Paulo. 2,3 Chinese and Spaniards enter in dispute for the TAV Project, 6 August 20/09, <http:// www.copa2014.org.br/noticias/Noticia.aspx?noticia=870> 4Even without a budget, government wants more waterways, 12 January 2010, Valor Econmico.

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5Baltar, Emerenciano and Pereira, Subsidy for providing water sanitation, <http://www.abrh. org.br/novo/i_simp_rec_hidric_centro_oeste_bsb21.pdf> 6Without official support, electric car not viable, 13 April 2010, Valor Econmico. 7 Reinventing mobility, 12 August 2009, Agenda Sustentvel, <http://www.agendasustentavel. com.br/artigo.aspx?id=2765> 8Paes says that single ticket will not be subsidized, 24 April 2010, O Globo.

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Figure 4 reveals that, in general, to exist or gain scale, these activities require a structured supply, because there is no "pure" market solution for efficient and low impact mass transit such as rail, subway or trams. These systems facilitate accessibility within networks of cities and are critical for intra-urban mobility. Although innovations such as electric cars should be seen as a breakthrough, cities will only be effectively sustainable if irrigated by efficient systems of mass transport. In the case of basic sanitation, economic viability (beyond the cost of investment) often depends on the income level of users. The weaknesses in the transport and sanitation systems, combined with a low degree of adaptation of the cities to their natural environment, require the design of a specific strategy in order to make cities sustainable. One must consider Brazils high degree of urbanization and how this impacts quality of life and the fact that public sector interventions, involving both in investments and the regulation of urban activities, seem essential (Figure 5). Figure 5 suggests the importance of active policies for the sustainability of transport and sanitation systems, with special emphasis on mass transit. Metropolitan areas require integrated planning in terms of accessibility and mobility as well as in the case of sanitation. This should be handled by a metropolitan planning agency with powers to allocate resources, while respecting civil society consultation processes. Investments aimed at improving the quality of life of urban populations are high, and collective interests should be the dominant criterion in investment decisions with regard to resource allocation.

Challenges and opportunities

Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

Figure 5 Networks of sustainable cities in the transition to a green economy

SUPPLY MARKET
SANITATION (5)

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RAPID TRANSIT BUS BICYCLE TRANSPORT (7)

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DEMAND

ELECTRIC CAR (6)

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HIGH SPEED TRAIN

METROPOLITAN RAILWAY (3)

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Energy This category consists of activities directed toward the production and efficient use of renewable energy. Brazil is relatively unique in that the country already has a structure relatively adapted to a low-carbon economy due to the significant share of renewable energies in the countrys energy matrix. Figure 6 suggests, however, that the new generation of energy solutions - solar, wind, nuclear and frontier hydropower and biomass projects - have not yet gained scale (as in the case of bio-fuels) and thus will require more structured forms of support. The agenda for energy sustainability is dense, as illustrated in Figure 7. It is necessary to move energy efficiency and innovation to the cutting edge of the economy, and stimulating the use of new sources at increased scales, by consolidating the significant advances that have been made domestically while also cooperating with global efforts for new solutions. Two sets of actions are essential: first, structured support for R&D, both in the public realms of universities and research centers, and in private and corporate spheres. Second, it is necessary to expand programs of energy efficiency, with emphasis on production processes and products, and on rational and efficient use.

Challenges and opportunities

Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

Figure 6 Energy
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BIOMASS FROM SUGARCANE

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WIND POWER (2)

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HYDRO POWER

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Preparation: Inter.B. Sources:

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1. Government blames cars and motorcycles for pollution, 26 March 2010, Folha de So Paulo. 2. Wind at the price of water, 10 January 2010, Revista Brasil Energia Ed. 350. 3. Solar energy in Brazil, 24 March 2010, Valor Econmico. 4. Smaller IPI tax for appliances will respect environmental criteria, 29 October 2009, Valor Econmico.

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Figure 7 Energy in the transition to a green economy


SUPPLY MARKET
BIOMASS FROM SUGARCANE WIND POWER (2) HYDRO POWER

Challenges and opportunities


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STRUCTURED

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Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

SOLAR POWER (3)

NUCLEAR POWER

BIOFUELS (1)

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Wastes Figure 8 displays activities related to waste generation and treatment: product disposal, recycling of certain materials and reduction or elimination of non-biodegradables over reasonable period time. The scope for expanding market solutions will be determined by a combination of public policies and increased awareness of society. Figura 8 Life cycle
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INNOVATIVE PRODUCTS (RECYCLABLE, BIODEGRADABLE) (5)

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RECYCLED METALS (2) RECYCLED PAPER (1) GREEN PLASTIC

SELECTIVE WASTE COLLECTION (3)

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Preparation: Inter.B. Sources: 1. Recycled paper fad opens a new niche for industries 18 January 2007, Valor Econmico. 2. Reduced costs moves recycling market, 29 January 2010, Valor Econmico. 3,5. Changing habits, 27 May 2009, Valor Econmico. 4. Sustainability for the demolition of the Help Discotheque 12 April 1010, O Globo 6. The dissolving pen, 24 April 2010, O Globo.

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Figure 9 Product life cycle in the transition to a green economy


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RECYCLED METALS (2)

INNOVATIVE PRODUCTS (RECYCLABLE, BIODEGRADABLE) (5)

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Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

REVERSE LOGISTICS

GREEN PLASTIC SELECTIVE WASTE COLLECTION (3) SUSTAINABLE DEMOLITION (4)

As shown in Figure 9, a new policy focused on waste management is needed, based on thoughtful examination of the need (or not) to control or regulate production and use of goods whose footprints are sensitive, either due to negative externalities throughout the life cycle, or low degradability following disposal, and that do not present economically viable recycling. The role of government policy would be to encourage alternatives based on the redesign of products, new materials, and to promote recycling and waste reduction5. It is important to emphasize that many of the measures designed to encourage recycling at the individual level are relatively simple, because they depend on standards to be followed by the producer / distributor without public spending. At the same time, many government interventions may be transient, so that after a period of returns to scale and cost reductions, activities to integrate the life cycle of products become viable in the market. The combination of greater scarcity and higher prices of raw materials, and with the returns to scale initially encouraged by government policies and rugulations, the collection and recycling of disposable items through operations of reverse logistics would be the result of company-driven initiatives. Even selective collection, after an initial period, can become self-sustainable and eventually profitable enough to dispense with government subsidies. In short, improvements of ecosystem protection, urban transport and sanitation systems, energy and waste management can be integrated into a
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green economy with limited and temporary government interventions. The above
5. A very significant advance took place in 2010 with the establishment of the National Policy for Solid Wastes, which regulates recycling and waste management, and innovates with reverse logistics, which states that everyone involved in the supply chain of products must organize to collect used packaging and product waste.

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analysis indicates that a substantial part of Green GDP is already prefigured in Quadrant I. This implies that there are market solutions, but many are incipient and others do not yet exist. The expansion of many of these activities will depend on active policies, although such support can only be temporary.

Challenges and opportunities

TRANSiTiON STRATEgY
Implementing a green economy transition strategy requires the establishment of a governmental green economy agenda. This agenda could involve: First, the constitution of a working group or equivalent involving not only government, but universities and research institutions, companies and civil society organizations, with the following objectives: Identify, in an objective way, general sustainability criteria that would guide direct or indirect government support to projects and activities. Conversely, define what would constitute predatory uses of natural capital that should be contained, taxed or discouraged. Introduce into the national accounting system sustainability dimensions in the sense suggested by the Stiglitz report, focusing on variations in the stocks of natural capital. Gradually construct indicators that serve to price the services provided by major ecosystems, recognizing that this exercise is tentative and subject to trial and error, and that certain critical services are possibly not measurable in economic terms. Inventory government actions (including those by state-owned companies) that directly or indirectly affect the conservation of natural capital in Brazil, ranking them according to their impacts. Second, and based on the results of the efforts undertaken above, define a reference framework and a set of norms as a basis for reorienting government actions. It is worth stressing that Brazil still has a wide range of public policies and government initiatives that incentivize predatory activities or activities without merit in the context of a green economy. A detailed review should be carried out of government programs, as well as tax financial and other incentives, both at sector and regional levels, in addition to investment plans of state-owned enterprises, to exame their economic and legal viability (from this new perspective), as a step toward eliminating over the next few years all forms of support to projects and activities that are clearly

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incompatible with the green economy, because they: Directly exploit natural capital without adequately compensating for their economic impacts;

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Contribute to "dirtying" the energy matrix (such as power generation based on diesel oil, fuel oil or coal); Reduce access to and mobility within cities; and Ignore new architectural concepts and standards, construction methods and use of materials designed to conserve energy, maximize recycling and utilization of rain water, among others.

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Brazil and the green economy: foundations and strategy for transition Cludio R. Frischtak

Third, a positive agenda focused on the protection and restoration of natural capital in major ecosystems must be promoted. It is imperative that the country protects its biodiversity. On the specific issue of rain forest protection, Brazil should strengthen its leadership in monitoring capabilities, preventing deforestation and seeking alternatives to generate decent employment and income for forest peoples, traditional communities, as well as settlers attracted by government programs, among others. In terms of water resources, the country must intensify its efforts to properly manage watersheds and ensure multiple, balanced and sustainable water use, for which high quality production and conservation need to involve riverain communities and farmers, and where appropriate pricing is essential to encourage rational use. These are the directives for a green economy transition strategy.

CONCLUSiON
Years ago the world economy began a transition process supported by the predatory use of natural capital and the depletion of the ecosystem capacities, with deleterious effects on sustainability. A new paradigm is emerging, where growth and conservation are positively correlated and form the basis of a green economy. Brazil is a global environmental power due to its ample ecosystem resources, and renewable energy. With the support of adequate government policies, it can become one of the countries to most rapidly incorporate a green economy. This process is based on four key vectors of the Brazilian Green GDP: (i) the preservation and expansion of natural capital, through efficient forms of agriculture and a new forest economy based on the intelligent use of biodiversity; (ii) the transformation of cities through integrated planning at the metropolitan level, with reference to the need for a transformative vision of accessibility and urban mobility, and the expansion of sanitation and the establishment of new standards for architecture and construction; (iii) increased stimulus for the generation and use of renewable energy, necessarily linked to increased efforts
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in energy efficiency; and (iv) the integration of product life cycles in the economic calculations of producers and consumers, through appropriate regulation of new legislation, and innovative effort in the design and use of new materials.

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Challenges and opportunities

Innovation and technology for a green economy: key issues


Maria Ceclia Junqueira Lustosa 1

INTRODUCTiON
The discussion on the limits of growth due to the finiteness of environmental resources has placed the challenge of combining economic growth and environmental preservation. Within this debate, two approaches can be identified: the first focuses on technology as the main vector of change, creating more environmentally friendly production processes and thus stretching the limits of economic growth. The other approach, contrary to the first, puts the impossibility of combining environmental preservation and economic growth in the capitalist system. The need for new markets, imposing a pattern of intensive use of raw materials and energy, makes the dependence of environmental resources grow increasingly beyond the limits of the availability of these resources, even with cleaner technologies. Regardless of this debate, technological evolution towards more efficient production processes from the environmental point of view, using fewer materials and releasing less waste into the environment, is desirable from a social point of view, since if it does not solve the environmental problem, at least it seeks to soothe it. In this sense, the development of cleaner technologies is extremely necessary. Nevertheless, the study of technological change involves many aspects and is an evolutionary process that presents nonlinearity, cumulativity and temporal interdependence (path dependence) characteristics. Moreover, technological change towards environmental sustainability depends on other non-economic factors such as development of specific capabilities of enterprises, infrastructure and institutional changes. This article discusses issues related to innovation in the transition to a green economy from the evolutionary theory of technological change point of view and is divided into four sections besides this introduction. The first deals with
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the emergence of environmental issues as a result of the economic output.

1. Associate professor at the Faculty of Economics, Business Administration and Accounting of the Federal University of Alagoas (FEAC/UFAL), researcher at the Research Group on Agribusiness and Innovation (GAIN/UFAL) and the Research Network on Local Productive and Innovative Systems and Arrangements (RedeSist/UFRJ) and Northeast region director of the Brazilian Society for Ecological Economics (EcoEco).

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The second addresses issues of the relationship between innovation and environment, focusing on factors that influence the capacity of enterprises to become innovative. The third presents the results of researches on the environmental performance of Brazilian companies, especially regarding environmental investments.

Challenges and opportunities

Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

1. ENViRONMENTAL iSSUES AND ECONOMiC PRODUCTiON


Since the Industrial Revolution of the late 18th century, the economic and technological development based on intensive use of raw materials and energy increased the pace of utilization of natural resources. Given the abundance of these resources, the issue of sustainability of the economic system (namely the maintenance of good conditions for its good development, not depleting needed resources and making them available in good quality for future use) was not at the center of economists concerns for many decades. More than a century and a half after the onset of the industrialization process and the emergence of agriculture and livestock farming systems the issue of the finitude of natural resources, seen as a threat to the growth of modern economies, has definitively become part of the economists research agenda. Besides the intensive use of natural resources, waste of production processes released into the environment resulted in the accumulation of pollutants above its carrying capacity, causing pollution. Pollution goes beyond the local dimension (degradation of water bodies, soil and air quality) reaching a regional (acid rain) and global dimension (climate change and ozone layer depletion). The depletion of natural resources and pollution are environmental problems resulting from anthropic activities, which also lead to loss of biodiversity, generating imbalances in ecosystems and making them to lose part of their social and biological functions. This set of problems is called environmental issue. Its negative effects on the environment are the result of past actions and decisions, suggesting a temporal interdependence (path dependence), revealing a process of continuous change and highlighting uncertainties regarding the knowledge about environmental impacts derived from economic growth. The hypothesis that the carrying capacity of the planet was reaching its limits, either by the amount of pollutants released into the environment or by the depletion of natural resources, dates from the late 1960s. Heated debates in the political, academic and social spheres have taken place when the environmental movements discourse was incorporated, which pointed to the incompatibility between environmental preservation and economic growth based on the intensive use of natural resources and non renewable energy sources. After more than five decades of debate, it is clear that there it is not growth that has reached its limit, but the technology and consumer standards hitherto adopted by industrialized countries.

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Economic growth based on technological standards that make intesive use of raw materials and energy, especially from hydrocarbons (the main consumers of natural resources) can run into the limits of finitude of environmental resources, either through exhaustion or loss of quality. The change of current technology standards towards others that are less harmful to the environment is a necessary condition for economic growth to be continuous. In this sense economic growth may be possible for all countries, but with cleaner and natural resources efficient technologies2. It is evident, therefore, that there is a difference between the change of the current technological standard based on the burning of fossil fuels and the development of new cleaner technologies within the same standard in order to minimize the environmental impacts of economic activities. The change of technological patterns is extremely complex, since it occurs in the long term, depends on many variables, and even when induced by any kind of policy, it is not possible to know a priori all the consequences deriving from it, because not all negative externalities of technology, designed and used for specific purposes, can be envisaged. When it comes to issues concerning the environment, externalities affect an additional dimension, as they may have cumulative and depletion effects, which involve uncertainties. As accumulated pollution increases (cumulative effect), the adverse effects on ecosystems and human health can be observed, but no one knows exactly how far they may be affected. But technology alone, even when using intensively natural resources and restoring the waste of productive activities to the environment, would not generate significant environmental impacts if not for the scale effect the environmental limit is reached by the pattern of consumption. The ever-increasing production requires greater amount of natural resources and disposes more waste into the environment. This increase is associated with the consumption pattern imposed by the capitalist mode of production, intensive in material and energy use that is the standard of central countries, which, through cultural, economic, technological and financial subordination, is transferred to the countries of the periphery3, following the logic of the capitalist system of accumulation. For its expansion, new markets and therefore new
2. Kemp and Soete (1992) properly note that the term clean technology, despite being widely used, is not the most correct linguistically. Firstly, because no technology is totally clean, and secondly, because the term clean technology and cleaning technology (technologies that elliminate pollution in the environment) must be distinguished. The correct term would be cleaner technology or environment-saving. There are also control technologies, which monitor emission levels and degradation of natural resources. 3. The center-periphery scheme is a thesis of Raul Prebisch, in which Latin America was part of a system of international economic relations that operated as a constellation whose center was the industrialized countries and the periphery was the passive Latin America. In this context, Brazil has undergone a process of modernization, by the adoption of sophisticated consumption patterns of developed countries by a small portion of the population, which concentrated mostly the income from coffee exports (Furtado, 1974). With the deepening of globalization in recent decades, the consumption pattern of the central countries spread through all capitalist economies, creating a huge market of material and energy intensive products, which present great technological obsolescence.

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consumer needs are required, which in order to be met demand indefinitely developing production4. Thus, the population grows and so does its needs, increasing the scale of industrial production and agricultural and livestock farming systems, resulting in increases in the demand for natural resources and of waste in production processes. As a consequence there is a trade-off between economic growth and environmental preservation. On the one hand, economic growth has brought improvements in the populations living conditions, generating greater quantity of goods and services available to meet the needs, though not equitably distributed. On the other hand, that same growth has brought environmental problems, which are not restricted to industrial and agricultural activities such as uncontrolled urbanization, worsening of environmental conditions and causing damage to human health and to the quality of the environment. Given the complexity of the issue outlined above, this article addresses a specific aspect to support this broader discussion: environmental innovation as a way of changing the current standard technology toward a green economy. As a consequence, a central question arises: how to induce technological change in the direction of cleaner technologies in order to achieve environmental sustainability? That is, in a direction where natural resources serve to present and future generations and that pollution levels are reduced, even when there is an increase in production?

Challenges and opportunities

Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

2. INNOVATiON AND THE ENViRONMENT


The industrial sector is one that causes more damage to the environment, either by their production processes or by manufacture of products that pollute and/or generate disposal problems after use. If on the one hand adopted technologies have led to environmental degradation, on the other, they enabled more efficient use of natural resources and input substitution in the production process. An outstanding example was improved energy use derived from petroleum and its partial substitution by other energy sources after the first oil shock in 1973. Therefore, the technological development towards a pattern of production less aggressive to the environment is seen as a partial solution to the problem. Technological change in the direction of cleaner technologies entangles innovation process. According to Hall (1994), the innovation process corresponds to all the activities that generate technological change and dynamic interaction between them, which need not be primary inventions.
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When innovating, the company is seeking a solution to a given problem that is


4. The organization of the industrial society since the 19th century is based on ... mechanic productivist model of positivism: scientific progress = technical progress = economic development = sociocultural progress (Labeyrie, 2004, p. 125). In this context, there is no room for discussing social inequities and ecological imbalances caused by scientific and technological progress, basis of economic growth.

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solved within a technological paradigm, i.e., within certain standard solutions widely accepted based on principles of natural sciences. Thus, once the technological paradigm is established, innovations become selective in the ability to solve problems, while hindering other solutions that would be outside the technological paradigm characterizing a blindness of the prevailing technological paradigm. Technologies are elected in the selection process which, according to the predominant features of the selective environment, chooses certain technologies and not others. However, when the difficulties of finding solutions increase, inclusive regarding environmental problems, there is a strong incentive for a shift on the technological paradigm. However this is not a sufficient condition since in order to establish a new paradigm it is necessary that advances in basic knowledge occur, as well as other institutional and market factors. Thus, the dominant technological paradigm and the selective environment set the pace and direction of technical progress, which can even generate a paradigm shift, in a slow and gradual process. Within the current technological paradigm, a particular technology is selected. According to B. Arthur (quoted by Lpez, 1996), the technology is not elected because it is the most efficient, but it becomes more efficient because it has been elected. That is, technologies become more attractive as they are more used. Hence, technology has temporal interdependence (path-dependent) since it is the result of predefined trajectories. This engenders a lock-in effect, leading companies to get caught in the more widespread technology and to the prevailing technological paradigm. These events have major effects on the companys ability to find solutions to specific problems, that is, on its ability to innovate, including in the direction of Environmentally Sound Technologies (ESTs). The ESTs can be defined as the set of knowledge, techniques, methods, processes, experiences and equipment that use natural resources sustainably and that enable the proper disposal of industrial wastes, so as not to degrade the environment. They are obtained by means of environmental innovations. Technological changes in the direction of environmental technologies can occur in the technological trajectory (i.e. a more powerful combustion engine that generatesless emissions) or in the technological paradigm (a change of primary energy sources toward generating less environmental impact). With regard to primary energy generation, it is possible to identify the hydrocarbon paradigm based on oil and natural gas.

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Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

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Therefore, for environmental improvements to occur, companies must adopt innovations. However, innovation in the enterprise is not the result of a decision based on internal factors but of complex interactions between the company and its customers and suppliers, and a broader context, including the institutional

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environment, cultural and social infrastructure, macroeconomic aspects: the innovation system. The focus of the analysis should therefore be go beyond the company and seek a systemic approach. These considerations lead to an important aspect for the green economy (how to direct technological change toward environmental innovations) and raise the following question: What enables companies to generate and adopt environmental innovations? There are several factors - economic, social, institutional and scientific - that influence the capacity of enterprises to become innovative. In general, it is possible to group them into internal and external factors to business. Among the internal factors, it is possible to highlight the companys specific skills for problem solving, its absorptive capacity and its access to innovations developed by others. The companys specific competencies to solve problems are accumulated over time. That is, they consist of skills and knowledge that the company has acquired over time, which determine its ability to absorb and create knowledge. These skills and specific knowledge depend on investments in research and development (R&D), individual knowledge of employees, the size and nature of the enterprise (public, private, transnational etc.), sector of activity and degree of specialization. The second internal factor is directly related to the first. The absorptive capacity, according to Cohen and Levinthal (1990), is defined by the skills of recognizing the value of new information, assimilate it and apply it for commercial purposes, being crucial to enable the company to innovate. This ability to evaluate and use external knowledge is the function of prior knowledge, that is, when the external knowledge and the company have basic standards and common languages, it becomes easier to use the information productively. The access to innovations developed by third parties is not free and, in general, has high costs. Whether by lack of information from the company that wants to adopt the environmental innovation, by the innovators competitive strategy of not diffuding their innovation, by patent protection and by trade secrecy or the costs of maintaing absorptive capacity, innovations are not available as products on a supermarket shelf. This means that there is a charge for access and it can be high. Thus, for many companies it is difficult to innovate, whether because of high cost of internal development or of the acquisition of third party technologies. Among the external factors are: the current technological paradigm, the National Innovation System, the macroeconomic context, measures of

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Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

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regulatory nature and degree of market competition in which the company operates. The current technological paradigm, as explained earlier, determines the companys ability to innovate, because it sets the standard in which scientific

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innovations must be circumscribed. In this sense, the shift in the technology paradigm may make the company become more or less innovative, depending on their specific expertise. The National Innovation System (NIS), the second external factor, will influence the ability of businesses to generate and adopt innovations, since it is an organizational system that aims to develop science and technology within the country. It is a complex institutional arrangement involving companies laboratories of R&D, research institutes and universities, financial, educational and law institutions (patents, laws regulating competition). The NIS should be considered in its three dimensions: institutions; the interaction between them, forming a network; and the learning ability. Thus, an effective NIS induces enterprises to be innovative. The macroeconomic context is a factor that interferes with the process of innovation in businesses, since it makes explicit the economic context in which it is inserted. Companies have difficulty in making decisions in conditions of great uncertainty, generated by a scenario of macroeconomic instability. In this context, there is some paralysis to innovate. Reversely, macroeconomic stability creates confidence in economic agents, which will tend to consume and invest more. Measures of regulatory nature are crucial to induce environmental innovations. Some scetors require greater regulations due to the type of activity they develop. For example, companies whose activities have negative impacts on the environment are subject to compliance with regulations, which may induce innovations, depending on the objectives and instruments of environmental policy. Finally, the degree of market competition in which the company operates is one of the factors that most influence their decision to generate and adopt innovations, including environmental. With market pressure, especially the most competitive ones, innovation becomes the differentiating factor between the company and its competitors, creating asymmetries between them and may be the only way to survive in a market that values the non-aggression to the environment. In the light of the above, new paths and bifurcations of technological trajectories must be induced so as to incorporate environmental improvements, even though this is not the primary purpose of developing a particular technology. That is to say that when incorporating environmental issues in innovations, environmental improvements and economic gains can be achieved

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Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

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simultaneously. The adoption of cleaner technologies has not been driven by environmental protection, but by the search for efficiency in resource use (Fukusaku, 2000).

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Despite the advances in the environmental technologies of the industrial sector (cleanear technologies, increased use of materials less harmful to the environment, improved processes and systems for the reuse of materials) environmental problems persist. The condition to achieve gains in the direction of a production pattern which is more environmentally friendly implies to move towards a technological paradigm that is not grounded in intensive use of energy and raw materials, and the consequent adaptation of production processes. A new technological paradigm requires a long maturation period, with several changes, including of conceptual order. The definition of consumption, for example, needs to be revised. Consumption is a term distinct of use. The first means the destruction of the original material, or rather the transformation into other elements. That is, when we burn coal, consumption has taken place, as it was transformed into carbon dioxide and water. Use means no transformation of the materials, but other elements can be added to them. This is the case of water and metals, which remain water and metals even after use. Thus, they can be recycled and reused in other circumstances. However, this distinction is not made by the majority of economic activities that generate pollution since they do not recycle materials already used, thus not transforming the production process waste into wealth.

Challenges and opportunities

Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

3. INNOVATiON AND THE ENViRONMENT iN BRAZiLiAN


COMPANiES
Brazilian industrialization has been marked by a relative neglect of the environmental issue, a result of ... the delay in the establishment of environmental rulings and specialized agencies in pollution control; growth strategy associated with import substitution industrialization, focusing on emission-intensive sectors, and the trend towards the specialization of the export sector in potentially polluting activities (Young and Lustosa , 2001). For many years, the industrial sector did not pay attention to the environmental costs of their production processes, neither to the related waste, including pollution. There used to be a belief that producing in an environmentally sound manner would be more costly and would harm the companies financial performance. However, the search for alternatives that minimize the negative impacts of productive activity on the environment has been reflected in economic gains and improved competitiveness of enterprises. Environmental issues gained ground on businesses social concerns since the 1990s. When companies realized the societys growing interest and
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concern with the environment, they sought to insert themselves in the context as participating agents of change in response to the expectations of society, having seen the decline in the States financial capacity and the disbelief on the State as an actor capable of solving relevant social problems.

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As the preservation of the environment has become a differentiating factor for companies, as a business opportunity, the possibility to include environmental concerns arose in their strategies, by means of more environmentally appropriate practices. Such practices have resulted in the adoption of ESTs, implementation of environmental management systems, rational use of natural resources, among others. Taking the opportunity to improve their image and have societys

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Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

acknowledgement as a key player in the transformation process, companies are investing in environmental programs of social nature. Even with little tax incentive, companies engaged in these projects pursuing a positive image, acting as a powerful marketing tool, differentiating themselves from their competitors and gaining attention in the media - spontaneously, inclusive. This is a first indication that the environment can be a way to improve competitiveness. Despite the social and environmental initiatives implemented by companies with positive results for the environment and society, environmental problems at home (resulting from negative environmental impacts of their core activities) were well below the visibility of environmental projects targeted at society. The exceptions are companies that have suffered some pressure to do so: the requirement of countries which import Brazilian products and environmental regulations that force companies to lower the environmental impacts of their activities. Cost reduction has also played an important role in minimizing the environmental impacts of companies. However, the environment was not the focus - programs for energy conservation, process optimization aiming at reducing input costs, automated control processes that reduce waste, water recirculation, among others, presented a positive effect in the direction of a more rational use of natural resources. Empirical evidence shows that the innovations that generate positive impacts both to the environment and to the companies economic performance are related to their size. Whether by employed personnel or by range of net revenues, the biggest companies are those that consider the environment a motivating factor for the company to innovate (Lustosa, 2002; Podcameni, 2007). The company size has a positive influence on the probability of implementation of environment investment, that is, the larger the company, the greater that probability (Ferraz and Seroa da Motta, 2001). Micro and small enterprises (MSEs) have worked less on solutions for environmental issues as indicated by variables of adoption of environmental management, improved image, increased sales, access to new markets and investment environment (CNI et al. 2001). Other studies confirm that the requirements imposed by law are still the main determinant of environmental investment in enterprises. According to Almeida et al. (2004), most companies still restricts its environmental responsibility to comply with environmental legislation and in response to the fines and penalties.

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However, the increasing demands of the market and competitivity between companies turn the adoption of environmental management principles into a necessary condition for the businesses survival. Ferraz and Seroa da Motta (2001), in a study that analyzes the determinants of environmental investment in the industry in the State of So Paulo, found some internal and external factors to enterprises, which are significant for environmental investment. The internal factors indicate that plants with more workers, older firms and those with foreign capital tend to make more environmental investments, as well as those with a higher proportion of exports over sales and those belonging to sectors considered pollutants. In relation to factors external to companies, only the factors associated with formal environmental regulation, as the number of warnings given by the environmental agency, for example, were significant. Tigre (1994), in a research carried out with producers of equipment and environmental services, shows that 69% of companies have realized that the government regulations are extremely influential in the growth of their market and that 21% considered such regulations influential5. Innovation in the MSEs is related to factors such as the organization and the need for innovation in the sector in which they operate. Although in most cases they do not have enough capital, they have other advantages that favor investment in innovation such as the flexibility of their structures, their diversified activities and their quick adaptation to market changes. However, small enterprises have less access to technological information than the larger ones; besides, the difficulty in obtaining credit makes innovation initiatives quite risky. Among other factors that inhibit innovation in MSEs are low managerial capacity of the people who are ahead of the business and the short-term planning. Because of their small size, owners and/or administrators cling to solve daily problems and do not give the due importance to long-term strategies and to innovation. With regard specifically to the issue of environmental innovation, its importance lies in the fact that eco-efficient production is an important instrument of competitiveness, as it reduces costs and improves product quality, enabling the opening of new markets..

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5. To the other answer options, little influent or non influent, the percentages of 7% and 3% have been attributed, respectivelly.

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CONCLUSiONS
The growth process of modern capitalist economies, which started with the Industrial Revolution of the 19th century, generated an enormous output of material goods. Concomitant with this dramatic increase in production scale, the environmental issues arose - depletion of natural resources and pollution. However, it was in the late 1960s that the degradation of the planet started gradually to enter into the discussion agenda of the social, political and

Challenges and opportunities

Innovation and technology for a green economy: key issues Maria Ceclia Junqueira Lustosa

academic spheres. The environmental movement began to take a social and political conotation. In this debate, innovation and technology become important variables to be studied, since they are those that determine the set of knowledge, techniques, methods, processes, equipment and experiences that will transform raw materials into consumer goods. Therefore, the technological standard presents a double face: it was and still is largely one of the factors leading to the aggravation of environmental issues in proportion to increases in the scale of production. Its other side emerges as the solution to environmental problems through technological changes in the direction of environmentally sound technologies - which use natural resources sustainably and enable the proper disposal of waste in production, so as not to degrade the environment. These changes occur through environmental innovations. Once the companies are the producing agents in the economy, their capacity to generate and adopt environmental innovations is crucial for the obtainment of production processes and products less harmful to the environment and, therefore, environmental improvements - properly managing natural resources and controlling pollution. Despite the benefits that environmental innovations can bring, there are factors in the technological, political and market spheres that limit their generation and diffusion. In cases where companies show no interest in practices less harmful to the environment, the State must use legal means (environmental policy and its regulations), through public environmental management and encourage companies to change their behavior in relation to the environmental impacts of their activities. Environmental regulation has both normative and informative sides: it translates the needs of environmental protection into specific requirements, signaling to polluters and suppliers of environmental technologies what is being demanded. The generation and particularly the diffusion of environmental innovation are crucial to harmonize

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environmental preservation with the growth of economic output.

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References Almeida, J. R., Mell, C. S. and Cavalcanti, Y. (2004). Gesto ambiental: planejamento, avaliao, implantao, operao e verificao, 2 ed. Rio de janeiro: THEX. CNI, SEBRAE, BNDES (2001). Relatrio da Competitividade da Indstria Brasileira. Braslia: CNI/SEBRAE; Rio de Janeiro: BNDES. Cohen, W. and Levinthal, D. (1990). Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35, 128-152. Ferraz, C. and Seroa da Motta, R. (2001). Regulao, mercado ou presso social? Os determinantes do investimento ambiental na indstria. Anais do XIX Encontro Nacional de Economia, Salvador - BA, ANPEC. Fukasaku, Y. (2000). Stimuler linnovation environnementale. In OCDE, Le developpement durable. Nmero especial, Paris: OCDE. Furtado, C. (1974). O mito do desenvolvimento econmico. Rio de Janeiro: Paz e Terra. Hall, P. (1994). Innovation, economics and evolution: theoretical perspectives on changing technology in economic systems. New York: Harvester Wheatsheaf. Kemp, R. and Soete, L. (1992). The greening of technological progress: an evolutionary perspective. Futures, 24(5), 437-457. Labeyre, V. (2004). As conseqncias ecolgicas das atividades tecno-industriais. In Morin, E., A religao dos saberes: o desafio do sculo XXI, 4a ed. Rio de Janeiro: Bertrand Brasil. Lpez, A. (1996). Competitividad, innovacion y desarrollo sustentable: una discusin conceptual. DT 22, Buenos Aires: CENIT. Lustosa, M. C. J. (2002). Meio ambiente, inovao e competitividade na indstria brasileira: a cadeia produtiva do petrleo. Doctorate thesis, Rio de Janeiro: IE/ UFRJ. Podcameni, M. G. (2007). Meio ambiente, inovao e competitividade: uma anlise da indstria de transformao brasileira com nfase no setor de combustvel. Masters degree dissertation. Rio de Janeiro: IE/UFRJ. Preston, J. T. (1997). Technology innovation and environmental progress. In Chertow, M. R. and Esty, D. C., Thinking ecologically the next generation of environmental policy. London: Yale Univ. Press. Tigre, P. B. (coord.) (1994). Tecnologia e meio ambiente: oportunidades para a indstria. Rio de Janeiro: UFRJ. Young, C. E. F.ande Lustosa, M. C. J. (2001). Meio ambiente e competitividade na indstria brasileira. Revista de Economia Contempornea, v. 5, Edio Especial, 231-259. Rio de Janeiro: IE/UFRJ.

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Challenges and opportunities

Agriculture for a green economy


Ademar Ribeiro Romeiro1

1. INiTiAL CONSiDERATiONS
What is a green economy? The An understanding of the meaning of a green economy depends on the underlying concept of ecological sustainability. In the recent UNEP report on green economy, this conception is that implied by the sustainable development concept: it is possible to reconcile economic growth with environmental conservation by increasing ecological efficiency2, by using greater caution in decisions that involve environmental impacts, by raising consumer awareness in selecting goods and services with lower impacts, etc. The report clarifies how much can be done to bring about a greening of the economy.3 However, over a very long term, within a human time scale (thousands of years4), the concept of ecological sustainability to be considered is one that clearly establishes that economic growth, as expressed by increased material/ energy production per capita, cannot continue indefinitely due to the simple fact that there are entropic limits to increases in ecological efficiency. According to the Second Law of Thermodynamics, the Entropy Law, it is impossible to reduce waste generated by human activities to zero.5 It is essential to take into account the finitude of planet Earth, which is a closed system in terms of the exchange of matter with other systems in space (with the exception of occasional meteorite collisions); from an energy perspective, the planet is calibrated to simply absorb solar energy and radiate heat to outer space, having no significant endogenous sources of energy (geothermal sources are relatively unimportant). The unlimited increase in the production of materials/

1. Full professor at the Institute of Economics at the University of Campinas (IE/UNICAMP), coordinator of the Nucleus of Studies and Research on Environment (NEPAM/UNICAMP) and director of the Brazilian Society of Ecological Economics. 2. Ecological efficiency is understood as the most efficient use of natural resources, producing more with the same quantity of resources and/or maintaining the level of production with the use of fewer resources, resulting in reduced emission of residues per unit of product or service. 3. The recommendations of this report largely echo the viewpoints expressed for decades by the principal theoretician of sustainable development, professor Ignacy Sachs, of the University of Paris. See, for example, Sachs (2006). 4. The minimum time period that should be considered as a long-term human scale is 10 thousand years, since the invention of agriculture during the Neolithic age. In average, it should be considered the time period since humans controlled the use of fire, between 200 and 400 thousand years ago. 5. Some specialists believe that it is theoretically possible to increase current average ecological efficiency by up to 10 times. For example, current carbon emissions produced by the combustion of carbon for steel production could be reduced by up to 90% with the introduction of new processes. For a detailed discussion see the works of the Factor Ten Institute: http:// www.factor10.de

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energy based on exogenous sources of energy and materials (which can be found inert in the terrestrial crust) leads to increased thermodynamic imbalances that would eventually produce adaptive ecological processes catastrophic to mankind.6 Thus, zero growth (of material/energy production) is inevitable (for good or for evil), as predicted by the Club of Rome in 1972.7 Zero growth, it must be said, does not necessarily imply the absence of human development. Indeed, human development depends on increased production of materials and energy to achieve a level of material comfort that is deemed appropriate. However, after a certain level of material comfort, human development is much more dependent on other factors, particularly those related to the emotional balance of individuals. In this sense, an index that best measures development in its various dimensions would not be the GDP, as it is currently calculated.8 In agriculture, the limits of expansion are more obvious: the agricultural area available is visibly finite and, however spectacular the gains in agricultural productivity have been, one can no longer count on further significant increases. In short, it seems clear that agricultural productivity cannot grow indefinitely. After all, Thomas Malthus was absolutely right in his fundamental intuition about the environmental limits to growth. Who disagrees with the notion that the world population cannot grow forever? Even the most obtuse economists admit this fact, although they continue believing in the perpetual growth of material and energy consumption. However, it is not sufficient to acknowledge that the expansion of agricultural production has limits. One must consider the conditions under which this production takes place, which must allow continuity for millennia! In the early 20th century a debate took place among agronomists in Europe, and particularly in France, about the enormous advantages of American agriculture, with its high labor productivity but major environmental impacts, compared to European agriculture, which preserved the agricultural ecosystem but was less productive per unit of labor. Many experts argued in favor of American agriculture, saying it would not be worth losing productivity gains to conserve the soil, since in the future (around the end of the century!) agriculture would no longer be necessary for the production of food!

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6. Exogenous energy sources include all energy sources, except solar directly received by the planet on a daily basis, such as fossil fuels and nuclear energy; inert materials in the crust (all types of mineral resources) as they are mined and processed in the ecosphere (the layer of earth where life is concentrated from a few meters below the subsoil to several hundred meters above the ground) become active waste to the degree that they force the ecosystems of the ecosphere to absorb them. 7. The fact that initial predictions have failed due to errors in modeling and in the parameters used in no way changes the rationale on which they were based. 8. For an analysis of the debate on indicators that reflects these dimensions of economic development, see Veiga (2010).

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The catastrophic effects of erosion in the U.S. eventually led to a great movement for soil conservation and for the adoption of other conservation practices that guaranteed a minimum level of sustainability for so-called modern agricultural practices.9 However, one can question this minimum sustainability level of current practices, as has been done by movements in favor of alternative farming practices that effectively ensure agricultural productive capacity over the very long term.

Challenges and opportunities

Agriculture for a green economy Ademar Romeiro

2. THE ECOLOgiCAL SPECiFiCiTY OF THE AgRiCULTURAL


PRODUCTiON SECTOR
Agricultural activities depend on space. It is the primary agent responsible for the irreversible transformation of natural ecosystems. The impacts of farming practices on the natural resource base also directly affect the quality and quantity of agricultural products generated. So-called modern practices guarantee the quantity but not the quality of food, which exhibits varying degrees of contamination by agrochemicals, as well as declining nutritional quality: unbalanced fertilization and the deteriorating physical structure of soils affect the structure of amino acids and vitamin content in foods. However, even quantity is not guaranteed if we consider the very long term. Similar to the defenders of American agriculture in the early 20th century, proponents of current practices argue that adoption of agro-ecological practices would drastically reduce agricultural labor productivity, resulting in unacceptable costs to the population. In fact, so-called organic or, more generally, agroecological10 products are more expensive, because their marketing is currently limited to niche markets composed of a more aware consumer that is willing to pay higher prices for better quality products.11 It can be argued, however, that these prices could already be lower if governments devoted similar efforts to support agro-ecological practices that they dedicate to conventional agriculture, in terms of agricultural research and extension, credit, subsidies, etc. Furthermore, one must consider that proper ecological accounting would show that the higher prices of agro-ecological products incorporate a range of ecosystem services12 that benefit society as a whole. The first, as already mentioned, is the quality of food. Healthier food in terms of nutrients and the absence of chemical contamination. Another important service
9. Erosion caused by wind, in particular in the semi-arid Great Plains, caused enormous dust storms referred to as dust bowl, which reached as far as the East Coast! 10. Agro-ecological products are understood as those produced according to certain rules of cultivation based on intelligent management of natural forces, minimizing the introduction of exogenous agrochemical inputs. 11. For an analysis of the problems associated with the adoption of agro-ecological practices in Brazil, see Assis and Romeiro (2004 and 2007). 12. For a classification of ecosystem services, see the 2005 Report of the Millennium Ecosystem Assessment (MEA).

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involves the provision of high quality water. An agro-ecological agricultural landscape results from soil management that enhances the infiltration of water, which eliminates erosion and contributes to the regulation of water flows in rivers. As a result, water quality is not compromised by massive inputs of sedimentary material and agrochemicals, thus reducing which reduces the cost of water treatment in urban centers (which do not eliminate the whole problem) and contributing to the preservationing of aquatic fauna.

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Agriculture for a green economy Ademar Romeiro

A third ecosystem service is that of maintaining a diverse flora and fauna in the agricultural landscape that is increasingly valued in most countries. This agro-ecological landscape is essential for ecotourism or rural tourism, and citizens of several countries are increasingly willing to pay for these services. The absorption and storage of carbon is a fourth service. There are others, but not all can be monetized due to a lack of information. Those that are monetizable should be calculated and taken into account in the formulation of agricultural policies that support agro-ecological practices. The necessity of accounting for the economic (monetary) dimension of the value of agro-ecology may be sufficient to justify more supportive policies. Nevertheless, we must not lose sight of the ecological and socio-cultural dimensions, which cannot be measured in monetary terms. The socio-cultural dimension is measured by the role that agricultural space may have in preserving the cultural identity of many peoples. In the case of the ecological dimension, which concerns everyone, the metric is sustainability in the very long term as defined by (a) utility (necessity for human survival) and (b) ethics (acceptance of the right to survival of species without known uses) Agricultural science has already accumulated sufficient experience to define parameters for the sustainability of farming practices in the very long term: an agro-ecosystem where a certain proportion of the remnant native flora and fauna contributes to the long-term ecological resilience of agricultural practices based on the management of natural processes.

The ecological principles of agro-ecological practices It can be said that modern farming practices have evolved in response to economic stimuli resulting from the advantages of monoculture in terms of the organization and productivity of agricultural labor, and the prospect of gains from the specialization in making more profitable products.13 Technically this was made possible by the introduction of chemical-mechanical procedures that
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have, however, proven to be degrading to the productive base. It is necessary to be clear that monoculture contradicts a basic rule in nature, that diversity is synonymous with stability. The more simplified a given
13. See Romeiro (1991, 1998) for a historic analysis of this process.

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ecosystem, the greater the need for exogenous sources of energy and matter to maintain balance. Monoculture causes a profound imbalance, both in terms of vegetation cover (pest infestations) as well as the physical, chemical and biological activities within the soil. Destabilizing factors gain strength and force farmers to use energy-intensive techniques to maintain conditions favorable for crop development. However, these technical solutions do not seek to eliminate the causes of the imbalance, but only circumvent its effects on revenues. The initial effectiveness of these techniques and procedures made the vast majority of experts extremely optimistic. Experience has shown, however, that there was no reason for this optimism. In France, for example, due to the generally low organic matter content, the physical structure of soils has become increasingly susceptible to the action of climatic factors, as well as to the passage of heavy machinery and equipment the use of which, in turn, was necessary to aerate soils increasingly susceptible to compaction due to low organic matter content! In other words, the degradation of physical soil structure causes a permanent contradiction in the interventions designed to improve the supply of water and nutrients to crops: the more the soil is degraded, the less natural factors (ecosystem services) provide the necessary conditions for cultivation, which must then be obtained through chemical and mechanical interventions that also contribute to degradation. However, it must be clear that these interventions do not resolve the contradiction, in that they are designed to overcome the effects of environmental degradation on productivity, without addressing the causes of the problems. The causes should be addressed through the adoption of agricultural practices designed to manage nature rather than fight against it! An agricultural ecosystem necessarily involves simplification of the original ecosystem. For this reason it is necessary that the farmer always intervenes to keep it stable. However, such interventions should be made in accordance with the laws of nature. Extreme simplification can be avoided by crop rotation. This practice provides a remarkable means of maintaining stability of the agricultural ecosystem. In addition to dramatically reducing the risk of pest infestation of the vegetation cover, rotation effectively contributes to the maintenance of good physical soil structure. Agro-ecology seeks precisely this: based on the successful experience of ancient farming systems, to scientifically develop farming

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practices that manage nature in order to obtain ecosystem services useful for production.

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3. AgRO-ENViRONMENTAL POLiCiES
As a result of the presentation in previous section, scientific research in sustainable agro-ecosystems should be a fundamental part of an agroenvironmental policy for agriculture. In Brazil, research began over 20 years on low-impact farming practices.14 One of the most notable results of this work is the expansion of no-tillage systems,15 which has already expanded to over 10 million hectares. This is a farming system in which farmers create the conditions that guarantee the required organic matter content and that protect the soil from sun and rain, measures that are necessary for the activities of soil micro-fauna that result in a physical soil structure suitable for planting. This approach recognizes how the intelligent management of natural forces can provide ecosystem services that both conserve the soil and maintain high productivity. Another notable example, older and hugely successful, is the widespread fixation of atmospheric nitrogen by inoculants that strengthen this naturally occurring process associated with legumes such as soybeans. In addition, farmers are increasingly applying biological control of pests in crops, for example through viruses that attack their main insect predator of soybeans. These are techniques that use natural processes and ecosystem services, but are still mainly applied in monocultures. Currently, research organizations in Brazil are increasing efforts to research sustainable agro-ecosystems. For example, a few years ago Brazilian Agricultural Research Company (EMBRAPA) created an agro-biology research center as well as sustaining another research center in agriculture and environment.16 These are centers of reference, but all the other EMBRAPA research centers have also expressed concern about the sustainability of agricultural practices. Recently a technological package was launched for livestock-agriculture integration. These are two activities that have strong ecological complementarities, so that integration increases output per hectare in a sustainable manner. This is an important step to enable the effective adoption of agro-ecological practices. Along with scientific and technological policies, it is crucial that the negative externalities of conventional practices be are measured and taxed in some way. Simultaneously, the positive externalities such as the ecosystem services generated by farmers should be considered. As such, the cost of adopting certain sustainable practices (opportunity cost) represents the value of the environmental conservation service offered by the farmer. Through this

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Agriculture for a green economy Ademar Romeiro

14. For a broader analysis of the prospects for agro-environmental policies, see Romeiro (2007). 15. No-tillage is a system of farming without plowing the soil. The seed is buried directly in soil covered with a layer of chopped-up crop residues (straw), which protects and at the same time provides needed organic matter to feed the chain of organisms living in the soil. The conditions needed for plant development from seed are derived precisely from the activities of these organisms; as a result, these activities translate into an ecosystem service of structuring the soil for the planting and development of crops. 16. EMBRAPA Agro-biology (CNPAB) and EMBRAPA Environment (CNPMA).

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environmental conservation service, the farmer ensures that nature (agroecosystem) produces ecosystem services such as those mentioned (healthy food, water quantity and quality, biodiversity). The best known food products certification, such as organic or biodynamic agriculture, began by emphasizing the healthy character of the food produced, but today these certifications tend to include other ecosystem services resulting from the preservation and management of a particular agricultural landscape, such as biodiversity and water in particular. Its important to bear in mind that many of the ecosystem services produced by the adoption of agro-ecological practices also benefit the farmer. In this case one can speak of win-win technologies, which produce positive environmental externalities and at the same time are profitable for producers. This is the case for healthy food when the market recognizes its value by offering a price that makes production profitable. In the case of water, protected soil with appropriate organic matter content, increases crop resistance to drought stress, thereby saving expenses associated with supplemental irrigation and crop failures. In more balanced ecosystems, expenditures on pest control are also decreased. Greater biodiversity also improves productivity by ensuring better crop pollination. Hence, it is important to take stock of the real opportunity costs of adopting agro-ecological practices, thereby obtaining a fair reference on which to base payments for environmental services that society as a whole should make to farmers.

Challenges and opportunities

Agriculture for a green economy Ademar Romeiro

References Assis, R. L. and Romeiro, A. R. (2004). Anlise do processo de converso de sistemas de produo de caf convencional para orgnico: um estudo de caso. Cadernos de Cincia e Tecnologia, 21(1), 143-168. Braslia: EMBRAPA. Assis, R. L. and Romeiro, A.R. (2007). O processo de converso de sistemas de produo convencionais para orgnicos. Revista Brasileira de Administrao Pblica, 41, 863-885. Romeiro, A. R. (1991). O modelo euro-americano de modernizao agrcola. Nova Economia, 2(21), 175-197. Belo Horizonte: UFMG. Romeiro, A. R. (1998). Meio Ambiente e Dinmica de Inovaes na Agricultura. So Paulo: FAPESP/ANNABLUME, 277 p. Romeiro, A. R. (2007). Perspectivas para polticas agroambientais. In Ramos, P. (org.) Dimenses do agronegcio brasileiro: polticas, instituies e perspectivas, 1 ed., v. 1, 283-317. Braslia: NEAD Estudos. Sachs, I. (2006). Caminhos para o desenvolvimento sustentvel. Rio de Janeiro: Editora Garamond.

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Veiga, J. E. (2010). Indicadores de sustentabilidade. Estudos Avanados, n. 68, Jan-Apr.

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Challenges and opportunities

Green economy and a new cycle of rural development1


Arilson Favareto2

INTRODUCTiON
Can the green economy favor the poorest, especially in rural areas? The response to this question is affirmative. The Green Economy Initiative (GEI)3, launched by the UNEP in 2008, and the subsequent Green Economy Coalition (GEC)4, headed by thirteen international organizations of consumers, workers, entrepreneurs, environmentalists and researchers, define green economy as that which in addition to being just and resilient, manages to improve the quality of life for everyone, within the ecological limits of this planet. Thus, the fundamental issue is not to know if such intent can favor the poorest, but especially to show how this can take place and through what initiatives. In the case of rural regions, there are two starting points for analyzing such issue. It is known that, on the one hand, there is a declining role of agriculture in the income generation of families. That is, rural family incomes increasingly originate from other non-agricultural activities, such as urban-type jobs on premises located nearby, from other activities conducted in agricultural establishments, such as the provision of services or manufacture of product parts, or even from the transfers of income via social programs. On the other hand, the impacts of the current model of agricultural production and livestock farming on the emissions of greenhouse gases are well-known, as shown by various reports available on this topic. Furthermore, this model based on the expansion of intensive agriculture, despite generating a lot of wealth and high production volumes, promotes the disposal of labor due to the introduction of mechanization and industrialized inputs and thereby offers little contribution to the income generation of the poorest. And, ultimately, this model severely pressures the environment through its intensive use of natural resources. However, this is only one side of the coin that reflects the extension, to recent times, of a rural development paradigm that originated in the post-war era of the previous century. That which the literature refers to as a new rurality is gradually emerging, with contours that are significantly different and in which
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1. This article was written by request from Conservao Internacional (CI-Brasil) and is based on arguments and excerpts originally published in other works by the author. 2. Sociologist, professor at the Federal University of ABC and researcher at the Brazilian Center for Analysis and Planning (Cebrap). Email: arilson.favareto@ufabc.edu.br. 3. http://www.unep.org/greeneconomy/ 4. http://www.greeneconomycoalition.org/

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reside great opportunities to inaugurate a new cycle of development that is compatible with the principles envisaged by a green economy. The objective of this article is to shed light on the contours of this emerging rurality, whose distinctive trace is the transition from an agrarian and agricultural paradigm to a paradigm organized around the environmental rooting of rural development. And also to highlight some important issues for Brazil to accelerate the transition in the direction of this new model. Thus, there are three sections that follow this brief introduction. In the first, the contours of the so-called new rurality are presented. The second, presents a brief table about the current heterogeneity of Brazilian rural regions and their different forms of economic inclusion and natural resource use. In the third, some sensitive issues are recommended for the transition towards a green economy.

Challenges and opportunities

Green economy and a new cycle of rural development Arilson Favareto

1. THE ENViRONMENTAL ROOTS OF NEw RURALiTY


According to social theory (Abramovay, 2003), there are three fundamental defining dimensions of rurality: proximity to nature, link to cities, and interpersonal relations resulting from low population density and the reduced size of rural populations. What changes in the new stage of rural development, which emerges through the so-called new rurality, is the social content and the quality of articulations between these elements. With regards to proximity to nature, natural resources that were previously focused towards the production of primary goods, are now increasingly subject to new forms of social use, such as for biodiversity conservation, exploiting the landscape potential of this medium, and the search for renewable energy sources. Nature is increasingly viewed as fundamental due to its unsubstitutable capacity to provide the environmental services necessary for human existence: closing the loop of certain chemicals that would be harmful to health, regulating the climate, and forming watersheds, among others. Concerning relation to cities, rural spaces have stopped being mere exporters of primary goods and now give space to greater inter-sectoral diversification and integration of their economies, and consequently dampening and in some cases even inverting the demographic flows that prevailed in the previous phase. Interpersonal relations, ultimately, no longer rely on relative homogeneity and isolation, characteristics traditionally associated with rural areas, but are now structured by growing individualization and heterogenization. This is a movement compatible with greater physical mobility, with the development of information technology and communications, with the new population profile and with the growing
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integration between markets that were previously more clearly dichotomized into the rural and urban markets for goods and services, but also the job market and the market for symbolic goods (Favareto, 2007). This qualitative change can be better understood through rapid exposure, based on examples from international experiences.

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One of the main books about rural development in the contemporary world is devoted to the analysis of the US context - Rural Development in the United States, by Galston and Baehler (1995). The authors highlight how the comparative advantages of rural areas have changed over the course of North American history. During the first extended phase of shaping the North American territory, the great comparative advantage was the availability of primary products: timber, coal, minerals and agricultural products. The search for these resources guided the occupation of land and represented the principal source of work and wealth for a long time. Obviously, with the passing of time the importance of this production decreased relative to other economic activities, both in terms of people employed and wealth generated. Technological innovation and the emergence of cities triggered a diversification in the productive base, with the growing development of transformation and service activities. In this phase, rural spaces have cheap labor and land, coupled with aspects such as lower levels of taxation and unionization, as factors attracting industries and investment. The main advantage becomes location, since the exploitation of these less onerous factors in rural areas was only feasible because of the distance from the more dynamic centers, which compensated for the transportation costs. However, similar to how technological advances allow for lowered production costs and the introduction of techniques that save labor in agriculture, the same thing happens in the manufacturing sector. Thus, dynamism becomes concentrated in the tertiary sector. Over the last two decades of the previous century, the counties that offered the most services related to the exploitation of rural amenities natural or cultivated landscapes, pure air, clean water, cultural attractions where those that presented greatest growth. Exceptions include places with very unique forms of investment such as casinos, prisons, or post distribution centers. However, for obvious reasons this type of investment cannot form the basis for a strategy to be recommended for rural areas. In the case of Italy, as presented by Veiga (2006), there is an evident contrast between rural areas that essentially depend on income obtained from the export of primary goods, eventually industrialized, and others where the economy is grounded in the movements of income generated and obtained in the cities. This division encounters a certain relation to natural characteristics, such as relief, with plains and plateaus being characteristic of the first case and proximity to hills and mountains the second. This division seems to have been directly influenced by a whole range of phenomena related to tourism, which in turn is narrowly determined by increases in free time and income, and as a

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consequence also by an increase in leisure activities by growing social tiers. In addition to natural heritage conservation, which is at the root of this type of phenomenon, and economic exploitation of amenities, whose main expression is tourism activity, the same study also shows that there is a third valuation vector of rurality: the exploitation of new energy sources.

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Of course agriculture of commodities continues to carry great weight in shaping rural spaces, and tertiary activities will always exist in this ambit. What Galston and Baehler (1995) and Veiga (2006) point out is the growing emphasis on this second set, as much in terms of people employed as in wealth generated, but mainly in bringing something new to institutions linked to rural development: the growing importance of nature and values that are not directly monetized.

Challenges and opportunities

Green economy and a new cycle of rural development Arilson Favareto

In this context of changing comparative advantages, one inescapable conclusion is that not all rural areas have the same conditions for attempting a development process based on the exploitation of its amenities. Low population density, which is characteristic of these areas, complicates economic diversification. The demographic profile and the characteristics of the social fabric, mainly of stagnant rural areas or those that loose population are different: there is a vulnerability to external social ties, lack of local opportunities, low expectations of social mobility or increased interactions. Distance from urban centers can also turn into a disadvantage through increased information and transportation costs. Therefore, coupled with the emphasis on the specific attributes of these territories, the available literature draws equal attention to the form of inclusion of these locations in the extralocal space (Jacobs, 1984; Veltz, 2003), or as some authors prefer, in the relation of rural regions with cities or other parts of the world. From this perspective, it is the city economy that shapes the economy in rural regions. This takes place through the exports of primary products, through the attraction of transformation activities, or through the capture of income from urban sectors, such as from retirees or professionals in search of a second home or tourism activities. The fact is, that the closer these relations are, the greater the chance for prosperity. However, for areas located outside this proximity, there is no need to be fatalistic. It is possible to create a link between rural regions and a network of cities, or to constitute a network of cities in a rural region. This can be done by investing in communication and transport, to diminish distances, through a kind of territorial division of labor between small sites, in order to overcome necessities that would have to be fulfilled in urban centers. Or even through generating local centers for growth by forming cities that can meet these necessities. In any of these possibilities, the key word is diversification. That is what guarantees the supply of the local population, which creates the conditions for introducing innovations and the adaptation of these territories to the pressures and opportunities of general economic changes.

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Implications for development These changes, which have already been on course since the last quarter of the 20th century in countries of advanced capitalism, have been noticed

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by multilateral organizations and government agencies, and transformed into reorientations for policy design. The wear on agricultural policy by exclusively sectoral biases arose in the middle of the 1980s and made space for a series of reforms and debates on The future of the rural world, the title of a European Commission Declaration to Parliament in 1988. An indisputable mark on this changing vision was the creation of the Leader Program Links between Actions for the Development of the Rural Economy in 1991, which to this day is the primary reference for territorial rural development programs. However, the best synopses of planning agency perceptions of these changes were expressed on two occasions, in the middle of the 1990s: the well-known Cork Declaration, which resulted from the conference Rural Europe future perspectives, and the workshop Post-industrial rural development: the role of natural resources and the environment. At these events, a basic consensus was reached about advanced rurality, synthesized in Box 1 below. These events gave rise to a progressive transition in the design and the institutional location of rural development policies. Policies began shifting from a basically sectoral vision to what is conventionally referred to as a territorial approach to rural development. This is an approach that intends to overcome the rigid separation between rural and urban and support itself on the complementarities between these two spaces (Veiga, 2000; Abramovay, 2003; Favareto, 2007). As a result, the emphasis of agricultural policy began to make space for a growing approximation to regional development policy.

Challenges and opportunities

Green economy and a new cycle of rural development Arilson Favareto

Box 1 Basic consensus, in the middle of the 1990s, on advanced rurality 1. Rural zones, that encompass the residencies of one quarter of the European population and more than more than a fifth of North American people, and more than 80% of both territories, are characterized by singular cultural, economic and social fabrics, an extraordinary mosaic of activities and a great variety of landscapes (forests and agricultural land, unharmed natural sites, villages and small towns, regional centers, small industries, etc.). 2. Rural zones, as well as their inhabitants, represent an authentic wealth in their regions and countries, and can be highly competitive. 3. Most of European and North American rural spaces are constituted by agricultural land and forests that strongly influence the landscape character.
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4. Given that agriculture will certainly persist as an important interface between society and the environment, farmers should increasingly exercise management functions over various natural resources and rural territories.

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5. However, agriculture and forests no longer play predominant roles in national economies. With the declining relative weight of their economies, rural development should more than ever before involve all socio-economic sectors in rural zones. 6. As European and North American citizens increasingly value quality of life in general, and in particular issues related to health, safety, personal development and leisure, rural regions occupy privileged positions to satisfy such interests and offer ample possibilities for authentically modern and high-quality development. 7. Agricultural policies should adapt to the new realities and challenges posed as much by the demands and preferences of consumers as by the evolution in international trade; an adaptation that principally propels the transition from a system of price support to a system of direct support. 8. The subsidies established by the respective agricultural policies are increasingly criticized. And it is already widely accepted that government financial support should be increasingly conditioned on adequate natural resource management and on maintaining and strengthening biodiversity and cultural landscapes. 9. The agricultural policy reforms during the first half of the 1990s maintained inconsistencies, duplications and legal complexities, despite undeniable advances in terms of transparency and efficiency. 10. It has become absolutely necessary to promote local sustainable development capabilities in rural zones, in particular private and community initiatives that are integrated with global markets.

Challenges and opportunities

Green economy and a new cycle of rural development Arilson Favareto

Reproduced from: Veiga (2004)

2. AND iN BRAZiL?
The main medium and long term tendency that manifests itself today in Brazilian rural regions can be summarized in two statements: here, as in all countries with advanced capitalism, agriculture has a declining tendency both in generating income for farming families and in providing employment; and due to a series of reasons, rural regions no longer experience a general exodus but rather a heterogenization in their demographic profiles, such as increased schooling and social differentiation. The result of this tendency in Brazil as
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well, has been a change in the comparative advantage of rural regions through declines in the dynamic and inclusive potential of more traditional activities linked to strengthening the agricultural and livestock farming sector, and increases in the potential of new activities related to the exploitation of biodiversity and its

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landscape potential, resulting in a new structure of income generation in these regions. However, this is a potential that has not been realized as expected or suggested in the new rurality literature. In a different way, the tendencies and potentials of the new phase of rural development experience multifaceted manifestations. Unfortunately, due to the inherent limitations in the organization of Brazilian statistical data, there is no good reading available about these dynamics on a micro-regional scale. Brazilian rural regions can be categorized schematically into four types. Each one of these types experiences a unique development path, with which the generation of innovations aimed at a more sustainable model necessarily need to dialogue. The first type covers rural regions where a certain model of urbanization associated with morphological territorial characteristics such as the environment and social stratification, favored the creation of a social form of natural resource use in which the search for conservation meets correspondents in the forms of dynamics of social life. There, the diversified local economy relies on a high degree of economic integration and territorial cohesion. Landscape, culture and the economy interlace in a way that associates economic dynamism with good social indicators and positive progress in environmental indicators. Something similar occurs in regions such as Vale do Itaja, in the state of Santa Catarina (Southern Brazil). These regions combine a rurality grounded in environmental factors with a more diversified and decentralized social structure. In these areas, investment in innovations should favor the dissemination of the currently embryonic economic activities that utilize local natural resources for activities such as tourism or the management of these resources. In the second type, however beyond the morphological territorial characteristics that, with respect to the environment, favor conservation the characteristics of social stratification do not contribute to the creation of institutions capable of diminishing the fractures among social groups due to social positions. Conservation finds itself in conflict with the possibilities of give dynamism to local life. The urbanization model is still incipient or heading in a direction where there is no valuation of the rural. This is the typical case of certain areas of the Amazon (Northern Brazil), where the forest coexists with advances in business agriculture. The local social structures do not exhibit vigor nor sufficient patterns of interaction to confront the expansion of primary activities, resulting in biodiversity loss and the depletion of natural resources such as land and water. There is a high degree of conflict between institutions, which greatly affects local populations. These regions combine a rurality grounded in environmental factors with more specialized and concentrated social structures. In these areas, investments in innovation should favor economic activities with larger economies of scale that are already based on new patterns of natural resource use, and the creation of local productive arrangements

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capable of increasing the participation of small and medium enterprises, for example creating arrangements aimed at processing forest products through sustainable methods. In the third type, morphological territorial characteristics in environmental and social terms engender a relation between exploitation and the rural, under restricted conservation possibilities and greater risks of fraying social fabrics, despite the possible economic dynamism in the primary sector and of transformation. Regions that experience an accentuated and dependent dynamism of agricultural activities fit into this type. The wealth generated in these regions establishes a relation between the municipal territorial center and the others, where all resources are concentrated and do not result in wealth spreading across a set of social groups. Environmental conservation possibilities are restricted to the minimum required by law, such as cases of preserving remnants, riparian forests and hill top vegetation. Local biodiversity is greatly compromised or threatened by a forceful expansion of commercial agriculture. In the case of more dynamic regions, such as some rural areas in the state of So Paulo (Southeastern Brazil), patterns of urbanization offer reasonable but concentrated infrastructure and services. In other less dynamic regions, sectoral specialization and rigid social structures lead to a pattern in which insecurity prevails, as is the case in the cacao regions of Bahia or the Pernambuco Zona da Mata (Northeastern Brazil). In these areas, there is a combination of a sectoral rurality with more specialized and concentrated social structures. In these regions, investment in innovation should favor economic diversification and the creation of arrangements favorable to small and medium enterprises, always with special incentives for adopting less intensive and polluting practices of natural resource use. The fourth type is shaped by situations where, despite morphological territorial characteristics not being as promising with regards to natural resources, social structures can favor a process of change and the creation of new institutions. However, forms of economic domination impede or block this innovation. There are fissures between the sectoral and the environmental, and between social groups. An example of this type of territory is the western part of the state of Santa Catarina (Southern of Brazil). A concentration of large agroindustrial businesses coexists with a social structure based on a significant group of family farmers. The region exhibits reasonable economic dynamics, but not very good social and inequality indicators. The reproductive possibilities of local social groups depend greatly on extra-local links, which favor a loss of valuable human resources. As such, the possibility of creating greater interactions

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and new institutions capable of changing towards territorial development is impeded. These regions combine sectoral rurality with more diversified and deconcentrated social structures. Here, investment in innovations should favor above all, the diversification of economic activities and a new model of natural resource use.

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As you can see, for each type of ongoing development dynamic, a determined contribution to activities to promote innovation should be constructed. However, this contribution is not the only element that can be mobilized to influence these dynamics, to invert them when negative and strengthen them when positive. There are various ongoing projects and investments that could be made more useful for countryside regions in Brazil. Despite low investments in research and development - Brazil exhibits current levels similar to Spain and Italy, but proportionally is more distant from countries such as South Korea, Germany, Japan and the United States - there are various projects and programs currently being executed by the federal government that could favor the urgency of the suggested economic activities. Just as an example, the federal government has made important investments in tourism through the Tourism Development Program, which could reach into these rural regions thanks to their environmental and cultural attractions. Similarly, the Ministry of Development, Industry and International Commerce has supported industrial decentralization, incentives from which countryside regions could benefit as long as environmental criteria are also introduced. The same is true for investments in biotechnology. Nevertheless, the existence of these opportunities does not guarantee their realization. Nor is there the allocation of resources that could favor the introduction of innovations or support for enterprises in rural regions aimed at realizing these opportunities. It is worth highlighting again that these opportunities form an environment that could be extremely favorable to starting a new cycle of development in rural areas of Brazil. It is fundamental to adopt as guiding principle the strengthening of a new rurality economy while recognizing the heterogeneity of rural regions, be it through promoting the adoption of new agricultural production practices such as organic production or less intensive and more conservationist technologies, through tourism activities, or in attracting new populations interested in maintaining environmental amenities, be it utilizing the great productive potential of biodiversity and biomass, through the production of for example biofuels or through the industrial exploitation of chemical, pharmaceutical or cosmetic products.

Challenges and opportunities

Green economy and a new cycle of rural development Arilson Favareto

3. IDEAS FOR AN AgENDA


Clearly, a variety of these new activities could be strengthened, and even so, increase pressures on the environment. Brazilian production of ethanol is one example: there is a utilization of biomass, but concomitantly, the production techniques and the weight of monoculture negatively pressure biodiversity and
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necessary natural resources such as land and water. As such, it is not only about promoting new activities in rural regions, but especially how to administer them. Similarly, this does not necessarily lead to inclusion of the poorest. Again, we can use the example of biofuels, this time biodiesel: despite an innovative design introducing a Social Seal for businesses that purchase raw materials

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from family farmers, at least during their first years of existence, the program did not succeed in including producers from the poorest regions and saw the incentives being captured by the most consolidated sectors of family agriculture, which explains the predominance of soya produced by farmers in the Midwest and the South as a primary raw material instead of castor or palm from the Northeast, as was initially envisioned. As such, the topic of transition to a new model or a new paradigm is not trivial.

Challenges and opportunities

Green economy and a new cycle of rural development Arilson Favareto

It is fundamental to recognize that formal and informal institutions incentives, cultural patterns, programs and policies present a bias where the inertia of the old paradigm is always present. There can be various items comprising an agenda compatible with the contours of a new rurality economy, which in turn is consistent with the idea of a green economy. Here we mention only three of them. The first is the introduction of a vigorous innovation policy aimed at exploiting biomass and biodiversity and the promotion of new production systems that are less intensive in natural resource use and less polluting. Brazil has enormous potential in this area and relies on research institutes with decades of experience and international excellence. Though, in spite of this potential, little has been done compared to the production of science, technology and innovation aimed at the old rurality, or the productivist model that is highly intensive in natural resource use. Without this, these new activities continue being niche markets and not the base of a new cycle as is the current case of biodiversity products or they ambiguously constitute themselves by substituting non-renewable for renewable resources but at a significant environmental cost as in the case of biofuels. The second is the adoption of a system of incentives aimed at expanding economic activities based on new forms of social use of natural resources. The economies of scale of old activities and the transition costs involved in adopting new forms of natural resource use need to be compensated by a policy of incentives that stimulates social agents in adopting new technologies and exploiting new markets, where short term gains through intensive resource use and the depletion of natural resources makes space for activities that favor long term gains as in environmental conservation, maintaining biodiversity and the provision of environmental services. The third item on the agenda, not any less important than the previous two, is the formation of coalitions of actors and interests consistent with these new activities and modalities of natural resource use. The actors of the old rurality are known businesses in the agricultural food sector and organizations of rich and poor farmers. To these, it will be necessary to add more segments, detainers of other interests and above all, the social skills necessary to strengthen the paths towards a transition of paradigms. Thus, it is necessary to create new spaces for interacting with and influencing the shaping of policy.

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As you can see, these are not simple tasks. However, these tasks are challenges that must be addressed to enable the transition to a green economy where environmental conservation can be added to the life-styles of much of society.

Challenges and opportunities

References

Green economy and a new cycle of rural development Arilson Favareto

Abramovay, R. (2003). O futuro das regies rurais. Porto Alegre: Ed. da UFRGS. Favareto, A. (2007). Paradigmas do desenvolvimento rural em questo. So Paulo: Fapesp/Edusp. Galston, W. A. and Baehler, K. J. (1995). Rural development in the United States: connecting theory, practice and possibilities. Washington D.C.: Island Press. Jacobs, J. (1984). Cities and the wealth of nations. London: Penguin Books. Veiga, J. E. (2000). A face rural do desenvolvimento natureza, territrio e agricultura. Porto Alegre: Ed. UFRGS. Veiga, J. E. (2004). Destinos da ruralidade no processo de globalizao. Estudos Avanados, 51, May-August, 51-67. Veiga, J. E. (2006). Nascimento de outra ruralidade. Estudos Avanados, 20(57). Veltz, P. (2003). Des lieux et des liens. Paris: Ed. de laube.

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Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions


Bastiaan Philip Reydon1

1. INTRODUCTiON
The debate over the deforestation problem in the Amazon rainforest, which has been expressed, for instance, in the debates over changes to the Forest Code, has been characterized by its superficiality and ideological character. Initially, there is a necessity to clearly identify the process, and then look for its causes, and finally to think of solutions for the short, medium and long terms. It is undeniable that the forceful command and control policies2 and economic incentives3 implemented over recent years had a crucial role in reducing deforestation. As they depend on the direct intervention of the State, these policies are difficult to maintain in the long term, mainly because the principal productive causes of deforestation from livestock and grain production to energy production persist, and enduring solutions must be found. The central objective of this work is to demonstrate that the definitive solution to this problem necessarily passes through the solution to the countrys land tenure problems, which consist mainly of the Brazilian state assuming in conjunction with the nation the effective governance over land ownership. First, this article presents a brief description of the main causes of deforestation identified in the literature on this topic. Then it is shown how two problems that appear only marginally in the literature are, combined, the main determinants of deforestation of the rainforest: land speculation through the very clearing of the land and the absence of land governance. The fourth

1. Full Professor at Agricultural and Environmental Economics Center of the Institute of Economics at the State University of Campinas (NEAA/IE/UNICAMP), technical advisor in sustainability at the Innovation Agency (Unicamp) and consultant at the International Bank for Reconstruction and Development (World Bank) and at FAO. E-mail: basrey@eco.unicamp.br. 2. The main command and control policies, direct state interventions to modify deforestation behaviors, were: a) operations Curupira (2005) and Arco de Fogo (2008) that combated illegal logging; b) decree 6321/07, which restricts credit approval by banks and obligate landowners in municipalities with high deforestation rates to re-register; c) the creation of up to 20 million hectares of Conservation Units (Brazilian protected areas) in addition to the already existing 80 million, totaling 273 CUs; d) approval of 87 Indigenous Lands and approximately 18 million hectares; and e) restrictions on agricultural products from municipalities with high deforestation rates. 3. The economic incentives policies that use economic mechanisms (price and others) to encourage or discourage economic actors to diminish deforestation, were as follows: a) Arco Verde operation (2008); and b) a special credit line related to the Constitutional Fund for Financing of the North , the Constitutional Fund for Financing of the Northeast and the Constitutional Fund for Financing of the Midwest for the recuperation of degraded areas, reforestation, environmental management and compliance in the Legal Amazon.

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item historically analyzes the formation of the institutional framework that lead to the absence of regulation in land markets. Ultimately, in the last section, in addition to arguing for the necessity of effective governance of land ownership, the main implantation mechanisms are demonstrated as well as the benefits generated.

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

2. DEFORESTATiON AND iTS MAiN CAUSES


According to FAO (2010), Brazil lost an average of 2.6 million hectares of forest per year over the past 10 years, compared to an average annual loss of 2.9 million during the 1990s; in Indonesia the losses were 500 thousand hectares over the period 2000-2010 and 1.9 million hectares over the period 1990-2000. Diagram 1 illustrates deforestation in the Amazon based on satellite images, demonstrating that deforestation in recent years shifted around 6.4 and 7.4 million hectares, which represents a substantial improvement although still a highly elevated level of deforestation for a biome with the characteristics of the Amazon. With the forest still standing, this biome possesses great wealth in its elevated biodiversity, its importance in regulating the planets climate, its production of freshwater and poor soil for agro pastoral activities.

Diagram 1. Deforestation in the Legal Amazon

Annual deforestation rate in the Legal Amazon

Km2 / year

Year

Source: PRODES (2011)

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The question remains: how to derail an increase in deforestation rates and further, how to significantly reduce rates? Deforestation in the Amazon rainforest is a complex process with multiple determinants, and the object of many theoretical and empirical studies4. Margulis (2000:9) affirms that:

Challenges and opportunities

We do not believe there is a principal force that alone propels or explains deforestation in the Amazon. The causes are varied and result from a sophisticated combination of diverse variables and factors.

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

The principal groups of variables that induce deforestation, present in Margulis (2000) and the greater part of the literature are: a) gains associated with the use of Amazon land determined by agricultural prices, increases in land prices, variations in input prices, increases in timber prices and a decrease in rural salaries; b) public policies and credit the availability of affordable credit resources (Amazon Investment Fund, Constitutional Fund for Financing of the North) and policies of fiscal incentives (Superintendence of Development for the Amazon); c) accessibility the construction of roads and/or other works that facilitate access to frontier areas; d) macroeconomics growth cycles of GDP, population growth. Insofar as these four groupings of variables have interfered directly with deforestation in the Amazon, it can be said that after the recent interventions and the 2008/9 crisis, all were having positive impacts on deforestation, but even so deforestation increased. On the other hand, even during periods in which these variables did not grow, deforestation grew. This implies that there are other more profound factors whose relative importance has not been highlighted.

3. DEFORESTATiON AND LAND SPECULATiON


In our understanding, deforestation in the Amazon results from the continued traditional practice of expanding the Brazilian agricultural frontier, that generally occurs in the following stages: occupation of virgin lands (private or public), extraction of its hardwood, installation of livestock farming5, and ultimately, the development of more modern farming practices. These economic activities play the role of generating income and legitimizing occupation of new lands in the short term, almost without a necessity for resources6. In the long term, the lands either remain under more intensive livestock farming, or if there is
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demand, are converted to grain farming or other economic activities.


4. For an exhaustive revision, see Soares Filho et al. (2005). 5. Reydon and Romeiro (2000) demonstrate that the primary engine of the spread of livestock farming is, on the one hand, the existence of much vacant land to be appropriated, coupled with the possibility of, at low costs, installing farming, turning deforestation into an unbeatable strategy of capital appreciation. 6. These same occupants are the ones that frequently are used as slave labor.

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However, what matters is the expectation that there will be demand for the land7, to be used at some time in the future, which ensures that prices rise significantly. And the closer the physical location of the land is to regions that permit productive use, the greater the price. The appreciation of these lands occurs as expectations rise. In the various studies by Margulis (2000 and 2003) and the already cited literature, the issue of land speculation appears, but is normally associated with increases in the price of land. However, increases in the price of land do not necessarily imply that a speculation process is taking place. As a matter of fact, the price of land in the Northern region grossly follows the price movements of land in the rest of the country, and thereby not generating great speculative gains. Land speculation is, as this article proposes, the main engine of deforestation in the Amazon rainforest, though it takes on a much more microeconomic appearance and is associated with the actual occupation of the land, and could be perceived much more clearly through field research. What happens in reality, is that any person that acquires or occupies forested land has a clear perception that his or her land, or investment, appreciates in value through the process of deforestation. In table 18 it can be observed that the price of forested land in the different states varies between R$108 in Acre and R$546 in Mato Grosso. It can also be observed that the land prices in the less deforested states are lower, while the states of Mato Grosso, Par and Rondnia have more elevated prices. The most important conclusion though drawn from the table is that in all states deforestation always significantly appreciates the value of the property, that is, on an average across the states deforestation more than quadruples the land value. This occurs because the land price is fundamentally the result of the expected productive gains through the associated livestock farming, since on deforested land this use can take place immediately and without the costs of deforestation. In the most extreme case, as in Acre, deforestation multiplies this value by a factor of 14, while in the Amazon state land value multiplies by a factor of 10. Few investments have returns as elevated as these. One must take into account that these properties, beyond the capital gains from deforestation, also gain from selling the timber (in Cotrigua, a city in

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

7. This is due to the increase in price of fed cattle, soya, or even the announcement that the country will be the largest ethanol producer in the world. In the recent period these factors converged, resulting in an even greater increase in the demand for land and consequently also the price, which puts even more pressure on deforestation. 8. The methodology of agribusiness firm Agra FNP collects average prices in homogeneous regions in the mentioned states, using non-homogeneous terminology. For the forest land, we aggregate the types of forest, that of easy access and difficult access. For the pasture land we utilize the already established pastures (easy and difficult access), already established pastures of high support and established pastures of low support.

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the Mato Grosso state, the estimated liquid return is R$2,400/ha) and from the subsequent economic use (which in the case of livestock farming generates an additional liquid revenue of over R$120 per hectare/year9). Therefore, the greatest catalyst of deforestation is a combination of gains from appreciated land values, in the conversion from forest to productive land, coupled with gains from timber sales and from the subsequently established livestock farming.

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

Table 1 Average prices of forest and pasture land States of the Brazilian Amazon - in R$/ha in 2008 prices STATES Acre Amap Amazonas Par Rondnia Mato Grosso Average NORTH Forest R$/ha 108.00 141.00 132.43 457.73 358.50 546.13 416.53 Pasture R$/ha 1,571.80 800.00 1,243.91 1,509.40 1,762.50 2,083.69 1,832.39 Variation % 1,455.4 567.4 939.3 329.8 491.6 381.5 439.9

Source: AgraFND (2009)

This process of acquisition and deforestation that is already very profitable in private areas, becomes even more lucrative for vacant land that according to estimates10, represent 42% of the total Amazon land area, where most of the deforestation takes place. That is, in the occupation of vacant land, gains from timber, livestock and land value appreciation are multiplied because the land itself did not have to be acquired, but rather simply usurped from public property11.

4. THE OCCUPATiON OF LAND iN THE AMAZON AND


iNSECURE PROPERTY RigHTS
The practice of occupation can be attributed to the absence of cadastre and effective regulation of land properties in Brazil, particularly in the Amazon. Existing cadastre details, based on declarations from landowners that registered
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9. See Margulis (2003). 10. Estimate by Shiki (2007) indicates that 42 % of Amazon lands are vacant. 11. Perhaps some expenditures on henchmen, arms, lawyers and licit and illicit costs of regularization in the area.

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through the National Institute of Colonization and Agrarian Reform (INCRA in Portuguese acronym), demonstrate that in 2003 35% of 509 million hectares of land in the Legal Amazon were occupied under private tenure rights, whether as registered properties or occupied land. On the other hand, the recent process of creating various types of reserves, whether at federal or state level, has resulted in 42% of the Legal Amazon currently being under some type of protection; approximately half of these areas are Indigenous Lands and the other half are Conservation Units of various types. The remaining 24% are not in either of these categories and consequently are technically considered public land without allocation (Figure 1). However, the situation is more complex and uncertain than the numbers imply. Many of the protected areas are physically occupied by private users, whose occupation claims may or may not be valid in accordance with the complex legislation previously presented. The large area classified as private by the cadastre system is also questionable. Out of the 178 million hectares declared as private property, 100 million of hectares could be based on fraudulent documentation. Another 42 million hectares in this area are classified based on cadastre declarations as occupied, and may or may not be subject to land regularization, yet again, depending on circumstances such as size, history and location12. Consequently, 30% of the area could be legally uncertain and/ or contested.

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

Figure 1 Land tenure situation in the Legal Amazon, according to data from the National System of Rural Cadastre (2003) and protected areas (2006)

Hectares 178.169.518 22.306.963 188.008.904 120.381.458 508.866.843 210.315.867 508.866.843

35% 4% 37% 120.381.458 24% 100%

Posses and Posses and proterties in in properties Incras cadastre Incras cadaster

178.169.518

Environmental Area for Protection Area Environmental (APA) Protection (APA) Protected areas Protected areas excluding excludings APAs

188.008.904

22.306.963

APAs

Without formal Without formal occupation and occupation and non-protected non-protected

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Source: Barreto (2008).

12. There are all types of sizes of possessions in the INCRA register: both small ones of less than 200 ha and those of more than 1,000 ha.

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The Brazilian state is so aware of its incapacity to regulate the use of this land, primarily by not having a cadastre, that it obligated itself to take the following concrete actions to diminish deforestation in the Amazon and increase land governance, but always as an emergency measure and without addressing the root of the problem: a) Established Law 11.952/09 regularizing occupied land of up to 400 ha at zero cost and selling occupied land of between 401 and 1,500 ha (squatters must prove that they have lived on the land since 2004). b) The government implemented the Legal Land Program, which established criteria for land regularization in rural areas located on federal lands, in the Legal Amazon area.

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

c) Creation of innumerable environmental protection areas (APAs)in the form of Conservation Units (based on Law 9.985 of July 2000) for protecting the edges of main roads under construction in the Amazon region to avoid occupation and deforestation. The clearest evidence of the incapacity of the Brazilian state in effectively governing the market for land, is the very formulation of Ordinance 558/99, applicable to all Brazilian territories and not just the Legal Amazon. There, INCRA imposed on all landowners with more than 10,000 ha the requirement of presenting their supporting documentation. Out of the 3,065 landowners summoned, only 1,438 (46.9%) appeared, resulting in 1,627 properties on 46 million hectares being cancelled13. Furthermore, 53% of the area of these lands were located in the Northern states of Brazil, largely in the Amazon Rainforest. In the Amazon state alone, according to Lima (2002), the equivalent of 48.5 million hectares of properties in 14 counties were cancelled by the respective land registration offices (cartrios in Portuguese) at the beginning of 21st century. There are also academic studies such as Arajo et al. (2008), providing evidence based on municipal data that uncertain property rights, such as those in the Amazon, have a positive impact on deforestation.

5. INSTiTUTiONAL FRAMEwORK OF LAND REgULATiON:

wHY DO LAND CADASTRE AND gOVERNANCE NOT EXiST


This section analyzes the historical formation of the Brazilian institutional framework, which lead to the absence of regulation in land markets. It will be demonstrated that many of the characteristics that cause this absence are legacies from a historical ineptitude of the Brazilian state in relation to land
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governance. Before the Brazilian Land Law (1850), rules for occupying rural and urban soil were defined by the powers of the king, the church and the political and
13. See Sabato (2001) for more details.

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physical powers of occupants. The Land Law should be understood in the broader context of laws established to restrict land access in the entire colonial world.14 To accommodate the interests of the countrys landowners, the Land Law maintained the possibility of regularizing occupied lands, stemming from the occupation of vacant lands, which complicated the creation of a cadastre. That is, there was always the possibility of regularizing occupied lands due to the occupations of vacant lands. In addition to usucaption (which establishes that after some years of occupation, the property can be regularized), the very states (mainly after the Republic) have conceded properties with or without title at some moments in history. This is the basic mechanism that kept and keeps an effective cadastre from being established, and that also permits the definition of vacant lands likely to be utilized by other types of land policies. Up until the Land Law, properties were basically registered together with Parochial Land Registers under the responsibility of the local vicar. This register was utilized for a long time after the Land Law was implemented. In 1864, a new institutional obligation eventually established a new tradition that persists to the present day and that has generated greater uncertainty and inability to effectively regulate the land market: the necessity to register properties, regardless of having legal ownership rights. To a certain extent, the registration of land at a registry office gives a certain air of legality to the property, without any mechanisms to guarantee this15.The Proclamation of the Republic in 1889, passed the rights related to vacant lands to states, which led to the possibility that their representatives would pass them on through the granting of unregistered titles. This occurred with greater intensity in some states as compared to others, but irregardless created yet another ambiguity in the issuance of titles that complicated state regulation of land markets16. The establishment of the Public Land Registry in 1900 is perhaps the principal step towards the current system of registering land in land register offices. Under this rule, everyone needs to delimit and register their lands, whether rural or urban, but without any sort of fee and without cadastre. The state also needs to delimit and register its lands (vacant), which is impractical since these are defined by exclusion. As such, the very state acts illegally. This obligation ends up increasing the possibilities for fraud in land register offices.

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

14. As in Latin America, Australia and the United States. 15. The most common irregularities are the issuance of titles to non-existing or vacant properties and the overlap of several areas, that is, various landowners have title to the same land. When this happens, it is said that the land has floors: for each additional owner with an irregular title to the area another floor is added. The federal government is taking a decisive step in the regulation of the rural and urban land market by implementing, with difficulties, Law 10.267/2001, where land register offices are obligated, when there is any change in ownership, to forward the plan to INCRA with boundaries in cartographic form (latitude and longitude). 16. Nevertheless, there is the failed attempt at property regulation by Registro Torrens (1891) where settlers and landowners could obtain definitive titles through non-contested petitions. And, furthermore, the possibility of legalizing occupied lands in 1895 and 1922 (referring to the occupied land between 1895 and 1921) ultimately created the conditions for occupied lands to endure and weakened the regulation of the land market as expressed in the 1850 Land Law.

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The promulgation of the 1916 Civil Code generated the capability to regulate land markets in Brazil, both by reaffirming the land register office as the registration institution, and enabling the possibility of public lands being objects of usucaption. In the words of Osrio Silva (1996:324), this completed the framework for the transformation of the State into a proprietor like the others. And as such, the doctrine of designation of vacant lands. Or, in other words, the possibility of usucaption of vacant land.

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

Thus, the Civil Code, for reasons not necessarily tied to the interests of landowners, turned out to establish the institutional corner stones for land access in Brazil, by defining that registering land in land register offices was necessary (and at times also sufficient) to prove ownership. The great institutional innovation in the sphere of Brazilian land policy and administration is the 1964 Land Statute, whose rules and concepts remain valid to the present day. Hence, in order to guide the implementation of agrarian and agricultural policies, the 1964 Statute created the Rural Land Cadastre . All private and public lands should be registered, including occupied land. Owners should furnish information on the documentation situation and land-use (to estimate productivity) for the purpose of facilitating the agrarian reform. INCRA, created in 1970, became responsible for managing the National System of Rural Cadastre (CNCR), which maintained the Rural Land Cadastre17. Once the land was registered, INCRA emitted a Rural Land Cadastre Certificate (CCIR) that was required for any type of transaction of the land. Squatters that registered with INCRA also received a CCIR and were obligated to pay the Rural Land Tax, though the amounts of this tax were always kept at low levels. The Land Statute also maintained the legitimation of occupied lands, thus allowing the titling of informally occupied public lands.

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17. Since the 1967 cadastre and the posterior re-registrations were implemented for tax reasons, based on landowner declarations and that were not monitored, they are not very reliable as the study by Sabato (2001) demonstrated, based on information from Decree 558/98. Other recent attempts to integrate the cadastre of different public agencies to improve the quality of the information have failed due to the absence of political will and an agency to assume the role of executing land governance in the country.

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Scheme 1 Current situation of Land Tenure Administration in Brazil


Presidency of Republic with approval from the Legislative stablish: Conservation Areas and Indigenous Lands State governments with approval from the Legislative establish: State Conservation Areas

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

Registry of Real State: registry offices and provides legal titles based on sale and acquisition contracts (consulting only their registrations)

JUDICIARY ratifies or creates titles in decisions of any type of conflict

LAW 10.267 Real State with notary alterations present geo-referenced design for registry

AGU transfer of unclaimed state lands

MUNICIPALITIES: decisions about rural and urban lands, use, and IPTU charges, etc.

State Land Institutes: responsible for the state land

INCRA: grants single initial registration, includes in the cadastre, grants concession use titles to settlers, discriminates between unclaimed lands and colonization

Federal Revenue Agency: charges rural taxes (ITR)

Settlements of landless people

Colonization destination of public lands to rural subdivisions

Source: Legislation in force and Reydon (2006).

Diagram 2 seeks to synthesize the interrelations between agencies of the land administration system in Brazil. We see that there is no link between INCRA and municipalities, leading to many land problems on the borders between rural and urban lands. Furthermore, there is no institution that centralizes cadastre and makes a link to the Judicial agencies that are responsible for issuing land titles. Though not evident from the diagram, a large proportion of land problems in Brazil, both rural and urban, which are not properly resolved in the administrative sphere, end up in the judiciary. As the judiciary has many processes throughout its tribunals, it ends up taking years to issue rulings, which results in land-related cases, whether rural or urban, almost always being ruled as historical fact. Therefore, the great problem of deforestation in the Amazon is associated with the lack of land governance in the country, which results from a historical process of formation of institutional and legal frameworks that are
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unsuitable for this end. Only through the construction of an institution aimed at land governance and adjusting the Brazilian legal framework to this end, will there be adequate land-use and a decrease in deforestation in this country.

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6. THE NECESSiTY OF LAND gOVERNANCE18 AS A

NECESSARY CONDiTiON TO REDUCE DEFORESTATiON


Brazilian agriculture presents exemplary accomplishments, with growth in food production, supply of energy and foreign exchange, and greater international insertion, among others. However, security as relates to land ownership remains a great problem, especially in the Amazon. The solution requires adequate and participative land governance, according to among

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

others FAO (2007) and Doelinger et al. (2010). The benefits to be gained from an adequate system of territorial management depend on clearly identifying unregistered lands and a simple and effective mechanism for obtaining and updating this information. This process needs to start without being dependent on information related to land titles and other types of formal documents, which can always be used in cases of ownership conflicts. This should begin with a process of title issuance that conciliates property information based on satellite images19 and a survey of landowners and legitimate squatters (posse mansa in Portuguese). The effective participation of landowners and squatters, according to a study by Gessa (2008), requires that landowners, in particular the smaller ones, receive actual knowledge and empowerment20. Only through effective land governance, in particular the creation of a modern and self powered cadastre, will it be possible to: a) Guarantee private property rights for different purposes: business, leasing, guarantees for obtaining credit, for the concession of payments for environmental services, among others; b) Identify public land and guarantee its adequate use for: the creation of reserves, settlements or colonization; c) Establish the other land policies with more security: agrarian reform, land credit, land taxes; d) Regulate the process for purchasing land to: limit access to foreigners, large landowners or other types of landowners; e) Zone land uses establish and regulate limits based on zoning for agricultural production and livestock farming in certain regions. Establish protected areas and areas prohibiting deforestation;
18. FAO (2008:9) works with an adequate definition of land governance: Governance is the system of values, policies, and institutions by which a society manages its economic, political and social affairs through its interactions within and among the state, civil society and private sector. Land governance concerns the rules, processes and organizations through which decisions are made about access to land and its use, the manner in which the decisions are implemented, and the way that competing interest in land are managed. 19. The technical innovations of gathering information from satellite images, according to Doelinger et. Al. (2010), allow advances that can revolutionize the cadastre system of existing properties. 20. Based on a study by Gessa (2008), which proposes mapping as an important instrument to secure property rights and create empowerment of less privileged populations in regions with insecure property rights.

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f) Regulate conversion processes of agricultural to urban lands and to have a cadastre for levying property taxes (Urban Building and Land Tax and Tax on Rural Property); Land governance does not resolve the issue of deforestation in the Amazon, but is a necessary condition to confront this problem. In the case of vacant lands, by permitting the identification and possession by the State of these lands, the cadastre would greatly hinder inappropriate private occupation and deforestation. The cadastre would also enable the utilization of these vacant lands in the execution of Brazilian land policy, through organized colonization, agrarian reform and others. In the case of private lands, effective participative governance, based on

Challenges and opportunities

Deforestation of the Brazilian Amazon rainforest: causes and solutions Bastiaan Reydon

understanding the context, discussing priorities for land use and determining adequate monitoring, permits planning and the regulation of land use, through zoning and other coercive instruments. Effective governance also impedes deforestation and certainly limits land speculation, which is the principal cause of deforestation.

References AGRAFNP (2010). Relatrio de anlise do mercado de terras. So Paulo. Araujo, C. et al. (2008). Property rights and deforestation in the Brazilian Amazon. CERDI. Etude et Documents, E2008.20. Retrieved from: <http://academic.research. microsoft.com/Publication/14157363/property-rights-and-deforestation-in-thebrazilian-amazon> in 18/05/11. Barreto, P (2008). Quem dono da Amaznia? Belm: IMAZON. Retrieved from: <http:// www.ibcperu.org/doc/isis/10458.pdf> in 18/05/11. Deininger, K. (2003). Land policies for growth and poverty reduction. Washington: World Bank and Oxford University Press. Deininger, K. et al. (2010). The land governance framework: methodology and early lessons from country pilots. In Innovations in land rights recognition, administration and governance. Washington: World Bank, GLTN, FIG and FAO. FAO (2007). Buena gobernanza en la tenencia y la administracin de tierras. Estudios sobre Tenencia de La Tierra, no. 9. Rome: FAO. FAO (2008). Towards good land governance. FAO Land Tenure Policy Series, Draft version 0.1. Rome/Nairobi. FAO (2010). Global forest resources assessment report. Rome: FAO. Gessa, S. D. (2008). Participatory mapping as a tool for empowerment. Rome: International land coalition. Lima (2002). Relatrio das correies extraordinrias nos registros de terras rurais no estado do Amazonas. Governo do Estado do Amazonas. Secretaria da Cultura do Estado do Amazonas, 440 p. Margulis, S. (2000). Quem so os agentes dos desmatamentos na Amaznia e por que eles desmatam. Conceptual paper. Braslia: World Bank. Retrieved from: <http:// www.amazonia.org.br/arquivos/13213.pdf>. Margulis, S. (2003). Causas do desmatamento da Amaznia brasileira. Braslia: World Bank,100 p. PRODES (2011). Taxas de desmatamento da Amaznia Legal, Projeto PRODES. Ministrio da Cincia e Tecnologia. IBAMA. Ministrio do Meio Ambiente. INPE. Retrieved from: <http://www.obt.inpe.br/prodes/prodes_1988_2010.htm> in

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18/05/11. Reydon, B. P. (2007). A regulao institucional da propriedade da terra no Brasil: uma necessidade urgente. In Ramos, P. (org.) Dimenses do agronegcio brasileiro: polticas, instituies e perspectivas. Braslia: MDA. Reydon, B. P. and Cornelio, F. N. M. (2006). Mercados de terras no Brasil: estrutura e dinmica. Nead Debate, n.7. Braslia: MDA/NEAD, 444 p. Reydon, B. P. and Plata, L. O. (2000). Interveno estatal no mercado de terras: a experincia recente no Brasil. Estudos NEAD, n.3. Campinas: NEAD, 172p. Reydon, B. P. and Romeiro, A. R. (2000). Desenvolvimento da agricultura familiar e reabilitao das terras alteradas na Amaznia. In Reforma Agrria e Desenvolvimento Sustentvel. Braslia/DF, v. 1, p. 311-317. Sabbato, A. (2001). Perfil dos proprietrios/detentores de grandes imveis rurais que no atenderam notificao da Portaria 558/99. Retrieved from: <http://www.incra. gov.br> in 03.08.03. Shiki, S. (2007, March 16). Payment for ecosystem services: from local to global. [PowerPoint slides] Proambiente, Ministrio do Meio Ambiente. Retrieved from: <http://www.uvm.edu/giee/pes/en/people/> in 29.09.08. Silva, Lgia O. (1996). Terras devolutas e latifndio: efeitos da lei de 1850. Campinas: Editora da Unicamp, 373p. Silva, Lgia O. (1997). As leis agrrias e o latifndio improdutivo. So Paulo em Perspectiva, 11(2), 15-25. Soares-Filho, Silveira B. et al. (2005). Cenrios de desmatamento para a Amaznia. Estudos Avanados, 19(54), 137-152. Retrieved from: <http://www.scielo.br/scielo. php?script=sci_arttext& pid=S 0103-40142005000200008&lng=en&nrm=iso>. ISSN 0103-4014. Doi: 10.1590/S0103-40142005000200008>.

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Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges


Carlos Teodoro J. Hugueney Irigaray1

OPENiNg REMARKS
In the context of climate change, the transition to a low-carbon economy consists of an imperative that requires a shift in paradigms, with great cultural, economic and legal repercussions, that reshapes the ideas of sustainability and environmental justice. In this transition, considering the consequences of globalization and the trans-border characteristics of pollution, there are tasks that demand to be addressed by the international community, notwithstanding local actions, especially issues such as measures to contain greenhouse gas (GHG) emissions and adaptation to the effects of global warming. However, even with these actions that involve international cooperation, the list of tasks aiming to internally propitiate the transition to a green economy remains ample within the countries. Internationally, Brazil boasts a privileged position in this context, with a relatively clean energy matrix, as apart from a mega-diversity and a range of other natural attributes that secure the country in a prominent position for biodiversity conservation. However, natural wealth is not sufficient to ensure development on sustainable bases, nor to the greening of the economy. In the case of Brazil, the expansion of the agricultural frontier and the lack of consistent public policies to guide economic exploitation of natural resources, contributed to forge a predatory exploitation model that has caused the country great economic and environmental losses. In response to this picture, innumerable laws were enacted with significant advances in terms of environmental protection, though great challenges persist
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in terms of the transition towards an economy that can be defined as green.

1. Professor of Environmental Law at Federal University of Mato Grosso (UFMT) (PhD), state attorney at Mato Grosso (a Brazilian state) and president of the Right for a Green Planet Institute (IDPV).

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Law can certainly offer a relevant contribution in this process, as will be analyzed in this essay. A first challenge consists of delimiting the instruments and mechanisms that can contribute to the achievement of a development on sustainable bases, which implies the revision of the implicit subsidies of polluting activities, as will be discussed in the first chapter. In the second chapter of this essay, the principal challenges to this process will also be pointed out, concluding with a discussion on the contribution of Brazilian law to the transition to a green economy. The context is greatly favorable to the necessary changes, both in terms of societal awareness and the imperatives seen in the current ecological crisis. We can only tackle these challenges and construct a new paradigm in which the right to an ecologically balanced environment is not a mere proclamation, but a reality based on intra and inter-generational solidarity.

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

1. GREEN ECONOMY AND THE POSSiBLE SUSTAiNABiLiTY


Since the conceptualization of sustainable development2, derived from the Brundtland Commission, a vast intellectual production was developed that aims to objectify the concept and establish parameters to quantify it. The greatest obstacle to of this task relates to the lack of indicators to measure sustainable development, since in principle none of the three objectives of sustainable development (economic, environmental and social) are currently measured in compatible parameters (Dourojeanni, 2000). It is not without purpose that Morin and Kern (1995) signals that the very notion of development, turns out to be gravely and severely underdeveloped. The same happens with sustainability: either it is translated into economic decisions and political actions, setting real limits on the utilization of natural resources and the emission of pollutants, or on the contrary, sustainable development would have been but an unrealized myth that we transmit to future generations, together with gigantic environmental liabilities that originate from a predatory civilization. Because of this, it is of utmost importance that we deepen the debates about the economic models that we select and the local and global actions that can contribute to secure growth in clean sectors, with sustainability. In this sense, Dourojeanni (2000) ponders that it is up to the actors and participants in the management process in each country or region to define the significance of sustainability, admitting that this is an ambiguous term that applies
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to production, ecology, economics, the environment, society and development. As it permeates distinct and separate areas, the concept of sustainability exerts
2. In accordance with Brundtland (1987), sustainable development is the one that meets the needs of the present without compromising the ability of future generations to meet their own needs.

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an integrative and revolutionary function, implicating a rupture of secularly consolidated patterns, beliefs and techniques linked to a context of changing patterns in the relations between man and the natural world. In this sense, sustainability can exert a transformative force, both in the economic sphere by encouraging investment in clean capital, and in the political-administrative sphere through the decentralization and democratization of decision-making centers.

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

In any case, despite the imprecision of the sustainable development concept, it can still be considered viable and possible in the sense that it sets guidelines capable of informing political policies in this moment of transition from an industrial risk society3, offering guiding criteria for public intervention in the environmental sphere and especially in the economy, to foster an increase in natural capital. As such, it is indispensable to carry out a profound revision, in the economic and legal areas, of the implicitly conceded incentives of polluting activities4, since the external effects of these economic activities are not frequently considered in the pricing system, generating what the economic science identifies as externalities. These externalities will only be reduced if the environmental costs were incorporated by producers and consumers, with the state intervening through economic or command and control instruments, which would imply overcoming a tradition of economic studies that view the environment as inexhaustible. Furthermore, we cannot ignore the research that alerts us to the volumes of natural resources currently consumed, considered above the replacement capacity of the planet5; that is, humanity is consuming resources in an unsustainable way. This aspect is not being adequately considered in the formulation of public policy; no economic consideration has been given to the depletion of these resources that are treated as if they were inexhaustible. Consequently, economic policies are generally conceived and implemented with an extremely limited temporal horizon short term policies, and in this context, if there is no growth in clean sectors, sustainability is compromised.

3. In the sense of Ulrich Beck (1992), the configuration of contemporary society, as a risk society, assumes a scenario of catastrophic risks, marked by invisibility (nuclear threat, global warming, etc) and the incapacity of the State to efficiently address the problems and provide security to citizens (organized irresponsibility, security state and explosive society). 4. World Watch Institute estimates that the equivalent to 3% of the global economy (or equivalent to the GDP of Italy) is spent on subsidizing activities that destroy the environment (Januzzi, G. M. A poltica energtica e o meio ambiente apud Romeiro et al., 1999, p. 156). This index refers to explicit subsidies; the socio-environmental cost of polluting activities that are borne by the population (and not by polluters) is incalculable. 5. An investigation conducted by an international team of scientists, under the coordination of Mathis Wackernagel, entitled Tracking the ecological overshoot in consumption of the human economy, signals the incapacity of the planet to absorb the carbon launched into its atmosphere. According to Wackernagel, economic expansion stimulates the demand for resources above the capacity of the planet to restore its goods and services: We are no longer living off the dividends of nature, but natures capital. Sustainable economies are not possible if we live above the means that nature provides (Polakovic, 2002).

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Therefore, the transition to a green economy requires substantial changes in terms of public policies that aim to redirect market mechanisms to make economic growth compatible with sustainability. From the legal perspective, the necessary measures involve restructuring a system to effectively guide public policies by combining the use of economic instruments and command and control mechanisms that should necessarily be informed by some ethical principles among which we highlight environmental justice and intra and intergenerational equity. The following chapter will focus on the challenges to this transition, considering the national context and the mega-problems that negatively reverberate in the environment of our country.

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

2. CHALLENgES OF THE TRANSiTiON TO A gREEN ECONOMY iN BRAZiL


As mentioned, the transition to a green economy faces challenges of a global order and a national order, due to the singular spatial characteristics of Environmental Law (Martin Mateo, 1977) where environmental problems do not obey boundaries, and the globalization process keeps economies interdependent. Furthermore, there are situations where global problems reverberate in the national sphere, aggravating internal deficiencies and acting synergistically to amplify risk conditions and accentuate the multifactorial character of pollution. Three factors will be addressed in this essay that directly relate to the development model implemented in our country, which pose challenges in the transition to a green economy: poverty, deforestation, and the unsustainable expansion of agriculture.

2.1 Confronting Poverty Even in the 21st Century poverty continues to be one of the most relevant socio-environmental problems affecting humanity, and it continues being endemic in developing countries with close to 1.2 billion people living on less than one dollar per day in 1999, according to a United Nations Conference on Trade and Development Information Note.6 Brazil finds itself in a privileged position among developing countries, but poverty indexes remain elevated and there is a significant income inequality, which needs to be overcome to reduce the pressure on natural resources, the lack of sanitation and ensure an improved quality of life.
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According to research conducted by the Brazilian Institute of Applied Economic Research7, the national situation presents expressive improvements
6. UNCTAD (2004). 7. Presidncia da Repblica (2007).

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in the reduction of social inequality, but the problem is still serious. The study points out that from 1995 to 2008, 13 million people got out of misery in the country, causing the number of people in this condition to be reduced by half, which in this case includes families with a per person income of below of a monthly minimum wage. However, the country still accounts for 7.5 million Brazilians with a per capita household income of below 1 dollar PPC per day. This percentage is much greater when the proportion of Brazilians in absolute

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

poverty is considered, which according to that same study is 28.8%. This figure consists of family members with an average per person income of up to half a monthly minimum wage (close to 5 dollars per day). It is worth stressing that the UN report Our Common Future already highlights that pollution does not result only from development, but also from poverty and growing slums, lack of sanitation, occupation of risk areas and lack of education, among other consequences. The challenges to be addressed in order to reduce poverty in the country, according to the research conducted by the Brazilian Institute of Applied Economic Research8, include above all the lack of access to food, due to the low purchasing power of millions of Brazilians, a problem that is aggravated by a series of other factors such as inadequate conditions of basic sanitation, low levels of education and lacking health services. In the area of sanitation, the indicators for urban Brazil (80.5% of urban inhabitants have adequate sanitation) are inferior to urban areas in countries such as Jamaica (82%), according to data from the United Nations9. Despite advances during the past decade, the report adds that the lack of an adequate solution for domestic sewage still affects around 31 million urban inhabitants. In rural Brazil, not only is the situation worse but improvements have also been slower. In 2008, 76.9% of the population did not have adequate access to sewage; this means that the 23.1% of rural inhabitants with adequate sanitation was below that in rural areas of Afghanistan (25%), also according to UN data. Another equally relevant aspect related to poverty and lack of sanitation, is the fact that less than 50% of sanitary sewage produced in Brazil is collected and only 1/3 of that amount is effectively treated. According to the Health Ministry, 65% of hospital admissions result from the inadequacy of these services, and close to 50 thousand children die every year in Brazil (Irigaray and Rios, 2005).

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8. Idem. 9. UNCTAD (2004).

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As a consequence, the lack of adequate solutions for collection and low treatment levels of domestic sewage are the primary culprits for the pollution of water resources in Brazil, a problem that is felt most acutely in densely populated municipalities of metropolitan regions and medium and large cities, stresses the Brazilian Institute of Applied Economic Research report. Now, it is difficult to establish the relationship between poverty and unsustainable development. It is notorious that the proportion of the population without access to drinking water and sanitation, or in precarious living situations, is directly related to the quality of life and health of the population and, consequently, to environmental sustainability. In that sense, the United Nations Human Settlements Programme stresses in The State of the Worlds Cities 2006/200710 document, that there is a positive correlation between living conditions and human development indicators. This report observes that the existence of one or more housing inadequacies threatens the health, education and employment opportunities of inhabitants in precarious settlements: they are hungrier, have less chances of finding wellpaid employment in the formal sector, have lower educational levels, are more vulnerable to diseases and die sooner than the rest of the urban populations. The document emphasizes: housing location matters. Because of this scenario, overcoming socio-environmental injustice constitutes a priority in the transition towards a green economy where economic growth occurs on a sustainable basis.

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

2.2 The advance of deforestation In accordance with the IPCC report, the shrinking forest cover resulting from deforestation and conversions to alternative land use, as well as the degradation associated with the selected logging of species, burning and other practices that cause losses in the remaining carbon stocks, is responsible for close to 18% of the total estimated greenhouse gasses in the world.11 Thereby, containing deforestation and forest burning has become a global necessity for moving towards a low-carbon economy. This challenge is of particularly high priority in our country, mainly due to the elevated rates of deforestation in the Amazon region especially, where more than 70% of deforestation results from the creation of pastures. Upon analyzing the risk of expansion of biofuels in the Amazon, we stress:
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Of the existing forest area on Brazilian territory, 20% has already been deforested, which corresponds to 67 million hectares. Despite government

10. UNCHS (2006). 11. IPCC (2007).

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actions aimed at reverting the advances of the agricultural frontier into the forest, the deforestation rates remain elevated. According to the Brazilian National Institute for Space Research, the deforested area during the period 2007/2008 was equivalent to 11,968 km, and though a gradual reduction in the percentage could be found, this could have been associated with market downturns, and there is no assurance that deforestation would be contained in a heating economy, even because the absence of the Amazon State apparatus is one of the factors that aggravate the current situation, characterized by land grabbing, illegal deforestation, violence, and slave labor (Irigaray, 2010). This situation of Amazon forest degradation is driven primarily by extensive cattle raising and by logging activities. Studies conducted by the Amazon Institute of Man and the Environment reveal that the variation in deforestation rates in the Legal Amazon oscillate in accordance with price variations of cattle and soy, that is, the greater the product value, the greater the deforestation rate. Also in accord with this study, close to of the deforestation over recent years made space for pastures that occupy around 75% to 81% of total deforested land between 1990 and 2005 (Barreto et al., 2008). The lack of an agricultural policy that dialogues with environmental management is an evidence of the weakness of political policies for the region, and sustains the latent risk that increasing deforestation rates could unleash, as has also been observed by Paulo Moutinho (2009): Some recent studies demonstrate that the Amazon deforestation, despite recent rate declines, could increase in the decades to come (Soares et al., 2006). It is estimated that more than half of the Brazilian Amazon will be deforested or degraded due to logging and burning, in case the occupation patterns continue along the trajectory of the past two decades. It should be noted that the advances in Amazon deforestation imply significant increases in the carbon emissions indexes for Brazil, aggravated by the fact that, as a rule, deforestation occurs illegally and frequently is followed by burning. As such, containing deforestation becomes a priority, which puts our country in an evident position, as Andr Lima (2009) expresses: The Brazilian Federal Constitution of 1988 concluded 20 years of existence in 2008. During the period from 1988 to 2008, 348 thousand km2 of tropical forest vanished into space, only in the Amazon region. In only two decades, less than one generation. This corresponds, using conservative data from the federal Brazilian government, to somewhere around 12.3 billion tons of carbon in the atmosphere. All the Amazon forestal carbon that Brazil emitted in the 21 years of our citizens Constitution, corresponds to almost twice the emissions reduction efforts pledged by the Annex 1 countries of the Kyoto Protocol for the first commitment period (2008-2012).

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It is worth nothing that despite federal government efforts to contain deforestation in the Amazon, and the significant decreases of recent years, 7 thousand km2 of forest were cut down in 2010. In the Brazilian savannah (Cerrado), control turns out to be even weaker, with conversion indexes that have increased significantly in recent decades, currently making it the most threatened Brazilian biome. It is estimated that the Cerrado has already lost 49% of its native vegetation

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

and close to 14.2 thousand km2 are deforested per year, especially due to the creation of pastures, according to data from the Brazilian Institute of Environment and Renewable Natural Resource. However, deforestation is only the tip of an iceberg that needs to be addressed in the transition to a green economy, since associated with this problem are persisting cultural practices such as burning that degrades the soil, or the excessive use of pesticides that contaminate soil and water resources, as well as other environmental impacts associated with agricultural expansion, as will be discussed in the following section.

2.3 The expansion of agriculture and cattle raising Brazil stands out internationally as the granary of the world, by occupying a prominent position in the production of grains, meat, poultry and other agricultural products. Both agriculture and cattle raising are responsible for the primary surplus obtained by the country in its trade balance. While recognizing the importance of agriculture in the country and the possibilities to expand agribusiness with a sustainable basis, there is still a great distance between sector practices and the objectives of an agricultural and livestock sector that can be considered green in Brazil. Overcoming this distance between the real and the ideal implies recognizing that in this surplus so hailed by the government, the subsidies that these activities receive (implicitly and explicitly) are not accounted for, and neither are the shortfalls in compliance with environmental legislation that causes significant environmental impacts. As noted, the raising of livestock is responsible for over 70% of the deforestation in the Amazon. According to the Brazilian Institute of Geography and Statistics, from 1990 to 2008 the stock in this region went from 21.1 million to 71.4 million livestock. This growth was driven by various factors: low prices or free land use (generally public lands occupied illegally), subsidized credit
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and cheap labor or labor in conditions analogous with slavery. The deforested areas of the Amazon generally house extensive cattle farms with large-scale livestock raising and low productivity that advance across protected areas (Legal Reserves and Permanent Preservation Areas). These

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practices cause severe degradation especially when analyzed from a biological perspective because according to a study conducted by the Amazon Institute of Man and the Environment in partnership with the World Bank, the Amazon possesses some peculiarities, such as: poor soils and excessive rainfall in around 80% of the region. These attributes are sufficient to make, from a purely economic point of view, any traditional farming undertaking unviable12. In the case of agriculture, the problems are not any smaller. The expansion

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The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

of agribusiness has typically occurred without respect for forest legislation, through the planting of intensive monocultures that are highly dependent on pesticides and fertilizers. It is worth observing that opting for monocultures has been constructed as a strategy by agribusinesses to reduce costs and increase production, which today corresponds to a third of GDP and 42% of exports in Brazil. However, as journalists Safatle and Pardini stress: The strength of agribusiness is only one side of the story. Socio-environmental damage still needs to be accounted for13. According to the Brazilian Institute of Applied Economic Research economist Guilherme Delgado, Brazilian agribusiness mixes technological modernity with a delay in social relations. They alert that there are still 3.6 million rural families living in extreme poverty, living on less than one dollar per capita a day. This contingent is being alienated since large-scale agriculture generates little employment and causes a rural exodus that the urban centers are not capable of absorbing with dignity. That is, in addition to the environmental liability, since monocultures do not generally respect the legal reserves, there are other repercussions of a social kind that should be considered. According to Feltran-Barbieri and Kassai (2008): the tangible environmental liability generated by the non-existence of legal reserves could exceed R$ 112 million in the sampled regions, and could reach R$ 16 billion if extrapolated to the realm of the Cerrado, that is, almost 0.5% of the Brazilian GDP in 2006. This liability does not account for the intangible losses to biodiversity and other environmental services, but only the externalities generated by agribusiness. Furthermore, beyond the enormous environmental liability generated by the activity, this is a business that is highly exposed to international competition and open to the creation of non-tariff barriers, resulting in non-compliance with environmental legislation and the employment of slave labor.

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12. Report: Manejo Florestal Sustentvel, Mudanas Econmicas no Uso do Solo e Implicaes para Polticas Pblicas na Amaznia, Folha de S. Paulo, 22 October, 2000. 13. Safatle and Pardini (2004).

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3. THE CONTRiBUTiON OF BRAZiLiAN LAw TO A gREEN ECONOMY: PERSPECTiVES


Among the mega-diverse countries, Brazil holds a special position with more than 13.2% of the total number of species on the planet, exceptional water availability and the greatest forest reserve on the planet, among other natural attributes. The threats that hover above this diversity of biomes and ecosystems cannot

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The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

be ignored, and are mainly due to the expansion of the agricultural frontier that conflicts with existing environmental legislation, and causes economic damage through the loss of exploited natural resources through predatory practices, and ecological damage through the erosion of biodiversity. However, since the 1988 Federal Constitution a broader regulatory framework has been developed, which is capable of making economic growth compatible with sustainability, given that Brazil holds the conditions to exercise strong leadership in this transition towards a green economy characterized by low carbon emissions. Some principles are assured by the Federal Constitution that should guide not only the operations of the government, but also the business sector and civil society, such as recognizing the fundamental right to an ecologically balanced environment, associated with the duty of the government and society in defending and preserving this right. This duty is complemented by the recognition of environmental defense as a principle that should inform the economic sphere, and with the definition of a government task list assigned by the Constitution to secure the effectiveness of the right recognized in art. 225. Among the principal norms that provide the basis for sustainable development in our country, are the Forest Code (Law n. 4.771/65), the National Environmental Policy Law (Law n. 6.938/81), the Public Civil Action Law (Law n. 7.347/85), the National Water Resource Policy Law (Law n 9.433/97), the Law that instituted the National System of Conservation Units (Law n. 9.985/00), the National Solid Waste Policy Law (12.305/10) and the National Climate Change Policy Law (Law n. 12.187/09). In these laws, especially the last one, certain principles, objectives and directives are defined for the transition towards a green economy, where development can materialize on a sustainable basis and with socio-environmental justice. Along these lines, that law stresses that: the objectives of the National Climate Change Policy should be in line with sustainable development in order to seek economic growth, the eradication of poverty and the reduction of social inequality (art. 4th). The great challenge of this task is to increase the level of implementation of these norms, above all the Forest Code, to be able to contain the advancing

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agricultural frontier in fragile ecosystems, but which has met great rural resistance. Along these lines, it is worrying to see the efforts of rural lobbyists in the National Congress to adapt the Forest Code in favor of agricultural expansion onto the last standing remnants of the Cerrado, eliminating judicial protection for the existent forest assets, which runs counter to government efforts to reduce emissions caused by deforestation. Equally worrying is the dubious position of the Brazilian government that,

Challenges and opportunities

The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

on the one hand, presents an ambitious plan to reduce carbon emissions and, on the other, does not seem determined to exercise an efficient environmental policy by maintaining insignificant budgets for environmental agencies while investing in high impact ventures such as the Belo Monte hydroelectricity plant, or paving the BR 163 (Cuiab/Santarm) and BR 319 (Manaus/Porto Velho) federal highways, among others. This contradiction is externalized through the dismantling of environmental agencies and the lacking political will to implement efficient environmental management, in such a way that impunity remains the rule in cases of environmental infractions: the fines issued by environmental agencies are not paid and few polluters are held civilly or criminally accountable for the damages caused, characteristic of the organized irresponsibility described by Ulrich Beck. Beyond overcoming these limiting factors, new mechanisms should join the effort of containing deforestation and appreciating sustainable production. To this end, the employment of instruments such as REDD, payments for environmental services and charging for water use, constitute experiences that confirm the necessity of legal structures supporting the environmental management system that combines the employment of economic instruments with the provision of sanctions and efficient procedures for reparation and compensation for damages caused to the environment. It is worth registering that, though the actions implemented to contain climate change have focused on reducing emissions associated with the burning of fossil fuels, deforestation and forest degradation are currently at the center of the debate because they constitute significant causes of global warming since they collectively compose 17.4% of global emissions of greenhouse gases (more than a third of the emissions from developing countries), and also because the reduction of these emissions can be obtained at a lower cost than other sources of emissions (Irigaray, 2010). Our country holds an unparalleled natural heritage and a legal foundation

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capable of assisting the transition to a green economy. Nevertheless, these values should materialize in terms of social awareness, supported by political actions that enable the configuration of a Rule of Environmental Law.

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5. FiNAL REMARKS
The transition to a green economy presupposes environmental justice and improved living conditions for the population. As such, policies should be prioritized that confront poverty, promote inclusive growth and provide to everyone a more active participation in the economic growth process and the sharing of its benefits, through social inclusion and the reduction of inequality. This is not a difficult task in Brazil, where hunger and malnutrition are not caused

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The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

by scarcity in food production, since the domestic agricultural sector produces more than enough to provide for the needs of the Brazilian population. Similarly, conditions have been set for adapting economic activities to new patterns of sustainability, as outlined by Brazilian legislation, considering the agricultural industry and the notable agro-industrial development in the country over the past few years. However, the legislative advances are echoed quietly in the countryside. There is a significant deficit in the implementation of these laws that possess a merely symbolic character, since they continue to be disregarded without major consequences, and encounter resistance from sectors that bet on increased productivity in an unsustainable manner, that is, without considering the environmental costs. This dispute between maintaining a rigorous legislation and its attenuation has as its backdrop the global debate on the consequences of climate change and the need for mitigative and adaptive measures. In the context of Brazil, which assumed international commitments to reduce emissions, especially those originating from illegal deforestation and forest burning, there is the risk of seeing an upswing in deforestation if the country responds to pressures to relax its forest law. Reverting this picture presupposes not only measures of command and control mechanisms and adjustments to environmental management in the forestry sector, but also economic measures that provide realignment of economic incentives in favor of the conservation of forest assets, and the structuring of a forest-based economy with the promotion of alternative means of subsistence that are attractive to the population that depends on these resources (Irigaray, 2010). Among the economic instruments, payments for the ecological services performed by the forest play a relevant role in the construction of alternatives that contain deforestation and degradation of these ecosystems. Therefore, the implementation of a REDD policy in Brazil appears as a solid alternative, and given the magnitude of the emissions from deforestation and the low cost of reducing these emissions, it plays an important role in the global strategy to reduce emissions of greenhouse gases (Myers, 2009).

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Unfortunately, the requirements for sustainable use of natural resources in our country, although constitutionally backed, have still not managed to find solid mechanisms in environmental policy that allow thorough implementation. This is so, because a management approach that considers the support capacity of ecosystems and does not compromise their availability to future generations is needed and may be considered a goal that can only be materialized if articulated with other public policies, especially economic ones, which are directed towards the same goal. Furthermore, no country can produce and improve its environmental quality without a government that restrains unsustainable practices and encourages proper environmental behavior and sustainable use of environmental resources. Therefore, our country needs to overcome this picture of institutional vulnerability and strengthen the implementation of the existing regulatory framework, principally by integrating agricultural policies with environmental protection as a condition to secure the transition to a green economy.

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The transition to a green economy in Brazilian law: perspectives and challenges Carlos Teodoro Irigaray

References Barreto, P. et al. (2008). A pecuria e o desmatamento na Amaznia na era das mudanas climticas. Belm: Instituto do Homem e Meio Ambiente da Amaznia. Beck, Ulrich. (1998). La sociedade del riesgo. Hacia una nueva modernidad. Barcelona: Ediciones Piados Ibrica. Brundtland, G. H. et al. (1988). Nosso futuro comum. Relatrio de 1987 da Comisso Mundial de Meio Ambiente e Desenvolvimento. Rio de Janeiro: Fundao Getlio Vargas. Dourojeanni, A. (2000). Procedimientos de gestin para el desarrollo sustentable. Srie Manual - Vol. 10. CEPAL/ECLAC. Santiago: United Nations. Feltran-Barbiberi, R. and Kassai, J. R. (2008). Passivo ambiental das reservas legais inexistentes no cerrado. Paper presented at the IX Simpsio Nacional Cerrado Desafios e estratgias para o equilbrio entre sociedade, agronegcio e recursos naturais. Braslia: EMBRAPA. IPCC (2007). Quarto relatrio de avaliao do Painel Intergovernamental sobre Mudana Climtica. Irigaray, C. T. J. H. (2004). O emprego de instrumentos econmicos na gesto ambiental. In Figueiredo, G. P. Direito Ambiental em Debate, Vol. 2. Rio de Janeiro: Esplanada. Irigaray, C. T. J. H. (2010a). A expanso dos biocombustveis na Amaznia: riscos e desafios. In Heline Sivini Ferreira and Jos Rubens Morato Leite (org.). Biocombustveis - fonte de energia sustentvel?: consideraes jurdicas, tcnicas e ticas. So Paulo: Saraiva. Irigaray, C. T. J. H. (2010b). Pagamento por servios ecolgicos e o emprego do REDD na Amaznia. In Paula Lavratti, V. P. et al. (org.). Direito e Mudanas Climticas: 3. Servios Ecolgicos. So Paulo: Instituto O Direito por um Planeta Verde. Irigaray, C. T. J. H. and Rios, Aurlio V. (org.) (2005). O Direito e o desenvolvimento sustentvel. Braslia: IEB. Irigaray, C. T. J. H., Vieira, G. F and Silva, L. R. (2009). Regularizao fundiria na Amaznia: a lei e os limites. Revista de Estudos Socio-Jurdico-Ambientais Amaznia Legal, 5. Cuiab: EditUFMT.

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Lima, A. (2009). Desafios jurdicos para a governana sobre as emisses de CO2 por desmatamento e a titularidade do carbono florestal. Retrieved from: <http:// www.planetaverde.org/mudancasclimaticas /index.php?ling=por&cont=artigos> in 05.12.2009. Martin Mateo, R. (1977). Derecho ambiental. Madrid: Instituto de Estdios de Administracin Local. Morin, E. and Kern, A. B. (1995). Terra-Ptria. Porto Alegre: Sulina. Moutinho, P. (2009). Desmatamento na Amaznia: desafios para reduzir as emisses de gases de efeito estufa do Brasil. p. 2-3. Retrieved from: <http://www.ipam.org.br/ biblioteca> in 05.12.2009. Myers, E. (2009). Mudana climtica e setor florestal: cartilha de REDD. In Florestas: o setor florestal nos mercados voluntrios de carbono, segunda edio. Revista Ecosystem Marketplace. The Katoomba Groups. Polakovic, F. (2002, June 06). O homem consome e a Terra no consegue repor. O Estado de So Paulo, Geral/Ambiente, p. A15. Presidncia da Repblica (2007). Objetivos de desenvolvimento do milnio: relatrio nacional de acompanhamento / coordenao: Instituto de Pesquisa Econmica Aplicada e Secretaria de Planejamento e Investimentos Estratgicos; superviso:Grupo Tcnico para o acompanhamento dos ODM. Braslia: IPEA, MP, SPI. Romeiro, A. R. et al. (org.) (1999). Economia do meio ambiente: teoria, polticas e a gesto de espaos regionais. Campinas: UNICAMP-IE. Safatle, A. and Pardini, F. (2004, Setembro 01). Gros na balana. Carta Capital, n 306. UNCTAD (2004). Assegurando ganhos de desenvolvimento a partir do sistema comercial internacional e das negociaes de comrcio. Nota de Informao, TD/397. Retrieved from: < http://www.unctad.org/pt/docs/td397_pt.pdf> UNCHS (2006). The state of the worlds cities 2006/2007: the millennium development goals and urban sustainability, 30 years of shaping the Habitat agenda. Sterling: Earthscan. Overview; 1.1-1.2.

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Challenges and opportunities

Market mechanisms for a green economy


Peter H. May1

ARgUMENTS iN FAVOR OF A gREEN ECONOMY


To reach a green economy it is necessary to ensure a reduction in materials and energy use in the production process, to allow society to prosper without necessitating economic growth (Daly, 1996, Jackson, 2009, Victor, 2008). On the other hand, social actors deprived of the bounties of modern capitalism owing to the inequitable distribution of wealth can attain higher levels of consumption without necessarily furtherdepleting natural capital. From this perspective, the apparently contradictory goals of durable stability or degrowth in the North and greening of growth (with equity) in the South represent the basis for a meaningful dialogue about a sustainable future and, furthermore, configure the platform of debate for Rio+20. This brief contribution discusses the following question: to what point can we resort to so-called market mechanisms to ensure this necessary transformation in natural resource utilization? More specifically, how can we most effectively guide the transition toward resource renewal and convert wastes into inputs rather than residuals? This analysis may appear contradictory in that it seems diametrically opposed to what has moved economic actors historically, i.e., their single-minded pursuit of maximum profit. Added to this is the recognition that the market has pushed economic actors toward a growth regime based on the rapid depletion of natural resources and the generation of pollution combined with a growing abyss between rich and poor, within and among countries. This work is aligned with a contemporary perspective that recognizes the limits of market mechanisms, and thus makes reference to a discourse grounded on the economics of the environment. In this chapter, some of the main arguments of the economics of the environment are introduced, including both those aimed at regulating public goods and those that propose solutions to adverse effects arising from the

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1. Associate professor at the Pos-Graduate Program in Social Sciences for Development, Agriculture and Society at the Federal Rural University of Rio de Janeiro (CPDA/UFRRJ), vice-coordinator of the Masters in Sustainable Development Practice (PPGDPS/UFRRJ), coordinator of the research component on Biodiversity, Natural and Cultural Resources of the National Institute of Science and Technology in Public Policies for Development Strategies (INCT/PPED), past president of the International Society for Ecological Economics (ISEE), advisor of the Brazilian Society for Ecological Economics and collaborator at Friends of the Earth-Brazilian Amazonia.

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modern economy. Such arguments question the relative superiority of market mechanisms, adopted in many countries as the most efficient mechanism to ensure the provision of environmental services. Along these lines, we discuss payments for environmental services (PES) and its application, as a means to complement command and control mechanisms aimed at efforts to reduce and revert carbon emissions, above all those stemming from deforestation in tropical countries (REDD+).

Challenges and opportunities

Market mechanisms for a green economy Peter H. May

INSTiTUTiONS FOR ENViRONMENTAL MANAgEMENT


What institutions does society possess to signal and support the transition to a green economy? It should be recognized, before anything else, that the market is only one of many institutions created by human societies to administer relations of exchange and production (North, 1990). In many cases, the market may not be the most adequate institution to signal change along technological trajectories, even if such a trajectory is underpinned by high wastage and exhaustible inputs, due to the fact that the market does not adequately reflect the value of public goods (Vatn, 2010). Thus, under what conditions is it acceptable to rely on the allocative efficiency of the market to produce green outcomes for economic processes? A first step is to suggest how more adequate policies can be selected, which in turn requires that available instruments be differentiated along a continuum, ranging from activity regulation based on physical standards to mechanisms based on motivating the actions of individuals in their own self-interest and in response to the laws of supply and demand. Along this continuum, there is a range of options with greater or lesser degrees of dependence on market forces. The relative convenience and efficacy of such options, for regulating economic activities in the context of environmental restrictions, have been the object of innumerable studies (see Seroa da Motta, Ruitenbeek et al., 1996). The criteria for selecting the appropriate mechanism differ when derived from an ecological economic perspective. In this regard, we can classify the instruments of environmental resource management in accordance with two principal variables: (1) the relative importance (non-substitutable character) of the resource in question, and (2) its resilience (capacity to recover from stress or degradation). These two variables reveal, without resorting to devices of market valuation, the biophysical constraints of human intervention. Situations where the biota has little capacity to withstand disturbances and simultaneously is constituted by endemic or endangered species, make perfect candidates for

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the application of sanctuary measures, that is, the access and use of such resources should be prohibited. As extinction is irreversible, there are no ways to substitute species or populations, whose survival depends on the maintenance of intact ecosystems.

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On the other side of the spectrum, resilient natural resources (whose losses associated with exhaustion/modification are less relevant), offer the opportunity to take advantage of the markets allocative efficiency, insofar as it provides resources through rewards and may even reinforce cleaner behaviors. This enables the creation of markets that negotiate quotas for pollutant emission permits, for example. In the middle of the spectrum, intermediate restrictions can be found, such as fishing quotas or permitted fishing net size (King, 1994). The specific locations of boundaries between different modes of intervention are not measurable, and management adaptations are necessary in response to the different evolutionary characteristics of the ecosystems being analyzed. Unfortunately, there are difficulties in developing efficient policies due to uncertainty or total ignorance about the resilience of ecosystems and their tipping points: thresholds associated with radical changes in these systems. In a first evaluation, it seems prudent to err on the side of caution, given that the unintended or unforeseeable consequences of human actions can cause irreversible losses, thereby leading to damage to human well-being (Ring and Schroter-Schlak, 2011). Thus, the formulation of policies to combat biodiversity losses should include instruments that can protect a safe minimum standard (Ciriacy-Wantrup, 1952) of biodiversity conservation, independent of the potential efficiency of available economic instruments, or their estimated benefit/cost ratios. Direct regulation (command and control C&C), establishing protected areas, no-take fishing zones or prohibiting the use of certain products or substances (e.g., GMOs) that can lead to impacts on biodiversity, is a key regulatory component in these contexts. At an intermediate stage, uncertainty or ignorance of limits can warrant the creation of permit schemes based on the cap and trade approach (establishing a ceiling for the production or utilization of a certain resource, or the emission of pollutants generated by this production, and then commercializing all or part of the excess or gap in relation to the ceiling). This imposes an aggregate limit on the exploitation of species or habitats, and leaves the allocation within this limit to the market, and thus combines efficient allocation with conservation efforts ensured by the limit. The emergence of the carbon market stemmed from this approach. If a limit is not established by regulation, there would be no incentive to seek cost reduction through a market structured around emission permits. The emergence of markets for environmental services owes its theoretical inspiration to the seminal work of Ronald Coase, in 1960, that established that an optimal point of environmental degradation is identified under the rule of law through the interaction of actors interested in negotiating permits for natural resource use. In this hypothetically constructed world, the legal responsibility of each actor in the negotiation is mandatorily defined and obeyed. Equilibrium is reached through free negotiation among actors. Those that feel prejudiced in a negotiation are compensated by an amount greater than the minimum that they

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would accept to give up their desired outcome. The solution will be symmetric if the agent harmed by environmental degradation is held accountable, having to pay compensation to the perpetrator of damage to desist. However, for the economic optimum to be attained, the Coase theorem posits that there be zero transaction costs2 necessary to reach a negotiated solution. That way, there would be negotiation if the benefits of reaching a negotiated solution exceed the costs. In the opposite case, there would be no solution. This, however, according to Coase would also imply an equilibrium solution, since the lowest cost outcome is achieved. Therefore it is argued that if there is no negotiation, it is because the status quo situation is better than incurring the costs of searching for a solution. In analogous fashion, the perpetuation of externalities would be considered optimal (because too costly to satisfy those harmed), and consequently the government would not need to intervene. One problem to this type of solution to market failures, lies with the premise that information is symmetrical between the actors involved in a negotiation; on the contrary, polluters are normally few, know the amount of emissions they produce, and how much they are willing to invest in mitigation. The affected are many, disorganized, without information about the source or characteristics of the damage suffered and without easily mobilized resources to bring polluters to justice or even to the bargaining table. Not only is the the power to exercise knowledge (Lewontin, 1992) missing, but also the knowledge to exercise power among the actors.

Challenges and opportunities

Market mechanisms for a green economy Peter H. May

PAYMENTS FOR ENViRONMENTAL SERViCES


Though the majority of prior studies focused on market mechanisms concentrate on problems related to pollution, there is now a major movement in favor of the utilization of this type of instrument as a means to stimulate the participation of rural landowners in a collective effort to conserve biodiversity, water sources and carbon stocks in forests. In this sense, instead of being held accountable for the emissions caused by deforestation and brought to justice, they may be treated as potential providers of environmental services beneficial to society. The negotiation between service providers and society stimulates the participation of rural landowners, whether motivating them to refrain from using forestlands for productive purposes, or stimulating them to incorporate better land use practices, and consequently diminishing emissions. This great Coasean bargain is called Payments for Environmental Services (PES). One of the main theorists on the subject (Wunder, 2005) classifies PES as any
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transaction involving at least one buyer, one seller and one environmental service

2. Note that transaction costs, according to Williamson (1979, 1985), depend on the frequency of transactions, degree of specificity of the transaction and the level of uncertainty that the transaction involves.

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being provided contingent on payments between the parties. Consequently, there are terms for a negotiation if the cost of providing the service added to the transaction costs of carrying out the arrangement are less than the collective socio-environmental benefit obtained by the buyers (whether local or global or both). The problem in this situation is that the benefits of environmental services are enjoyed by many some can free-ride on the efforts of others, which lowers the incentive to contribute. Therefore, when information is asymmetrical, transaction costs yet again tend to be high. That is, there is an abundance of market failures to surmount in negotiations of this sort. Furthermore, there are problems of contractual insecurity: in the carbon market, for example, the buyer is the only one responsible for fulfilling what has been agreed with the seller of carbon credits with relation to emissions reductions. In this case, it is advantageous for a seller of credits to deforest and afterwards claim what a shame, a fire on the neighboring farm got out of control. It becomes the buyers problem to seek alternative carbon sources, or to securitize to fulfill reduction obligations. This is why, on the only regulated carbon market that reaches developing countries that motivated by the Clean Development Mechanism (CDM) primarily projects that imply emissions reductions at the source can be found, typically in ventures that involve changing energy sources or altering industrial processes and not projects involving forests or land use change. This is the problem of moral hazard. There are three solutions to the problem of moral hazard in PES contracts. The first is that of internalization: the actual buyer of the environmental benefit promotes the provision of environmental services as part of his or her own business. Multinational businesses can reduce emissions in a region of low efficiency and credit the gains internally in another subsidiary. In many cases a governmental solution is adopted to guarantee PES programs. In this case the State assumes responsibility, whether by guaranteeing or ultimately paying for the environmental benefits (Veiga and May, 2010). The principal national PES programs in Latin America (Costa Rica and Mexico, for example) adopt this procedure, since economic actors do not possess the necessary institutional framework to mediate negotiations between demanders and providers of services. In the case of Brazil, the remuneration for environmental services by private landowners is prohibited, due to the inexistence of such service provision in legislation. As a result, businesses, cooperatives or associations are brought into the process as intermediaries, with their respective transaction costs, that thereby dilute the revenue of the provider. The final case refers to voluntary action of private sector actors. In these cases, a third party certifies fulfillment of the objective of the contract in terms of emissions reduction and other aspects, such as the contribution of a project to processes of local and regional development, conservation of biodiversity

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or water resource protection. Independent certification is a type of non-state regulation, in which there is mediation of the relation between producers and consumers, establishing rules that prove through an adequate degree of trust that productive processes obey sustainability criteria (Kaechele, May et al., 2011). The proliferation of independent certification models, such as those being promoted by leading NGOs, creates a mechanism capable of overcoming one of the main obstacles to attract resources for environmental service markets. As of 2009, 96% of the volume of CO2 credits commercialized in forest projects was already subject to independent certification (Hamilton, Chokkalingam et al., 2009).

Challenges and opportunities

Market mechanisms for a green economy Peter H. May

BETTER REDD THAN DEAD?


The topic of reducing deforestation as an aim of negotiations emerged in the area of global regulation when constructing a post Kyoto agenda, due to the lack of options capable of achieving the planned targets. Brazil that is not attracting a lot of investments intended for reducing emissions in other sectors, since these are already considered relatively green - is one of the largest greenhouse gas emitters due to persistent deforestation. Despite having refused for years to enter into negotiations with Northern countries to define issues related to what it considered matters of national sovereignty, Brazil evidently decided not to enter the negotiations of the new climate accord as a pariah. Brazil therefore committed at the Conference of the Parties in Copenhagen in 2009 to make radical cuts in deforestation over the period up to 2020, reducing the deforestation rate in the Amazon by 80% and by 50% in the Cerrado (Brazilian savannah) as compared with a baseline of the previous 10 years. This accord was facilitated by the fact that deforestation has declined since a peak in 2005, with a level in 2010 of almost 70% below that peak. However, there is still a need to combat the persistent deforestation of large areas every year. A principal share of this new deforestation results from the expansion of cattle pastures in municipalities having low environmental governance capabilities. At the Conferences of the Parties (COP) of the United Nations Framework Convention on Climate Change and especially since COP12 in Nairobi (2006), the topic of deforestation, which was always postponed due to issues of national sovereignty, has received increased attention. At COP15 in Copenhagen (2009), considerable resources were committed to avoid deforestation through voluntary transfers between North and South. Resources are specifically aimed
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to support actions initiated by countries that seek to promote the Reduction of Emissions from Deforestation and Forest Degradation (REDD). Other complementary actions that seek to enrich and restore ecosystem functions of tropical rainforests were also contemplated (REDD+).

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The deforestation reductions that have taken place since 2005 elevated Brazil to a distinguished position at the climate negotiations. According to the government, the reduction resulted from a great effort to punish offenders and remove pirate cattle3 from protected areas. In compensation, the Norwegian government committed to donate a total of US$ 1 billion to Brazil over the course of 10 years, deposited in the Amazon Fund created by the Brazilian National Bank of Economic and Social Development (BNDES) specifically to execute grant-financed actions that reinforce municipal monitoring and land regularization, and thus stimulating more sustainable natural resource uses. However, according to analyses by environmental entities, the observed reduction in deforestation can also be attributed to the price declines of agricultural commodities and a repercussion of the financial market crisis beginning in 2008. As some of these analysts argue, it would be more interesting to establish instruments that compensate those that would engage in deforestation, such as through PES, instead of focusing all resources on regulation. The question remains: should market mechanisms or C&C be favored in attaining the goals to reduce deforestation? If primarily market (PES), how much needs to be paid? What is the cost to society, to affected economic actors, and to communities dependent on forest resources for their sustenance? Who benefits? In this challenging context, Brazil is aided by the existing land use legislation that has a firm foothold in C&C. The Forest Code, with consecutive re-editions of Provisional Measures since 1998, permits alteration of native vegetation with productive purposes on only 20% of properties in the Amazon and 65% in the Cerrado. The rest has to remain as Legal Reserves. The problem is that few obey the Code, that even so is being targeted for dilution by the Congressional ruralist lobby (PL 00740/2011 replacement of Law 4.771, reported by Deputy Aldo Rebelo). On the other hand, state programs aimed at strengthening the Forest Code requirements through environmental licensing of rural land-use, have been deployed with some success in recent years. Licensing that establishes the boundaries of each property and the location of legal reserves and permanent preservation areas -, when combined with the monitoring of changes in land use via satellite and verification in the field, allows assessment of compliance with the Code in practice. This set of legal instruments and monitoring resources makes Brazil one of the few countries that possesses the capacity to monitor and verify deforestation, and as such could gain access to resources pledged by countries in the North under REDD.

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One advantage of the Forest Code not yet utilized in many states is to operate as a ceiling (cap) on deforestation, because it establishes the maximum area that each property can modify. This could conceivably allow market mechanisms

3. This refers to the presence of cattle on illegal properties (generally state-owned).

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to compensate those that observe the law. According to the stance of rural producers, they need an incentive to restore unduly deforested areas and they demand resources to cover the opportunity cost of retiring productive areas, as well as some compensation for the benefits provided to other members of society by restoring ecosystem functions. Others argue that rural producers already have received substantial incentives to deforest and now they need to observe the minimum safe standards of the Law, and that only those already observing the Forest Code should be compensated by PES. Despite discussions and various exercises to estimate the cost of reducing deforestation, the issue persists of how to better structure institutions to regulate the provision of public goods. A review of the experience with economic instruments and C&C regulation applied to biodiversity conservation (Ring and Schroter-Schlak, 2011) suggests that the best path in terms of cost effectiveness is a mix of instruments grounded in regulation. In this sense, strengthening the Forest Code (and not weakening it) should serve as the basis from which institutional innovations can flourish in Brazil. We conclude that market instruments, such as those associated with PES and REDD+, should assume an important role in the transition to a green economy. Such a role should be mediated by regulation that defines natural resources access and control criteria, reflected by biophysical limits established with reference to scientific knowledge and by extensive and prior consultation with populations that depend on those resources for their sustenance. Based on duly established parameters, it is possible in restricted circumstances to utilize the markets allocative efficiency as a complement to other institutions to achieve societys goals.

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References Ciriacy-Wantrup, S. V. (1952). Resource conservation: economics and policies. Berkeley, California: University of California Press. Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3 (Oktober, 1960), 1-44. Daly, H. E. (1996). Beyond growth: the economics of sustainable development. Boston: Beacon Press. Hamilton, K., U. Chokkalingam et al. (2009). State of the forest carbon markets; taking root and branching out. Washington, D.C.: Forest Trends. Jackson, T. (2009). Prosperity without growth: economics for a finite planet. London; Sterling, VA: Earthscan. Kaechele, K., May, P. H. et al. (2011). Forest certification: a voluntary instrument for environmental governance. In Shleuter, I. R., Instrument mixes for biodiversity policies. Leipzig: Policymix Project. King, D. M. (1994). Can we justify sustainability? New challenges facing ecological economics. In Jansson, M. H., Folke, C. and Costanza, R., Investing in natural capital; the ecological economics approach to sustainability. Washington: Island Press. Lewontin, R. C. (1992). Biology as ideology: the doctrine of DNA . New York: HarperPerennial.

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North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge; New York: Cambridge University Press. Ring, I. and C. Schroter-Schlak (2011). Instrument mixes for biodiversity policies (draft). Leipzig: Helmholz Institute. Sera da Motta, R. and Ruitenbeek, J. et al. (1996). Uso de instrumentos econmicos na gesto ambiental da Amrica Latina e Caribe: lies e recomendaes. Rio de Janeiro: IPEA. Vatn, A. (2010). An institutional analysis of payments for environmental services. Ecological Economics, 69(6), 1245-1252. Veiga, F. C. N. and May, P. H. (2010). Mercados para servios ambientais. In May, P. H., Economia do meio ambiente: teoria e prtica. Rio de Janeiro: Elsevier. Victor, P. A. (2008). Managing without growth: slower by design, not disaster. Cheltenham; Northampton: Edward Elgar. Williamson, O. (1985). The economic institutions of capitalism. New York: The FrePress. Williamson, O. (1979). Transaction-cost economics: the governance of contractual relations. Journal of Law and Economics, 22(2), 233-61. Wunder, S. (2005). Payments for environmental services: some nuts and bolts. In CIFOR Occasional Paper. CIFOR. 42.

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Challenges and opportunities

Valuation and pricing of environmental resources for a green economy1


Ronaldo Seroa da Motta2

INTRODUCTiON
The green economy concept means that economic growth can be based on investments in natural capital, whereby the structure of the economy changes in the direction of green or clean sectors/technologies to substitute dirty or brown sectors/technologies. The United Nations Environment Programme report Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication (UNEP, 2011), seeks to demonstrate that this transformation can be achieved without a loss of income and employment, and yet, with reductions in poverty. This task of natural capital appreciation imposes the necessity of responding to at least two questions, namely: (i) (ii) What is the value of an environmental resource? And What policy instrument should we use to capture this value?

Another recent report The Economics of Ecosystems and Biodiversity (TEEB, 2011), for example, offers some estimates of ecosystem and biodiversity costs on a global scale and examples of how to capture these values using economic instruments. As stated in the report, estimating the values associated with environmental goods and services and the ways they are captured by the market is a controversial and complex task, but even so, the resulting estimates ultimately indicate opportunities to generate income and employment through the recognition of the economic values of natural resources. That is, in order to finance investments in natural capital, we must recognize its economic and social contribution and price these according to their contribution to the welfare of society. In the following section, concepts and techniques, as well as limitations, of the valuation of environmental goods and services are discussed. In the
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third section, the ways to price these goods and services to construct a green economy are analyzed. The last section concludes with some final remarks.
1. Senior Researcher at the Research Institute for Applied Economics (IPEA) and member of the IPCC 3rd and 5th Assessment Reports. 2. For a more detailed introduction see for example, Hanley, Shogren and White (2007), Seroa da Motta (1988 e 2006), UNEP (2000a), Kolstad (2000), Freeman (1993) and Pearce and Turner (1990).

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VALUiNg ENViRONMENTAL gOODS AND SERViCES3


If we can identify the importance of environmental quality to guarantee the maximization of well-being, how come economic growth policies do not incorporate it from the beginning? Or better yet, why does the economic system not naturally optimize the use of natural resources? According to economic theory, the use of natural resources almost always

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generates negative economic externalities in the economic system. These externalities are not entirely captured by the pricing system, because enforcing the property or use rights of these resources results in high transaction costs, owed to the technical or cultural difficulties of fixing exclusive and rival rights. So, it is not possible to establish exchange relationships between these rights that ensure optimal resource use. In summary, these technical and institutional difficulties in defining the property rights between contemporary, and present and past generations, impede the existence of a market that signals the value of the resources or, when it exists, these imperfections result in prices and costs of use that do not reflect the economic (or social) value of the resource, and as such, introduces inefficiencies in the economic system. That is, the use of environmental resources generates negative external costs that are intra and inter-temporal. The economic value or the opportunity cost of environmental resources normally is not observed in the market by means of the pricing system. However, as with the other goods and services present in the market, its economic value derives from its attributes, with the peculiarity that these attributes may or may not be associated with use. The economic value of environmental resources (EVER) can be broken down into use value (UV) and non-use value (NUV) and is expressed in the following way: EVER = (DUV + IUV + OV) + EV where: Direct Use Value (DUV): value that individuals assign to an environmental resource through its direct use, such as extraction, visitation or another activity of direct production or consumption. For example, resource extraction, tourism, recreation and scientific research activities3; Indirect Use Value (IUV): value that individuals assign to an environmental resource when the benefit of use derives from ecosystem functions, such as, containing erosion, controlling climate and protecting water springs4;

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3. Benefits in-situ. 4. Benefits ex-situ.

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Option Value (OV): value that individuals assign to the conservation of resources, that may be threatened, for direct and indirect use in the near future but not fully known today. For example, the benefit from gene therapies based on properties of genes not yet discovered from tropical forest plants. Non-use value, Passive or Existence Value (EV): value that is disassociated with use (though represents environmental consumption) and derives from a moral, cultural, ethical or altruistic position in relation to the rights of other species than the human to exist and other natural wealth, even if they do not represent actual or future use for anybody. A clear example of this value is the great mobilization of public opinion to save the panda bears or whales, even in regions where people would never be able to make any use from their existence. There is also another way to classify the economic value of an environmental resource by its capacity to generate flows of ecosystem services, as was established in the Millennium Ecosystem Assessment Report (MEA, 2005), that categorizes or typifies environmental services in provision, regulation, support and cultural services in the following manner: Provisioning services: those that generate direct material consumption, for example, foods, water, medicines and energy. Regulating services: services that regulate ecosystem functions, for example, carbon sequestration, solid waste decomposition, water and air purification and pest control. Supporting services: those that support ecosystem functions, such as soil formation, photosynthesis, and dispersion of nutrients and seeds. Cultural services: services that generate non-material consumption in the form of cultural, intellectual, recreational, spiritual and scientific activities. The table below relates and exemplifies these taxonomies.

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5. Benefcios ex-situ.

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General taxonomy of the value of environmental resources Economic value of environmental resources
Direct use value Value Indirected use value Option value Existence value

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Environmental goods and services directly appropriated through present resource exploitation and consumption

Environmental goods and services that are generated through ecosystem functions and appropriated and consumed indirectly in the present Regulating, supporting and cultural services

Environmental goods and services of direct and indirect use to be appropriated and consumed in the future

Value not associated with present or future use and reflects moral, cultural, ethical and altruistic attitudes

Related services

Provisioning and regulating services

Provisioning, Cultural regulating, services supporting and cultural services not yet discovered

In the literature, there is still some controversy in relation to the existence value as a representation of the value an individual assigns to maintain certain environmental resources so that their offspring (future generations) can enjoy their direct and indirect uses (bequest value). This is a conceptual issue that in some ways is irrelevant, since the challenge of environmental valuation consists of admitting that an individual attributes value to resources, even if he or she does not make any use of them. The use and non-use of environmental resources imply values, which need to be measured in order to make informed decisions of the various uses and non-uses, even when they are conflicting, that is, when one type of use or nonuse excludes other types of use or non-use. For example, the use of a beach for dumping sewage excludes (or at least limits) its use for recreation. Once the uses and non-uses and the respective environmental services have been identified, we can proceed to valuation, and its methodology will be presented next. The methods of economic valuation of the environment are part of welfare economics and are necessary in the evaluation of social costs and benefits when
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public investments affect the consumption of the population and, consequently, its level of welfare. The reader can now evaluate with more clarity the degree of difficulty in identifying market prices (adequate or not) that reflect the values attributed to

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environmental resources. This difficulty increases as we move from use values to non-use values. Among use values, indirect use and option values present, in turn, even greater difficulties than direct use values. As we have sought to demonstrate up to now, the task of economically valuing an environmental resource consists of determining how much better or worse the welfare of individuals becomes based on changes in the quantity of environmental goods and services, whether appropriated as use or not.

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Valuation and pricing of environmental resources for a green economy Ronaldo Seroa da Motta

Consequently, the environmental valuation methods correspond to this objective based on their capacity to capture these distinct bundles of economic value of the environmental resource. Nevertheless, as will be discussed below, each method presents limitations in covering these values that are almost always associated with the degree of sophistication (methodological and database) required, and with the assumptions on the individual consumer behavior and the effects of environmental consumption on other sectors of the economy. Bearing in mind that such a balance is almost always pragmatic and determined in a restricted way, it is up to the analyst that evaluates to explain, with precision, the limits of the estimated values and the degree of validity of the measurements for the intended end. As will be discussed next, the adoption of each method depends on the valuation objective, the assumed hypotheses, the availability of data and knowledge of the ecological dynamics of the object that is being valued. The valuation methods analyzed here are classified as follows: production function methods and demand function methods. Production function methods: marginal productivity and substitute goods market methods (replacement, defensive spending or avoided costs and control costs). If the environmental resource is an input or a substitute of a private good or service, these methods utilize market prices for the private good or service to estimate the economic value of the environmental resource. As such, the environmental benefits and costs of the varying availability of these environmental resources to society can be estimated. Based on the prices of these private resources, generally assuming that they do not alter against these variations, economic values are indirectly estimated (shadow prices) of the environmental resources whose varying availability is being analyzed. The benefit (or cost) of the variation in availability of the environmental resource is reached by the product of varied quantity of the resource times its estimated economic value. For example, the soil nutrient loss caused by deforestation may affect agricultural productivity. Or the reduced sedimentation levels in a basin, due to a revegetation project, may increase the life-span and productivity of a hydroelectric plant.

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Demand function methods: complementary goods market methods (hedonic prices and travel cost) and the contingent valuation method. These methods assume that the variation in availability of an environmental resource alters the willingness of economic agents to pay or receive in relation to the resource or its complementary private good. Thus, these methods directly estimate the economic values (shadow prices) based on demand functions for these resources derived from (i) markets of private goods and services complementary to the environmental resource or (ii) hypothetical markets constructed specifically for the environmental resource being analyzed. Utilizing demand functions, these methods permit the capture measurements of individuals willingness to pay (or accept) relative to variations in the environmental resource availability. Based on these measurements, variations in the level of welfare are estimated through the excess satisfaction that the consumer obtains by paying a price (or pays nothing) for the resource below what he would be willing to pay. The consumer surplus is, thereby, measured by the area below the demand curve and above the price curve. Thus, there are variations in consumer surplus relative to variations in the availability of the environmental resource. Therefore, the benefit (or cost) of the variation in the availability of the environmental resource will be given by the variation in consumer surplus measured by the demand function for this resource. For example, the travel costs that individuals incur to visit a national park could represent an approximation of the willingness to pay related to the recreational benefits of the park. These measurements of willingness to pay can also be identified through research that asks a sample of the population about the size of a tax aimed at environmental investments for biodiversity protection with the contingent valuation method. Identifying these measurements of willingness to pay, we can construct the respective demand functions. Note that these two general methods can, in accordance with their hypotheses, estimate environmental values derived from production or demand functions based on the current economic condition. So that these values (costs and benefits) can occur within a time-period, it is necessary to identify these values in time. That is, identifying values resulting not only from actual conditions, but also from future conditions. Prospecting future conditions can be done through alternative scenarios in order to minimize the high degree of uncertainty. Anyhow, the future values will have to be discounted over time, that is, calculated in terms of present values utilizing a social discount rate. This rate differs from the one observed in the market due to capital market imperfections and its determination is not trivial, even though it can significantly affect the results of a cost-benefit analysis.

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In the environmental context, the complexity is even greater. For example, due to the possibility of exhaustion, the value of environmental resources tend to grow over time, if we assume that its use increases with economic growth. Estimating this future scarcity and translating it into a monetary value is a complex issue that requires a certain exercise of futurology. As such, some specialists suggest the use of smaller discount rates for projects with significant environmental benefits or costs or adding the necessary investments to eliminate environmental risk. It is therefore considered that the environmental costs and benefits would be adequately valued and that scenarios with distinct discount rate values should be utilized to evaluate its indetermination. This complexity will also be reflected when constructing a National System of Environmental Accounts to measure the national income (GDP), deducing the amounts that the economy consumed (depreciation) or invested (appreciation) in natural capital5. In disaggregated levels, Environmental Accounts approach a cost-benefit analysis, where GDP reflects a measure of benefit and consumption of natural capital represents the cost. Thus, the valuation concepts and techniques will be the same as herein discussed6. To summarize, selecting an economic method for valuing the environment depends on the objective of the valuation, the assumed hypotheses, the availability of data, and scientific knowledge of the ecological dynamics of the object in question.

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Valuation and pricing of environmental resources for a green economy Ronaldo Seroa da Motta

PRiCiNg ENViRONMENTAL gOODS AND SERViCES7


Although internalizing environmental externalities increases the efficiency of the system, these gains are perceived differently by economic agents and are dispersed over time. That is, they affect the intra and inter-temporal income distribution. So how can we internalize this amount in the pricing system so that consumers can perceive the value? Economic theory proposes that in order to correct this market failure (the tragedy of the commons), defined user rights would be exchanged in a market and thereby set an equilibrium price that represents the social cost of these resources. This possibility could take the form of a fee for using the natural resource or through the creation of markets. That is, economic instruments that signal prices that reflect the social opportunity cost of the resources that, thereby, internalizes the correct price of the resource in the economic system.
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5. It would be a measure of the net domestic product (NDP) of an economy, represented by GDP minus the consumption of capital. 6. See for example Seroa da Motta (1995 and 1998b) for a detailed discussion of how to apply valuation techniques in Environmental Accounts and some estimates of capital consumption in Brazil. 7. For a more extensive discussion see for example, Hanley, Shogren and White (2007), Seroa da Motta (2006), UNEP (2000b), Kolstad (2000) and Pearce and Turner (1990).

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Note that the efficiency gain of an economic instrument is associated with the heterogeneity of control or use costs among economic agents. This cost differentiation makes individual decisions more flexible when comparing the amount charged or the right to issue or use with the control or usage costs. This leads to users with smaller control costs to control more at lower costs than what is collected or earned by selling rights. Nevertheless, these efficiency gains cannot be canceled by high transaction

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costs (of information or implementation), whether through collection or the creation of markets. When this occurs, introducing economic instruments should be avoided.

CHARgiNg
Theoretically a pigouvian tax is equivalent to the marginal environmental damage that allows an economic optimal degradation to be reached. Such nomenclature was formulated by the economist Arthur Cecil Pigou, who formulated it for the first time during the 1920s of the past century. This tax adopts the economically optimal level of resource use criteria where negative externalities, such as environmental damage, are internalized in the resource price both in the production process as well as consumption. Once this new externality price is determined and imposed on each user, aggregated to its market price, each level of individual use is altered as well as the aggregate level of use. In this way, the new levels reflect a socially optimized use, because now the benefits of use are counterbalanced by all the associated costs, that is, each user pays for exactly the damage caused by his or her use. The calculation of this tax does not exist in practice, given the difficulties of precisely measuring environmental damage, as discussed in the previous section. The optimal level of use is determined in the political process by the affected social agents, and from there payment levels for use of the natural resource are derived. In these cases, the economic price can be of two types: induction price and fianacing price; each one with its distinct criteria that generates also distinct values, but both aiming to reduce negative externalities. Induction price: the new price of the resource is determined to obtain a certain aggregate level of technically adequate use (and not aggregate revenue). It is determined so that the sum of the induced change in individual use results in a new desired aggregate level. As such, the estimate should be based on simulations to identify how individuals would alter their resource

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use against different prices. The induction price is related to the polluter/user pays principle8.
8. In the ex-ante conception, the user perceives the damage payment before the act of using. The ex-post formulation is more associated with repairing the damage through judicial means after the user has generated damage.

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For example, this would be the case of charging for water to induce an aggregate reduction in use by X% or a fee that encourages an increase in certification of Y%. Determining the induction price is based on demand or cost functions of each user, differentiating the prices in order to induce users in the aggregate to obtain a level of desired use. The general rule for this price differentiation would be a higher price for the most price-sensitive users (greater price elasticity). This is because those are the users that will reduce their use the most for each unit of price increase. Fianancing price: adopts the criterion of optimal financing levels where the price is determined to obtain a desired level of revenue. As such, the financing price is associated with a predetermined budget and not with a desired level of resource use. Its application is associated with the protector-receiver principle, such as, charging for resource use to generate the revenue that is necessary for a determined investment in a conservation unit or payments for environmental services expenditures.9 Contrary to the induction price, the general rule for price differentiation would be a lower price for the most price-sensitive users (greater price elasticity). This is because these users would be the ones to reduce most their use for each additional unit increase in price and, consequently, reducing revenues. To summarize, the financing price aims to attain an aggregate revenue target and the induction price, instead of aiming for a certain total revenue, seeks to alter the level of individual use. Whatever its form is, the economic instrument always represents an economic price of the negative externalities.

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Valuation and pricing of environmental resources for a green economy Ronaldo Seroa da Motta

MARKET CREATiON
Another pricing possibility is the creation of a market of transferable rights of usage or to pollute. In these markets, rights to use or pollute are distributed or sold in a way that in the aggregate the desired levels of use or pollution are no exceeded. Once the initial allocation is realized, levels of use or pollution above the individual quotas would require the transaction of these rights between users/polluters. For example, the user/polluter that has the highest control costs would have incentives to buy quotas from those will lower costs. Note that it is the absence of (or difficulty in signaling) complete property rights for environmental resources that makes their usage less efficient. In
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the case that specifying complete rights were possible, a negotiation between users could take place in order for uses with greater returns (more efficient)
9. In the economic literature this price would adopt the Ramsey rule, named after its first proponent.

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to be prioritized, that is, the exchange of rights in the market would induce users that most benefitted from its use (or with smaller costs) to pay more for the rights. The terms of negotiation would be based on the costs and benefits perceived by the parties. However, for a market of rights to exist, the property rights would need to be clearly defined and there would need to be a great number of participants with different costs and benefits, buying and selling in the market. On the other hand, an institutionalized, diversified and fragmented market requires sophisticated institutional and legal support. Thus, we must look into these three qualifying principles: a) initial allocation: the rights could be initially allocated in a way that (i) is

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neutral in the proportion to current levels of use or pollution10; (ii) has distributive criteria with greater allocations to some segments of society; and in both cases the allocation could either be free or achieved through an auction that generates revenue. In the case of an auction, each user/polluter would pay for the quotas in accordance with their value for that specific activity. In the case of free distribution, distributive issues would need to be addressed given that holders would consider these rights a real source of costs and benefits. b) imperfect information: government and users/polluters would not be perfectly informed about the level of use or pollution of the resource and the associated costs. Thus, the transaction costs of these rights would be greatly elevated and the transaction levels lower, and consequently less efficient. Though such imperfection could be mitigated in future markets, the management of such a system is complex to implement comprehensively in extensive regions with large varieties of users/polluters; and c)market power: users or polluters with market power11 tend to manipulate the purchase of rights to create barriers of entry for competitors (or regional competition) or engage in price arbitrage aimed at abnormal profit. Such imperfections could be corrected through limits of use or emissions per user, or transfer restrictions, though this would complicate management by demanding an extensive range of information from principal users. To summarize, the pricing of an environmental resource generates an immediate dividend for society by increasing environmental efficiency. But there is also an additional efficiency gain, a second dividend, in the possibility of improving the economic efficiency of taxation through the substitution of the distorted tax revenueon consumption and capital, for revenues resulting from environmental taxation or revenues generated by user rights.

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10. Grandfather system. 11. Oligopolistic or oligopsonic.

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Thus, a tax reform where environmental taxation is introduced and the revenue is used to finance reductions in other taxes generates a so-called double dividend. In this case, the fiscal recycling permits an environmental tax of neutral revenue that reduces environmental degradation and improves economic efficiency by reducing the distorting tax load.

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FiNAL REMARKS
An ecological evaluation should precede any initiative of applying economic criteria, as it is critical for determining how the environmental services are correlated with the stock levels of natural capital. Thus, the use of economic criteria requires explicitly stated ecological impacts (physicochemical and biological) to guide the application. An additional limitation in the use of economic criteria is associated with determining discounts over time of costs and benefits, since the type and value of the discount rate depend on hypotheses about future growth in consumption and future alterations in individual preferences. The exercise of capturing values associated with future generations carries a degree of uncertainty and, consequently, cannot be estimated deterministically. As such, we must consider a sensitivity analysis of the results from different discount rates. We must also identify the sensitivity of various distinct statistical models in the estimation of ecological impacts as well as in economic measurements. Lastly, it is worth noting that the magnitude of the environmental impact of a specific sector could be significant enough to affect other sectors in its supply chain. That is, if there is evidence of significant inter-sectoral effects, these sectoral relations in the economy must be considered and captured through general equilibrium models.12 Impacts do not always have this extension13, but it is worthwhile to highlight that these general equilibrium models require a high level of statistical and database sophistication. The valuation and pricing of environmental resources do not only identify total costs and benefits, but also, if not principally, how these are distributed within society (i.e., who is bearing the costs and who receives the benefits). This process of valuation and pricing, thus, is very important because it guides decision-makers in finding ways to conciliate other alternatives that harmonize this distribution of gains and losses and, from this point, construct consensus and stimulate participation, support and commitment among various economic regulators in the construction of the basis for a green economy.

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12. A more simplified version of this model is an input-output matrix where the elasticities of substitution are null. A general equilibrium model abandons this hypothesis with specific estimates of elasticities for each activity, as well as adopting technical coefficients of a matrix for production and consumption functions. 13. As generally occurs, for example, in climate change impacts where analysts almost always use such models.

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References Freeman, A. M. (1993). The measurement of environmental and resource values. Washington: Resources for the Future. Hanley, N., Shogren, J. F. and White, B. (2007). Environmental economics in theory and practice. Basingstoke: Palgrave Macmillan, 2a. ed. Kolstad, C. D. (2000). Environmental economics. Oxford: Oxford University Press. MEA (2005). Millennium ecosystem assessment, general synthesis report. Washington: Island Press. Pearce, D. W. and Turner, K. R. (1990). Economics of natural resources and the environment. Nova York: Harvester Wheatsheaf. Seroa da Motta, R. (coord.) (1995). Contabilidade Ambiental: Teoria, Metodologia e Estudos de Casos no Brasil. Rio de Janeiro: IPEA. Seroa da Motta, R. (1998a). Manual para valorao econmica de recursos ambientais. Braslia: Ministrio do Meio Ambiente. Seroa da Motta, R. (1998b). Sustainability principles and depreciation estimates of natural capital in Brazil. In Faucheux, S; OConnor, M. and van Straaten, J (eds.), Sustainable Development: Concepts, Rationalities and Strategies. Amsterdam: Kluwer Academic Publishers. Seroa da Motta, R. (2006). Economia ambiental. Rio de Janeiro: FGV Editora. TEEB (2011). The economics of ecosystems and biodiversity: mainstreaming the economics of nature: a synthesis of the approach, conclusions and recommendations of TEEB. UNEP (2011). Towards a green economy: pathways to sustainable development and poverty eradication - a synthesis for policy makers. Retrieved from: <www.unep.org/ greeneconomy>. UNEP (2000a). Environmental valuation - a worldwide compendium of case studies. UNEP. UNEP (2000b). Economic instruments for environmental management - A worldwide compendium of case studies. UNEP.

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Challenges and opportunities

The role of financial institutions in the transition to a green economy


Mrio Srgio Vasconcelos1
The debate began to take shape in the 1970s and intensified at the turn of the century: there must be a limit to growth, since the economy is part of a system, planet Earth, whose equilibrium must be respected in the exploitation of its resources. The disruption of this equilibrium does not interest anyone in the long term. Therefore, the great forefront of sustainability is perhaps addressing how companies ought to take this context into account in their business models. Furthermore: a companys good results do not guarantee the continuity of its business per se. More than just the bottom line of balance sheets, investors and society increasingly want to know what actions were necessary in order to achieve such results. In other words, sustainability is an integrated part of management and not a mere addendum. To financial institutions, the concern with sustainable development began in the 1980s. However, it was in the 1990s that the subject gained greater response, culminating in the launch of the Equator Principles, discussed below. Since then, a series of voluntary commitments, self-regulations and regulations have been encouraging banks to assume a sustainable role and include sustainability concepts in their management. During the past decade, Brazilian financial institutions have adopted a series of practices aimed at incorporating sustainable elements into their activities, which transformed Brazil into a unique case among emerging countries, where institutions manage projects of environmental improvements related to their operations, promote community environmental education, and hire a growing number of staff specialized in environmental risk and opportunities. Many institutions consider socio-environmental aspects in credit approvals, promote training on socio-environmental issues related to business management for internal auditors and relationship managers of different divisions, such as wholesale business, asset management and compliance. Training managers

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and analysts to disseminate the socio-environmental risk policy and promoting the evaluation of socio-environmental risk in the entire credit area, is another

1. Director of institutional relations at Brazilian Federation of Banks (FEBRABAN).

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common practice. Its objective is concerned with instructing teams to identify risks in economic groups and sectors considered critical, such as those related to the petroleum, chemicals, petrochemicals, pulp and steel. Brazilian banks have been aware of socio-environmental responsibility issues throughout the decade and massively adhered to international and national pacts. This adhesion is connected to the institutional positioning of the businesses, to the recognition of the importance of these pacts, to ethical posture, reputation and image. Some examples of these commitments, assumed gradually and to different extents by various Brazilian banks, are: Equator Principles: launched in 2002 by ten of the worlds largest banks in project financing. They establish minimum criteria for credit extension to projects that require investments above R$ 10 million, to ensure that financed projects are developed in a socially and environmentally sustainable manner; Global Compact: officially launched by the United Nations in 2000. Encourages businesses to adopt policies of corporate social responsibility and sustainability, and guides organizations in redefining their strategies and activities through ten principles in the areas of human rights, labor, environment and anti-corruption; United Nations Environment Programme Finance Initiative (UNEP FI): a partnership between UNEP and the global financial sector, enacted since 1991, whose mission is identifying and promoting practical improvements related to sustainability. All members sign a declaration through which they commit themselves to increasingly integrate sustainable development in their operations; Millennium Development Goals (MDG): the Millennium Development Goals (MDG) establish commitments approved by leaders from 191 United Nations member-states in 2000. There are eight millennium goals: to eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality, improve maternal health, combat HIV/AIDS, malaria and other diseases, ensure environmental sustainability and establish a Global Partnership for Development. Collective efforts should guarantee the fulfillment of these objectives by 2015; Principles for Responsible Investment (PRI): one of the achievements of UNEP FI, in conjunction with the Global Compact, was the creation of the Principles of Responsible Investment (PRI) in 2006. The objective of this initiative is for investors all over the world to voluntarily incorporate environmental, social and corporate governance aspects at the time that their applications are executed. By April 2011, more than 850 investment institutions have become signatories; Business Pact for Integrity and Against Corruption: launched in 2006 during the Ethos International Conference, the pact contains a set of

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suggestions, directives and proceedings to be adopted by businesses and entities in their relations with government; National Pact to Eradicate Slave Labor in Brazil: created in May 2005, the pact is coordinated and monitored by the Ethos Institute of Business and Social Responsibility, the Social Observatory Institute, the Brazil Reporter NGO and by the International Labor Organization. Its mission is to implement tools that inhibit the business sector and Brazilian society to market products from producers that utilize slave labor; Carbon Disclosure Project (CDP): is a collective petition formulated by a group of 534 institutional investors responsible for the administration of an estimated US$ 64 trillion worth of assets. The project was designed so that businesses and investors all over the world would have access to information about the impacts caused by greenhouse gas emissions and climate change on company results. CDP is coordinated by a non-profit entity financed by the British governments Carbon Trust, and a group of foundations led by the Rockefeller Foundation.

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The Green Protocol


A more concrete step in the commitment of Brazilian private banks to sustainable finances was taken in April 2009, with the adoption of a protocol of intent by the Brazilian Bank Federation (FEBRABAN) and the Ministry of the Environment, known as the Green Protocol. The protocol is a fruit of the common effort to adopt socio-environmental policies that are precursory, multiplicative, demonstrative or examples of banking practices, and that are in harmony with the objective of promoting sustainable development. To construct and implement a common sustainability agenda in the sector that is aligned with the principles and directives of the Green Protocol, FEBRABAN, with support from the Getulio Vargas Foundation (FGV), began the construction of a matrix of sustainability indicators for financial institutions in 2009. In addition to creating its own indicators, the project draws inspiration from other existing and recognized references in the market, such as the Global Reporting Initiatives (GRI) financial services sector supplement, the Ethos/FEBRABAN indicators and the Securities, Commodities and Futures Exchange of Sao Paulo
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(BM&FBovespa) Business Sustainability Index (ISE) evaluation questionnaire. Besides the participation of associated banks, this process of collective construction counts on collaboration with representatives of civil society organizations.

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The objective is to offer a management tool that plots a diagnosis of individual and sectoral performances, which evaluates the contribution of banks to wealth generation that takes sustainability into account. The matrix is also intended to serve as an instrument of communicating with and accounting for society, including the development of new products and services that contribute to the rapid transition to a green and more inclusive economy. Banks should individually confirm their commitments to the directives of the Green Protocol. In 2009, the State Bank of Rio Grande do Sul, BIC Banco, Banco Sofisa, Banco Votorantim, Bancoob, BNP Paribas Brasil, Banrisul, Bradesco, Cacique, Citi, HSBC, Ita Unibanco, Safra and Santander Brasil became signatories of the document.

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Various banks have also offered products focused on financing schemes, investment funds and loyalty cards with fees going to NGOs dedicated to environmental issues. The equity funds of the businesses that compose the Business Sustainability Index (ISE) are emblematic, as well as the financing programs for environmental conservation and recuperation that aim to improve and recuperate degraded legal reserves and permanent preservation areas. The progress of these green funds reveals the effectiveness and competence of businesses that adopt sustainable practices. In 2010, a weak year on the stock exchanges, funds registered as sustainable and governed by the Brazilian Association of Financial and Capital Market Entities (Anbima, representing 340 institutions acting in the financial and capital markets) presented an appreciation in quotations of 7.96%, compared to the 1.04% appreciation of the Stock Exchange Index. In the area of credit and financing, new environmental lines were created for financing reforestation, development of agroforestry systems and investment in renewable energy. Banks also offer credit lines for the acquisition of machinery and equipment at reduced interest rates for businesses that seek to develop cleaner production processes. To reduce environmental impacts, there are also programs aimed at remediation of hydrographic basins, environmental compensation, implementation and maintenance of Conservation Units, biodiesel use and organic production. To evaluate and classify the socio-environmental risks of business lines, the most common tool used by banks is the socio-environmental questionnaire, which includes checking information related to compliance, environmental
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licensing requirements and site visits. There are banks that expand these evaluations by analyzing the potential socio-environmental risks of the client, sector or project, through practice management by specialized teams that carry out research of public information, consulting and independent audits

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and, when necessary, through technical assistance for the financing of socioenvironmental improvements. To ensure that the client is in fact complying with the socio-environmental requirements stated in the contract, banks carry out environmental audits, technical visits, property evaluations, monitoring of credit portfolios and project reevaluations. Despite all these practices, the auditing process of socioenvironmental policies and risks is a challenge to the sector. Most banks do not carry out verifications focused on sustainability, but intend to implement it over the coming years. The objective is to prevent risks and promote the adoption of best practices among clients. Meanwhile, some banks have already developed this process for certain

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project lines, based on the Equator Principles. The emphasis is on the periodic application of the socio-environmental risk policy to the credit of a legal entity, under the technical supervision of the internal audit committee and the application of effectiveness tests. The results of these evaluations are reported to main executives, such as members of the board of directors and the sustainability committee. Training and engaging professionals in socio-environmental policies is another challenge to the incorporation and evaluation of sustainability criteria, and thus has become a strategic goal of business areas within banks. Among the main existing initiatives is conceptual and analytical socio-environmental risk training for relationship managers, internal auditors and analysts. However, a majority of banks have set objectives to expand training provisions to a greater portion of the internal public. It should be highlighted that this movement is not based on a do-gooder ethos, because risk and the management of risk, is at the core of the financial business. And environmental risk has an effective and growing impact on the four large risks faced by banking institutions market risk, legal risk, operational, and most importantly, reputation risk. Reputation is perhaps the greatest asset of businesses that deal with an activity financial intermediation where trust and credibility are the difference between life and death. Just remember that the word credit comes from the Latin credere, believe, trust. During the last crisis, images of clients camping outside the UK bank Northern Rock circled the world, similar to the faded photos of the old bank runs so common in the 19th century and the beginning of the 20th century. Moreover, it is not by accident that research carried out by the consulting firm Accenture of senior executives around the world, revealed that 72% of those interviewed highlighted the importance of visible and authentic commitments to sustainability as an urgent necessity, in order to reconquer the confidence and reconstruct the reputation shattered by the international financial crisis. One example, however, illustrates the size of the role played by financial institutions as inducers of good practices in the sectors where they invest and

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finance: the media increasingly holds banks co-responsible for the projects that they finance, such as the case of Belo Monte hydroelectric power plant. The whole world is looking at Brazil and wondering: how are the local and indigenous communities being treated? Are the environmental impacts being considered? This leads to the following question: are the business members of the consortium taking appropriate action? And finally: how are the banks positioning themselves in relation to all this?

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Just by this example we can assess the immense responsibility and why a proactive posture is decisive. Especially as many markets are being put in check nowadays. The energy model is one example, and we already observe how universities, research institutes and businesses are working to discover new technologies. The inclusion of the base of the pyramid is also challenging and large and small organizations are already positioning themselves and offering innovative solutions. Among the innumerable new companies that are surfacing, there are certainly embryos of large businesses that will be very profitable in ten years. The banks should be the propellants of these waves; they should understand the trends, promote, invest and finance these types of businesses, and thereby inducing the process of transitioning to a new economy. Leaders of financial institutions must be ready to take this turn. Presently Bloomberg and Reuters, for example, are creating mechanisms to help analysts in considering environmental, social and governance variables. But it is necessary to go farther. Each bank must recognize the impact of its portfolio of clients and have a strategic plan to make this transition. Being close to universities or incubators, for example, will help to identify the trends. All this to say that it is no longer suitable for banks to play a passive and purely monitoring role, but rather an active role of identifying entrepreneurs, technologies and new business models. Only then will we have a positive balance for all parts.

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Challenges and opportunities

Measurement in policies for transition to a green economy


Ronaldo Seroa da Motta1 Carolina Burle Schmidt Dubeux2

INTRODUCTiON
The report Towards a green economy: pathways to sustainable development and poverty eradication, produced by the United Nations Environment Programme (UNEP, 2011), seeks to demonstrate that sustainable development can be reached without losses in income and employment, or increases in poverty. Along these lines, the report models the macroeconomic effects (income, employment and consumption) of a green economy. The results of the growth models adopted in the report estimate that in the medium term (in the spam time of six years) investments in natural capital, in the magnitude of 2% of the global GDP between 2011 and 2050, will generate growth in clean sectors that would more than compensate the income and job losses in the constricting brown sectors. And that these investments also reduce the poverty levels of those that depend directly on environmental services. The green economy concept is not a substitute for sustainable development, but rather, instrumental to it. Financing these investments in a sustained manner requires regulations that cut perverse subsidies and the pricing of environmental goods and services, as well as a system of environmental indicators. In the following section we will discuss how sustainability theory incorporates the principles of a green economy. Lastly, we will outline briefly the basic strategies for the construction of a green economy in Brazil.

SUSTAiNABiLiTY AND gREEN ECONOMY3


The sustainable development concept was formally adopted in the Brundtland report (World Commission on Environment and Development, 1987)4. This
1. Senior Researcher at the Research Institute for Applied Economics (IPEA) and member of the IPCC 3rd and 5th Assessment Reports. 2. Researcher at the Center for Integrated Studies on Environment and Climate Change (Centro Clima/COPPE/UFRJ) and member of the 5th Assessment Report.. 3. This section was based on Seroa da Motta (2011). 4. The idea of making economic growth and nature compatible was already a recurrent theme before the publication of the Brundtland report, but the report was most successful in formalizing it.

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document definitively introduced the idea that economic development should be undertaken without compromising the economic development of future generations. In a rather simplified way, the novelty of this approach of sustainable development, resides in the inclusion of an environmental dimension to the models of economic growth. The sustainability of economic growth was always a central question in

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development models. However, the development models adopted by countries over the past fifty years, only exceptionally referred to environmental issues as a restriction. The natural basis for the planning strategies was considered infinite, that is, as a capital factor without scarcity restrictions. Although the natural basis is intrinsically associated with the comparative advantages of economies in their international insertion, and closely associated with the subsistence activities of the poorest segments of the population, as in the majority of developing countries, there are few references to environmental issues in the economic development literature. Despite the finitude of these resources posing as an obstacle to the adopted development trajectory and generating significant social problems, the perception of scarcity does not exist in the design of these models.5 The sustainable development concept, though it may have several descriptions and its utilization in the communications media generally occurs in vague contexts, can be discussed objectively the same way that sustainability of economic growth is discussed when considering the importance of maintaining non-declining asset values in an economy. That is, sustainability in an economy occurs when its capital stock, that defines the future flow of goods and services, is maintained at least constant. The current sustainability issue only introduces the necessity of treating natural capital differently from material capital. A differentiation with a theoretic and methodological basis similar to that which introduced the theory of human and technological capital into these same models. The economic growth models developed in the 70s, that analyzed the inter-temporal optimization of natural resources in production6, depended on hypotheses about the essentiality of resources and their impacts on the levels of growth in the economy. According to Perrings et al. (1995), the essentiality of environmental resources can be analyzed by the degree of complementarity and substitution between

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natural capital and material capital among the possibilities of production and consumption in an economy. That is, the elasticity of substitution between these
5. See for example, Dasgupta and Maller (1996) for an analysis of this gap in the literature. 6. See Hartwick (1977), Solow (1978) and Dasgupta and Heal (1979).

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two types of capital is what defines the degree of essentiality. The greater the elasticity of substitution, the less essential is the resource. In traditional models, it is assumed that the elasticity of substitution is greater than or equal to one. That is, the level of natural capital stock may decrease as long as the economy can make the compensatory investments in material capital. This is the well-known Solow-Hartwick rule, in which the sustainability of

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an economy, understood as the capacity of an economy to maintain a certain level of consumption, is determined by the capacity to avoid that revenues generated through the exploitation of non-renewable natural resources is wholly transformed into present consumption. Thus, it would suffice to reinvest part of the revenue generated from the exploitation of natural resources in the formation of capital, whether material or natural, equivalent to the consumption of natural capital7. According to these models, maintaining the total stock of capital constant over time is what matters in order to maximize welfare.8 Thus, environmental issues are not considered as relevant or restrictive to growth. What matters is the political capacity to immobilize part of the income resulting from the exploitation of natural resources. However, the capacity of ecosystems to generate services depends on maintaining certain ecosystem components, such as the population and food chain, within specific limits. Once these limits are surpassed, the ecosystem could enter into a collapse and its productivity become null. The definition of these limits identifies the limits to growth and, consequently, determines the sustainable growth trajectory of an economy. As such, it is prudent to identify the minimum secure levels or support capacities of the natural resources that are being utilized for the generation of revenue. Thereby we can define the critical natural capital as that where the level of consumption already exceeds its support capacity, and therefore productivity declines to zero. In these cases, the elasticity of substitution is less than one and the possibilities to substitute between natural and material capital tend to decline when the product grows. In these critical cases, a declining level of natural stock represents a nonsustainable trajectory and losses in welfare should be considered. Thus the consumption of this capital has to be negative, that is, it should be appreciated and not depreciated.

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7. That is, the environmental costs are inferior to the resultant benefits or income generation could compensate or recuperate environmental losses and still add aggregate value to the economy. 8. Beyond other restrictive hypotheses, such as: valuation of capital over time and a fixed discount rate over time.

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The non-critical natural capital would be that where the stock level still has not reached its support capacity. In the meanwhile, this does not imply that the capital does not have a minimal level of security below which it becomes critical. However, the consumption of this capital can be compensated by investments in material capital without losses to welfare. Whether it be investing in the recuperation of rivers, contaminated areas or in controlling impacts, as in the case of climate change through mitigation and adaptation efforts. The hypothesis of very weak sustainability, economic growth without environmental restrictions, assumes that substitution possibilities are infinite, as long as the total capital stock in the economy does not decline. On the other extreme, the hypothesis of strong sustainability, of zero growth, assumes that there are no more substitution possibilities, since all forms of natural capital are critical and no more natural capital should be consumed. Intermediately is the hypothesis of weak sustainability, which distinguishes between the critical and non-critical forms of natural capital and determines differentiated treatments in accordance with the critical levels of identified stock. In this approach, technological progress is considered an agent of sustainability when it reduces the intensity of environmental consumption. Ultimately, sustainability would be possible with greater environmental efficiency resulting from (i) changes in production processes and product designs; (ii) changes in the structure of production and consumption; and (iii) reductions in the levels of production and consumption. In this spectrum, the green economy is characterized by a continuous increase in natural capital, that is, an appreciation and not a depreciation. This would enable lower levels of material intensity and less pollution per unit of revenue, which in turn would induce detachment / decoupling, or the separation of economic activity from environmental impacts. This proposition holds that economic policies aimed at natural capital can accelerate this detachment without reducing levels of consumption and production. To a certain extent, this possibility opposes that which claims that decoupling occurs spontaneously within the economic growth process when the economy reaches a threshold in income levels (Environmental Kuznets Curve EKC)9. Presently, the challenge to constructing a green economy is creating institutional capacity to integrate environmental policies with economic policies, and a system of environmental indicators capable of measuring and monitoring the benefits of natural capital investments.

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9. See a critical revision of the EKC in Galeotti, Manera and Lanza (2009).

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GOVERNANCE STRATEgiES iN A gREEN ECONOMY


In the previous sections we have seen that in accordance with the theoretical economic assumptions, the appreciation of natural capital does not necessarily reduce the efficiency of an economy. Or better yet, the environmental costs generated by the inefficient exploitation of environmental resources reduce growth possibilities.

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Challenging conventional wisdom, environmental cost is not associated with poverty, but rather on the contrary, poverty is part of the environmental cost. It is common to observe constant references in the literature to population pressures on the environment10 and that poverty exacerbates the pressure on the natural base of economies and thereby amplifies the environmental crisis. Evidence of this positive relation between poverty and degradation have been contested in the literature that measures the relationship between income and degradation in light of the environmental Kuznets curve hypothesis (see for example Heerink, Mulatu and Bulte, 2001) and Environmental Justice (see Acselrad, Herculano and Pdua, 2004 and Shepard and Cobin-Mark, 2009). For example, the lower consumption levels of the low-income population, especially of energy, generate low levels of greenhouse gases. Reports by the IPCC11, on the other hand, confirm that the lacking earnings capacity of this population results in a low adaptation capacity and that they will suffer most from the impacts of climate change. Seroa da Motta (2004) measures the contributions by income-level to water and air pollution in Brazil, and finds that the great concentration of degradation pressure comes from the consumption patterns of the richest people, which adds yet another negative aspect to the unequal distribution of income in Brazil. That is, degradation pressure comes mainly from the consumption patterns of the highest income classes, and relaxing environmental controls indirectly creates a subsidy for the consumption of the rich at the expense of the poor. Thus, the distribution of costs and benefits of environmental controls should be equitable. And the environmental issue can stop being a problem and instead turn into a solution. As such, it would be necessary to consolidate the real life scenarios previously described and design policy options that harmonize environmental and economic policies. Next, we will elaborate on some of these options, namely: systematizing environmental indicators, amplifying economic instruments and removing perverse incentives.

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10. This hypothesis stems from the seminal work of Ehrlich (1968), who introduces the concept of environmental risk due to population pressure, which became known as the neomalthusian thesis. 11. See for example IPCC (2007).

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SYSTEMATiZiNg ENViRONMENTAL iNDiCATORS


The economic and ecological magnitudes of environmental issues are distinct and their relative importance must be outlined. Therefore, it is necessary to prioritize the objectives of political actions to construct a green economy. However, such efforts must come from inside the planning system with the objective of generating physiochemical indicators that evaluate the patterns of environmental resource use, associated with economic and social indicators

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that evaluate their connections to the real economy.12 A report by the Stiglitz-Sen-Fitoussi Commission that details an

extensive analysis of measurements of economic performance and social progress, reveals that actions taken by decision-makers depend on what is measured, of how good the measurements are and how well the measurements are understood13. Essentials conditions to realize these initiatives are: a) the creation of

an environmental statistics system that includes environmental indicators; and b) the establishment of a relationship between these and traditional economic and social indicators. Environmental indicators can reflect the pressure of economic activities (production and consumption) on the environment (such as, greenhouse gas emissions, consumption of renewable energy and deforestation rates) or the state of the environment (such as, concentration of pollutants in the atmosphere and water resources and levels of species extinction)14. These indicators thus permit specific evaluation of an environmental resource. A more general evaluation of environmental progress in a region or biome must rely on compounded environmental indexes that aggregate and synthesize environmental indicators of pressure and state, such as the Environmental Sustainability Index (ESI) or the Environmental Performance Index (EPI), as well as compounded indexes that measure environmental footprints (for example, the Ecological Footprint Index)15. Ultimately, there are indicators that correlate environmental indicators with economic indicators that measure production and consumption and are derived from a system of national accounts. A system of environmental accounts (SEA) has been proposed in order to include the environmental variable in the current system of national accounts (SNA). The performance of economic activities is

12. See Seroa da Motta (1996) for the evaluation of an effort to generate environmental indicators in Brazil. 13. Stiglitz, Sen and Fitoussi (2009), p. 9. 14. See OECD (1993) where the proposal for indicators in this category was first presented. 15. See Stiglitz, Sen and Fitoussi (2009) for a detailed discussion of these indexes, especially the footprints that to the authors do not consider trade between countries, nor do they account for the substitution of natural capital for material capital, that is, environmental productivity gains over time.

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reflected in the SNA by macroeconomic aggregates, such as the gross domestic product (GDP), investments and capital depreciation. The greater the stock of capital in an economy, the greater is its capacity to generate revenue. The GDP is the revenue generated by the economy. Investments represent how much capital the economy created in order to generate the GDP and, consequently are part of the GDP. Depreciation represents how much capital the economy consumed to generate the GDP and, consequently is not included in the GDP. Thus, the net domestic product (NDP) of an economy is the GDP minus the consumption of capital. These measurements from SNA are estimated based on the information collected by production units through survey research (for example, the census). As has been discussed, the use of natural capital generates costs that economic actors do not internalize in their activities. The SNA was not initially designed to capture the environmental costs associated with the depreciation of natural capital. Efforts have been made by the United Nations Statistics Division (see SEEA, 2003) to standardize a methodology that permits the estimation of the consumption of natural capital to be included in SNA in the form of a system of environmental accounts. Observe that the estimation of natural capital consumption generates an indicator of how much society is relying on its natural assets to generate revenue, i.e., swapping sustainability for present consumption. This indicator could offer good guidance for the environmental investment efforts necessary to maintain a sustainable level of natural capital. For example, the World Bank (World Bank, 2006) estimated an indicator of net savings or net adjusted savings to measure how much of national income is due to the consumption of natural capital. Determining the adequate level of sustainability has been one of the main problems in the valuation of natural capital consumption. For example, Seroa da Motta (1998) estimated that 2.40% of Brazils GDP in 2005 could be considered consumption of natural capital by weak sustainability criteria, but that this percentage could reach 29% in the case of a strong sustainability scenario. A System of Environmental Accounts is not limited to, for example, the measurement of a green GDP. The integration of all economic indicators from the National Accounts offers innumerable options of measurements of environmental performance. The most simple would be the intensity of environmental consumption (pollution emissions, energy, etc) per unit of revenue and consumption (national revenue, family incomes, government consumption,

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imports and exports) to those that are related to the formation of capital that measure the appreciations and depreciations of the natural capital stock16.
16. In the case of measuring the consumption of natural capital, there are more complex and controversial conceptual and methodological issues related to the monetization of the value of the natural resource and its services. See SEEA (2003) and the chapter about valuation in this publication.

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Studies realized so far17 also indicate that the contribution of the SNA for environmental management is strongly associated with the degree of disaggregation of the indicators in terms of sectors, locations and time. As such, the planning of a green economy must define an Environmental Indicators Plan to take immediate effect with a minimum and viable set of environmental indicators that can be, for example, already consolidated with administrative registers from environmental agencies (organized for monitoring and supervision, such as inventories of emissions, flora and fauna) and from existing continuous research that investigate environmental aspects (sanitation, solid waste, deforestation, etc). To summarize, without knowledge of the natural basis and how it transforms in relation to economic activities, all and any efforts towards a green economy cannot be conducted nor verified.

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AMPLiFYiNg ECONOMiC iNSTRUMENTS


The structural change in the economy in the direction of green sectors will require the correct pricing of environmental goods and services to reflect their true opportunity costs. This price correction can be done with economic instruments for collections (tax or payments) through environmental resource use or through creating markets for use rights. Beyond the aspect of generating efficiency, these instruments can generate additional fiscal or administrative revenue to: a) finance the institutional capacity building of environmental agencies; b) realize environmental payments or compensation; and c) when designed in a progressive way, implement compensatory policies to alleviate environmental impacts on the poor18. As such, the first condition is the consolidation and codification of environmental legislation and the creation of the legal space to adopt instruments. The second is the recognition of the fiscal space of these instruments in the tax system. However, their amplified use should be cautious due to the associated technical and administrative difficulties. Flexibility, institutional compatibilization, gradualism and participation of stakeholders should be criteria to be respected in their introduction. Before any attempts to develop an economic instrument, regulators should first analyze the political objectives and the current state of the natural resource use. This is an obvious step, although frequently overlooked, especially when regulators are anxious to transfer a good experience of a certain
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instrument applied in another country. Regulators should first make explicit the environmental policy and its objectives for which the economic instrument will
17. See a recent review in Stigliz, Sen and Fitoussi (2009). 18. See, for example, Seroa da Motta (2006).

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be used. Note that an instrument is a means and therefore cannot substitute the objectives of the policies. In summary, an instrument is intended to serve a policy, not the other way around.

Challenges and opportunities

REMOViNg PERVERSE iNCENTiVES


The greatest challenge to the planning of a green economy will be in the adjustments to be made to economic instruments that are currently used or under development by economic, social and sectoral policies. The inclusion of the environmental issue in these policies is crucial to eliminate perverse incentives in the use of environmental resources, which contradict and/or annul the efforts of pricing and preserving environmental resources. Among these policies, we highlight: a) those aimed at natural resources and infrastructure, such as energy, water supply, roads and others; b) typically sectoral ones, such as the expansion of farming, cattle raising and industry; c) those of a macroeconomic nature, aimed at stimulating exports, generating employment and investments; d) those with structural content, such as agrarian reform and privatizations; and e) those with a distributive objective, that stimulate small businesses, urban settlements and others. The removal of perverse incentives in the construction of a green economy will only be viable through a joint effort between the system of environmental regulation and sectoral regulations that enable commitments to diagnose, evaluate and route the actions of redefining these sectoral policies. The uncertainty of various environmental impacts vis-a-vis the desired benefits can, in some cases, certainly lead to indeterminate decisions. However, a common and participative effort contributes to pinpoint these areas of uncertainty, evaluate the costs and eliminate distorted perceptions. Only then will a less costly and more efficient adjustment to these policies be possible. To summarize, in these cases of indetermination and uncertainty, the recommended posture would be to identify losers and winners, and their losses and gains resulting from the environmental impacts as well as possible mitigative and compensatory actions.

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In conclusion, the options that were briefly outlined here confirm the hypothesis that environmental regulation should not be understood as a problem and, beyond being a solution, it can represent a source of economic and social benefits for Brazil in the 21st century through a green economy that generates growth with preservation and alleviates poverty.

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Challenges and opportunities

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