state of the world

T H E W O R L D W AT C H I N S T I T U T ET H E W O R L D W AT C H I N S T I T U T E

STATE OF TH E WOR LDSTATE OF TH E WOR LD2 0 0 82 0 0 8

Innovations for aSustainable EconomyInnovations for aSustainable Economy

2 5 t h A n n i ve r s a r y E d i t i o n2 5 t h A n n i ve r s a r y E d i t i o n

STATE OF THE WORLD2 0 0 8

Innovations for aSustainable Economy

Other Norton/Worldwatch Books

State of the World 1984 through 2007(an annual report on progress toward a sustainable society)

Vital Signs 1992 through 2003 and 2005 through 2007(a report on the trends that are shaping our future)

Saving the PlanetLester R. BrownChristopher FlavinSandra Postel

How Much Is Enough?Alan Thein Durning

Last OasisSandra Postel

Full HouseLester R. BrownHal Kane

Power SurgeChristopher FlavinNicholas Lenssen

Who Will Feed China?Lester R. Brown

Tough ChoicesLester R. Brown

Fighting for SurvivalMichael Renner

The Natural Wealth of NationsDavid Malin Roodman

Life Out of BoundsChris Bright

Beyond MalthusLester R. BrownGary GardnerBrian Halweil

Pillar of SandSandra Postel

Vanishing BordersHilary French

Eat HereBrian Halweil

Inspiring ProgressGary T. Gardner

Gary Gardner and Thomas Prugh, Project Directors

W . W . N O R T O N & C O M P A N YN E W Y O R K L O N D O N

A Worldwatch Institute Report on Progress Toward a Sustainable Society

STATE OF THE WORLD

Erik AssadourianBill Baue

Ricardo BayonGer BergkampJason S. Calder

Zoë ChafeChristopher Flavin

Hilary FrenchMark Halle

Brian HalweilTim Jackson

L. Hunter LovinsLisa Mastny

Danielle NierenbergJonathan RoweClaudia SadoffJohn Talberth

Linda Starke, Editor

2 0 0 8

Innovations for a Sustainable Economy

Copyright © 2008 by Worldwatch Institute1776 Massachusetts Avenue, N.W.Suite 800Washington, DC 20036www.worldwatch.org

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Worldwatch Institute Board of Directors

Øystein DahleChairmanNORWAY

Thomas CrainVice Chairman and TreasurerUNITED STATES

Larry MinearSecretaryUNITED STATES

Geeta B. AiyerUNITED STATES

Adam AlbrightUNITED STATES

L. Russell BennettUNITED STATES

Cathy CrainUNITED STATES

James DehlsenUNITED STATES

Christopher FlavinUNITED STATES

Robert FrieseUNITED STATES

Lynne GallagherUNITED STATES

Ed GroarkUNITED STATES

Satu HassiFINLAND

Jerre HitzUNITED STATES

Nancy HitzUNITED STATES

Akio MorishimaJAPAN

Samuel S. MyersUNITED STATES

Izaak van MelleTHE NETHERLANDS

Wren WirthUNITED STATES

Emeritus:

Abderrahman KheneALGERIA

Andrew E. RiceUNITED STATES

Worldwatch Institute Staff

Erik AssadourianResearch Associate

Courtney BernerDevelopment Manager

Andrew BurnetteWeb Manager

Zoë ChafeStaff Researcher

Robert EngelmanVice President for Programs

Barbara FallinDirector of Finance andAdministration

Christopher FlavinPresident

Hilary FrenchSenior Advisor for Programs

Gary GardnerSenior Researcher

Brian HalweilSenior Researcher

Alana HerroStaff Writer

Ling LiChina Fellow

Yingling LiuChina Program Manager

Lisa MastnySenior Editor

Danielle NierenbergResearch Associate

Thomas PrughEditor, World Watch

Darcey RakestrawCommunications Director

Mary RedfernFoundations Manager

Michael RennerSenior Researcher

Kimberly RogovinDevelopment AssistantAssistant to the President

Lyle RosbothamArt Director

Janet SawinSenior Researcher

James RussellStanford Fellow

Patricia ShyneDirector of Publications and Marketing

Julia TierMarketing and Communications Associate

Raya WidenojaBiofuels Program Manager

Worldwatch Fellows

Chris BrightSenior Fellow

Eric MartinotSenior Fellow

Mia MacDonaldSenior Fellow

Sandra PostelSenior Fellow

Payal SampatSenior Fellow

Molly O’Meara SheehanSenior Fellow

Victor VovkSenior Fellow

WWW.WORLDWATCH.ORG vii

This twenty-fifth anniversary edition of Stateof the World is the product of a collaborativeeffort, involving dedicated individuals fromdozens of countries. All deserve our sincerethanks for their contributions to the bookand to the Institute’s work.

We give special thanks to our energeticBoard of Directors for their tremendous sup-port and leadership: Chairman Øystein Dahle,Vice Chair and Treasurer Thomas Crain, Sec-retary Larry Minear, President ChristopherFlavin, Adam Albright, Geeta B. Aiyer, LeoRussell Bennett, Cathy Crain, James Dehlsen,Robert Friese, Lynne Gallagher, Ed Groark,Satu Hassi, Jerre Hitz, Nancy Hitz, AkioMorishima, Izaak van Melle, Samuel Myers,Wren Wirth, and Emeritus members Abder-rahman Khene and Andrew E. Rice.

This year we recognize in particular ourBoard Chair, Øystein Dahle, who has servedthe Institute with wisdom, grace, and humorfor nearly two decades. Last summer Øysteinwas honored for his work in advancing thecause of sustainable economies by the King ofNorway, who bestowed on him the Cross ofSt. Olaf, one of Norway’s most prestigiousawards. Øystein was nominated by the envi-ronmental leaders of every major politicalparty in Norway, a testament to his skill inappealing to a broad range of constituencieson the issue of building sustainable societies.We are proud of our long association withØystein and congratulate him for this well-

deserved honor.We are especially indebted to the Royal

Ministry of Foreign Affairs of the Governmentof Norway for its third year of strong supportof our flagship report. The Royal Ministryhas been a leader in its support for sustainabledevelopment, and we appreciate its assistancein allowing us to reach key decisionmakers in the developing world. We also thank the V. Kann Rasmussen Foundation, a major sup-porter of the Institute’s Global Economy Pro-ject, of which this volume is the primaryoutput to date.

Thank you as well to the many foundationsand other institutions whose support overthe past year made the Institute’s work pos-sible, including the Blue Moon Fund, EcosAg–Basel, the Energy Future Coalition and theBetter World Fund, the German Government,the Richard and Rhoda Goldman Fund, TheGoldman Environmental Prize, Greenpeace,the W. K. Kellogg Foundation, the StevenC. Leuthold Family Foundation, the MarianistSharing Fund, the Natural Resources DefenseCouncil, the Rockefeller Brothers Fund, theShared Earth Foundation, the ShenandoahFoundation, the Sierra Club, the Food andAgriculture Organization of the UnitedNations, the United Nations Population Fund,the United Nations Environment Programme,the Wallace Genetic Foundation, Inc., theWallace Global Fund, the Johanette Waller-stein Institute, and the Winslow Foundation.

Acknowledgments

We are also grateful that the Institute’swork is supported by more than 3,500 Friendsof Worldwatch, who provide nearly one thirdof the Institute’s annual budget. Their faith-ful support is indispensable to our work.

For our twenty-fifth anniversary editionthe Institute drew on the talents of a widerange of skilled authors from a variety of orga-nizations. We are grateful for their commit-ment to the project amid the many pressuresof their own work. John Talberth of Redefin-ing Progress draws on his knowledge of yard-sticks for measuring sustainability to produceChapter 2. Hunter Lovins applies decades ofexpertise in sustainable production to theanalysis of cutting edge manufacturing prac-tices in Chapter 3. Tim Jackson, who hasworked at the University of Surrey and as aconsultant to the U.K. government, exploresthe conundrum of consumption in Chapter 4.Ger Bergkamp and Claudia Sadoff, both atIUCN–The World Conservation Union,explore the world of markets and water use inChapter 8, while Ricardo Bayon of EcosystemMarketplace examines markets and biodiver-sity services in Chapter 9. Jonathan Rowereintroduces us to the important world ofthe commons in Chapter 10, drawing on hisaffiliation with the Tomales Bay Institute.Jason Calder identifies new methods of pro-moting economic development in Chapter12, while Bill Baue explores the world offinance for sustainability in Chapter 13. Finally,Mark Halle of the International Institute forSustainable Development explores the chal-lenges for trade regimes in promoting sus-tainability in Chapter 14. We are also indebtedto our colleague Hilary French, whose longexperience in sustainability circles helped iden-tify several of these authors.

Many outside specialists provided guid-ance and key information for the project. Theproject overall was influenced by insights fromRay Anderson, William Carmichael, Clifford

viii WWW.WORLDWATCH.ORG

STATE OF THE WORLD 2008

Acknowledgments

Cobb, Aaron Cosbey, Robert Costanza,Gretchen Daily, Dan Friedlander, Kevin Gal-lagher, Ian Gary, Joshua Goldstein, RaquelGomes, John Gowdy, Jonathan Harris, TomHigley, Daniel Kammen, Stefano Pagiola,Patricia Rosenfield, James Salzman, AstridScholz, Juliet Schor, Michael Shepard, KeithSlack, Paul Stern, Sean Sweeney, Daniel Tay-lor, Tim Wise, and Ted Wolf. Chapter 1 ben-efited from input from Frank Ackerman,Herman Daly, Josh Farley, and Neva Good-win; Chapter 2 from Suntara Loba; Chapter4 from Sharon Afshar, Stephen Hall, andJonny Tinsdale; Chapter 5 from Jennifer Lac-quet, Miyun Park, and William Weida; Chap-ter 7 from Katherine Hamilton, Kristen Hite,Thomas Marcello, Kyle Meng, Melanie Nak-agawa, Annie Petsonk, Mark Trexler, andTomas Wyns; Chapter 8 from Josh Bishop,Megan Cartin, Charlotte de Fraiture, JohnDixon, Lucy Emerton, Mark Giordano, KirkHamilton, and Mark Smith; Chapter 11 fromLois Arkin, Montserrat Besnard, MabelCañada, Nancy Chege, Diana Leafe Christian,Jonathan Dawson, Scott Denman, Edie Far-well, Kirstin Henninger, Jennifer Henry, AnnKarlen, A. E. Luloff, Christopher Lynch, theCan Masdeu Community, Grady and TenaMeadows O’Rear, Graham Meltzer, KennethMulder, Richard and Cheyenne Olson, StevePretl, Meghan Quinn, Angela Williams, andKierson Wise; Chapter 12 from Tage Kanno,Mike McGahuey, Deepa Narayan, Chris Reij,Tony Rinaudo, Manjunath Shankar, JedShilling, George Taylor, Bob Winterbottom,and Michael Woolcock; and Chapter 13 fromMichael Liebreich.

We also thank our energetic team of internsfor their hard work. We acknowledge withappreciation the work of Morgan Innes onChapter 1; Jessica Hanson on Chapter 5;Stanford MAP Fellow James Russell on Chap-ter 6; Zoe Fonseca on Chapter 7; MeghanBogaerts, Sean Charles, Joy Chen, and Wendy

Wallace on Chapter 11; and Dang Du onChapter 12. And a special thank you to theInstitute’s Senior Editor, Lisa Mastny, for herquick and thorough work in compiling the setof significant global events that appear in thebook’s Year in Review timeline.

State of the World chapters undergo a rig-orous review that includes a day of in-housecritique and comment. We are grateful tostaff from all Institute departments who par-ticipated in the 2008 review. In addition, weacknowledge the careful comments providedby reviewers from outside the Institute, whoseinvolvement boosts the quality of our researchand writing. In particular we thank FrankAckerman, Sara Afshar, Philippe Ambrosi,Josh Bishop, Ed Cain, Megan Cartin, HermanDaly, Jonathan Dawson, Charlotte de Fraiture,Alex Dewar, John Dixon, Dang Du, LucyEmerton, Josh Farley, Zoe Fonseca, MarkGiordano, Neva Goodwin, Stephen Hall,Katherine Hamilton, Kirk Hamilton, KristenHite, Tage Kanno, Anja Kollmuss, MichaelKramer, Jennifer Lacquet, Christopher Lynch,Thomas Marcello, Mike McGahuey, Bill McK-ibben, Ricardo Meléndez-Ortiz, Melanie Nak-agawa, Deepa Narayan, Miyun Park, ChrisReij, Tony Rinaudo, Manjunath Shankar, JedShilling, Mark Smith, Gordon Streeb, DanielTaylor, George Taylor, Mark Trexler, WilliamWeida, Bob Winterbottom, Robert Wolfe,Michael Woolcock, and Tomas Wyns.

State of the World has had only one editorover its 25-year history. We are happy again toacknowledge the skill and hard work of LindaStarke, whose knack for turning the languageof diverse authors into clear, readable prosemakes the book accessible to a broad audience.Linda is also a nimble manager who coordi-nates the work of dozens of staff and non-staffcontributors to meet an unmoving deadline.We are grateful to Linda for her quarter-cen-tury service to the book, and for meeting theunique challenges posed by this edition.

Behind the scenes, Art Director Lyle Ros-botham rapidly turned typescript into thebeautifully designed book in your hands. Weare grateful to Lyle for bringing the volumeinto the world of two colors. We also thankKate Mertes, who kindly stepped in on shortnotice to prepare the index.

Getting the book to press is only the begin-ning of getting State of the World to readers.The Institute’s communications department,led by Communications Director DarceyRakestraw and assisted by CommunicationsAssociate Julia Tier, works to ensure that thebook’s messages reach far beyond our Wash-ington offices. Meanwhile, Director of Pub-lications and Marketing Patricia Shynecoordinates with our global publishing part-ners and infuses our marketing efforts withenergy and creativity. Director of Finance andAdministration Barbara Fallin underpins all theInstitute efforts through her efficient man-agement of our daily operations. And none ofour operations would be possible without ourhard-working development staff. Mary Red-fern manages our foundation relations effortwith consummate thoroughness. On the indi-vidual giving side, Courtney Berner and Kim-berly Rogovin apply their energy andenthusiasm to deepening our relationshipswith Institute friends.

W. W. Norton & Company in New Yorkhas published State of the World in each of its25 years. We are grateful to Amy Cherry, LeoWiegman, Nancy Palmquist, and Devon Zahnfor their work in producing the book andensuring that it gets maximum exposure inbookstores and university classrooms acrossthe United States.

State of the World would have a limitedinternational audience were it not for ournetwork of publishing partners, who provideadvice, translation, outreach, and distribu-tion assistance. We give special thanks toEduardo Athayde of the Universidade Mata

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Acknowledgments

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Acknowledgments

Atlantica in Brazil; Soki Oda of WorldwatchJapan; Benoit Lambert in Switzerland, whoalso connects us to France and French-speak-ing Canada; Klaus Milke of Germanwatch inGermany; Jin Jiaman from the Global Envi-ronment Institute in China; Anna Bruno Ven-tre and Gianfranco Bologna of WWF Italy,who has spearheaded the publishing of Stateof the World in Italy for the last 20 years;Maria Antonia Garcia for the Castilian versionand Anastasia Monjas for the Catalan versionin Spain; Yiannis Sakiotis in Greece; KartikeyaSarabhai and Kiran Chhokar in India; Sang-ik Kim in South Korea; Hans Lundberg andIvana Kildsgaard of Worldwatch Norden inSweden; George Cheng in Taiwan; YesimErkan in Turkey; Tuomas Seppa in Finland;Marcin Gerwin in Poland; Anna Ignatieva inRussia; Milan Misic in Serbia, and JonathanSinclair Wilson, Michael Fell, Rob West,Gudrun Freese, and Alison Kuznets of Earth-scan in the United Kingdom.

Our readers are ably served by the cus-tomer service team at Direct Answer, Inc. Weare grateful to Katie Rogers, Ginger Franklin,Katie Gilroy, Lolita Harris, Cheryl Marshall,Valerie Proctor, Ronnie Hergett, MartaAugustyn, Heather Cranford, Rosey Heath,Sharon Hackett, and Karen Piontkowski forproviding first-rate customer service and ful-filling our customers’ orders.

We would also like to acknowledge thevaluable service of several staff members whohave moved on to new challenges this year. Weare especially grateful for Vice President Geor-gia Sullivan’s work to strengthen the Institute’scommunications, marketing, and fundraisingcapabilities over the past two years. During thesame period, Suzanne Hunt put the Instituteon the biofuels research map with her pio-neering study of the field. Web Manager SteveConklin brought the Institute into the virtualworld, a boon to dissemination of our research

as well as to our business model. And Devel-opment Associate Laura Parr ably supportedthe Institute’s fundraising operations and con-tributed to internal staff development. Wewill miss each of them and we thank them fortheir contributions. Meanwhile, we welcomeRobert Engelman, our new Vice Presidentfor Programs, who leads our research pro-grams and provides strategic leadership onthe issues the Institute faces; DevelopmentAssistant Kimberly Rogovin, who supportsWorldwatch’s president and DevelopmentDepartment; Web Manager Andrew Burnette,who is further developing our Web presenceand our Internet strategy; and Research Asso-ciate Raya Widenoja, the new leader of ourbiofuels research.

We close by noting with gratitude thetremendous contributions made by HermanDaly over the past half-century in reshapingeconomic thought to embrace environmentalconcerns. A pioneer in the field of ecologicaleconomics and a former member of the Insti-tute’s Board of Directors, Herman’s thinkingwas a major inspiration as we undertook thisproject on innovations for a sustainable econ-omy. We are grateful for his many decades ofintellectual leadership. Our deep hope is thathis clear vision—of economies that operatewithin ecological boundaries to advance gen-uine human development—will become thedominant path of economic progress in thisunfolding century.

Gary Gardner and Thomas PrughProject Directors

Worldwatch Institute1776 Massachusetts Ave., N.W.Washington, DC [email protected]

Acknowledgments vii

List of Boxes, Tables, and Figures xii

Foreword xvDan Esty, Yale University

Preface xixChristopher FlavinPresident, Worldwatch Institute

State of the World: xxiiiA Year in ReviewLisa Mastny

1 Seeding the Sustainable Economy 3Gary Gardner and Thomas Prugh

2 A New Bottom Line for Progress 18John Talberth

3 Rethinking Production 32L. Hunter Lovins

4 The Challenge of SustainableLifestyles 45Tim Jackson

5 Meat and Seafood: The GlobalDiet’s Most Costly Ingredients 61Brian Halweil and Danielle Nierenberg

6 Building a Low-Carbon Economy 75Christopher Flavin

S P E C I A L S E C T I O N :PAY I N G F O R N AT U R E ’ S S E RV I C E S

7 Improving Carbon Markets 91Zoë Chafe and Hilary French

8 Water in a Sustainable Economy 107Ger Bergkamp and ClaudiaW. Sadoff

9 Banking on Biodiversity 123Ricardo Bayon

10 The Parallel Economy of the Commons 138Jonathan Rowe

11 Engaging Communities for aSustainable World 151Erik Assadourian

12 Mobilizing Human Energy 166Jason S. Calder

13 Investing for Sustainability 180Bill Baue

14 New Approaches to TradeGovernance 196Mark Halle

Notes 211

Index 255

Contents

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Boxes1 Seeding the Sustainable Economy1–1 Conceptual Reform in Key Sectors 10

2 A New Bottom Line for Progress2–1 Gross Domestic Product: Blind to Economic, Social, and Environmental Crises 20

3 Rethinking Production3–1 The Robot Versus the Hair Dryer 373–2 Biomimicry and Carpets 41

6 Building a Low-Carbon Economy6–1 What About Nuclear Power? 81

7 Improving Carbon Markets7–1 North American Carbon Trading Systems under Development 957–2 Who Gets Permission to Emit? 977–3 Carbon Neutrality—Not a Neutral Term 103

8 Water in a Sustainable Economy8–1 Water as Capital 1138–2 Total Economic Value 1148–3 The Dublin Principles 1158–4 Water Pricing and Water Prices 118

9 Banking on Biodiversity9–1 The Escalating Problem of Biodiversity Loss 1259–2 The Evolution of a Wetland Banker 1289–3 Perverse Incentives on Endangered Species 131

10 The Parallel Economy of the Commons10–1 Property: A Social Construct 14010–2 Trusting Commons 148

11 Engaging Communities for a Sustainable World11–1 What Is a Community? 15211–2 Preparing for the Long Emergency 15911–3 Dockside Green: Developers Taking the Lead 163

List of Boxes,Tables, and Figures

12 Mobilizing Human Energy12–1 Reshaping the Development Agenda in the 1990s 16912–2 Common Critiques of Community-based Development 17012–3 Basic Principles of Seed-Scale 17312–4 Common Ways to Scale Up Successful Programs 175

13 Investing for Sustainability13–1 Definition and Scope of Investing for Sustainability 18113–2 Importing Sustainability to China 188–8913–3 Hedge Funds Marry Ecology with Economics 18913–4 TXU Buyout Is History’s Biggest—and Greenest 190

14 New Approaches to Trade Governance14–1 Good Governance 19714–2 Multidimensional Problems 208

Tables1 Seeding the Sustainable Economy1–1 Net Worth Per Person, by Country Income Group, 2000 9

2 A New Bottom Line for Progress2–1 Sustainable Development Objectives and Macroeconomic Indicators 232–2 Genuine Progress Indicator Components and Values, United States, 2004 242–3 Sustainable Development Objectives and Microeconomic Indicators 28

4 The Challenge of Sustainable Lifestyles4–1 Population and Carbon Dioxide Emissions, Selected Countries, 2004 47

5 Meat and Seafood: The Global Diet’s Most Costly Ingredients5–1 Meat and Seafood Consumption in Top Five Countries or Regions, 2005,

and Increase since 1961 63

6 Building a Low-Carbon Economy6–1 Global Energy Use and Carbon Emissions in 2006 and in 2050

Under Two Scenarios 776–2 Energy-Related Carbon Emissions, Selected Countries, 2006 786–3 Estimates of Potential Contribution of Renewable Energy Resources 83

7 Improving Carbon Markets7–1 Carbon Transactions, Selected Markets, 2005 and 2006 937–2 Selected Clean Development Mechanism and Joint Implementation

Projects 101–02

8 Water in a Sustainable Economy8–1 Water Use by Sector 1098–2 Selected Examples of Payments for Watershed Services 120

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9 Banking on Biodiversity9–1 Examples of Legal Requirements for Biodiversity Offsets 123

11 Engaging Communities for a Sustainable World11–1 How Selected Communities Model Sustainability 153

13 Investing for Sustainability13–1 The World of Sustainability Investments 18113–2 Socially Responsible Investments, by Region, Mid-2000s 183

Figures2 A New Bottom Line for Progress2–1 World Indicator Trends, 1970–2005 19

3 Rethinking Production3–1 Waves of Innovation 43

4 The Challenge of Sustainable Lifestyles4–1 Carbon Intensity of GDP, 1990–2004 484–2 Subjective Well-being and Per Capita Income, 2000 514–3 Domain Satisfaction by Social Group, England 55

5 Meat and Seafood: The Global Diet’s Most Costly Ingredients5–1 World Meat Production and Seafood Harvest, 1950–2006 62

6 Building a Low-Carbon Economy6–1 Atmospheric Concentration of Carbon Dioxide, 1744–2004 766–2 Estimates of Available Energy Resources Using Today’s Technology 826–3 Global Investment in Renewable Energy, 2000–06 856–4 Electricity Use Per Capita, California and Rest of the United States 89

7 Improving Carbon Markets7–1 Average Price of EU Emissions Contracts, 2005–07 967–2 Distribution of CDM Credits Expected 2002–12, for All Projects in Pipeline 997–3 Sources of CDM Credits Expected 2002–12, for All Projects 100

8 Water in a Sustainable Economy8–1 Physical and Economic Water Scarcity 108

12 Mobilizing Human Energy12–1 Farmer-managed Tree Regeneration in Galma Village, Niger, 1975 and 2003 167

13 Investing for Sustainability13–1 Venture Capital and Private Equity Investment, 2000–06 191

Units of measure throughout this book are metric unless common usage dictates otherwise.

ForewordDaniel C. Esty

Hillhouse Professor of Environmental Law & Policy,Yale UniversityDirector of the Center for the Environment and Business at YaleDirector of the Yale Center for Environmental Law and Policy

State of the World 2008 makes it clear that ourplanet and every individual on it face sub-stantial environmental challenges. From thebuildup of greenhouse gas emissions in theatmosphere to significant water shortagesand a wide range of pollution and naturalresource management issues, the road to asustainable economy is full of potholes. Butthere are signs of hope. As documentedthroughout this volume, the pace and scale ofenvironmental innovation is extraordinary.

Most notably, there has been a sea changein business attitudes toward the environ-ment over the last several years. Companieslarge and small, in manufacturing and in ser-vices, in the old economies of the UnitedStates and Europe as well as the emergingeconomic powerhouses of the developingworld, have come to recognize that the envi-ronment is more than regulations to follow,costs to bear, and risks to manage. As soci-ety steps up to a wide range of pollutioncontrol and natural resource managementchallenges—and commits substantialresources to finding solutions—there will besignificant market opportunities for thosewho can bring solutions to bear.

A number of CEOs are remaking theircompanies around this emerging “cleantech”opportunity. At General Electric, for example,CEO Jeff Immelt launched an “ecomagina-tion” campaign designed to promote the

company’s high-efficiency locomotives andjet engines, wind turbines, solar power tech-nologies, water purification systems, andcleaner coal electric generating equipment.This is not because he is a “do gooder” butbecause he believes that these markets offer theprospect of high growth and high margins.

Similarly, Andrew Liveris, CEO of Dow,a company that I have worked with, wants histop managers to drive innovation and Dowrevenues by having the company lead theway toward a world of sustainable chem-istry, solutions to climate change, andprogress on such environmental problemsas water availability.

Action at the business-environmental inter-face is, of course, not limited to the UnitedStates. In Norway, REC has emerged as aleading producer of photovoltaic panels witha market capitalization in excess of $17 bil-lion. Japan-based Toyota has become thefastest-growing and most profitableautomaker in the world by putting fuel econ-omy and environmental sensitivity at theheart of its strategy. Grupo Nueva, a Chileanforest products company, is building its busi-ness by putting environmental commitmentinto everything the company does.

In addition, hundreds of small cleantechcompanies have been launched worldwidein the past several years. From solar powerbusinesses like Ausra and Solarec to geo-

WWW.WORLDWATCH.ORG xv

thermal energy producers such as Altarock tocellulosic ethanol technology developers suchas Range and Coskata, environmental inno-vation is being pushed in hundreds of direc-tions. More than $100 billion in venturecapital, private equity, corporate researchand development funding, and governmentsupport for technology development wasinvested in environmental start-up venturesover the past year.

In parallel with the business world’s newenvironmental focus lies an important policystory centered on innovation as the key toenvironmental progress and a sustainableeconomy. A fundamentally changed envi-ronmental trajectory requires substantial tech-nological breakthroughs.

How do we promote environment-relatedinnovation? The answer is increasingly appar-ent: private-sector investment guided by care-fully structured market-based incentives.

A technology development process thatdepends on a few thousand government offi-cials setting standards and defining “bestavailable technologies” cannot possiblyexplore or even imagine all the ideas thatneed to be funded and tested. It makes moresense to shift the burden of action to thebusiness community so that companies havean incentive to think broadly about oppor-tunities for progress. And the private sectorhas a much larger scale of capital available todevote to technology development. The fund-ing required amounts to hundreds of billionsof dollars—not the hundreds of millions ofdollars that government might spend.

The private sector is also better positionedto take the requisite risks to produce tech-nology breakthroughs. Venture capitalists donot blink at the prospect of only 1 project in10 paying off. That kind of success ratio ingovernment would be entirely unacceptable.In addition, the business community is in abetter position to reward success in a way

xvi WWW.WORLDWATCH.ORG

that will draw the most talented people intothe quest for environmental solutions. Entre-preneurs who recognize the opportunity fora big payday put in long hours and motivatea team of people to put in extra effort.

There is still a critical role for governmentand regulations. But the Environmental Pro-tection Agency and state-level regulators aswell as environmental ministries around theworld need to shift from doing technologydevelopment to establishing incentives in themarketplace that promote innovation andthat draw in the private sector. In particular,they need to put a price on causing environ-mental harms so that those who offer ways toeliminate pollution and cut down on nonre-newable resource use will be rewarded.

Two parallel trends in the environmentalarena promise to further an innovationemphasis. First, the move to market-basedmechanisms and away from “command andcontrol” regulation dramatically shifts thefocus of the private sector. Under the tradi-tional environmental protection model, wheregovernment not only sets the standards butalso dictates the particular technology thatneeds to be deployed, companies have littleincentive to innovate. They simply follow theguidelines and regulations provided. Underan economic-incentive-based approach, incontrast, as companies (and the individualswho buy their products) find themselves pay-ing a price for every increment of harm causedor natural resource consumed, a strong incen-tive emerges to figure out ways to reducethese payments. Thus, the shift toward a seri-ous commitment to the Polluter Pays Prin-ciple offers the prospect of sharpening theincentive at every level in society for energyconservation, improved resource productiv-ity, and innovation.

The second broad trend that supports ashift toward an innovation-centered envi-ronmental policy approach emerges from


Foreword

the opportunities of the Information Age totailor economic incentives with greater pre-cision. Historically, it has been extremelydifficult and expensive to track individualemitters or natural resource consumers. Butin our digital era, sensors, data collectiontechnologies, and information managementsystems are increasingly cheap and easy todeploy. It is possible to keep track of emis-sions and resource use on a much morerefined basis. The acid rain allowance tradingprogram of the Clean Air Act of 1990, forinstance, depends on sulfur dioxide emis-sions monitors being placed in each powerplant in the United States. Similar monitor-ing and measurement technologies are nowavailable to track emissions from everysmokestack, factory, and business in thecountry and from every car’s tailpipe as well.Why not send a car pollution bill at the endof each month to every driver? There is nobetter way to motivate car owners to demandmore fuel-efficient and less-polluting carsthan to have them pay for the harms thattheir vehicles individually cause.

Information technologies can also be usedto identify and disseminate “best practices” interms of technologies and policies. Advancedinformation management systems make itmuch easier to benchmark performance, tracktrends, spot problems, and identify whichenvironmental interventions are effective.Governments, companies, communities, andindividual families can then focus on repli-cating successful strategies and not investing

in projects or approaches that are not pro-ducing good results.

It is easy to be a pessimist in the face of thedaunting environmental challenges that everyone of us faces. But the prospect of environ-mental innovation makes me an optimist, atleast over the longer term.

Progress, of course, depends on redou-bling the business community’s focus onthe environment. The logic of making theenvironment a core element of corporatestrategy seems straightforward. No com-pany or industry today can afford to ignoreenergy costs, pollution issues, and otherenvironmental challenges. Those that dorisk competitive disadvantage. And CEOswho take these challenges seriously are oftenfinding ways to innovate that translate intoreduced costs (eco-efficiency), better man-aged risks, new lines of revenue, andstrengthened brand loyalty.

Continued environmental progress willrequire smart government policies. Movingcompanies toward a sustainable trajectorywill happen faster with clear economic incen-tives. But individual consumers must also bemade to understand the part they play inpolluting and consuming nonrenewable nat-ural resources.

In blazing a path toward a world of sus-tainable economies, State of the World 2008highlights the importance of innovation. Thisvolume shows the next steps that must betaken in the business world, in the policycommunity, and by every one of us.

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Foreword

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In his groundbreaking study on the eco-nomics of climate change, former World Bankchief economist Nicholas Stern describes thechanges now under way in Earth’s atmos-phere as “the greatest and widest-rangingmarket failure ever seen.” It is an economicfailure that the global economy is not pre-pared to cope with and that most of today’seconomic analysis is not able to understand.

It is ironic that it is the very triumph ofmarket economics that is now challengingthe basic tenets that have helped make it sosuccessful. Conventional economics relies onmarkets—large numbers of buyers and sell-ers—rather than planners to determine themost efficient allocation of resources. Theprice mechanism and profit motive have beenenormously successful in spurring techno-logical change and meeting human needs,bringing adequate nutrition, clean water,housing, transportation, and myriad othergoods and services to billions of people. Mar-ket capitalism has, in the words of DanielYergin, reached the “commanding heights”of the modern world, leaving communismand other competing theories in the ash heapof history.

Early economic thinkers such as ThomasMalthus had a sense of the biophysical limitsin which the economy of their day operated.But the Industrial Revolution at the end ofthe eighteenth century allowed many of theselimits to be overcome—with new materials

replacing those that had grown scarce andnew technologies allowing unexpected gainsin everything from agricultural production toenergy use. At the same time, colonial expan-sion and migration opened up little usedresources in the Americas and other parts ofthe globe. By the twentieth century, eco-nomic growth had become the primary goalof most governments and their economicadvisors: rising incomes helped bring manypeople out of poverty, while creating oppor-tunities across the economic spectrum.

That economic model has lasted a longtime, but it will not survive the twenty-firstcentury. In a physically constrained world,material growth cannot continue indefinitely,and when that growth is exponential—andinvolves mega-countries like China andIndia—the limits are reached more abruptlyand catastrophically than even the best sci-entists are able to predict. From falling watertables to soaring oil prices and collapsingfisheries, the ecological systems that underpinthe global economy are under extraordinarystress. Economists who thought they couldanalyze the economic world as if it were sep-arate from the physical world may have ahard time finding work in the years ahead.

Continued human progress—both mate-rial and spiritual—now depends on an eco-nomic transformation that is more profoundthan any seen in the last century. A world oflimits will require a shift from the unfettered

PrefaceChristopher Flavin

President, Worldwatch Institute

conventional economics that prevailed thento the emerging field of sustainable eco-nomics, which embraces many of the princi-ples of market economics, including its abilityto allocate scarce resources, while at the sametime explicitly recognizing that the humaneconomy is but a part of the larger globalecosystem that contains it. This new field ofsustainable economics goes on to analyze theeconomic limits imposed by the physicalworld, and proposes a range of innovativeideas for bringing the economy into balancewith the global ecosystem.

The focus of State of the World 2008 is onthe innovations that will be needed to makea sustainable economy possible. To do that,we have recruited an unusually thoughtfulgroup of expert authors who have writtenon topics ranging from new approaches toindustrial production to new measures ofeconomic progress, microfinance, and thedevelopment of markets for carbon emissionsand protection of biodiversity. The bookincludes scores of exciting examples of pio-neering business ventures in fields like solarenergy, venture capitalists who are financingthe creation of environmental businesses, andcommunities that are mobilizing to spur sus-tainable innovation at the local level. Thesediverse initiatives create new economic mod-els and business practices that fostereconomies that meet people’s needs whileprotecting the planet.

We come away from this project with astrong sense that something large, perhapseven revolutionary, is struggling to be bornas business leaders, investors, politicians, andthe general public create the architecture ofsustainable economics. Indeed, it is breath-taking to see how much innovation has beenunleashed by the wave of concern about cli-mate change that has broken across the worldin the past year, culminating in the awardingof the Nobel Peace Prize to the world’s lead-

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Preface

ing climate scientists and their most effectiveevangelist, Al Gore.

Emblematic of the innovative proposalsemerging on an almost daily basis is oneannounced just as we were going to press:Virginia Tech has teamed up with a privateinvestor, Hannon Armstrong, to put $100million a year into improving the energy effi-ciency of Washington area buildings. As withhundreds of similar announcements, this oneinvolves a creative combination of privatecapital, nonprofit expertise, and supportivegovernment policies.

Innovative ideas and big money are a pow-erful combination—and the sums now mov-ing in a green direction are eye-popping.Citigroup announced plans in May 2007 toinvest $50 billion to address climate changeover the next decade. And Goldman Sachsinvested $1.5 billion in renewable energy in2006, exceeding its initial commitment by 50percent. Global investment in new energytechnologies is estimated at $71 billion in2006, up 43 percent from the previous year.Both in China and the United States, “cleantechnology” is now the third largest sector forventure capital investment. More momen-tous still are innovations such as China’s newrenewable energy law and Europe’s carbonemissions trading system, which ensure thatthese kinds of investments will continue toflow for many years to come.

Shifting from the conventional economicparadigm to one based on ecological or sus-tainable economics will require years ofchange on many levels—from classroom the-ory to business practice and government pol-icy. Pricing goods and services so thatenvironmental costs and benefits are countedis one key measure—easy in principle butoften difficult for people or politicians toaccept. And creative ways must be found toknock down the barriers to change—forexample, changing electric utility regulations

so that saving energy is at least as profitableas building new power plants.

Sustainable economics will need to meethuman as well as planetary needs if it is to pre-vail. Proponents of market economics andglobalization often point to the 300 millionpeople who have escaped from poverty since1990—most of them in China and India.This still leaves more than a billion desperatelypoor people in today’s world, and the devel-oping countries that have not yet benefitedfrom the immense growth in the global econ-omy over the past century are determined toclose this gap in the decades ahead. It istherefore gratifying to see that the same kindsof innovation—from $100 laptops to dripirrigation—that is going into environmentalimprovement is also delivering new

approaches to agriculture, health care, andeducation in poor rural communities.

There is a great deal to be admired—andvalued—about market economics in today’sever-smaller world. With so much to do insuch a short time, efficient allocation ofresources and motivating people to actionare more important than ever. But twenty-firstcentury economics must be grounded in amore realistic understanding of the physicaland biological world on which we depend. AsAlbert Einstein once said, “We can’t solveproblems by using the same kind of thinkingwe used when we created them.” This sen-tence should be posted on the walls of eco-nomics classrooms, corporate boardrooms,and the grand halls where the world’s legis-lators make public policy.

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Preface

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Timeline events were selected to increaseawareness of the connections between peo-ple and the environment. An online versionof the timeline with links to Internetresources is available at www.worldwatch.org/features/timeline.

State of the World:A Year in Review

This timeline covers some significantannouncements and reports from October2006 through September 2007. It is a mix ofprogress, setbacks, and missed steps aroundthe world that are affecting environmentalquality and social welfare.

Compiled by Lisa Mastny

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State of the World: A Year in Review

O C T O B E R

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N O V E M B E R D E C E M B E R

2006 S T A T E O F T H E W O R L D : A Y E A R I N R E V I E W

MARINE ECOSYSTEMSUN report says the numberof low-oxygen “dead zones”in the world’s oceans and

seas has increased from 149to some 200 in the past twoyears, endangering fish stocks.

BIODIVERSITYWWF warns that birdsare headed toward a

major extinction due toclimate change, with

some populations alreadyshowing declines of up

to 90 percent.

ATMOSPHEREScientists say unusuallylow temperatures haveled to record ozone lossover Antarctica, helping topush the “ozone hole” toa near-record 28 million

square kilometers.

FORESTSBrazil says the rate ofAmazon deforestation

has slowed to about halfthe level of the previousyear—the second lowestrate since recordkeeping

began in 1988.

CLIMATEAustralian researchers

report that global carbondioxide emissions have

more than doubled since1990 and the rate of

increase is accelerating.

FORESTSWWF says two thirds of

forests in the Congo RiverBasin, the second largest

tropical forest, could disappearwithin 50 years if exploitation

continues at current rates.

NATURAL DISASTERSOfficials report that theUS wildfire season set anall-time record in 2006,with more than 96,000

wildfires burning a total ofnearly 4 million hectares.

NATURAL DISASTERSWorld Bank estimates thatthe 360 reported disastersin 2005 killed more than90,000 people, affectedmore than 150 million,

and caused record damages of $159 billion.

MARINE ECOSYSTEMSScientists project that

at today’s rates ofwithdrawal, all currentlyfished species of wild

seafood could collapse—experiencing 90-percent

depletion—by 2050.

HEALTHWHO reports that urbanair pollution causes some

2 million prematuredeaths annually, more

than half of which are indeveloping countries.

CLIMATEThe Stern Review, a

detailed report on theeconomics of climate

change, warns unabatedglobal warming could

cause damages worth 5 to20 percent of global GDP.

FORESTSBrazil creates the world’slargest tropical rainforest preserve—a 15-million-

hectare area in the state ofPará—to protect the Amazonfrom logging and agriculture.

BIODIVERSITYScientists declare the

baiji, a rare Yangtze Riverdolphin and one of theoldest species, effectivelyextinct—the first loss of a large aquatic mammal

in 50 years.


FORESTSUN warns that Indonesia’s

rainforest is being destroyedup to 30 percent fasterthan previously thought,

and orangutan populationscould be extinct within

three decades.

BIODIVERSITYStudy reports elephantpoaching is at its highest

level in two decades and illegal ivory trade isflourishing, threatening to undermine global conservation efforts.

CLIMATEAn alliance of major UScorporations and NGOsissues a landmark call forthe federal government

to enact strong legislationto reduce greenhouse

gas emissions.

ENERGYReport says global

wind energy marketsexceeded expectations in 2006, with a record32-percent increase in growth bringing global capacity to 74,223 megawatts.

CLIMATEGovernments of the

27-member EuropeanUnion approve a newtarget to cut collective

greenhouse gasemissions by 20 percent

from the 1990 level by 2020.

ENERGYThe United States and Brazilannounce a new partnershipto boost research and pro-duction of ethanol, pavingthe way for broader global

trade in biofuels.

CLIMATEIPCC reports unequivocal

proof that Earth is warmingand confirms that human

activities are behind increasedatmospheric greenhouse gasconcentrations since 1750.

ENERGYIn a world first,Australiamandates a nationwide

phaseout of incandescentlight bulbs by 2010, hop-ing to reduce greenhousegas emissions by 4 million

tons by 2012.

SECURITYScientists move the handof the “Doomsday Clock,”indicating vulnerability tonuclear and other threats,from seven to five min-

utes to midnight, the firstchange since 2002.

TOXICSStudy finds that exposure

while in the womb tochemicals in everydayplastics and pesticidesmay alter human genefunctions and increase

risk of obesity anddisease.

ENERGYThe US government

approves the first newsite permit for a nuclear

power plant in 30 years, asign of renewed interestin nuclear energy in the

country.

TOXICSMelamine-tainted gluten

imports from China triggerthe deaths of thousands

of US dogs and cats,spurring a nationwide

pet-food recall.

WATERReport says the Yangtze,

Mekong, Salween,Ganges, and Indus areamong the 10 rivers at

greatest risk as a result ofclimate change, pollution,dams, and other threats.

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20072 4 6 8 10 12 14 16 18 20 22 24 26 28 30

M A R C HF E B R U A R Y

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J A N U A R Y

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A P R I L

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

M A Y

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J U N E

2007 S T A T E O F T H E W O R L D : A Y E A R I N R E V I E W

SECURITYThe UN Security Council

holds its first debate on theimpact of climate change onsecurity, triggering questionsabout the Council’s authority

in addressing the issue.

CLIMATEIn a landmark recognition of

climate change, PresidentGeorge W. Bush directs

federal agencies to developregulations limiting greenhouse

gas emissions from vehicles.

POVERTYWorld Bank reports thatthe number of peopleliving on less than $1 a day fell 18.4 percent

between 2000 and2004, to an estimated

985 million.

HEALTHScientists link the risingpremature birth rate in the United States with

increased use of pesticidesand fertilizers containing

nitrates, which can contaminate surface water.

CLIMATEAt the G-8 summit, the

world’s eight largestindustrial nations agree to“substantial” greenhouse

gas emissions cuts by 2050,though no mandatory

targets are set.

BIODIVERSITYUN panel adds Ecuador’sGalapagos Islands to thelist of World Heritagesites in danger, as the

islands are threatened byinvasive species, growingtourism, and immigration.

POLLUTIONEuropean officials sign

law requiring that all heavy-oil tankers

entering European portsbe double-hulled, inresponse to recent disastrous oil spills

in the region.

ENERGYFirst solar-powered boat

to cross the Atlanticarrives in New York after

a five-month trip todemonstrate the feasibilityof clean energy vessels on

the open seas.

WATERReport on China’s Yangtze

River says that 10 percent ofthe waterway is in “criticalcondition” and 30 percent of its major tributaries are

“seriously polluted.”

MARINE ECOSYSTEMSMore than 20 nations agreeto restrict the practice of

dragging heavy nets along theseafloor in the South Pacific,

an area with a quarter of the world’s oceans.

ENERGYUN reports that investmentsin renewable energy reached

a record $100 billion in2006, spurred by climatechange concerns, greatergovernment support, and

high oil prices.

BIODIVERSITYUS officials remove the

bald eagle from protectionunder the Endangered

Species Act as numbers inthe lower 48 states reachsome 9,789 pairs, up from

only 417 in 1963.

30

CLIMATEResearchers say glaciers

and ice caps now contributeabout 60 percent of the ice

melt into the oceans and thatthe rate has been accelerating

over the past decade.

TOXICSSurvey reports that asthma

rates among the 25,000 rescue and recovery workerswho responded to the 2001World Trade Center disaster

are 12 times the normaladult rate.

AGRICULTUREStudy says organic

farming can yield up tothree times as muchfood as conventionalfarming in developing

countries, refuting claimsthat organics cannot

feed the world.

BIODIVERSITYFour slaughtered

mountain gorillas arefound in the DR of

Congo’s Virunga NationalPark, renewing fears

about threats to the rarespecies from poachers

and rebel groups.

WASTECoca-Cola announces

goal of recycling orreusing 100 percentof the PET plastic

bottles it uses in theUnited States.

BIODIVERSITYUS scientists warn that two

thirds of polar bears could beextinct in 50 years as Arctic

sea ice shrinks, and they consider adding the species tothe Endangered Species List.

ENERGYEarthquake in Japan causes

leakages at a nuclearpower plant, raising alarmabout the risks of nuclearpower and putting thecountry’s nuclear plans

in disarray.

ENERGYSpanish biofuels developersselect Kansas as the site of

the first US cellulosic ethanolplant, slated to produce fuelfrom corn stalks, switchgrass,and other woody biomass.

CLIMATECEOs of 153 companiescommit to greater actionon climate change andcall on governments todevelop measures for the post-2012 Kyoto

Protocol period.

NATURAL DISASTERSChina experiences “once-

in-a-century” rains andfloods as millions of people

in the southwest, center,and east are displaced over

a period of weeks.

TOXICSToy giant Mattel

recalls millions of toysmanufactured in Chinaafter high levels of leadare found in the items,prompting consumer

concern about Chinese-made products.

CLIMATEScientists report that

Arctic sea ice has thinned by half since 2001, with large areas of ice now only onemeter thick as the

ocean and atmospherecontinue to warm.

BIODIVERSITYIUCN adds 188 species toits Red List of threatenedspecies, which includes one in four mammals,

one in eight birds, a thirdof amphibians, and 70

percent of assessed plants.

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See page 211 for sources.

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S E P T E M B E RA U G U S TJ U L Y

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STATE OF THE WORLD2 0 0 8

Innovations for aSustainable Economy

WWW.WORLDWATCH.ORG 3

To critique the dominant economic systemof the twentieth century would seem a fool’serrand, given the unprecedented comfort,convenience, and opportunity delivered bythe world economy over the past 100 years.Global economic output surged some 18-fold between 1900 and 2000 (and reached$66 trillion in 2006). Life expectancy leapedahead—in the United States, from 47 tonearly 76 years—as killer diseases such aspneumonia and tuberculosis were largelytamed. And labor-saving machines from trac-tors to backhoes virtually eliminated toil inwealthy countries, while cars, aircraft, com-puters, and cell phones opened up stimulat-ing work and lifestyle options. The wondersof the system appear self-evident.1

Yet for all its successes, other signals sug-gest that the conventional economic systemis in serious trouble and in need of transfor-mation. Consider the following side effects ofmodern economic activity that made head-lines in the past 18 months:• Atmospheric carbon dioxide levels are at

their highest level in 650,000 years, the

average temperature of Earth is “headingfor levels not experienced for millions ofyears,” and the Arctic Ocean could be ice-free during the summer as early as 2020.

• Nearly one in six species of European mam-mals is threatened with extinction, and allcurrently fished marine species could col-lapse by 2050.

• The number of oxygen-depleted deadzones in the world’s oceans has increasedfrom 149 to 200 in the past two years,threatening fish stocks.

• Urban air pollution causes 2 million pre-mature deaths each year, mostly in devel-oping countries.

• The decline of bees, bats, and other vitalpollinators across North America is jeop-ardizing agricultural crops and ecosystems.

• The notion of an approaching peak in theworld’s production of oil, the most impor-tant primary source of energy, has gonefrom an alarming speculation to essentiallyconventional wisdom; the mainstreamWorld Energy Council recently predictedthat the peak would arrive within 15 years.2

C H A P T E R 1

Gary Gardner and Thomas Prugh

Seeding the Sustainable Economy

These and other environmental conse-quences of the push for economic growththreaten the stability of the global economy.Add to this list the social impacts of moderneconomic life—2.5 billion people living on $2a day or less and, among the wealthy, therapid advance of obesity and related diseases—and the need to rethink the purpose and func-tioning of modern economies is clear.3

Even in business circles the sense thatsomething is wrong with modern economiesis palpable. An annual assessment of the mostsignificant risks to the world’s economiescommissioned by the business-sponsoredWorld Economic Forum found that many ofthe 23 diverse risks were nonexistent at theglobal level a quarter-century ago. Theseinclude environmental risks such as climatechange and the strain on freshwater supplies;social risks, including the spread of new infec-tious diseases in developing countries andchronic diseases in industrial nations; andrisks associated with innovations like nano-technology. Beyond being new and serious,what is most striking is that half of the 23 areeconomic in nature or driven by the activitiesof modern economies. In other words,national economies, and the global economyof which they are a part, are becoming theirown worst enemies.4

But if economies built according to theconventional model are increasingly self-destructive, a new kind of economy—a sus-tainable economy—is struggling to be born.Where the conventional economy dependslargely on fossil fuels, is built around use-and-dispose materials practices, and toleratesextreme poverty even amid stunning wealth,the evolving sustainable economy seeks tooperate within environmental boundaries andserve poor and rich alike.

The emergence of the sustainable economyis visible in a burst of creative experimentationinvolving design for remanufacture, “zero-

waste” cities, environmental taxes, cap-and-trade carbon markets, car-sharing companies,maturing markets for solar and wind power,microfinance, socially responsible investment,land tenure rights for women, product take-back laws, and other innovations discussed inthis book. Scaled up and replicated acrossthe world, these and other experiments couldform the basis of economies that meet theneeds of all people at the least cost to the nat-ural environment.

An Outdated Economic Blueprint

The world is very different, physically andphilosophically, from the one that AdamSmith, David Ricardo, and other early econ-omists knew—different in ways that makekey features of conventional economics dys-functional for the twenty-first century.Humanity’s relationship to the natural world,the understanding of the sources of wealthand the purpose of economies, and the evo-lution of markets, governments, and indi-viduals as economic actors—all thesedimensions of economic activity have changedso much over the last 200 years that theysignal the close of one economic era and theneed for a new economic beginning.

In Smith and Ricardo’s time, nature wasperceived as a huge and seemingly inex-haustible resource: global population wasroughly 1 billion—one seventh the size of today’s—and extractive and productiontechnologies were far less powerful and environmentally invasive. A society’s environmental impact was relatively smalland local, and resources like oceans, forests,and the atmosphere appeared to be essen-tially infinite.5

At the same time, humanity’s perceptionof itself was changing, at least in the West. Thediscoveries of Enlightenment-era scientists

4 WWW.WORLDWATCH.ORG



suggested that the universe operated accord-ing to an unchanging set of physical lawswhose unmasking could help humans under-stand and take control of the physical world.Once the Swiss mathematician DanielBernoulli, for example, worked out key ideasof the physics of flight in 1738, it was only amatter of time before humans claimed the airfor themselves. After eons of helpless suffer-ing from the effects of plagues, famines,storms, and other wildcards of nature, thisgrowing sense of human prowess—alongwith a seemingly inexhaustible resourceendowment—encouraged the conviction thathumanity’s story could now be written largelyindependent of nature.6

This radically new worldview becameentrenched within economics, and even latein the twentieth century most economic text-books gave little attention to nature’s capac-ity to absorb wastes or to the valuableeconomic role of “nature’s services”—naturalfunctions from crop pollination to climateregulation. One Nobel economist in the1970s made the claim (since recanted) that“the world can, in effect, get along withoutnatural resources.” Even as growth in popu-lation and technological power in the lastcentury raised concerns about resourcescarcity, economists predicted confidentlythat price signals from free markets wouldprompt more-efficient production and con-sumption or that human effort would pro-duce or discover substitutes. Nature wouldnot be a roadblock to human progress.7

But the assumed independence of eco-nomic activity from nature, always illusory,is simply no longer credible. Global popu-lation has expanded more than sixfold since1800 and the gross world product morethan 58-fold since 1820 (the first year forwhich nineteenth-century data are avail-able). As a result, humanity’s impact on theplanet—its “ecological footprint”—exceeds

Earth’s capacity to support the human racesustainably, according to the Global Foot-print Network. (See Chapter 2.) For richcountries, the overshoot is especially high.Industrial economies today survive by dip-ping ever more deeply into reserves offorests, groundwater, atmospheric space,and other natural resources—practices thatcannot continue indefinitely.8

These changing circumstances demandthe upending of some fundamental economicnotions. With the Industrial Revolution, forinstance, factories, machines, financing, andother forms of created capital replaced landas the principal drivers of wealth production.Factories and funding remain importanttoday, but resource scarcity has made “naturalcapital” an increasingly vital consideration ineconomic advance. Declines in oceanic fishcatch, for example, are often caused by thegrowing scarcity of fish stocks (natural capi-tal) rather than by a lack of fishing boats(created capital). (See Chapter 5.) Modernfishing practices now overpower nature’s fishendowment: a 2006 study showed that thepopulations of 29 percent of oceanic speciesfished in 2003 had collapsed (meaning thatcatch had fallen to 10 percent or less of theirpeak abundance). Similar losses of naturalcapital are found at the regional level forforests, water, and other key resources.9

A second outdated tenet is that growthought to be the primary goal of an economy.This remains the central operating assumptionin finance ministries, stock markets, and shop-ping malls worldwide despite the clear threatto natural capital, because rapidly growingpopulations and the creation of consumer-




The assumed independence ofeconomic activity from nature, alwaysillusory, is simply no longer credible.

driven economies have made growth seemindispensable. But growth (making an econ-omy bigger) is not always consistent withdevelopment (making it better): the nearlyfivefold expansion of global economic outputper person between 1900 and 2000 caused thegreatest environmental degradation in humanhistory and coincided with the stubborn per-sistence of mass poverty.10

A third shaky axiom of conventional eco-nomic thinking is that markets are alwayssuperior to government spending and poli-cies as economic tools. Markets are adept atgenerating vast quantities of private goods,but some of these—such as the dozens ofredundant breakfast cereal choices—are ofdubious social value. At the same time, mar-kets do little to provide public goods such asparks and mass transportation. And althoughthey help to allocate scarce resources “effi-ciently” across different products and modesof production, according to Tufts Universityeconomist Neva Goodwin, “the very defin-ition of efficiency contains an acceptance ofinequality.” In economics, efficiency meansallocating every resource to its highest valueuse, where value is defined mainly by pur-chasing power, so “a market works efficientlywhen the rich get a lot of what they want andthe poor get just as much as they can payfor.” Markets thus do little to ensure a justdistribution of goods: those with the great-est wealth get the most, no matter that 40percent of the global population lives inwrenching poverty.11

Finally, humans themselves differ sharplyfrom the model of “economic man” held byearly economists. The celebrated insight ofAdam Smith was that the “invisible hand”leads self-interested individual actions to pos-

itive collective outcomes. This is a powerfulidea, but it has overshadowed the equallyimportant communitarian dimension ofhuman societies—a dimension with deeproots in evolutionary history. People are moti-vated not only by self-interest but also bythe desire to participate in a larger commu-nity, as with volunteer work or in response tolocal or national disasters. Recognizing thestrong communitarian impulse of humanbeings, as sustainable economics does, offersa fuller and more realistic understanding ofhumans as economic actors.

Ballooning LiabilitiesConventional economies in the twentiethcentury churned out cornucopian prosperityand opportunity for people in dozens ofcountries. But as the century wore on, trou-bling numbers began to appear in environ-mental and societal balance sheets, suggestingthat what is called “economic growth” entailssignificant losses—of species, healthy ecosys-tems, and a stable climate, for instance. Today,the alarming liabilities of modern economiesthreaten to undermine economic stabilityworldwide. Three issues—climate change,ecosystem degradation, and wealth inequal-ity—illustrate the self-subversion of economiesand economic activity today.

Climate change. The hidden story behindthe headline-grabbing drama of climatechange—melting glaciers, rising sea levels,and hundred-year storms—is the costsinflicted by global warming. The Intergov-ernmental Panel on Climate Change, theinternational scientific body charged withassessing the issue, reported in 2007 that thecost of curbing climate change through reduc-tions in greenhouse gas emissions would runabout 0.1 percent of gross world productannually. An independent review in 2006conducted by Nicholas Stern, head of the




Markets do little to provide public goodssuch as parks and mass transportation.

Government Economic Service in the UnitedKingdom, came to a more sobering conclu-sion: the cost of mitigation would be around1 percent of gross world product. One per-cent in 2007 would have represented $650billion, equivalent to the cost of the VietNam War (in 2007 dollars). This cost is steep,but it would be spread over many countrieseach year.12

Whatever the cost of action, it is a bargaincompared with the cost of doing nothing.The Stern Report concluded that inactionon climate change could dampen global eco-nomic output by anywhere from 5 to 20 per-cent every year over the course of this century,the upper limit likely being closer to the finaltally. It noted that heat waves like the one in2003 in Europe, which killed 35,000 peopleand caused agricultural losses of $15 billion,will be commonplace in a few decades. Andhurricane wind speeds in the United States,which are projected to increase 5–10 per-cent because of rising sea temperatures, woulddouble annual hurricane damage costs. Thereport’s low estimate reflects estimated mar-ket costs, while the 20 percent estimate sumsmarket costs, nonmarket health and envi-ronmental costs, and an equity weightingfactor that accounts for the fact that poorcountries will bear a disproportionate burdenof the total.13

The Stern Report’s findings were largelyechoed in a survey of climate research by theGlobal Development and Environment Insti-tute (GDAE) at Tufts University, which notedthat two major modeling efforts estimatedannual climate damages by the end of thiscentury at 8 percent or more of world out-put. Business as usual would lead to declin-ing agricultural yields later in this century, aswell as more immediate damage to watersupplies, human health, and essential naturalecosystems. The Stern and GDAE assess-ments suggest that early preventive action is

a prudent investment necessary to addresswhat the Stern report calls “the greatest andwidest-ranging market failure ever seen.”14

Ecosystem degradation. In 2005, a com-prehensive report entitled the MillenniumEcosystem Assessment documented the extentof global ecosystem destruction in the lasthalf of the twentieth century. It concluded thathuman activity had changed the world’secosystems, largely for the worse, more rapidlyduring those 50 years than during any periodin recorded human history. Species extinc-tion rates, on the rise since the Industrial Rev-olution, increased to at least 50–500 times thenatural rate. Some 20 percent of the world’scoral reefs were lost and another 20 percentwere degraded. And more than half of theincrease in atmospheric carbon dioxide levels,which stand some 36 percent above their1750 levels, has occurred since 1959. Theweb of life weakened as ecosystems becameless resilient and less stable.15

The report made an effort to measure thedrag that ecosystem destruction has alreadyhad on economies. Citing World Bank data,it noted that in 2001 some 39 countries expe-rienced a decline of 5 percent or more inwealth (measured as net savings) once unsus-tainable forest harvesting, depletion of non-renewable mineral and energy sources, anddamage from carbon emissions were takeninto account. For 10 countries, the declineranged from 25 to 60 percent. And theseestimates were conservative because theyignored fisheries depletion, atmospheric pol-lution, degradation of freshwater sources,and loss of noncommercial forests, all ofwhich carry their own economic costs.16

Comprehensive data on the economicvalue of ecosystem services are scarce, but thepicture emerging from research over the lastdecade suggests that these services are ofmajor, though often hidden, economicimportance. A 1997 study conservatively




estimated the total global value of 17 ecosys-tem services to be at least as large as thecombined annual output of the world’seconomies. A follow-up 2002 study esti-mated that current rates of habitat conversioncost the world’s economies some $250 bil-lion, year in and year out. And a 2006 set ofcase studies from Europe documents howbiodiversity losses—of assets from crayfishto peatbogs to agricultural land—lead to theloss of ecosystem services, with clear eco-nomic costs. Plantation forests in Portugal,for example, have been associated with afourfold increase in burnt area from forestfires between 1975 and 2003. Those lossestotaled some 137 million euros in 2001,roughly 10 percent of the total economicvalue of the country’s forests that year.17

Despite early indications of their enor-mous economic value, ecosystems continue tobe lost. A lack of hard data regarding theactual value of the services of particular ecosys-tems hampers the incorporation of value intobusiness and government decisionmaking.In addition, even when a value can be cred-ibly estimated, it is often an externality—a costor benefit accruing to society at large, ratherthan to the individuals or companies respon-sible—so there is little incentive for thoseactors to care for the species or ecosystem inquestion. And finally, the net value of con-verting an ecosystem may be artificiallyskewed by subsidies, tax breaks, and othergovernment-sponsored incentives for the con-version. These market failures are commondrivers of the huge environmental losses of thepast half-century documented by the Mil-lennium Ecosystem Assessment.18

Poverty amid affluence. Economic activ-ity in the last century generated enoughwealth, in principle, to have made extremepoverty obsolete. Global economic outputincreased more than 18-fold between 1900and 2000 and nearly fivefold on a per person

basis, dwarfing the total growth of the pre-vious 19 centuries. Yet extreme deprivationbecame and remains the norm for a hugeshare of humanity: even now, as noted ear-lier, some 40 percent of people worldwidesurvive on $2 or less per day. One in everyeight people in the world was chronicallyhungry in 2001–03, while one in five lackedaccess to clean water and two in five lackedadequate sanitation.19

Meanwhile, those at or near the economicpinnacle are fabulously wealthy. The gulfbetween the richest and poorest is now almostincomprehensible: the U.N. DevelopmentProgramme reported in 2006 that the com-bined income of the world’s 500 richest peo-ple was about the same as the income of theworld’s poorest 416 million people—imaginea tiny village somewhere in South Americawith as much wealth as the rest of the conti-nent. While income inequality worldwide haslessened slightly since the Chinese economicsurge began, China’s course of developmentcould not spread to Africa, South Asia, andother impoverished regions without cata-strophic environmental ramifications.20

If inequality is measured in terms of netassets (a fuller measure of wealth thanincome), the skewing is even greater. (SeeTable 1–1, which uses household data toderive per capita wealth.) A 2006 UnitedNations University study found that in 2000the richest 2 percent of adults globally ownedmore than half of the world’s householdassets—that is, financial assets such as invest-ments, plus physical assets such as a home,minus debt—while the poorest 50 percentcontrolled only about 1 percent. The UnitedStates had the highest average net worth perhousehold, at $143,857, while India had thelowest, at $6,500.21

Inequity can dampen developmentprospects. The World Bank’s World Devel-opment Report 2006 noted that when some




people lack access to markets for credit,land, or jobs, resources likely do not flow towhere they can do the most good for aneconomy. A hard-working peasant mightgenerate more wealth for the economy thana less talented shopkeeper, but the shop-keeper, being wealthier and better con-nected, is more likely to obtain credit ortitle to land. Multiply the example acrossmany victims of economic discrimination andmany input markets, and the losses of wealthto an economy could be sizable. And oncethese inequities are set, they tend to be rein-forced by institutions and social arrange-ments that favor the interests of the wealthy,which can lock in inequality—and under-performing economies—for generations.22

Conceptual Reform inEconomics: Seven Big Ideas

As understanding of humanity’s interactionswith nature evolved and economic liabilitiesexpanded, reformist economists have devel-oped “corrective lenses” to shed light on the

blind spots of the conventionaleconomic worldview. At leastseven key areas of revisionist think-ing—scale, growth versus devel-opment, prices, nature’scontributions, the precautionaryprinciple, the commons, andwomen—are influencing eco-nomic theory and helping to turneconomic activity in more-sus-tainable directions. (See Box 1–1on the connections between theseideas and the issues discussed inthe rest of State of the World 2008.)

Adjust economic scale. Theeconomy’s scale is its physicalsize—the sheer volume of itsenergy and materials flows—rela-tive to its host, the ecosystem. An

analogy might be a baby growing in itsmother’s womb; it is a subsystem of themother, totally contained by and dependentupon her. Birth marks the point at which thebaby has reached the limit of the mother’sability to host it. Further growth in the wombmakes both baby and mother worse off.

Similarly, the global economy dependscompletely on nature for raw materials, energystocks, and indispensable services such aswater and air purification, soil fertility, andwaste absorption. When the economy reachesa certain size, further growth makes both sys-tem and subsystem worse off, not better. Inthe language of economists, growth hasbecome “uneconomic.” At the extreme, aneconomy that tries to grow beyond a size thebiosphere can support will simply destroy it.So there must be a limit on the size of theeconomy; its physical growth cannot go onforever.23

Positive signs are beginning to emerge ofconcrete efforts to restrain the economy’sphysical size. In February 2007, for instance,the leaders of more than 90 international




Net Worth Share of World Share ofCountry per Net Worth WorldGroup Person per Person Population

(dollars in purchasing

power parity) (percent) (percent)

High-income OECD* 113,675 64 15High-income

non-OECD* 91,748 3 1Upper middle-income 21,442 9 11Lower middle-income 12,436 16 33Low-income 5,485 8 40World 26,421 100 100

*Organisation for Economic Co-operation and Development.Source: See endnote 21.

Table 1–1. Net Worth Per Person,by Country Income Group, 2000

corporations, including General Electric,Volvo, and Air France, called on govern-ments to set uniform international goals forreductions in emissions of the greenhousegases that cause climate change. The initiativeaddresses one key dimension of scale: green-house gas emissions, which are too large forthe global ecosystem to handle. On the gov-ernment side, the entry into force of theKyoto Protocol in 2005 and the launch of theEuropean cap-and-trade system that sameyear are part of a landmark attempt to com-mit the world to the goal of slowing the rateof greenhouse gas emissions.24

Meanwhile, many businesses are findingways to “dematerialize” economic activity,which can also reduce an economy’s physicalsize. The movie rental firm Netflix, for exam-ple, began to offer its movies online in 2007,reducing the need for packaging, stores, andtrips to a rental store. Waste minimization isanother strategy to shrink physical flowsthrough an economy. The Interface carpetcompany in the United States has adopted a“Mission Zero” waste minimization goal,aiming “to eliminate any negative impact ourcompany may have on the environment bythe year 2020.” The company reports clearprogress: manufacturing waste sent to land-fills has fallen by 70 percent since the mid-1990s, which the company says has savedsome $336 million in disposal costs.25

Waste minimization can be promotedthrough governments as well. In NewZealand, for example, some 70 percent oflocal councils have declared a zero-waste-to-landfills goal for their communities. The townof Opotiki, the first in the nation to set sucha goal, has diverted 90 percent of its wasteaway from landfills each year since 1999,according to Zero Waste New Zealand.Spurred by national waste minimization leg-islation and using tools like extended producerresponsibility laws—which require compa-




The conceptual reforms discussed in thischapter are reshaping economics in a varietyof ways that are described throughout thisbook. The key idea of the global economy'sscale, for instance, is integral to the new yard-sticks used by economists and others toassess human well-being and sustainability(Chapter 2). Economic scale also comes upindirectly when considering how to boostresource efficiency, reform food production,build a low-carbon economy, and reform theglobal trading system (Chapters 3, 5, 6, 7, and14). For example, huge livestock-raising andfish farming operations today create environ-mental and social problems unknown to ear-lier, small-scale efforts.

The role of prices in telling the ecologicaltruth and nature’s contributions to the econ-omy are a key part of discussions on carbonmarkets, water, and biodiversity (Chapters 7,8, and 9). The contrast between economicgrowth and true development is explored inchapters on new economic measures,consumption, and communities designed forsustainability (Chapters 2, 4, and 11). Is it really“progress,” for instance, when cities are trans-formed into sprawling metropolises, familyfarms are turned into agribusinesses, and rain-forests become monoculture tree plantations,as Chapter 2 asks?

The precautionary principle informs muchof the discussion of ways to make productionsafe and sustainable (Chapter 3). And issuesof resource ownership and the propertyrights regimes that are suitable for a sustain-able economy are part of any discussion of“the commons” (Chapter 10).

The value of women’s contributions toeconomies is increasingly acknowledged bothin community-driven development programsand in the expanding field of microfinance(Chapters 12 and 13). Women-centered grass-roots development can improve the health ofchildren and mothers, for instance, and evenoverturn centuries-old practices like childmarriage, in the process releasing untappedskills and energy for economic development.

Box 1–1. Conceptual Reform in Key Sectors

nies to take back their worn products or pack-aging—most communities expect to meettheir goals by 2020.26

Shift from growth to development. What’san economy for? The conventional answerhas long been: to produce ever-greater quan-tities of goods and services. But as just dis-cussed, this goal is untenable in this “fullworld,” so the growth mandate is giving wayin some quarters to a new focus on devel-opment. Development is ultimately aboutimproving human well-being—meeting fun-damental human needs for food and shelter,security, good health, strong relationships,and the opportunity to achieve individualpotential. Much of conventional economicactivity is indifferent to this well-being focus:the $1.2 trillion spent on the world’s mili-taries in 2006, plus the billions spent onemergency room visits, police, security sys-tems, hazardous-waste site cleanups, litiga-tion, and other “defensive” measures, areall major contributions to economic growth,even though they may have contributed lit-tle or nothing to actually improving peo-ple’s well-being. 27

To be sure, improving well-being caninvolve growth: offering access to food andshelter for all, especially the desperately poor,will require economic expansion in somelocales. And whether growth is involved ornot, the poor need serious economic atten-tion to advance their well-being. Initiativesfrom the Millennium Development Goalsto grassroots campaigns led by End PovertyNow and other nongovernmental groupssuggest a growing global consciousnessaround the need to help the poorest. And ini-tiatives like microcredit seem to offer sig-nificant promise for the poor to increasetheir claim to a country’s economic piethrough provision of very small loans to thepoor to build microbusinesses. The Micro-credit Summit Campaign has involved tens

of millions of families in microfinance andaims to extend its work to 175 million of theworld’s poorest families by 2015. Whilecomprehensive studies on the impact ofmicrocredit are yet to be done, initialresearch suggests that something valuableis being produced.28

The need to focus on well-being applies towealthy people as well. A large body ofresearch conducted over the past 30 yearssuggests that after a certain point, wealthdoes not generally increase happiness. (SeeChapter 4.) Landmark studies done in the1990s showed, for example, that self-reported levels of happiness in Japan were nogreater in 1987 than in 1958, despite a five-fold increase in real income. Even in China,where real incomes grew by 2.5 timesbetween 1994 and 2005, the share of peo-ple saying they were satisfied fell about 15percentage points during this period, andthe share saying they were dissatisfied rose byabout as much. When economic growth nolonger makes people any happier, it is beyondpointless—it is self-destructive.29

Efforts to advance human well-beingwithin prosperous populations involve a widerange of initiatives, including campaigns forhealthy eating, work leave for new parents,shortened workweeks, and encouragementof exercise. Promotion of cycling, for exam-ple, is on the rise, with recent initiatives inAustralia, France, Taiwan, the United King-dom, and the United States. Cycling andwalking offer major health and environmen-tal benefits, and they can be cost-effective: asthe share of trips made by cycling, walking,and public transport rises, the share of theeconomy needed for transportation falls.While promoting cycling may seem quixotic,some European cities are inspiring models: inAmsterdam, for instance, some 27 percent ofall urban trips are made by bike, comparedwith less than 1 percent in the United States.30




Some businesses are stepping up to thewell-being challenge as well, by providingdiscounted gym memberships or by extend-ing commuter subsidies to employees whobike or walk to work. The Sprint Corpora-tion went a step further, designing exerciseinto its new headquarters. To encouragewalking, its corporate campus was built withparking lots and food courts located far fromoffices, and with elevators deliberatelydesigned to be slow—in order to encouragethe use of stairs.31

Interest in ways to promote human well-being is widening among policymakers aswell. Well-being is now a national policy goalin Australia, Canada, and the United King-dom. And for the last 35 years, the Himalayankingdom of Bhutan has made “gross nationalhappiness,” not economic growth per se, itsofficial goal. (See Chapter 2.) Governmentpolicies there aim less at boosting raw grossdomestic product (GDP) numbers than atraising educational levels and reducingpoverty while preserving the country’s envi-ronment and its cultural traditions.32

Make prices tell the ecological truth.Reformist economists have borrowed a prin-ciple from their conventional colleagues—“get the prices right”—and applied it to theeffort to build sustainable economies. Envi-ronmental costs often go unrecognized bymarkets, as when costs created by carbonemissions are not included in the price ofgasoline or electricity. These costs do not dis-appear, however, but are shouldered bybystanders, such as the poor in developingcountries who pay to rebuild homes ruined bythe storms or rising seas generated by climatechange. Any economist will acknowledge thatthis sort of classic market failure sends dis-torted signals about the costs of economicactivity and thus makes it difficult or impos-sible to achieve an efficient marketplace—theHoly Grail of conventional economics.

Governments are finding imaginative waysto include such costs, typically through taxesor fees. Ecotaxes, which in countries thatbelong to the Organisation for EconomicCo-operation and Development provided6–7 percent of tax revenues between 1994and 2004, often involve shifting levies awayfrom things valued by society, such as work,to undesirable things like pollution. Ger-many, for example, increased taxes on energyfrom 1999 through 2002 and reduced taxeson labor, resulting in lower emissions of car-bon and the creation of 250,000 new jobsthrough 2003. Or consider feebates—a com-bination of fees and rebates—that subsidizethe cleanest products or practices via a tax onthe dirtiest ones. Sweden charged powerplants a fee in the early 1990s for their emis-sions of nitrogen oxide—a principal cause ofacid rain—and redistributed the revenues tothe least polluting plants, providing a strongincentive for plants to reduce emissions. Thisled to a 34-percent reduction in the offend-ing emissions in 1992 compared with 1990.33

Another example of a green tax is “con-gestion pricing” of automobiles enteringurban centers. These charges are meant toraise the cost of driving, especially at peakhours, inducing people to shift to less-pol-luting public transportation. In Stockholm, asix-month congestion tax trial saw traffic lev-els fall an average 22 percent, personal injuriesdrop 5–10 percent, and ridership on publictransportation increase some 4.5 percent.The trial was expensive, but the city esti-mates that if adopted permanently, the chargewould produce 1.90 kronor of benefits forevery krona invested, largely because ofshorter travel times, increased road safety,and health and environmental benefits.34

Account for nature’s contributions.Nature is a ready storehouse of the raw mate-rials of civilization—food, fiber, fuel, miner-als—and the collective annual value of these




goods is in the trillions. But the global ecosys-tem also provides many services that are theindispensable substrate of economies, includ-ing air and water purification, mitigation ofdroughts and floods, soil generation and soilfertility renewal, waste detoxification andbreakdown, pollination, seed dispersal, nutri-ent cycling and movement, pest control, bio-diversity maintenance, shoreline erosionprotection, protection from solar ultravioletrays, partial climate stabilization, and mod-eration of weather extremes.35

Far from being free, the value of ecosystemservices is sobering. For instance, honeybees’work as pollinators is worth up to $19 billiona year in the United States alone. Farmersaround the world spend $30–40 billion annu-ally on pesticides to control crop pests, but thepests’ natural enemies eliminate at least aslarge a share of the pest population—in fact,perhaps far more—and without them, expen-ditures on chemicals would be far higher.36

Fortunately, nature’s contributions areincreasingly being factored into economicdecisionmaking through administrative andmarket mechanisms. In Costa Rica, landown-ers receive payments for preserving forestsand their biodiversity, with the money com-ing from fuel taxes and the sale of “environ-mental credits” to businesses. In Mexico,water users pay into a fund that is used to pro-tect upstream watersheds from exploitation,thereby helping to preserve water quality;nearly 1 million hectares are protected underthe program. In the state of Victoria in Aus-tralia, landowners can bid competitively forgovernment payments to conserve biodiver-sity and achieve other environmental benefits.(See Chapter 9.) These programs all assignprices to valuable natural services that havehistorically been taken as free—and there-fore have been widely abused and degraded.37

Apply the precautionary principle. Theprecautionary principle is folk wisdom—Look

before you leap, Más vale prevenir que lamen-tar (Better to prevent than lament)—embod-ied in public policy. It is commonly definedthis way: “where an activity raises threats ofserious or irreversible harm to the environ-ment or human health, precautionary mea-sures should be taken even if somecause-and-effect relationships are not fullyestablished scientifically.” Put more plainly,traditional risk analysts ask, How much envi-ronmental harm will be allowed? Precau-tionists prefer the question, How little harmis possible? If safe alternatives to a product orsubstance exist, they argue, why use a prod-uct with even a small, highly uncertain risk?38

The principle reflects an understandingthat the modern economy is highly complex,globally integrated, and capable of deployingimmense technological powers, all of whichcreate an irreducible level of potentially dan-gerous uncertainty. Critics charge that theprecautionary principle will stifle innovation,because unknown dangers by definition can-not be prevented. But precautionists notethat a set of clues can help investigators deter-mine if an innovation is likely to pose a dan-ger. If a new product or technology is likelyto generate irreversible consequences, harm-ful persistent wastes, or a large-scale impact,it becomes a candidate for serious investiga-tion regarding its potential for harm.39

Today, precaution is increasingly embracedas public policy. The 1991 Maastricht Treatythat created the European Union establishedthis as the guiding principle for environ-mental policy. In 1998, the Danish Envi-ronment Agency banned phthalates, asoftener, from plastic toys because of its con-




In Mexico, water users pay into a fund that is used to protect upstreamwatersheds from exploitation.

nection to reproductive abnormalities in ani-mals, even though no danger to humans hadbeen documented. Similarly, in 1999 theLos Angeles School Board chose to banchemical pesticides in favor of a safer alter-native, integrated pest management. And in2003 San Francisco led U.S. cities in adopt-ing precaution as official policy.40

The precautionary principle may evolvefurther to cover cases where unforeseen prob-lems arise even after new products orprocesses have been deemed safe. In thosecases, another mechanism—the surety bond—could mitigate the damage or compensatevictims. A company wishing to introduce anew product would be required to deposit anappropriate sum, keyed to the best estimateof potential future damages, in an interest-bearing escrow account. The money wouldcirculate and support other economic activ-ity, just as other deposited funds do, andwould be returned (plus interest) when thefirm could show that the damage had notoccurred or was less severe than estimated.41

Revitalize commons management.Human societies have evolved a wide rangeof institutions for the long-term manage-ment of natural resources, but today it is notunusual to hear it argued—especially in dis-cussions of the so-called tragedy of the com-mons (see Chapter 10)—that private propertyis the only workable arrangement or thatcentral government control is necessary. Butsome resources (such as the atmosphere)arguably ought to belong to everyone or aredifficult or impossible to privatize. In anycase, privatization is no guarantee againstmismanagement or abuse. And governmentcontrols, while workable in some instances,have been shown to be inferior to private oruser-group-sponsored systems in others.42

The most difficult challenge is posed byresources that are accessible to all and whoseuse by one party reduces the availability to

other parties. Global examples include theatmosphere and open-ocean fisheries; regionalexamples include aquifers and irrigation sys-tems. Unless there are agreed-upon andenforceable rules to control access (propertyrights systems), such resources are vulnerableto rampant exploitation and overuse. In fact,this is precisely what often happens in openaccess systems, in which anyone can use theresource with no restrictions—the very sce-nario that can give rise to the tragedy of thecommons. The global atmosphere is only onevivid example of this; anyone can use it as a freedumping place for greenhouse gas emissions.43

An often-overlooked alternative to privateor government ownership is group propertysystems, which assign the rights to a groupthat can deny access to nonmembers. Forcenturies there has been common manage-ment of irrigation works, forests, and pas-tureland in Spain, Switzerland, Japan, andthe Philippines, for instance. (See Chapter10.) Now the practice is being revitalized inother situations. The European Union cap-and-trade scheme for controlling greenhousegas emissions, for example, is based on theprinciples that the atmosphere is commonlyheld by all and that access to its carbon-absorption capacity should come at a price—ideally and ultimately, a price high enough tohold carbon emissions to sustainable rates. 44

In Capitalism 3.0, Peter Barnes of theTomales Bay Institute proposes that com-mons management systems be used as analternative to government and private own-ership of resources such as the atmosphere,the oceans, and great forests. Trusts wouldgovern access to these commons, within sus-tainable limits, and would charge fees to thosegranted access. Revenues earned from thefees, in Barnes’s vision, would be used tomaintain the commons, with surplusesreturned as dividends to the commons own-ers—all citizens. And because people would




have a financial stake in a healthy commons,they would follow with interest the trusts’management of them.45

Barnes and his colleagues at the Institutemonitor commons management on a smallerscale in their “report to owners” entitledCommons Rising. For instance, they cite a40,000-member food cooperative in Wash-ington state that formed a trust to buy criti-cal farmland and thus prevent its“development” as a housing tract. The trustis designed to manage the property as farm-land for generations to come. Another exam-ple is efforts to resist the increasing“enclosure” of the information commons—attempts to privatize all intellectual propertyand thereby profit from it; responses such asthe Creative Commons licensing scheme havesprung up to allow creative works to be sharedand modified freely without charge.46

Value women. “Most poor people arewomen and most women are poor,” noted a1994 U.N. report, yet “almost all low-incomewomen are economically active.” This is stilltrue, and it follows that ensuring economicopportunity and equality for women is likelyto give economies a major shot in the arm.Gender bias in everything from asset owner-ship to wage rates to credit access dampenseconomic activity.47

Most fundamentally, women typically arenot paid equally for equal work. Women’swages in manufacturing as a percentage ofmen’s wages, for example, are 78 percent inCosta Rica, 66 percent in Egypt, 60 percentin Japan, and 91 percent in Sweden andMyanmar. Many countries have passed someversion of an Equal Pay Act, but discrepan-cies between men and women persist: theUnited States, for instance, passed its EqualPay Act in 1963, but women still earn only77¢ for every dollar earned by men.48

Women also often lack access to land andcredit. Women are responsible for 60–80 per-

cent of the world’s food production today, yetthey own less than 15 percent of the land indeveloping countries. Creative solutionsinclude the Grameen Bank’s initiative to seteligibility rules for housing loans that requirethat titles to land and houses be in the nameof wives as well as husbands. Thus in a divorcea wife is legally entitled to her share of thecouple’s assets.49

Beyond issues of formal discrimination,women could be better supported in theoften-disproportionate roles they play in childcare, elder care, volunteer work, and otherunpaid labor, which account for a substantialshare of all economic activity. The Canadiangovernment, for example, estimates thatunpaid work is worth 31–41 percent of GDP.Some governments in industrial countries—where the single breadwinner is no longer thenorm and where paid and unpaid work areoften closely intertwined—are examining howto take women’s unpaid work into account inpolicy development. By providing liberalparental leave, giving workplaces incentives tooffer day care, changing the tax structure tobenefit those caring for aging parents, andother similar benefits, governments are work-ing to support the social and economic valueof women’s unpaid work.50

Innovation RevolutionariesSome analysts believe the innovations fuelingsustainable economies are spawning the sixthmajor wave of industrial innovation since thestart of the Industrial Revolution. (See Chap-ter 3.) From the steam engine in the firstwave to biotechnology and information net-works in the fifth, surges of innovation haveaccelerated the rates at which natural capitalcould be converted to human-made capital,thereby ushering in new eras of material pros-perity throughout the industrial era. Thesixth wave, which taps green chemistry, bio-




mimicry, industrial ecology, and other sus-tainability innovations, offers the promise ofbreakthroughs in using natural wealth effi-ciently, wisely, and equitably. And because ittakes advantage of social and institutionalinnovations as well—not just technologicalones—this new wave provides leadership rolesfor consumers and nongovernmental groups,businesses, and governments.51

Consider first the role of consumers. Usingtheir market muscle, consumers are alreadyhelping to drive interest in green products ofall kinds. Sales of Toyota’s hybrid vehicles, forexample, jumped from 18,000 in 1998 to312,500 in 2006 and now number morethan 1 million worldwide. Sales of compactfluorescent lightbulbs (CFLs) in the UnitedStates alone totaled 100 million in 2005.And purchases of organic foods worldwidejumped by 43 percent between 2002 and2005, to $43 billion. Impressive as the growthin green products has been, sales constitutejust a small share of the consumption of eachproduct line—U.S. sales of CFLs accountedfor only 5 percent of lightbulb sales in 2007,and organic agriculture is practiced on lessthan 1 percent of global agricultural land.Given that consumption accounts for a largeshare of the GDP of most economies—inthe United States in 2006 it was 70 per-cent—consumers are barely tapping theirpower to swing economies in a sustainabledirection. They need help.52

Businesses can provide assistance—andincrease profitability—by meeting consumerdemand for green products. Wal-Mart hastaken a leadership role regarding CFLs, forexample, setting a sales goal of 100 million

bulbs in 2007, which would roughly doubleU.S. sales of these energy-efficient products.Other firms seem to be trying but are con-strained by the pressures of corporate gover-nance. British Petroleum has taken steps toremake itself as an energy company ratherthan an oil company. Its BP AlternativeEnergy business is set to invest $8 billion insolar, wind, and hydrogen power over thenext decade. But BP cannot abandon itspetroleum business wholesale in the nearterm without sacrificing the high returns thatshareholders expect from today’s lucrativeoil market. Not surprisingly, its plannedinvestment in BP Alternative Energy repre-sents just 5 percent of its average annual cap-ital investments.53

A key constituency with the power toreshape economies is investors, because cap-ital invested today shapes industries for yearsand even decades to come. Socially respon-sible investments, project financing governedby the Equator Principles, and microfinancecan help advance sustainability values. (SeeChapter 13.) So can venture capital (VC)investments, the funds that seed many new,innovative businesses built on great ideas thatcan transform societies.

Venture capital has looked favorably on the“cleantech” sector—those businesses in thefields of energy, agriculture, water, and wastedisposal that use innovative technologies orpractices to deliver the services people wantin a clean way. The field is booming: in 2006,VC cleantech investments in North Americajumped 78 percent over 2005 levels tobecome the third-largest VC investment cat-egory, with 11 percent of all venture invest-ments. Cleantech now gets more of theseinvestments than the medical devices,telecommunications, and semiconductor sec-tors, and trails only software and biotech.Venture capital is growing in other regionsas well, especially in China. There, clean-




Using their market muscle, consumersare already helping to drive interest ingreen products of all kinds.

tech VC investments increased some 147percent between 2005 and 2006 andaccounted for some 19 percent of all VCinvestment in the country.54

Perhaps the greatest boost to sustainabil-ity initiatives can be given by governments,which can shape markets and design non-market policies for sustainability. In Sweden,the government is using its regulatory andmarket-shaping powers to move the countryrapidly away from fossil fuels. In 2006 a gov-ernment commission recommended that by2020 the use of oil in road transport be cutby 40–50 percent, that industry reduce itsconsumption of oil by 25–40 percent, andthat heating oil use be eliminated entirely.While the commission envisioned many gov-ernment/private initiatives to achieve thesegoals, government leadership is critical,through dozens of initiatives ranging fromresearch on energy efficiency to promotion ofaffordable train service and tax incentives forbiofuels production.55

At the municipal level, many cities areintroducing bus rapid transit (BRT), an inno-vative system of expedited bus lanes and load-ing systems pioneered by the government ofCuritiba, Brazil. Municipal governments havediscovered in BRT a remarkably efficient masstransit option that is far cheaper than under-ground metro systems. As a result, BRT sys-tems have been built in Quito, Bogotá,

Jakarta, Beijing, Mexico City, and Guayaquiland are under development in dozens ofother cities.56

BRT provides perhaps the best example ofhow good government is indispensable toachieving sustainability—and indeed ought tobe in the forefront of the movement. Gov-ernments not only can launch initiatives suchas BRT themselves, they can shape the rulesfor markets to ensure that the energy andcreativity of business is harnessed for sus-tainable ends. And as the embodiment (ide-ally) of the collective will, values, and prioritiesof the societies that give them legitimacy,governments must step up and take on thosenecessary tasks that civil society and the pri-vate sector cannot or will not do adequatelyor competently—to look after the well-beingof society as a whole.

With business, civil society, and govern-ment all showing serious interest in sustain-ability in dozens of countries worldwide, thechances of creating sustainable economiesappear better than ever. As the vulnerabilitiesof conventional economies continue to berevealed, and as sustainability innovationsproliferate and scale up, the prognosis ishopeful. Societies worldwide stand poised torewrite the ongoing human drama of eco-nomics with a new chapter: the sustainablewealth of nations.





The way societies have defined and mea-sured progress has had a profound influenceon world history. Inspired by the idea ofprogress, humanity has eradicated infectiousdiseases, achieved explosive growth in agri-cultural productivity, more than doubled lifeexpectancy, explored the origins of the uni-verse, and vastly increased the amount andvariety of information, goods, and servicesavailable for modern life. To be sure, progresshas had its darker side. The evolution ofweaponry from spears to atom bombs may beconsidered progress, but only in the mostcynical sense. Likewise, transformation ofvibrant cities to sprawl, family farms toagribusiness, and rainforest to monoculturetree plantations may only constitute progressfor the minute fraction of humanity whohave—often brutally—positioned themselvesto benefit from mass exploitation of bothhuman and natural capital.1

In the West, faith in the linear evolution ofhistory framed how progress was viewed

through the ages and remains a fundamentaljustification for today’s progress mantra: eco-nomic globalization and consumerism. Whilethis notion of progress is largely inconsistentwith religious, moral, and economic frame-works common in Eastern and indigenouscultures, economists Rondo Cameron andLarry Neal point out that “nearly every nationin the world has now accepted the need toadjust its own economic policy and struc-ture to the demands of the emerging globalmarketplace.” Under economic globaliza-tion, progress is judged by how well nationsimplement policies to grow the scale andscope of market economic activity, improveefficiency of factors of production, removeregulatory barriers, and both specialize andintegrate with the rest of the world. Whilegross domestic product (GDP) is the best-rec-ognized measure of overall economic per-formance, many other metrics related toeconomic openness, productivity, tariffs,income, and privatization are equally influ-

C H A P T E R 2

John Talberth

A New Bottom Line for Progress

Dr. John Talberth is Director of the Sustainability Indicators Program at Redefining Progress.

ential. This chapter describes the shortcom-ings of traditional metrics and provides anoverview of new indicators designed to cap-ture the environmental and social dimen-sions of progress.2

Economic Globalization and Genuine Progress:A Growing Disparity

Undoubtedly, economic globalization hasgone well by many standards. The era ofglobalization has been accompanied by sig-nificant improvements in key indicators suchas the human development index, lifeexpectancy, cereal yields, and dissemination ofcritical information technologies. (See Figure2–1.) Nonetheless, there is widespread recog-nition that globalization indicators are increas-ingly irrelevant and out of touch with thegreat environmental and humanitarian disas-ters unfolding on the planet, that they maskgross inequities in the distribution ofresources, and that they fail to register over-

all declines in well-being that stem from lossof community, culture, and environment.3

It is beyond dispute, for example, thatGDP fails as a true measure of societal wel-fare. While it measures the economic valueof consumption, GDP says nothing aboutoverall quality of life. In 1906, economistIrving Fischer coined the term “psychicincome” to describe the true benefit of allsocioeconomic activity. Goods and services arevalued not for themselves, Fischer argued,but in proportion to the psychic enjoymentderived from them. Higher levels of con-sumption may or may not have anything todo with a higher quality of life if such con-sumption is detrimental to personal health, toothers, or to the environment.4

GDP gives no indication of sustainabilitybecause it fails to account for depletion ofeither human or natural capital. It is oblivi-ous to the extinction of local economic sys-tems and knowledge; to disappearing forests,wetlands, or farmland; to the depletion ofoil, minerals, or groundwater; to the deaths,displacements, and destruction caused by war

and natural disasters.(See Box 2–1.) And itfails to register costs ofpollution and the non-market benefits associ-ated with volunteerwork, parenting, andecosystem services pro-vided by nature. GDPis also flawed becauseit counts war spendingas improving welfareeven though theoreti-cally, at best, all suchspending really does iskeep existing welfarefrom deteriorating.5

Per capita incomeand trade numbers are




1970 1980 1990 2000 2010

Inde

x (Y

ear

2000

=100

)

GWP Index

HDI Country Average

Mobile Phones Index

Cereal Yield IndexComputers Index

Source: IMF, UNDP, World Bank

Figure 2–1. World Indicator Trends, 1970–2005

0

50

100

150

200

300

250

also increasingly suspect macroeconomic indi-cators. Rising per capita income says nothingabout the distribution of that income—itmay drop for the majority, rise for a handfulat the top, and still show an overall gain.Indeed, while per capita income soared by 9percent in the United States in 2005, theincrease all went to the wealthiest 10 percentof the population. The bottom 90 percentexperienced a 0.6-percent decline. Similarly,a nation may have rapidly growing trade vol-

umes but lose count-less jobs that areexported to “more effi-cient” regions, becomemore vulnerable as itseconomy becomesmore specialized, andlose a large degree ofits economic self-deter-mination as ownershipand control over eco-nomic decisionmakinggets displaced to dis-tant corporate offices.6

Traditional micro-economic indicators forbusinesses and institu-tions are becomingobsolete as well. Acompany’s stock pricemight rise on news ofsuccessful downsizing,outsourcing, or merg-ers, but tens of thou-sands of people couldbe laid off despiteobscene CEO salariesand an ever greaterconcentration of mar-ket power. In agricul-ture, globalconglomerates havebecome very adept at

improving the efficiency of food productionwhen measured by output per dollar. At thesame time, the amount of food per hectarehas dropped relative to what used to be pro-duced on smaller, supposedly less efficientfarms—creating food deserts in some of theworld’s most productive agricultural regions.

And finally, at the personal level, measur-ing economic progress by the size of salaries,stock portfolios, or houses or by the numberof SUVs, plasma televisions, computers, or




The most tragic humanitarian and natural disasters of the past fiveyears have been largely unnoticed by GDP accounts. (See figure.) InSudan, for example, the per capita GDP has risen 23 percent in thisdecade, yet 600,000 people were acutely at risk of famine from a pro-longed drought in 2001. And more than 400,000 people were killedthere and some 2.5 million displaced by alleged genocide in Darfurbetween 2003 and 2007. Similarly, in Sri Lanka the tsunami that killedat least 36,000 people and devastated coastal infrastructure in 2004did not affect the steady rise in the nation’s GDP. In the 2003 to 2005period, the United States spent over $1.4 trillion on defense ($188 bil-lion on the war in Iraq) and suffered great losses from Hurricane Kat-rina, yet the GDP there continued to rise. Income inequality in 2005reached its highest level since 1928, with the top 300,000 Americansearning the same as the bottom 150 million.

Box 2–1. Gross Domestic Product:Blind to Economic, Social, and Environmental Crises

2000 2001 2002 2003 2004 2005

Per

Cap

ita G

DP

Inde

x, 2

000=

100

90

United States

Sudan

Sri Lanka110

120

100

130

clothes someone owns fails to acknowledgethe empty side of materialism. A rapidlyemerging field called “hedonics” combineseconomics and psychology in an attempt tobetter understand what triggers “feelings ofpleasure or pain, of interest and boredom, ofjoy and sorrow, and of satisfaction and dis-satisfaction,” as the authors of Well-being:The Foundation of Hedonic Psychology put it.An increasingly large and robust body ofhedonics research confirms what people knowintuitively: beyond a certain threshold, morematerial wealth is a poor substitute for com-munity cohesion, healthy relationships, asense of purpose, connection with nature,and other dimensions of human happiness. Inhis recent book Deep Economy, Bill McKibbenprovides an excellent overview of findingsfrom this emerging field. One remarkablefinding is that above an income of roughly$10,000 per person, the correlation betweenhappiness and income no longer exists. (Seealso Chapter 4.)7

According to the World Bank, economicindicators serve three basic functions: theyprovide a measure of wealth, they help shapedevelopment policies, and they inform citizenson how their economies are being managedso that they can make appropriate politicalchoices and thereby exert control over theirgovernments. To accomplish all this, clearlysome new indicators are needed.8

Sustainable Development:The New Bottom Line

In response to the grim realities of climatechange, resource depletion, collapsing ecosys-tems, economic vulnerability, and other con-verging crises of the twenty-first century, aconsensus is emerging among scientists, gov-ernments, and civil society about the need fora rapid but manageable transition to an eco-nomic system where progress is measured by

improvements in well-being rather than byexpansion of the scale and scope of marketeconomic activity. We need to measure eco-nomic progress by how little we can con-sume and achieve a high quality of life ratherthan how fast we can add to the mountainsof throwaway artifacts bursting the seams oflandfills. We need to measure progress byhow quickly we can build a renewable energyplatform, meet basic human needs, discour-age wasteful consumption, and invest in ratherthan deplete natural and cultural capital. Weneed an economic system that replaces bru-tal and wasteful competition between nations,businesses, and individuals with one thatbinds us together in cooperative frameworksfor solving civilization’s most urgent prob-lems. We need an economic system that isfirmly ensconced within Earth’s ecologicallimits and guided by our spiritual and ethicaltraditions. We need an economic system thatis diverse, adaptable, and resilient. All theseobjectives can be grouped under the rubric ofsustainable development—the new bottomline for progress in the twenty-first century.

In 1987 the World Commission on Envi-ronment and Development defined sustain-able development as meeting “the needs ofthe present without compromising the abil-ity of future generations to meet their ownneeds.” Since then, there has been a prolif-eration of frameworks giving substance tothis basic definition by specifying goals, objec-tives, standards, and indicators of sustainabledevelopment for societies as a whole, forbroad economic sectors, and for individualinstitutions. In The Sustainability Revolution,Andres Edwards suggests seven themes orobjectives common to all frameworks: stew-ardship, respect for limits, interdependence,economic restructuring, fair distribution,intergenerational perspective, and nature as amodel and teacher.9

Each framework is accompanied by a




unique blend of indicators for measuringprogress or lack thereof in advancing theseobjectives. The remainder of this chapterconsiders a range of these new indicators,which can be subdivided into two broad cat-egories and two broad types. The basic cat-egories are macro-level indicators developedfor economies as a whole and micro-levelindicators for institutions or businesses. Thetwo major types include aggregates or “head-line indicators” (which attempt to combineindividual indicators into a single numericalindex) and specific, single-issue indicators.Given past misuses of single indices such asGDP, most sustainability practitioners rec-ognize the need for a suite of indicators bal-anced across economic, environmental, andsocial domains.

A Macroeconomic ViewTable 2–1 provides a sample of importantmacroeconomic indicators responsive to chal-lenges of sustainable development in thetwenty-first century. Each indicator is linkedto one of five macroeconomic objectives com-mon to popular sustainable developmentframeworks:• promoting genuine progress based on mul-

tiple dimensions of human well-being,• fostering a rapid transition to a renewable

energy platform,• equitable distribution of both resources

and opportunity,• protecting and restoring natural capital,

and• economic localization.

Since the late 1980s, researchers havebeen working to develop substitutes for GDPthat address the costs and benefits of eco-nomic activity on environmental and socialdimensions of well-being. Collectively, theseindicators are known as “green” GDPaccounting systems, the most comprehensive

of which is the genuine progress indicator(GPI) and its variants.

The GPI is designed to measure sustain-able welfare and thus replace GDP as anation’s most important yardstick of eco-nomic progress. It adjusts a nation’s personalconsumption expenditures upward to accountfor the benefits of nonmarket activities suchas volunteering and parenting and down-ward to account for costs associated withincome inequality, environmental degrada-tion, and international debt. The GPI hasbeen reviewed extensively in the scientific lit-erature and found to offer the greatest poten-tial for measuring national sustainabledevelopment performance.10

Redefining Progress has done a break-down of GPI contributions and deductionsfor the United States in 2004. (See Table2–2.) These calculations show the GPI at$4.4 trillion, compared with a GDP of nearly$10.8 trillion, implying that well over half ofthe economic activity in the United States thatyear was unsustainable and did not contributeto genuine progress.11

GPI accounts for the United States andmany other countries show the gap betweenGPI and GDP widening since the mid- to late1970s. Economists call this divergence the“threshold effect.” It implies that after a par-ticular threshold, environmental and socialbenefits of economic growth are more thanoffset by rising environmental and social costs.Before that point is reached, genuine progressgenerally rises with GDP.12

Despite its theoretical validity, the GPIand other green accounting systems have yetto be formally adopted by national govern-ments as replacements for GDP—perhapsbecause the news they communicate is sosobering. In early 2007, the Chinese gov-ernment abandoned its efforts to develop agreen GDP; preliminary results of the projectshowed pollution-adjusted growth rates to be







Economic Objective Sample Indicators and DescriptionDesired Direction of Effect

Genuine human Genuine progress indicator (+) Aggregate index of sustainable economic welfareprogress Happy planet index (+) Aggregate index of well-being based on life

satisfaction, life expectancy, and ecological footprint

Well-being index (+) Aggregate index of well-being based on health,wealth, knowledge, community, and equity

Human development index (+) Aggregate index of well-being based on income,life expectancy, and education

Renewable energy Carbon footprint (–) Provides spatial and intensity measures of life cycle platform carbon emissions

Energy return on investment Ratio between energy a resource provides and the (+) amount of energy required to produce it

Energy intensity (–) Energy used per unit of economic output

Social equity Index of representational Measures consistency between ethnic composition equity (–) of elected officials and that of the general popula-

tion; zero indicates “perfect” consistency

GINI coefficient (–) Measures extent to which an income distribution deviates from an equitable distribution; zero indi-cating “perfect” equity

Legal rights index (+) Measures degree to which collateral and bank-ruptcy laws protect rights of borrowers and lenders, scale of 0 to 10.

Access to improved water Percent of population with access to improved and sanitation (+) water and sanitation services

Protect and restore Ecological footprint (–) Ecologically productive land and ocean area appro-natural capital priated by consumption activities

Genuine savings (+) Net investment in human-built and natural capital stocks adjusted for environmental quality changes

Environmental sustainability Weighted average of 21 separate environmental index (+) sustainability indicators

Economic Local employment and income Direct, indirect, and induced local economic activity localization multiplier effect (+) generated by a given expenditure

Ogive index of economic Measures how well actual industrial structure diversity (–) matches an ideal structure; zero indicates “per-

fect” diversity

Miles to market (–) Average distance a group of products travels before final sale

Table 2–1. Sustainable Development Objectives and Macroeconomic Indicators

nearly zero in some provinces.Nonetheless, there are dozensof encouraging pilot programsimplemented by national gov-ernments and nongovernmen-tal organizations (NGOs) toapply various green accountingsystems.13

A recent global assessmentfound green accounting pro-grams in place in at least 50countries and identified at least20 others that were planningto initiate such programs soon.Broader GPI applications thatconsider factors such as socialequity or the value of nonmar-ket time uses are thus far rele-gated to academic institutionsor NGOs such as Canada’sPembina Institute, which cal-culates an Alberta GPI and usesit to inform policy debates overeconomic diversification, trade,transportation, taxes, and manyother economic, social, andenvironmental issues.14

Other macroeconomic indi-cators have been created to sup-plement GDP with informationon overall well-being. Oneexample is the happy planetindex (HPI), first published bythe New Economics Founda-tion and Friends of the Earth in2006. The authors note thatthe HPI “measures the eco-logical efficiency with which,country by country, peopleachieve long and happy lives.” The basic for-mula is to multiply a country’s self-reportedlife satisfaction index (determined throughsurveys) by its average life expectancy andthen divide by its ecological footprint. The

first HPI assessment found Central Americato be the region with the highest averagescore due to its relatively long life expectancy,high satisfaction scores, and an ecologicalfootprint below its globally equitable share.15




Component Amount

(billion dollars)ContributionsWeighted personal consumption expenditures

(adjusted for inequality) + 6,318.4Value of housework and parenting + 2,542.2Value of higher education + 828.0Value of volunteer work + 131.3Services of consumer durables + 743.7Services of streets and highways + 111.6Net capital investment (positive in 2004,

so included in contributions) + 388.8

Total positive contributions to the GPI $11,064.0

DeductionsCost of crime – $34.2Loss of leisure time – 401.9Costs of unemployment and underemployment – 177.0Cost of consumer durable purchases – 1089.9Cost of commuting – 522.6Cost of household pollution abatement – 21.3Cost of auto accidents – 175.2Cost of water pollution – 119.7Cost of air pollution – 40.0Cost of noise pollution – 18.2Loss of wetlands – 53.3Loss of farmland – 263.9Loss of primary forest cover – 50.6Depletion of nonrenewable resources – 1,761.3Carbon emissions damage – 1,182.8Cost of ozone depletion – 478.9Net foreign borrowing (positive in 2004,

so included in deductions) – 254.0

Total negative deductions to the GPI $6,644.8

Genuine progress indicator 2004 $4,419.2Gross domestic product 2004 $10,760.0

Source: See endnote 11.

Table 2–2. Genuine Progress IndicatorComponents and Values, United States, 2004

HPI data provide further corroboration ofthe threshold effect. Countries classified bythe United Nations as medium human devel-opment fare better than either low or highdevelopment countries. An independent sta-tistical analysis of HPI and per capita incomevalues for 157 countries found the two ris-ing together up to a threshold, then diverg-ing after that. The HPI authors concludedthat “well-being does not rely on high lev-els of consuming.”16

As with the green GDP, well-being indiceshave yet to gain official prominence—withone notable exception. Since 1972 the gov-ernment of Bhutan has been using the con-cept of gross national happiness (GNH) as asustainable development framework. Accord-ing to Prime Minster Lyonpo Jigmi Y Thin-ley, GHN is “based on the premise that truedevelopment of human society takes placewhen material and spiritual developmentoccur side by side to complement and rein-force each other.” The four pillars of GHN areequity, preservation of cultural values, con-servation of the natural environment, andestablishment of good governance. Recently,a major international conference in Bhutanwas held to explore GHN in more depth,including ways to put it into operation as areplacement measure for GDP.17

On the second macroeconomic objective,the transition to renewable energy, there aredozens of useful metrics such as energy inten-sity (which measures conservation) or energyreturn on investment (which is critical forevaluating the feasibility of renewable energyinvestments). But the most ubiquitous mea-sure in use is the carbon footprint, which isexpressed in three basic ways: emissions intons of carbon, the area of Earth’s surfaceneeded to sequester those emissions, and car-bon intensity or emissions per unit of eco-nomic output. A zero carbon footprint is anoften-stated policy goal. But measuring this

is quite complex. For example, communitiesthat want to assess their carbon footprintsalmost universally fail to consider carbonemissions associated with imports of eitherintermediate inputs or final consumer goodsfrom other regions or land use activities likelogging or urban growth that reduce carbonsequestration capacity.

Nonetheless, carbon footprint analysis is auseful way to monitor progress toward greateruse of renewable energy as well as to identifyfirm policy targets. For example, to stabilizecarbon dioxide concentrations in the atmos-phere at 450 parts per million, various mod-els suggest that global emissions must bereduced by 50 percent in 2050 and 80 per-cent by century’s end. (See Chapter 6.) Com-bining this reduction target with variousprojections of growth in gross world product(GWP) allows calculation of the required car-bon footprint of all economic processesneeded to achieve this goal. Even under themost pessimistic GWP growth scenario of1.1 percent a year, the required footprintreduction is on the order of 93 percent—from 2.88 ounces of carbon per dollar todayto just 0.16 ounces by 2100.18

Social equity, another macroeconomicobjective, has two key dimensions: equitabledistribution of resources and equitable accessto health care, education, economic oppor-tunities, representation, cultural amenities,natural areas, and everything else consideredessential to a good quality of life. Quantita-tive equity measures already inform policydebates over taxes, affordable housing, livingwages, diversity, and location of public ser-vices, and their use is on the rise. One com-mon way to measure social equity is tocompare the distribution of resources oraccess with some ideal distribution describedas fair or equitable. The index of representa-tional equity (IRE) and the GINI coefficientare two permutations. The IRE compares




the ethnic or racial composition of electedofficials, corporate management, or any otherrepresentative body with that of the generalpopulation of the relevant jurisdiction. Itmeasures the degree of deviation, so valuesclose to zero indicate more equitable repre-sentation if it is assumed that leaders shouldreflect the diversity of the populations theyrepresent. The GINI coefficient measuresthe deviation between the actual income dis-tribution of a given nation or communityand a “fair” distribution, where differentincome brackets earn a proportional shareof national income.19

Concerning the fourth objective, in AShort History of Progress Canadian novelistRonald Wright succinctly notes: “If civiliza-tion is to survive, it must live on the inter-est, not the capital, of nature.” Nature’sinterest is the flow of goods and servicesreceived from stocks of natural capital. Thesestocks include wild areas, healthy soils,genetic diversity, and the various atmos-pheric, terrestrial, and aquatic sinks for wastesinherited from the last generation. Naturalcapital yields goods such as foods, medi-cines, organic fertilizers, and raw materials forcountless manufacturing processes as wellas ecosystem services such as controllingfloods, recycling wastes, building soils, andkeeping atmospheric gases in balance free ofcharge. When natural capital is lost ordegraded, the flow of goods and services iscompromised or eliminated entirely, just aswhen decimation of human capital stocksdestroys a community’s ability to provideshelter, communications, water supply, orenergy. As such, nondepletion of naturalcapital stocks and ecosystem service flows isa prerequisite for sustainability.20

The ecological footprint is perhaps thebest known measure of natural capital deple-tion. Ecological footprint analysis (EFA) com-pares the surface area of Earth needed to

sustain current consumption patterns andabsorb wastes with what is available on arenewable basis. When the footprint exceedsbiological capacity, the world is engaged inunsustainable ecological overshoot and deplet-ing natural capital. The most recent accountspublished by the Global Footprint Networkfind that “our footprint exceeds the world’sability to regenerate by about 25%,” implyingthat we need 1.25 Earths to sustain presentpatterns of consumption. While there remainsome theoretical and computational chal-lenges to resolve, EFA has nonetheless gainedstatus as one of the world’s most ubiquitousand widely used sustainability metrics. Accord-ing to the Secretariat of the U.N. Conventionon Biological Diversity, EFA “provides a valu-able form of ecological accounting that can beused to assess current ecological demand andsupply, set policy targets, and monitor successin achieving them.”21

Economic localization, the fifth objec-tive, is the process by which a region, county,city, or even neighborhood frees itself froman overdependence on the global economyand invests in its own resources to producea significant portion of the goods, services,food, and energy it consumes from its localendowment of financial, natural, and humancapital. Localization is gaining new tractionas a response to the looming crises over peakoil and climate change, since the global dis-tribution system for goods is almost exclu-sively based on cheap fossil fuels. The WorldBank acknowledges that localization “willbe one of the most important new trends inthe 21st century.”22

Economic multipliers and measures of eco-nomic diversity such as the Ogive index areuseful indicators of localization since theyshow how well a community is rebuildingits manufacturing base and creating linkagesbetween multiple sectors. Another indicatorof increasing importance and use is “miles to




market,” which for an individual good orgroup of goods measures the distance traveled(including components) from source to mar-ket. The most popular variant is food miles—a concept that illustrates the wide-rangingbenefits associated with locally grown foods,such as freshness, reduced carbon emissions,higher economic multiplier effects, and theabsence of resource-intensive packaging,preservatives, and refrigeration.23

Five MicroeconomicObjectives

Some of the most innovative sustainabilityinitiatives are being undertaken at the insti-tutional level by businesses, schools, andNGOs. To measure effectiveness, a widerange of micro-level metrics are beingdeployed and used as benchmarks of orga-nizational success. Table 2–3 provides a smallsample of these.

Increasingly, sustainability metrics are beingreported side by side with more-traditionalfinancial indicators to satisfy investor andstakeholder demand for accountability withrespect to important environmental, social,and economic impacts. Accountability itself isa proven force for change. As Andrew Savitzand Karl Weber note in The Triple BottomLine, such metrics have become a “key driver”of progress toward sustainable business.24

Like macro indicators, institutional sus-tainability metrics can be grouped by objec-tives common to popular sustainabilityframeworks: • certification of products, operations, and

supply chains;• zero waste;• eco-efficiency;• workplace well-being; and• community vitality.

Certification is a response to a perniciouseffect of globalization: the disassociation

between consumers and producers caused bysupply chains that now span the globe. Con-sumers tend to know very little about thelabor or environmental practices of corpora-tions that produce goods they consume. Thislack of accountability has contributed to a“race to the bottom” in which corporationschoose locations that impose the least regu-latory burden on their operations. Forcedrelocation of entire communities, sweatshops,contamination of water supplies, collapsingfisheries, and tropical deforestation are amongthe results.

The burgeoning new movement to inde-pendently certify goods as humanely and sus-tainably produced is a direct response to thesepractices. A key indicator is the degree towhich institutions procure goods and ser-vices from certified sources. Some well-knowncompanies are using certification to influ-ence practices further down the supply chain.For example, Unilever’s policy is to buy 100percent of its fish from sustainable sources. Toachieve this goal, the company helped designand now promotes Marine StewardshipCouncil certification by its suppliers. (SeeChapter 5.)25

Other certification or sustainability ratingsystems evaluate a company’s overall opera-tions, not just the products or services theyprovide. The Global Reporting Initiative(GRI) has become the world’s leading bench-mark for measuring, monitoring, and report-ing corporate sustainability efforts. Currently,the GRI includes 146 indicators drawn fromeconomic, social, and environmental domainsand 33 “aspects” within these domains, suchas biodiversity, relations between labor andmanagement, and investment and procure-ment practices.26

A conspicuous manifestation of unsus-tainable operations is a big waste stream in theform of air emissions, water pollutants, andrefuse. Thus, a second key sustainability objec-




tive is “zero waste.” Recycling rates and emis-sions of air and water pollutants, includinggreenhouse gases (GHGs), are common indi-cators linked to zero waste strategies. Onceadopted, regularly published, and used to settargets, such indicators often drive substan-tial changes in business practices.

One of the longest running zero waste ini-tiatives is 3M’s Pollution Prevention Paysprogram, based on the notion that waste isa sign of inefficiency and that its elimination

should save money. For decades, 3M hasmonitored all aspects of the waste streamand urged its employees to develop innova-tive waste reduction programs. The com-pany now reports cumulative reduction ofover 2.2 billion pounds of pollutants. Emis-sions of volatile organic compounds havedropped from over 70,000 tons per year in1988 to less than 6,000 tons today. 3M esti-mates it has saved at least $1 billion byreusing the waste stream and avoiding expen-




Economic Objective Sample Indicators and DescriptionDesired Direction of Effect

Sustainability Percent certified (+) Percent of goods, services, and materials procured certification from certified sources

Sustainability reporting Degree of consistency with Global Reporting compliance (+) Initiative (GRI) or similar standards

Pacific sustainability index PSI score based on environmental, economic, and score (+) social criteria for relevant sector

Zero waste Recycling rate (+) Percent of waste stream recycled

Emissions (–) Air and water emissions including greenhouse gases total and per unit output

Longevity (+) Useful product life

Eco-efficiency Recycled content (+) Percent of materials used as inputs that are recycled

Intensity (–) Energy, water, and materials use per unit output

Facility rating (+) Level of LEED certification for buildings and facilities

Workplace Job satisfaction (+) Average scores from employee satisfaction surveyswell-being Turnover rate (–) Percent of employees voluntarily or involuntarily

leaving organization each year by category

Commuting (–) Employee vehicle miles traveled

Community vitality Local procurement (+) Proportion of spending on goods and services provided by locally owned businesses

Local economic impact (+) Direct, indirect, and induced economic impact of local expenditures

Community support (+) Value of cash and in-kind goods and services donated for public benefit

Living wage ratio (+) Ratio of wage rate paid to living wage for relevant employment categories

Table 2–3. Sustainable Development Objectives and Microeconomic Indicators

sive pollution mitigation measures.27

Carbon neutrality is another zero wastestrategy, and offsets are one tool that com-panies are using to get there. (See Chapter 7.)For example, Green Mountain Coffee Roast-ers has monitored both its carbon emissionsand the amount of offsets since 2003. In2005, the company reported 9,823 tons ofGHG emissions and an equal amount of off-sets in the form of investments in wind andmethane capture projects.28

Another important indicator related tozero waste is product longevity, often mea-sured by useful product life. Productsdesigned with longevity and upgradability inmind substantially reduce the flow of refuseto landfills. Additional longevity indicatorslisted in the Electronic Product Environ-mental Assessment Tool framework includeavailability of extended warranties, upgrad-ability with common tools, modular design,and availability of replacement parts.29

Eco-efficiency, a third microeconomicobjective, is about reducing the amount ofwater, energy, chemicals, and raw materialsused per unit output. Eco-efficiency is moti-vated not only by environmental concernsbut by the prospects of significant financialsavings in the form of reduced energy andwater bills, less money spent on raw materi-als, and fewer regulatory hurtles. Swiss-basedST Microelectronics cut electricity use by28 percent and water use by 45 percent in2003 and reported saving $133 million.DuPont committed to a policy of keepingenergy use flat no matter how much pro-duction increased, which reportedly savedover $2 billion in the past decade. The com-pany Advanced Micro Devices tracks “kilo-watt hours per manufacturing index” andreports a 60-percent reduction from 2.17in 1999 to 0.86 in 2005. One way to mon-itor eco-efficiency for facilities as a whole isthe Leadership in Energy and Environmen-

tal Design’s Green Building Rating System,which is used to certify home, schools, orcommercial buildings as silver, gold, or plat-inum based on green design features thatconserve electricity, water, and wastethroughout the entire life cycle—from con-struction to demolition.30

The World Health Organization identi-fies meaningful and satisfying work, opendecisionmaking, worker health and safety,and just compensation as key aspects of sus-tainable workplace environments. Workplacesatisfaction, turnover rates, and health andsafety factors such as commuting distances arecommon indicators of workplace well-being—another sustainable development objective—and ones that are driving change. The worksatisfaction of full-time staff at Finland’sTurku Polytechnic has been monitored since2000. In a Web-based questionnaire, respon-dents are asked to assess on a scale of one tofive their satisfaction with work, features of thejob, the working community, their supervi-sor’s performance, recognition of their knowl-edge and skills, and the organization’soperations. The aggregate employee satis-faction score rose steadily from 3.30 to 3.78between 2000 and 2004. Problem areasuncovered by the surveys included collabo-ration and communication, which motivatedthe school to publish a weekly electronicnewsletter for personnel.31

In 2004 and 2005, Mountain EquipmentCo-op (MEC) in Canada undertook com-prehensive employee engagement surveyswith Hewitt Associates. They asked forresponses to such statements as “our peoplepractices create a positive work environmentfor me” and monitored the percent ofemployees in agreement. MEC’s overallHewitt engagement score was quite low—48percent in 2004—and as a result the firmundertook a wide range of improvementmeasures such as a continuing education assis-




tance, an upgraded maternity leave policy,extension of employee assistance programs,and increased accountability of senior staff.MEC’s engagement score rose to 63 percentafter the indicator was put in use.32

A final sustainability objective to consideris community vitality. Institutions committedto sustainable development universally rec-ognize that they must contribute to the vital-ity of the communities in which they operate.While in-kind and cash donations are com-mon, fundamental changes to business prac-tices are increasingly important. One exampleis raising the share of goods and services pro-cured from the local community rather thanimported from afar. Local procurement can bea critical tool for regeneration of communitieshard hit by globalization. For example, theLondon-based Overseas Development Insti-tute is working with South African tourismcompanies and associations to promote localprocurement as a way to fight poverty andother social ills plaguing rural villages.33

Paying living wages is another funda-mental way for institutions to promote com-munity vitality. Living wages take intoaccount the cost of living at the local leveland seek to provide a wage that fulfills thebasic needs of workers and their families.Monitoring wages paid in relation to a liv-ing wage is a way to identify where adjust-ments need to be made. An exemplaryexample of this kind of monitoring is theinternational pharmaceutical corporationNovartis. The company works with localNGOs to identify a “basic needs basket” fora worker and family and to quantify the bas-ket in local currencies. Using a methodologydeveloped by Businesses for Social Respon-sibility, Novartis then calculates market-spe-cific living wages and compares those withactual wages paid. By early 2006, the com-pany had aligned the pay of all 93,000employees with living wage levels.34

Fostering the New Bottom Line

How does the world move away from tradi-tional measures such as GDP, trade volume,or factor efficiency? Encouraging the wideruse of newer macroeconomic measuresrequires political pressure on international,national, and local governments. While thereare many examples of alternative indicatorsused in research settings, clearly adaptationis slow and civil society leadership is key. Asone step in the right direction, in November2007 the European Commission, the Organ-isation for Economic Co-operation andDevelopment, and several NGOs held a con-ference in Brussels entitled “Beyond GDP:Measuring Progress, True Wealth, and theWell-Being of Nations.” Key objectives of themeeting included clarifying what indices aremost appropriate to measure progress andhow these can best be integrated into deci-sionmaking.35

Civil society can also participate in legaland administrative processes to enforce poli-cies already in effect. For example, interna-tional finance agencies such as the WorldBank are obliged to use benefit-cost analy-sis (BCA) to evaluate the feasibility of infra-structure development projects such as roads,oil pipelines, ports, and dams. As the Bankacknowledges, BCA “is a technique intendedto improve the quality of public policy deci-sions. It uses as a metric a monetary measureof the aggregate change in individual well-being resulting from a policy decision.” Typ-ically, traditional economic measures likeGDP are used as a proxy for well-being—aclearly erroneous practice—so there areopportunities to change such practices tobe more in line with policy by using substi-tutes like the genuine progress indicator inthese contexts.36

Market forces are already fostering greater




use of sustainable development indicators atthe micro level. In their recent book Green toGold, Daniel Esty and Andrew Winston ofYale University evaluated the stock perfor-mance of “Waveriders,” a subset of companiesthey consider leaders in sustainability report-ing and initiatives. They found that Waverid-ers “significantly outperformed the market”over the past 10 years, and they make a com-pelling case as to why maintaining crediblesustainability metrics is a proven strategy forbusiness success in the new century. Nonethe-less, there is still a great deal that governmentscan do at all levels to tip the scales in favor ofresponsible Waverider-type companies.37

One obvious strategy is sustainable pro-curement policies. Given the immenseresources under their control, governments atall levels can insist that companies they dobusiness with do not just give lip service tosustainable development but demonstrateprogress toward it through the GRI andother credible indicator systems. Anotheremerging strategy is the cultivation of marketsfor environmental goods and services throughpayments for ecosystem services and othermarket-based approaches. (See Chapter 9.)Governments can use their regulatory pow-ers to create markets for flood control, pol-lination, biodiversity, water purification, andcarbon sequestration services of healthyecosystems by requiring offsets for urbandevelopment projects, power plants, or indus-trialized agriculture or forestry operations.Such markets would stimulate landholdersto monitor both the stocks of natural capitalunder their care and the economic value ofthe ecosystem services those stocks gener-ate. Taxes and subsidies are other important

tools. For example, a simple carbon tax wouldautomatically stimulate widespread use ofcarbon footprint analysis.

More direct approaches are legal require-ments for simple disclosure. As documentedin this chapter, the mere reporting of sus-tainability metrics like recycling rates, energyand water intensity, and living wage ratios isa key driver of change. Where sufficient pub-lic interest is present, it is reasonable to expectcommunities to insist on such disclosures aspart of annual reports, tax returns, and per-mit applications. One prominent example ofthe impact of such practices is U.S. Superfundlegislation, which requires companies to reportannually on the amount of hazardous chem-icals within each of their facilities. As Savitzand Weber note in The Triple Bottom Line,“companies suddenly faced with the simpledisclosure requirement immediately beganto take dramatic, unprecedented steps toredesign their processes to eliminate the needfor these chemicals at all.” The result was a 59-percent reduction in the amount of hazardouschemicals stored on-site by U.S. companies,the most dramatic voluntary environmentalimprovement in history—“all because of asimple disclosure requirement.”38

Innovations like these need to be acknowl-edged and publicized, so that one good mea-sure leads to another. No one indicator cancapture all the components of sustainabledevelopment. Instead, governments shouldback a suite of creative indicator initiatives,giving the world a better and more holisticportrait of progress being made in the twenty-first century toward both happy people anda happy planet.





In 1999, executives at DuPont boldly pledgedto reduce the company’s greenhouse gas(GHG) emissions 65 percent below their1990 levels by 2010 as part of a company-wide strategy to lighten its environmentalimpact. The plan, in part, was to diversifythe product line—shedding divisions such asnylon and pharmaceuticals to focus on mate-rials that reduce greenhouse gases, such asTyvek house wraps for energy efficiency. Theplan worked: by 2007 DuPont had cut emis-sions 72 percent below 1991 levels, reducedits global energy use 7 percent, and, in theprocess, saved itself $3 billion. DuPont nowplans to go beyond mere efficiency improve-ments to make products that mimic nature,including plant-based chemicals like Bio-PDO that can replace petroleum in poly-mers, detergents, cosmetics, and antifreeze.1

DuPont’s actions—and similar ones indozens of other firms—reflect a recognitionthat the way goods and services are produced

must be radically rethought in this sustain-ability century. Over the past 100 years, theway humans made and sold goods and ser-vices took a heavy toll. Now, smart companiesrecognize the need to move beyond busi-ness as usual to meet people’s needs in sus-tainable ways.

Every year the world digs up, puts throughvarious resource crunching processes, andthen throws away over a half-trillion tons ofstuff. Less than 1 percent of the materials isembodied in a product and still there sixmonths after sale. All of the rest is waste.This pattern of production and the con-sumption it engenders now threaten everyecosystem on Earth. In March 2005, U.N.Secretary-General Kofi Annan observed that“the very basis for life on earth is declining atan alarming rate.”2

By the time most human artifacts havebeen designed but before they have beenbuilt, 80–90 percent of their lifecycle eco-

C H A P T E R 3

L. Hunter Lovins

Rethinking Production

L. Hunter Lovins is president and founder of Natural Capitalism Solutions and a professor of businessat the Presidio School of Management.

nomic and ecological costs have alreadybecome inevitable. For example, this bookyou are holding, the seat in which you are sit-ting, the airplane in which you may be fly-ing, the terminal at which you will land, thevehicle in which you will continue your tripare all the result of myriad choices made bypolicymakers, designers, engineers, crafts-people, marketers, distributors, and so on.Each step represents opportunities to deliverthe idea, the part, or the production processin ways that use more or fewer resourcesand result in a superior or suboptimal end-result. Thinking in a more holistic way andchoosing more wisely at each step can reducethe impacts of these choices on the planetand its inhabitants.3

This is the foundation of Natural Capital-ism, the framework of sustainability thatdescribes how to meet needs in ways thatachieve durable competitive advantage, solvemost of the environmental and many of thesocial challenges facing the planet at a profit,and ensure a higher quality of life for all peo-ple. It is based on three principles: • Buy the time that is urgently needed to

deal with the growing challenges facingthe planet by using all resources far moreproductively.

• Redesign how we make all products andprovide services, using such approaches asbiomimcry and cradle to cradle.

• Manage all institutions to be restorative ofhuman and natural capital.4

The good news is that meeting humanneeds while using less stuff can be more prof-itable and can deliver a higher standard of liv-ing than continuing with current practices.Combined with efforts to lower consumption(see Chapter 4), practices that raise resourceefficiency, circulate materials rather than dumpthem, and imitate nature offer a new modelof prosperity for an environmentally degradedand poverty-stricken planet.

The Solid Foundation of Eco-efficiency

The ability to produce cheap goods and shipthem around the planet derived in part fromabundant supplies of cheap energy. Usingthis inexpensive oil, gas, and coal has pollutedthe planet and dangerously warmed the cli-mate. In a carbon-constrained world, sur-vival depends on finding ways to producegoods and services in dramatically moreenergy-efficient ways.

The concept of making things using fewerresources is far from new, but it remains thecornerstone in producing goods and servicesmore sustainably. Critics such as WilliamMcDonough disparage eco-efficiency as sim-ply doing less bad, but therefore still bad.Greater resource productivity alone will notdeliver a sustainable society, but the criti-cism misses the significance of using as fewresources as possible. The foundation of abuilding is far from sufficient to house afamily, but without a solid underpinning nostructure can long stand. Without eco-effi-ciency, no system of production can be saidto be sustainable.5

More important, however, given the chal-lenges facing the world, is the fact that usingless stuff buys the critical time necessary tosolve such daunting problems as climatechange and to develop and implement pro-duction methods that meet humanity’s needsin ways that do not cause more problems.

Eco-efficiency is the easiest component ofthe transition to sustainability to implement.It is increasingly profitable, and psychologi-cally it is far more familiar to industrial engi-neers than are such concepts as biomimicryor the human dimensions of implementingthe changes necessary. It is therefore a greatplace to start.

It is now cost-effective to increase the effi-ciency with which the world’s resources are




used by at least fourfold—dubbed “FactorFour” in a 1997 book. The European Unionhas already adopted this as the basis for sus-tainable development policy and practice.Some countries like Australia have set thisand even greater efficiency as a desirablenational goal. The Environment Ministersof the Organisation for Economic Co-oper-ation and Development, the government ofSweden, and various industrial and academicleaders in Europe, Japan, and elsewhere havegone even further, adopting Factor Tenimprovements as their goal. The World Busi-ness Council for Sustainable Development(WBCSD) and the U.N. Environment Pro-gramme have called for Factor Twenty, whichinvolves increasing efficiency 20-fold. Thereis growing evidence that even such ambi-tious goals are feasible and achievable in themarketplace. They may, in fact, offer evengreater profits.6

One of the foremost proponents of eco-efficiency is the World Business Council forSustainable Development, which introducedthis term to the world right before the 1992Earth Summit in Rio de Janeiro. WBCSDdefines eco-efficiency as:• reduction in the material intensity of goods

or services,• reduction in the energy intensity of goods

or services,• reduced dispersion of toxic materials,• improved recyclability,• maximum use of renewable resources,• greater durability of products, and• increased service intensity of goods and

services.7WBCSD is a CEO-led network of more

than 200 companies promoting market-ori-ented sustainable development and greaterresource productivity. It enables its membersto share knowledge, experiences, and bestpractices on energy and climate, develop-ment, ecosystems, and the role of business in

society. It maintains initiatives in sustainablevalue chains, capacity building, water, andenergy use in buildings. WBCSD conductssector-specific studies on how to reduceresource use in such areas as cement, electricutilities, mining and minerals, mobility, tires,and forestry. The group is led by an executivecommittee featuring leaders of such compa-nies as Toyota, DuPont, Unilever, Lafarge,and Royal Dutch Shell.8

Member companies have implementedprofitable resource productivity to lower theircosts and reduce their environmental foot-print. For example, AngloAmerican/ MondiSouth Africa increased the production capac-ity of one of its pulp mills by 25 percent.This enabled it to accommodate a 40-percentincrease in timber supply from more than2,800 small growers, while increasing theefficiency of using waste wood to power theplant, decreasing the use of bleach chemicals,and reducing the use of coal from 562 to 234tons per day—all while significantly cuttingcosts. The measures achieved reductions in:• 2,177 tons of sulfur dioxide—a 50-per-

cent reduction;• 509 tons of nitrogen oxide (NOX)—a 35-

percent reduction;• 297,121 tons of carbon dioxide (CO2)—a

50-percent reduction; and• total sulfur emissions—down approxi-

mately 60 percent. Energy-efficient technologies also reducedwater consumption and purchased energy.These enabled the pulp mill to use 44 percentless purchased energy in 2005 than in 2003.During 2005, one mill cut its energy andwater costs by 27 percent.9

Increasingly, companies are implement-ing eco-efficiency to drive their innovationand enhance their competitiveness. STMicro-electronics (ST), a Swiss-based $8.7-billionsemiconductor company, set a goal of zero netGHG emissions by 2010 while increasing




production 40-fold. ST’s GHG emissionswere traced to facility energy use (45 percent),industrial process (perfluorocarbon and sul-fur hexafluoride) emissions (35 percent), andtransportation (15 percent). The companyundertook to reduce on-site emissions byinvesting in cogeneration (efficient combinedheat and electricity production) and fuel cells(efficient electricity production).10

By 2010 cogeneration sources shouldsupply 55 percent of ST’s electricity, withanother 15 percent coming from fuel switch-ing to renewable energy. ST will reduce theneed for energy supply through improvedefficiency and implement various projectsto sequester carbon. This commitment hasimproved profitability. During the 1990s itsenergy efficiency projects averaged a two-year payback—a nearly 71 percent after-taxrate of return.11

Making and delivering on this promisehas also driven ST’s corporate innovationand increased its market share, taking thecompany from the twelfth to the sixth largestmicrochip maker by 2004. By the time STmeets its commitment, it expects to havesaved almost $1 billion.12

What is true in microchip manufacturingholds true in consumer retailing as well:things can be done more efficiently. In Octo-ber 2005, Wal-Mart, the world’s largestretailer, announced a corporate commitmentto cut greenhouse gas emissions and reducewaste, pledging to be supplied 100 percent byrenewable energy, to create zero waste, andto sell products that sustain resources andthe environment.13

To achieve this, Wal-Mart is working withits 60,000 plus suppliers to help them learnhow to produce “affordable sustainability,and become more sustainable businesses intheir own right.” The company began byreducing waste, announcing a goal of a 5-percent reduction in overall packaging by

2013. It estimated that the impact would bethe equivalent of removing 213,000 trucksfrom the road and saving about 324,000tons of coal and 77 million gallons of dieselfuel a year.14

Reducing packaging in the company’s KidConnection line of toys let Wal-Mart use427 fewer containers to ship the same num-ber of items, saving $2.4 million in shippingcosts, 3,800 trees, and 1,300 barrels of oilannually. The company estimates that a sim-ilar effort globally could save nearly $11 bil-lion. Wal-Mart’s supply chain alone couldsave $3.4 billon.15

Wal-Mart has pledged to implement an“Ethical Supplier Initiative” and is seekingmore long-term and sustainable partnershipswith the factories that supply its stores. Onesuch program in a candy factory in Brazilthat lacked a system for processing, recycling,and disposing of waste enabled the factory toinstall a waste management program, whichin turn let the supplier generate $6,500 ayear in new profits.16

Wal-Mart is working with suppliers todesign more-efficient products to offer to itscustomers. A partnership with the Eco-mag-ination program of General Electric (GE)will produce light-emitting diodes (LEDs).LED lights last longer, produce less heat,contain no mercury, and use significantly lessenergy than other bulbs. Lighting accountsfor about one third of Wal-Mart’s electricityuse. Since 2004 Wal-Mart has invested about$17 million in developing LED lighting sys-tems for its own refrigerator cases in morethan 500 stores. It projects that this will saveabout $3.8 million a year and reduce the




Companies are implementing eco-efficiency to drive their innovationand enhance their competitiveness.

company’s CO2 emissions by 65 millionpounds. Wal-Mart’s purchase will be suffi-ciently large that it will bring GE’s produc-tion costs for LED lighting down to levelscompetitive with ordinary lamps.17

The company is also taking a closer lookat how some of the products on its shelves aremade, in line with WBCSD’s emphasis onreducing the dispersion of toxic chemicals asone component of eco-efficiency. At theMarch 2007 quarterly meeting of senior man-agement and major suppliers of Wal-Mart,CEO Lee Scott indicated that the companywould begin phasing phthalates out of theplastics used in children’s toys. By July, Wal-Mart announced that it would no longer shipinfants’ toys containing these endrocrine-dis-rupting compounds.18

A number of frameworks aim to help com-panies use resources more efficiently. Leanmanufacturing arose from the Toyota Pro-duction System and was popularized in the1996 book Lean Thinking by James Womackand Dan Jones. It emphasizes reduction inprocess variability as a way to identify andeliminate inefficiencies that reduce quality.Waste is eliminated as a byproduct of enhanc-ing the smoothness of the process. Similarly,the Six Sigma system trademarked byMotorola and fanatically implemented byhundreds of companies seeks to cut wasteby eliminating any variability in the produc-tion of items.19

These two systems are valuable approaches,but management needs to understand theirlimits. Manufacturers have found that bothhave the drawback of inhibiting creativity.The mental model that seeks to eliminateany defect or deviation from a given standardis inimical to the sort of intellectual curiosity,tolerance for ambiguity, spirit of experimen-tation, and appetite for risk that characterizesgreat invention. Many companies now insu-late their creative staff from the salutary dis-

cipline of Six Sigma. But once the inventionis conceived, lean manufacturing enables acompany to deliver exceptional quality,squeeze out waste, and scale up productionto efficiently deliver a predictable product.

Lean manufacturing, as implemented byToyota, features an almost manic dedicationto reducing the “seven wastes” as a way toenhance customer satisfaction. It identifiesany part of an operation that does not con-tribute to customer satisfaction as waste,specifically targeting product design, sup-plier networks, and factory management. Itseeks to eliminate the production of moreitems than are demanded by the customer,the movement of people or machines, anyidle time of people or machines, the move-ment of material or product, inefficient pro-cessing (see Box 3–1), excess inventory ofinput or product, and the need to rework orthrow out anything.20

As lean manufacturing caught on in theUnited States, it was logical that it would becombined with clean production, which iswhat the U.S. Environmental ProtectionAgency, the Chicago Manufacturing Center(CMC), and others did.

CMC sponsored the GreenPlants Sus-tainable Leadership Program to help a groupof Chicago area manufacturers implementlean, clean, more-sustainable production, inorder to enhance the competitiveness of man-ufacturing companies threatened by foreigncompanies. Working with Natural Capital-ism Solutions, the program helps local man-ufacturers implement more-sustainableproduction techniques as the basis for retain-ing globally competitive manufacturers inthe Chicago area. The 84 CMC clients sur-veyed in fiscal 2004 reported that they hired194 people for newly created jobs, saved 527jobs, and did not lay off anyone due toimprovements.21

PortionPac Chemical Corporation is using




CMC’s program to develop sustainable clean-ing systems. The cleaning industry has tradi-tionally wasted energy in manufacturing,shipping, and disposing of cleaning formula-tions that were 90 percent water; these were

shipped in steel pails and multigallon drumsthat were then discarded. Many cleaning for-mulations being used were extremely haz-ardous, and few janitors understood how toapply the solutions correctly. To address theseproblems, PortionPac Chemical Corporationwas founded in 1964 to eliminate the waterand instead ship small plastic packets of con-centrated, portion-controlled solutions. Por-tionPac helped Boeing reduce costs andsimplify its cleaning process by reducing athousand different brands of cleaning prod-ucts to just 10, with PortionPac products as3 of those 10.22

PortionPac has gained market sharebecause of its sustainability campaign. It hasalso shifted its business model to sell cus-tomers the service of a cleaner facility, inaddition to selling chemicals that others canuse. In 1999, the company helped schools inTacoma, Washington, save 627,000 hoursof labor, including moving drums around,and $102,000 in chemical purchases byimplementing this system. Now more than7,000 schools have signed on to Portion-Pac’s set cost fee, which includes the clean-ing products the schools need plus propereducation on how to clean, proper mixing,and safe usage. PortionPac works with cor-rectional facilities, schools, hotels, hospitals,and industrial plants to limit the number ofproducts and ensure proper usage.23

The company has also helped such clientsas Cornell University earn Leadership inEnvironmental and Energy Design (LEED)certification from the U.S. Green BuildingCouncil by using PortionPac’s GreenSeal–certified products. Dale Walters, Gen-eral Manager of Facilities Operations at Cor-nell, notes that “over time, Cornell savedcosts by using the right amount of productand going from twenty cleaning productsto four. It also reduced safety risks involvedwith handling chemicals. When we sought to




A Wall Street Journal article exploring why Toy-ota was outcompeting Detroit and its suppli-ers stated that the Japanese manufacturer wasable to “produce vehicles with one-third thedefects of mass-produced cars using half thefactory space, half the capital, and half theengineering time. Elements of leanproduction, such as ‘just-in-time’ shipments ofsupplies, are familiar to most U.S. manufactur-ers. But adapting the whole Toyota system,and the cultural changes that go with it, hasproven difficult for many Americancompanies.”

The article tells one of the classic Toyotastories of an engineer making wastefulreliance on expensive high technology looksilly. Painting processes are one of the autoindustry’s more polluting activities.

Armed with a $12 dryer from adiscount store, Mr. Oba proved to engineersfrom Michigan’s Summit Polymers Inc. thattheir $280,000 investment in sleek robotsand a paint oven to bake the dashboardvents they produce actually was undermin-ing quality and pushing up costs. The fancyequipment took up to 90 minutes to drythe paint and in the bargain caused qualityflaws because parts gathered dust as theycrept along a conveyor.

Mr. Oba’s hair dryer did the job in lessthan three minutes. Chastened, Summit’sengineers replaced their paint system withsome $150 spray guns and a few light bulbsfor drying and integrated the painting intothe final assembly process. Family-ownedSummit cut its defect rate to less than 60per million parts from 3,000 per million.


Box 3–1.The Robot Versus the Hair Dryer

create LEED certified buildings, we workedwith PortionPac to establish a green house-keeping strategy.” Walters reports that “Por-tionPac products reduced chemical wastethrough both the proper use of cleaningchemicals and the sheer reduction of pack-aging (small packets versus large jugs or plas-tic containers). PortionPac products are amain component of our sustainable cleaningstrategy.” By helping organizations find bet-ter ways to motivate their janitors and cleantheir facilities, while reducing the use ofchemicals, PortionPac is winning contractsand expanding its business.24

Cradle to Cradle:Extending a Product’s Life

“Cradle to cradle” is a concept introduced byWalter Stahel more than 25 years ago inEurope. In 1976, as Director of a project onproduct life extension at Battelle researchlaboratories in Geneva, Stahel embarked ona program to return products to useful lives.He analyzed cars and buildings on micro-economic and macroeconomic bases and con-cluded that every extension of product lifesaved enormous amounts of resources in con-trast with turning virgin material into a newproduct, and it also substituted the use of peo-ple for the expenditure of energy.25

Stahel found that 75 percent of industrialenergy use was due to the mining or pro-duction of such basic materials as steel andcement, while only about 25 percent wasused to make the materials into finished goodslike machines or buildings. The converse rela-tionship held for human labor: three times asmuch labor was used to convert materialsinto higher value-added products as in theoriginal mining. He suggested that increasingthe kinds of businesses that recondition oldequipment as opposed to those that convertvirgin resources into new goods would sub-

stitute labor for energy. And he pointed outthat such work could be conducted in smallworkshops around the country where theproducts that needed rebuilding werelocated—something like car repair shops thatare located in every village. This sort of jobcreation would address both unemploymentand resource waste.26

In the early 1990s Walter Stahel, by thenwidely recognized in Europe as a founder ofthe new sustainability movement, proposedthat sustainability rests on five pillars, each ofwhich is essential for the survival of humanson Earth. None of these pillars is a higher pri-ority, he observed, or subject to tradeoffs. Sta-hel’s pillars roughly mirror the history of thesustainability movement.

The first pillar is the conservation of natureas the underpinning of a prosperous economy.This involves the need to preserve intactecosystems as the basis of all life-support sys-tems. It applies to such planetary systems asa stable climate or the ability of the oceans tosupport life, as well as to local carrying capac-ities and the ability of regions to assimilatewaste. The second pillar is the need to pre-serve individual health and safety that may bejeopardized by economic activities. This seeksto limit toxicity and pollution by such thingsas heavy metals and endocrine disruptors.

The first two pillars form the domain of theoriginal environmental movement. They arecharacterized by command-and-control leg-islation and by minimalist compliance byindustry. They tend to be dominated by tech-nical experts and agency bureaucrats. Thisapproach to protecting the environment costsmoney and created the belief that environ-mental protection, actually the basis ofdurable prosperity, is incompatible with eco-nomic success.

The third pillar adds resource productiv-ity, innovation, and entrepreneurship to thesustainability approach. It assumes a Factor




Ten increase in efficiency as the way to fore-stall such threats as climate change and theloss of ecosystems. This is the approach ofeco-efficiency in industrial as well as devel-oping countries.

Stahel argues that implementing the firstthree pillars is the basis of a sustainable econ-omy. But, he says, “a sustainable economy isonly part of the objective to reach a sustain-able society. A distinct border-line exists there-fore after these first three pillars, whichseparates techno-economic issues from soci-etal ones. The coming ‘Quest for a Sustain-able Society’ must be much broader andinclude social and cultural issues.”27

Thus the fourth pillar adds social ecologyto the mix. This is the first element of thehuman dimension of sustainability andincludes, in Stahel’s words, “peace and humanrights, dignity and democracy, employmentand social integration, security and safety,the constructive integration of female andmale attitudes. Key words here are: the com-mons, ‘prisoners’ dilemma’, sharing and car-ing, barter economy.”28

The fifth pillar Stahel calls cultural ecology.This encompasses how different cultures viewthe concept of sustainability and how toachieve it. It includes attitudes toward risk-taking and a sense of national heritage. Forexample, American engineers may see a goodbusiness case for eliminating waste, but theJapanese have an almost visceral distaste forwaste. It offends them. The fifth pillarincludes the critical aspects of corporate cul-ture, whereby, for example, in 1995 DuPontcalled for 100-percent yield rather than zerowaste. This pillar also considers the humanpart of the equation, such as whether peopleshould be retrained rather than fired.

The First Industrial Revolution, the fore-runner of modern manufacturing, arose at atime in history when there were relatively fewskilled people to run the new machines that

were revolutionizing production. There wasan apparent abundance of nature and itsservices. Profit-maximizing capitalists “econ-omized on their scarce resource” (people)and substituted the use of natural resourcesand ecosystem services (the ability to spewpollution into the air that everyone breathesand pour wastes into rivers) to drive profits.From this the modern world was born. Thistransformation enabled a Lancashire weaverto spin 200 times as much fabric on thenew machines as his predecessor did on aspinning wheel.29

The Holy Grail of prosperity was believedto be labor productivity, and indeed still todaypeople believe that increasing labor produc-tivity will increase well-being—as if the goalof the economy is one person doing all thework and everyone else out of work. But intoday’s world of relative scarcity, the tables areturned. About 10,000 more people arriveon Earth every hour, and every major ecosys-tem is in peril. Greater use of ecosystem ser-vices impoverishes everyone, and people needwork. Yet the whole mental model of how torun the economy is based on the 200-year-oldperception of the basis of prosperity: penal-ize the use of people, subsidize the use ofresources, and increase labor productivity.30

Stahel describes how in 1993, as U.S.companies faced hard times, the corporateworld made heroes of such restructurers asAl Dunlap and Jack Welch. Dunlap, in thename of “creating shareholder value” gainedthe nickname Chainsaw Al: in 20 months asCEO of Scott Paper, he devastated the 115-year-old company by terminating 11,000people—35 percent of the labor force—including 71 percent of the staff at corporateheadquarters. He, of course, made enor-mous personal gain. His counterpart at GE,dubbed Neutron Jack Welch, cut GEemployment from 380,000 to 208,000.31

The logic of capitalism, the greatest known




system in human history for the creation ofwealth, has not changed. But the relativescarcities have. In today’s world, the recipe forprosperity is to encourage, as Stahel has out-lined, the use of people and to penalize theuse of resources.

Stahel describes how, also in the early1990s, Honda used its workers to maintainand repair its own machines rather than suf-fer layoffs that would damage worker moraleand lead to work stoppages. Increasingly,European and Japanese policymakers are con-sidering the approach of tax shifting: elimi-nating taxes on employment and income,things people want more of, and replacingthem with taxes on pollution and depletionof resources, things the world wants less of.32

Stahel cautions that of the five pillars,social and cultural ecology are the weakestunderpinnings. To the extent that the socialfabric breaks down, the other pillars sooncollapse. The current focus on eco-efficiency,clean production, green products, and the useof technology to implement sustainability arenecessary, but it is equally important to con-sider the human dimension, including suchissues as meaningful employment, sustain-able development, and enabling people toachieve their full potential.

Sustainability, Stahel notes, has little appli-cation in the short term. Its value is as avision. He tells the story of the three stone-cutters who are asked what they are doing.One says that he is putting in his eight hours.The second replies that he is cutting thislimestone into blocks. The third answers thathe is building a cathedral. Sustainability, saysStahel, is the cathedral we are all creating.33

Following Nature’s Lead

Biomimicry, the conscious emulation of life’sgenius, is an even more profound approachto making manufacturing sustainable. Janine

Benyus, author of the groundbreaking bookBiomimicry, asks the simple question, Howwould nature do business? She points outthat nature delivers a wide array of productsand services, but very differently from the wayhumans do. Nature, for example, runs onsunlight, not high flows of fossil energy. Itmanufactures everything at room tempera-ture, next to something that is alive. It makesvery dangerous substances, as anyone who hasbeen in proximity to a rattlesnake knows well,but nothing like nuclear waste, which remainsdeadly for millennia. It creates no waste,using the output of all processes as the inputto some other process. Nature shops locallyand creates beauty. Buckminster Fuller oncepointed out that “When I am working on aproblem I never think about beauty. I onlythink about how to solve the problem. Butwhen I have finished, if the solution is notbeautiful, I know it is wrong.”34

The discipline of biomimicry takes nature’sbest ideas as a mentor and then imitates thesedesigns and processes to solve human prob-lems. Dozens of leading industrial compa-nies—from Interface Carpets and AT&T to3M, Hughes Aircraft, Arup Engineers,DuPont, General Electric, Herman Miller,Nike, Royal Dutch Shell, Patagonia, SC John-son, and many more—use the principles ofbiomimicry to drive innovation, design supe-rior products, and implement productionprocesses that cost less and work better. (SeeBox 3–2.)35

Biomimicry invites innovators to turn tothe natural world for inspiration, then eval-uate the resulting design for adaptiveness inthe manufacturing process, the packaging,all the way through to shipping, distribu-tion, and take-back decisions. It ensures thatthe energy used, production methods chosen,chemical processing, and distribution are partof a whole system that reduces materials use,is clean and benign by design, and eliminates




the costs that last century’s technologiesimposed on society and the living world.36

EcoCover Limited of New Zealand usedthe concept that in nature there is no waste—the output of all processes is food for someother process—to develop an organically cer-tified, biodegradable mulch mat to substi-tute for black plastic sheeting used inagriculture to prevent moisture loss and weedgrowth. Using shredded waste paper thatwould otherwise have gone to landfill, boundtogether with fish waste, the material is pro-

duced by previously unemployed people.37

The product uses waste to improve soilproductivity, conserve soil moisture, and cutwater use. It cuts the use of chemical fertil-izers, pesticides, and herbicides that conta-minate soil and groundwater. It reducesweeds; increases plant growth, quality, andyield; and keeps paper and fish waste out oflandfills. The cover is left in the soil asimproved organic and nutrient content. Thisis not recycling. It is “upcycling” waste backinto productive soil.38




Industrialist Ray Anderson, chair of the billion-dollar-a-year carpet company Interface, tells thestory of the creation of his product Entropy. DavidOakey, the head product designer of Interface,sent his design team into the forest with theinstruction to find out how nature would designfloor covering.“And don’t come back,” he in-structed,“with leaf designs—that’s not what Imean. Come back with nature’s design principles.”

So the team spent a day in the forest, studyingthe forest floor and streambeds until they finallyrealized that it is total chaos there: no two thingsare alike, no two sticks, no two stones, no twoanything....Yet there is a pleasant orderliness inthis chaos.

They returned to the studio and designed a car-pet tile such that no two tiles have the same facedesign. All are similar but all are different. Inter-face introduced the product into marketplace asEntropy, and in 18 months the design was at thetop of best-seller list. This was faster than anyother product in the company’s history. How different is that from the prevailing industrial paradigm of every mass-produced item? A typicalindustrial product must be cookie-cutter the same.

The advantages of Entropy were astonishing:almost no waste and off quality in production.The designers could not find defects in the delib-erate imperfection of having no two tiles alike.Installers could put the carpet in quickly withouthaving to take time to get the pile net all runninguniformly. They could take tiles from the box as

they came and lay them randomly, the more ran-dom the better—like a floor of leaves.The usercan replace individual damaged tiles without the“sore thumb effect” that comes with precisionperfection and uniformity and can rotate tiles justlike tires on cars in order to extend useful life.Moreover, dye lots now merged indistinguishably,which means sellers do not have to maintain aninventory of individual dye lots waiting to be used.

Yet one wonders: could there be more toexplain the success of entropy? Perhaps there is.

A speaker on an environment lecture circuitbegins every speech by having her audience closetheir eyes and picture that ideal comfort zone ofpeace and repose, of solitude, creativity, security—that perfect place of comfort. She then asks, howmany of you were somewhere indoors? Almostno one ever raises their hand. This quality has aname, biophilia—humans gravitate to nature forthe perfect comfort zone.

And somehow, subliminally, Entropy seems tobring the outdoors indoors. That is its real appeal.

Entropy is made with recycled content in aclimate-neutral factory; 82 of Interface’s productsare now designed on the principle of no twoalike.These represent 52 percent of Interface’ssales. Using principles like waste minimizationand biomimicry has enabled Interface to bringthe company’s CO2 emissions to roughly 10 per-cent of their 1996 levels.


Box 3–2. Biomimicry and Carpets

The humble abalone sits in the PacificOcean and in seawater and creates an innerlining immediately next to its body that istwice as strong as the best ceramics thathumans can make using very high tempera-ture kilns. The overlapping brick-like struc-ture of the seashell makes it very hard tocrack, protecting the abalone from sea ottersand the like. Dr. Jeffrey Brinker’s researchgroup at Sandia Labs found out that the iri-descent mother-of-pearl lining of the abaloneself-assembles at the molecular level whenthe animal excretes a protein that causes seawater to deposit out the building blocks of theabalone’s beautiful shell.39

The researchers mimicked the manufac-turing process of the mollusk to create min-eral/polymer layered structures that areoptically clear but almost unbreakable. Thisevaporation-induced, low-temperatureprocess enables the liquid building blocks toself-assemble and harden into complex“nano-laminate” structures. The bio-com-posite materials can be used as coatings totoughen windshields, airplane bodies, oranything that needs to be lightweight butfracture-resistant.40

Companies are using biomimicry to matchnot only the form of natural products but alsothe function of larger ecosystems. In July2007, Toyota Motor Corporation announcedplans to increase the sustainability of its pro-duction operations. The Tsutsumi Prius pro-duction plant will add a 2-megawatt solarelectric array. It will also paint some of its exte-rior walls and other surfaces with a photo-cat-alytic paint that breaks down airborne NOXand sulfur oxides. This will do as much toclean the air as surrounding the plant with2,000 poplar trees would have.41

The plant’s impressive biomimicry pro-gram is coupled with a strong foundation ofeco-efficiency. The plant is installing innov-ative assembly-line technology and further

streamlining current production systems suchas the Global Body Line and Set Parts Systemto greatly improve both productivity andenergy efficiency. By 2009, the plant isexpected to achieve an annual CO2 reductioneffect of 35 percent.42

The practice of using nature as model,measure, and mentor lies at the heart of thechange in the industrial mental model that willbe essential if humans are to survive. Natureruns a very rigorous, 3.8-billion-year-old test-ing laboratory in which products that do notwork are recalled by the manufacturer. AsJanine Benyus says: “Failures are fossils, andwhat surrounds us is the secret to survival.”43

The First Industrial Revolution was basedon brute force manufacturing processes thatinefficiently heat, beat, and treat massiveamounts of raw materials to produce a throw-away society. The next Industrial Revolutionwill rise upon the elegant emulation of life’sgenius, a survival strategy for the human race,and a path to a sustainable future. “The moreour world looks and functions like the naturalworld,” Benyus notes, “the more likely we areto endure on this home that is ours, but notours alone.”44

Riding the New Wave of Innovation

Business success in a time of technologicaltransformation demands innovation. Sincethe First Industrial Revolution, there havebeen at least six waves of innovation (see Fig-ure 3–1), each shifting the technologies thatunderpin economic prosperity. In the late1700s textiles, iron mongering, water-power,and mechanization enabled modern com-merce to develop.45

The second wave saw the introduction ofsteam power, trains, and steel. In the 1900s,electricity, chemicals, and cars began to dom-inate. By the middle of the twentieth century




it was petrochemicals and the space race,along with electronics. The most recent waveof innovation brought computers and usheredin the digital or information age. As theIndustrial Revolution plays out andeconomies move beyond iPods, older indus-tries will suffer dislocations unless they join theincreasing number of companies implement-ing the array of sustainable technologies thatare making up the next wave of innovation.46

Perhaps the tipping point in corporatemovement to greener production came whenGeneral Electric announced Eco-magination.As part of the initiative, GE board chairmanJeffrey Immelt promised to double the com-pany’s investment in environmental tech-nologies to $1.5 billion by 2010. He alsoannounced that GE would reduce the com-pany’s greenhouse gas emissions 1 percent by2012; without action, emissions would haverisen 40 percent. Immelt stated: “We believewe can help improve the environment andmake money doing it.”47

Critics charged that GE was greenwashing,simply labeling some of its existing productsas green and changing very little. Hypocrisy,

however, is often the first step to real change.A little less than a year after the campaign’slaunch, Immelt announced that his green-badged products had doubled in sales over theprior two years, with back orders for $50 bil-lion more, blowing away his initial predictionof $12 billion in sales by 2010. Over thesame time frame, the rest of GE productshad increased in sales only 20 percent. GE alsoannounced that it had reduced its GHG emis-sions by 4 percent in 2006, dwarfing its 2012target of 1 percent.48

Companies that increase resource pro-ductivity and implement sustainable produc-tion strategies such as biomimicry and cradleto cradle, especially in the context of a broaderwhole-system corporate sustainability strategy,improve every aspect of shareholder value.What constitutes shareholder value? Whatenhances it?

Traditionally, the “bottom line” measuredwhether a company was profitable. Morerecently, a company’s profits and stock valuehad to increase over the next quarter or thefirm was considered unworthy of investment.This highly questionable metric is so incom-




1785 1845 1900 1950 1990 2020

Inno

vatio

n

1st Wave

2nd Wave

3rd Wave

4th Wave

5th Wave

6th Wave

IronWater powerMechanization

TextilesCommerce

Steam powerRailroad

SteelCotton

ElectricityChemicalsInternal

combustion engine

PetrochemicalsElectronicsAviationSpace

Digital networksBiotechnology

Softwareinformationtechnology

SustainabilityRadical resource

productivityWhole system design

BiomimicryGreen chemistryIndustrial ecologyRenewable energy

Green nanotechnology

Source: Natural Edge

Figure 3–1. Waves of Innovation

patible with management of an enterprise forlong-term value that even the FinancialAccounting Standards Board has undertakento rewrite financial reporting to encouragealternatives to such short-sighted behavior.(See also Chapter 2.)49

Sustainability advocates have urged com-panies to manage a “triple bottom line”:achieve profit but also protect people andthe planet. While this is a tempting formula-tion, it has had the effect of bolting concernfor the environment and social well-beingonto companies as cost centers that reduce thetraditional measure of profit. A much moreuseful approach is that of the “integratedbottom line.” This recognizes that profit is avalid metric, but only one of many that givea company enduring value.50

Other aspects of shareholder value includeenhanced financial performance from energyand materials cost savings in industrialprocesses, facilities design and management,fleet management, and operations. Reducedrisk is another key point to consider, tied toinsurance access and cost containment, legalcompliance, reduced exposure to increasedcarbon regulations and price, and reducedshareholder activism. Finally, core businessvalue is enhanced through:• sector performance leadership;• greater access to capital; • first-mover advantage;• improved corporate governance;• the ability to drive innovation and retain

competitive advantage;• enhanced reputation and brand develop-

ment;

• increased market share and product differ-entiation;

• ability to attract and retain the best talent;• increased employee productivity and health;• improved communication, creativity, and

morale in the workplace;• improved value chain management; and• better stakeholder relations.

The validity of this management approachis borne out by a recent report from GoldmanSachs, which found that companies that areleaders in environmental, social, and goodgovernance policies have outperformed theMSCI world index of stocks by 25 percentsince 2005. Seventy-two percent of the com-panies on the list outperformed their indus-try peers.51

It is daunting to realize that achieving asustainable society will require changing howwe manufacture and deliver all our productsand services. But the evidence increasinglyshows that companies taking a leadershiprole in using resources more efficiently, inredesigning how they make products, and inmanaging their operations to enhance peo-ple and intact ecosystems have found a bet-ter way to make a bigger profit. Solving thechallenges of implementing a transition to asustainable society can unleash the biggesteconomic boom since the space race. Therehas never been a greater opportunity forentrepreneurs to do well by doing good andfor communities to enhance energy security,improve the quality of life, and enable peo-ple to join the transition to a more sustain-able future.





In a small apartment in the sprawling suburbsof Mumbai, the financial capital of India, 35-year-old George Varkey wakes at dawn tothe sound of his newborn baby’s unevenbreathing. Already the apartment is hot andhumid, the air stirred rather than cooled bysmall electric fans. His wife, Binnie, is prepar-ing breakfast. His elderly parents, four-year-old son, and younger brother are all still inbed. George is keen to be ready early. Todaya news team from the BBC in London iscoming to visit.1

George’s apartment has three rooms anda tiny kitchen. The modern apartment blockhas running water and electric power. Thereis a small fridge in the kitchen and a TV inevery other room. The family’s latest acqui-sition is a DVD player. Outside is George’sSuzuki sedan, essential to his small advertis-ing business. He takes home 55,000 rupees(a little under $1,200) a month. Togetherwith his brother’s earnings as a mechanic and

his wife’s part-time nursing, the family livesreasonably well on just over 1 million rupees($24,000) a year, well above the averagehousehold income in India of $3,000 a year.2

George and his family are part of a rapidlygrowing consumer market—India’s “bird ofgold.” In the last two decades, householdincome has roughly doubled. In the nexttwo decades, average incomes are expected totriple. By 2025 India will be the fifth largestconsumer market in the world, surpassingeven Germany in terms of overall spending.On a per capita basis, however, India willstill be poor. Each person will still spend onaverage less than 50,000 rupees, a little over$1,000, a year. Yet in only 20 years the shareof the population classified as “deprived” willbe more than halved—from 54 percent todayto 22 percent by 2025. And this is in spite ofthe fact that by then India will nearly havepassed China to become the most populousnation on Earth.3

C H A P T E R 4

Tim Jackson

The Challenge ofSustainable Lifestyles

Dr. Tim Jackson is Professor of Sustainable Development at the University of Surrey in the UnitedKingdom.

Someone who might benefit from thiseconomic “miracle” is 26-year-old VidyaShedge, another participant in the BBC pro-gram. Vidya lives with 10 members of herfamily in a single room in the considerablypoorer outskirts of Mumbai. There is no run-ning water, no fridge, and no DVD player.But they do now have electricity—enough toburn three incandescent lightbulbs and acouple of fans during the hottest part of theday. Vidya’s ambition is to save enough fromher 7,500 rupees ($160) a month job in abank to afford a car. She, too, is looking for-ward to her visit from the BBC. They wantto talk to her about “carbon footprints.”

Perhaps surprisingly, both George andVidya already know something about climatechange. They understand that human activ-ities are responsible for global warming.George has even discussed what his householdcan do to reduce their carbon emissions.Every room in the apartment has energy-efficient lightbulbs. A little more surprisingly,and in spite of believing that the industrialworld must lead the way, both George andVidya are relatively optimistic that somethingcan be done to halt climate change.

A recent international survey confirmsthese counterintuitive findings. In June 2007the HSBC Bank published a Climate Confi-dence Index. People in India showed thehighest level of concern about climatechange—60 percent of respondents placed itat the top of their list of concerns—the high-est commitment to change (alongside Brazil),and the highest level of optimism that soci-ety will solve this problem. Skepticism andintransigence, it seems, are mainly the domainof industrial nations. The United States andthe United Kingdom scored lowest on com-mitment. France and the United Kingdomscored lowest on optimism. India’s optimismin finding solutions is driven in particular bythe younger age groups. A whole new gen-

eration of Indians see hope in the future.4Justifying that hope will not be easy. For

George’s family, life has clearly improvedsince his parents’ generation. And yet hisstandard of living—measured in conventionalterms—is modest at best. Vidya’s family hasa massive hill to climb. Eleven people livingin one small room with a combined incomeof $16 a day is a level of poverty long con-signed to history in the West. So how is itgoing to be possible for George, Vidya, 1billion other Indians, and great numbers ofChinese (not to mention people in Africa,Latin America, and the rest of Southeast Asia)to achieve the standard of living taken forgranted in the United States—and still “solvethe problem” of climate change?

How can a world of finite resources andfragile environmental constraints possiblysupport the expectations of 9 billion peoplein 2050 to live the lifestyle exemplified for solong by the affluent West? That is the chal-lenge that guides and frames this chapter.5

The Math of SustainabilityBroadly speaking, the impact of human soci-ety on the environment is determined by thenumber of people on the planet and the wayin which they live. The math of the relation-ship between lifestyle and environment ispretty straightforward. It was set out severaldecades ago by Paul Ehrlich of Stanford Uni-versity and has been explored in detail inmany other places since. In essence, the les-son is simple. Reducing the overall impact thatpeople have on the environment can happenin only a limited number of ways: changinglifestyles, improving the efficiency of tech-nology, or reducing the number of people onthe planet.6

The question of population is clearly crit-ical. Population is one of the factors that“scales” humanity’s impact on the planet.



The Challenge of Sustainable Lifestyles

Another is the expectations andaspirations of the increasing pop-ulation. This chapter focuses pri-marily on the latter. But a simpleexample based on George andVidya’s carbon footprints helpsillustrate the relationship.

In George’s household, thecarbon footprint is around 2.7tons of carbon dioxide (tCO2) perperson. In Vidya’s, it is less thana fifth of this, under 0.5 tCO2 perperson. (The average carbon foot-print in India is 1 tCO2 per per-son.) The difference is mainly dueto the different level and patternof consumption in the two house-holds, since the efficiency of tech-nology providing goods andservices is pretty much the same.Basically, George’s household enjoys a muchhigher standard of living in conventionalterms. If India’s 1 billion people all lived asGeorge does now, that country would havemoved from fifth place in the list of carbonemitters in 2004 to third, below only theUnited States and China. (See Table 4–1.)Their personal carbon footprints would stillbe low by western standards, however.7

The technological efficiency of providinggoods and services is higher in the EuropeanUnion (EU) and the United States than it isin India. All other things being equal, then,this should lower the carbon footprint inindustrial nations. So huge regional dispari-ties in per capita footprint are almost entirelydue to the pattern and level of consump-tion—to differences in lifestyle.

Clearly, western nations have been the keydriver of climate change so far. Between 1950and 2000, the United States was responsiblefor 212 gigatons of carbon dioxide, whereasIndia was responsible for less than 10 percentas much. So it is clear that the richest people

on the planet are appropriating more thantheir fair share of “environmental space.” Yetthis lifestyle is increasingly what the rest of theworld aspires to.8

Much is made of efficiency improvements.And some relative improvements in the car-bon intensity of growth are evident in somecountries. (See Figure 4–1.) But these gainsare slow at best, and in China they have beenreversed in recent years. This is one reasonthat China’s carbon dioxide emissions recentlysurpassed those of the United States. Acrossthe world as a whole, greenhouse gas emis-sions grew by 80 percent between 1970 and2004 and could double again by 2030.9

In summary, any gains in technologicalefficiency are simply being swamped by thesheer scale of rising aspirations and an increas-ing population. If everyone in the world livedthe way Americans do, annual global CO2emissions would be 125 gigatons—almostfive times the current level—by the middle ofthe century. In stark contrast, the Intergov-ernmental Panel on Climate Change has esti-




Country CO2 Emissions or Region Population Emissions per Person

(million) (million tons) (tons of CO2)United States 294 5,815 19.8China 1,303 4,762 3.7Russia 144 1,553 10.8Japan 128 1,271 10.0India 1,080 1,103 1.0Germany 83 839 10.2United Kingdom 60 542 9.1France 62 386 6.2Bangladesh 139 35 0.3European Union(15 countries) 386 3,317 8.6

World 6,352 26,930 4.2


Table 4–1. Population and Carbon Dioxide Emissions, Selected Countries, 2004

mated that the world needs to reduce globalemissions by as much as 80 percent over1990 levels by 2050 if “dangerous anthro-pogenic climate change” is to be averted.This would mean getting global emissionsbelow 5 gigatons and reducing the averagecarbon footprint to well under 1 ton per per-son, lower than it now is on average in India.10

This challenge clearly calls for an exami-nation of assumptions about the way peoplelive. What is it that drives and frames people’saspirations for the “good life”? What liesbehind the runaway aspirations that seem sounstoppable in the West and are rapidlybecoming the object of desire in every othernation?

The “Science of Desire” In the conventional economic view, con-sumption is the route to human well-being.The more people have, the better off they aredeemed to be. Increasing consumption leadsto improved well-being, it is claimed.

This view goes a long way toward explain-ing why the pursuit of the gross domestic

product (GDP) hasbecome one of theprincipal policy objec-tives in almost everycountry. Rising GDPsymbolizes a robust andthriving economy,more spending power,richer and fuller lives,increased family secu-rity, greater choice, andmore public spending.The rise of India’s “birdof gold,” its consumerclass, is heralded infinancial markets withhuge delight. China’svigorous economy has

led to an equally striking sense of marketoptimism.11

Economics has remained almost willfullysilent, however, on the question of why peo-ple value particular goods and services at all.The “utilitarian” model has become so widelyaccepted that most modern economic text-books barely even discuss its origins or ques-tion its authenticity. The most that economistscan say about people’s desires is what theyinfer from patterns of expenditure. If thedemand for a particular automobile or house-hold appliance or electronic device is high, itseems clear that consumers, in general, pre-fer that brand over others. Their reasons forthis remain opaque within economics.12

Fortunately, other areas of research—suchas consumer psychology, marketing, and“motivation research”—have developed asomewhat richer body of knowledge. This“science of desire” has mainly been dedi-cated to helping producers, retailers, mar-keters, and advertisers design and sell productsthat consumers will buy. Little of the researchconcerns itself explicitly with the environ-mental or social impacts of consumption.




1990 1992 1994 1996 1998 2000 20042002

kilo

gram

s of

CO

2 pe

r do

llar

GD

P (p

pp)

Source: IEA

Figure 4–1. Carbon Intensity of GDP, 1990–2004

0.0

0.3

0.6

0.9

1.2

1.5

China

India

United States

World

EU15

Indeed, some of it is downright antitheticalto sustainability. But its insights are extremelyvaluable for a proper understanding of con-sumer motivation.13

For a start, it is immediately clear thatconsumption goes way beyond just satisfyingphysical or physiological needs for food, shel-ter, and so on. Material goods are deeplyimplicated in individuals’ psychological andsocial lives. People create and maintain iden-tities using material things. “Identity,” claimconsumer researchers Yiannis Gabriel andTim Lang, “is the Rome to which all theoriesof consumption lead.” People narrate thestory of their lives through stuff. They cementrelationships to others with consumer arte-facts. They use consumption practices toshow their allegiance to certain social groupsand to distinguish themselves from others.14

It may seem strange at first to find that sim-ple stuff can have such power over emotionaland social lives. And yet this ability of humanbeings to imbue raw stuff with symbolicmeaning has been identified by anthropolo-gists in every society for which records exist.Matter matters to people. And not just inmaterial ways. The symbolic role of merestuff is borne out in countless familiar exam-ples: a wedding dress, a child’s first teddybear, a rose-covered cottage by the sea. The“evocative power” of material things facilitatesa range of complex, deeply ingrained “socialconversations” about status, identity, socialcohesion, and the pursuit of personal andcultural meaning.15

Material possessions bring hope in times oftrouble and offer the prospect of a betterworld in the future. In a secular society, con-sumerism even offers some substitute for reli-gious consolation. Recent psychologicalexperiments have shown that when peoplebecome more aware of their own mortality,they strive to enhance their self-esteem andprotect their cultural worldview. In a con-

sumer society, this striving has materialisticoutcomes. It is almost as though people aretrying to hold their existential anxiety at bayby shopping.16

At a recent Consumer Forum organizedfor the Sustainable Consumption Round-table in the United Kingdom, people wereasked to talk about their hopes and fearsfor the next decade or so. They spoke abouttheir desire to do well for their children andgrandchildren. There was a strong wish tolive in safe, sociable communities. Peopleexpressed spontaneous concern about oth-ers, about poverty in the developing world,and—without being told the interests of thesponsors—about the environment: climatechange, resource scarcity, recycling. Shotthrough these expressions of concern, how-ever, like a light relief, were recurrent, per-sistently materialist themes: big houses, fastcars, and holidays in the sun. Getting onand getting away pervades narratives oflifestyle success.17

This deep reliance on material goods forsocial functioning is not unique to the west-ern world. George and Vidya also say theywant to see a good future for their children.They want to do well and be seen to do wellamong their peers. Just below the surface,these aspirations are cashed out in broadlywestern terms. Vidya’s overriding ambition isto afford a car. For the first time in theirlives, George and Binnie are planning a hol-iday outside India. Getting on and gettingaway means as much there as it does in Lon-don, Paris, New York, and Sydney.18

Very similar values and views are clearlydiscernible in China, Latin America, andeven parts of Africa. The consumer societyis now in effect a global society—one inwhich, to be sure, there are still “islands ofprosperity, oceans of poverty,” as Indianecologist Madhav Gadjil puts it. But one inwhich the evocative power of material goods




increasingly creates the social world andprovides the dominant arbiter of personaland societal progress.19

The Paradox of Well-being In the conventional view, the recipe forprogress is simple: the more people consume,the happier they will be. A close look at whatmotivates consumers uncovers a whole rangeof factors—family, friendship, health, peerapproval, community, purpose—known tohave a strong correlation with reported hap-piness. In other words, people really do con-sume in the belief that it will deliver friends,community, purpose, and so on. But there isa paradox at work here that at one level istragic. People have a good grasp of the thingsthat make them happy but a poor grasp of howto achieve these things. The assumption thatmore and more consumption will deliver moreand more well-being turns out to be wrong.20

Using data collected in the World ValuesSurvey, Ronald Inglehart and Hans-DieterKlingemann examined the hypothesis thathappiness (or life satisfaction) is linked toincome growth. The good news is that theequation just about works for George andVidya. There is an increasing trend in lifesatisfaction at lower levels of income. (See Fig-ure 4–2.) The bad news is that the relation-ship will begin to diminish as their incomesrise further. Across most industrial countriesthere is at best only a weak correlationbetween increased income and reported hap-piness. And in countries with average incomesin excess of $15,000, there is virtually nocorrelation between increased income andimproved life satisfaction.21

The same paradox is found within indi-vidual nations over time. Real income perhead has tripled in the United States since1950, but the percentage of people reportingthemselves to be very happy has barely

increased at all—in fact, it has declined sincethe mid-1970s. In Japan, there has been lit-tle change in life satisfaction over severaldecades. In the United Kingdom, the per-centage reporting themselves very happydropped from 52 in 1957 to 36 today.22

Some key aspects of people’s well-being, farfrom improving, appear to have declined inwestern nations. Rates of depression havebeen doubling every decade in North Amer-ica. Fifteen percent of Americans age 35 havealready experienced a major depression. Fortyyears ago, the figure was only 2 percent. Onethird of people in the United States now expe-rience serious mental illness at some point intheir lives, and almost half of these will sufferfrom a severe, disabling depression. During anysingle year, about 6 percent of the populationwill suffer from clinical depression; suicide isnow the third most common cause of deathamong young adults in North America.23

Teasing out the underlying causes of thisunhappiness is not particularly easy. But thereare two fairly compelling sets of data sug-gesting that consumerism itself is partly toblame. The first set suggests a negative cor-relation between materialistic attitudes andsubjective well-being. Philosopher Alain deBoton has shown how an unequal societyleads to high levels of “status anxiety” in itscitizens. Psychologist Tim Kasser and his col-leagues have shown how people with morematerialistic attitudes—people who defineand measure their own worth through moneyand material possessions—report lower levelsof happiness. Striving for self-esteem throughmaterial wealth appears to be a kind of “zero-sum game” in which the constant need forbetterment and approval only serves toentrench people in an almost neurotic spiralof consumption.24

A second, equally compelling set of evi-dence relates rising unhappiness to the under-mining of certain key institutions. Subjective




well-being depends critically on family stabil-ity, friendship, and strength of community. Butthese aspects of life have suffered in the con-sumer society. Family breakdown, for exam-ple, has increased by almost 400 percent in theUnited Kingdom since 1950. The percentageof Americans reporting their marriages as“very happy” declined significantly over just20 years during the latter part of the last cen-tury. People’s trust and sense of communityhave fallen dramatically over the last 50 years.

In the middle of the twentieth century, morethan half of all Americans believed that peo-ple were “moral and honest.” By 2000 theproportion had fallen to little over a quarter.Participation in social and community activi-ties declined markedly over the same period.25

In other words, there appears to be a cor-relation between rising consumption and theerosion of things that make people happy—particularly social relationships. This correla-tion does not necessarily mean, of course,




Mea

n of

Per

cent

Hap

py a

nd P

erce

nt S

atisf

ied

with

Life

as

a W

hole

90

100

30

40

50

60

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Source: : Inglehart and Klingemann

Figure 4–2. Subjective Well-being and Per Capita Income, 2000

GNP per Person (ppp estimates, 1995 dollars)

1000 90005000 13000 17000 21000 25000

BelarusUkraine

Russia

BulgariaArmenia

Lithuania

Georgia

Romania

Estonia

LatviaAzerbaijan

PeruMacedonia

SlovakiaHungaryCroatia

South AfricaSlovenia

Turkey

Poland

Mexico

Dom. Rep.

Argentina

ChileUruguay

Venezuela

TaiwanSouth Korea

Puerto Rico

Spain

NewZealand

IrelandN. Ireland

FinlandSweden

AustraliaBritain Canada

BelgiumNorway

DenmarkSwitzerland

UnitedStatesItaly

FranceJapan

Austria

IcelandNetherlands

CzechRepublic Portugal

IndiaPakistan

NigeriaBangla-desh

GhanaPhilippines Brazil

Colombia

China

Moldova

that one thing “causes” the other. But inpractice, as described later, there are somepretty compelling reasons to take seriously theidea that the structures and institutions thatare needed to maintain growth simultane-ously erode social relationships. As economistRichard Layard describes it: consumptiongrowth has “brought some increase in hap-piness, even in rich countries. But this extrahappiness has been cancelled out by greatermisery coming from less harmonious socialrelationships.”26

One tragic result of this elusive search forhappiness is that industrial societies are clos-ing off options for other people, both nowand in the future, to lead fulfilling lives—without even being able to show reward forit in the here and now.

Live Better by Consuming Less?

The paradox of well-being begs the ques-tion, Why do people continue to consume?Why not earn less, spend less, and have moretime for families and friends? Couldn’t peo-ple live better—and more equitably—thisway and at the same time reduce humanity’simpact on the environment?

This idea has provided the motivation fornumerous initiatives aimed at living moresimply. “Voluntary simplicity” is at one levelan entire philosophy for life. It draws exten-sively on the teachings of Mahatma Gandhi,who encouraged people to “live simply, thatothers might simply live.” In 1936, a studentof Gandhi’s described voluntary simplicityin terms of an “avoidance of exterior clutter”and the “deliberate organisation of life for apurpose.” Former Stanford scientist DuaneElgin picked up this theme of a way of life thatis “outwardly simple, yet inwardly rich” as thebasis for revisioning human progress. Morerecently, psychologist Mihály Csíkszentmi-

hályi has offered a scientific basis for thehypothesis that people’s lives can be more sat-isfying when they are engaged in activities thatare both purposive and materially light.27

Sociologist Amitai Etzioni has identifiedthree kinds of people pursue simplicity.“Downshifters” are those who, having achieveda given level of wealth, make a conscious choiceto reduce their income; they then moderatetheir lifestyle so they can spend more timewith family or pursuing community or personalinterests. “Strong simplifiers” are those whogive up highly paid, high-status jobs altogetherand accept radically simpler lifestyles. The mostradical contingent are the “dedicated, holisticsimplifiers,” who embrace radical change andadjust their entire lives around an ethical visionof simplicity, sometimes motivated by spiritualor religious ideals.28

Some of these initiatives, such as the Find-horn community in northern Scotland,emerged initially as spiritual communities,attempting to create space in which to reclaimthe contemplative dimension of living thatused to be captured by religious institutions.Findhorn’s character as an eco-village devel-oped more recently, building on principles ofjustice and respect for nature. Another mod-ern example is Plum Village, the “mindful-ness” community established by an exiledVietnamese monk, Thich Nhat Hahn, in theDordogne area of France, which now providesa retreat for at least 2,000 people. At onelevel these initiatives are modern equivalentsof more traditional religious communities likethose of the Amish in North America or Bud-dhist monasteries in Thailand, which everyyoung male is expected to spend some time inbefore going out into professional life.29

Not all networks have this explicit spiritualcharacter, however. The Simplicity Forum, forexample, launched in North America in 2001is a loose secular network of “simplicity lead-ers” who are committed to “achieving and




honoring simple, just and sustainable ways oflife.” Downshifting Downunder is an evenmore recent initiative, started following aninternational conference on downshifting inSydney in 2005; its aim is to “catalyze and co-ordinate a downshifting movement in Aus-tralia that will significantly impactsustainability and social capital.”30

The downshifting movement now has asurprising allegiance across a number of indus-trial economies. A recent survey in Australiafound that 23 percent of respondents hadengaged in some form of downshifting inthe preceding five years. A staggering 83 per-cent felt that Australians are too materialistic.An earlier study in the United States foundthat 28 percent of those surveyed had takensome steps to simplify and 62 percentexpressed a willingness to do so. Very similarresults have been found in Europe.31

Research on the success of these initia-tives is quite limited, but existing studiesshow that simplifiers really have less materi-alistic values and show greater respect for theenvironment and for others. More impor-tant, simplifiers appear to show a small but sig-nificant increase in subjective well-being.Consuming less, voluntarily, can improvewell-being—completely contrary to the con-ventional model.32

The backlash against consumerism bearswitness to an emerging counterculture thatrecognizes the limits of the consumer societyand is looking for something beyond it. BuyNothing Day every November—dedicatedto persuading people to resist consumerism—is now an international phenomenon. In2006 there were initiatives on the streets inalmost 30 countries and in scores of cities,including, for the first time, a demonstrationon the streets of Mumbai.33

Equally striking is the rise of the TransitionTowns concept—towns and cities that havedeclared unilateral action against the twin

threats of peak oil and climate change.Launched in September 2006 in the smalltown of Totnes in southwest England, theU.K. network expanded to over 20 townsand cities in only a year. In the United States,400 cities have signed the U.S. Mayors Cli-mate Protection Agreement, which pledges tomeet the Kyoto Protocol targets on reducingCO2 emissions, in spite of the federal gov-ernment’s refusal to ratify the protocol.34

It is important not to get too carried awaywith this evidence. Simple living communitiesremain marginal. The religious basis for themdoes not appeal to everyone, and the secularversions seem less resistant to the incursionsof consumerism. Downshifting Downundergenerated a flurry of activity in Australia for sixmonths or so, for instance, but barely func-tions as a working network only two yearslater. Some of these initiatives depend heav-ily on individuals having sufficient personalassets to provide the economic security neededto pursue a simpler lifestyle. Finally, it is clearthat forced or involuntary simplicity is quiteanother story. Subjective well-being plum-meted in the “transition economies” (formerSoviet states) during the 1990s.35

As the evidence on global consumerismmakes abundantly clear, mainstream con-sumer values show little sign of slowing downthe pace of material and environmental profli-gacy. Existing attempts to live better by con-suming less remain marginal at best. So thequestion remains, Why do people continue toconsume, knowing the social and environ-mental consequences, even beyond the pointat which it adds to their satisfaction?

Competing for Status—and for Survival

Is the urge to consume somehow “natural,”hardwired through evolution? Certainly, thedesire for comfort, a decent home, good




relationships with friends and family, doingwell in the community, and perhaps broad-ening horizons through experience appear tobe very widespread. The emerging field ofevolutionary psychology suggests that humandesires do indeed have their roots in ances-tral origins.36

Genetic succession depends on two criticalfactors: surviving long enough to reach repro-ductive age and finding a mate. So humannature is conditioned by the need to get thematerial, social, and sexual resources requiredfor these tasks. In particular, argues evolu-tionary psychology, people are predisposed to“position” themselves constantly in relation tothe opposite sex and against their sexual com-petitors. As a (male) reviewer of one book onevolutionary psychology noted with someglee: “Animals and plants invented sex to fendoff parasitic infection. Now look where it hasgot us. Men want BMWs, power and moneyin order to pair-bond with women who areblonde, youthful and narrow-waisted.”37

To make matters worse, this fundamen-tal element of sexual competition neverabates. People adapt to any given level of sat-isfaction and continually expand their aspi-rations. This response may be conditioned bythe fact that everyone else is engaged in thesame unending struggle. There is an evolu-tionary advantage in never being satisfied.But the result is that people find themselvescondemned to run faster and faster, like theRed Queen in Lewis Carroll’s novel Throughthe Looking Glass, just to maintain their posi-tion in the race.38

The idea that consumerism may havesomething to do with sex has a clear reso-nance with common wisdom. Advertisersand media executives are extraordinarily cre-ative in using sex and sexual imagery to selltheir products. In a recent study of people’sbehavior in three completely different cul-tures, researchers found that consumer moti-

vations are almost inextricably entwined inthe language and imagery of sexual desire.The fact that material things play a role increating and maintaining desire is centralhere. As a respondent in the study remarked:“No one’s gonna spot you across the otherside of a crowded room and say: ‘Wow! Nicepersonality!’”39

Survival itself is mediated by social status.This is most graphically illustrated by theplight of India’s 170 million Dalits. Literallytranslated, Dalits means “the broken peo-ple,” and life at the bottom of India’s castesystem is tough. Infant mortality and under-nourishment are high; literacy, access to healthcare, and life expectancy are all significantlylower than the national average. Workers inthe stone trade—almost exclusively Dalits—can have a life expectancy as low as 30 years,compared with a national average of 62.40

This effect is by no means confined topoorer countries. Recent evidence has shownhow closely health and well-being are relatedto social status in industrial countries. A fas-cinating example of this was revealed by theU.K. government’s research on life satisfac-tion across different “life domains.” (SeeFigure 4–3.) Poorer people reported lowerlife satisfaction in almost all domains. Onenotable exception was higher satisfactionwith their community. People employed inhigher-status jobs pay a price, it seems, interms of social relationships. Being poormay have some limited advantages in this onearea. On the whole, however, inequalityfavors the rich. Though it might underminesocial relationships, reduce overall well-being, and even corrupt values in patho-logical ways, the evidence suggests that beingbetter off really does pay in terms of indi-vidual well-being.41

The problem for society is threefold. First,at the aggregate level, this intense status com-petition leads to less happy societies. Unequal




societies systematicallyreport higher levels of“distress” than moreequal ones. Second,this mechanism forachieving happinessappears to have no end-point. There is no get-ting off the “hedonictreadmill” of risingincome and increasingconsumption. Third,the environmental andresource implications ofthis unproductive “raceto the top” are quitesimply unsustainable.Taken together withthe vast inequalities—the “oceans of pov-erty”—that still persistacross the world, thesethree problems repre-sent an enormous chal-lenge to consumerism.But they also begin topoint toward theimportance of socialstructure in determining whether or not soci-ety is sustainable.42

The “Iron Cage” of Consumerism

Left to their own devices, it seems, there is notmuch hope that people will spontaneouslybehave sustainably. As evolutionary biologistRichard Dawkins has concluded, sustainabil-ity just “doesn’t come naturally” to human-kind. But it is a mistake to assume thatevolutionary motivations are all selfish. Evo-lution does not preclude moral, social, andaltruistic behaviors. Social behaviors evolved in humans precisely because they offer selec-

tive advantages to the species. An importantlesson from evolutionary psychology is that thebalance between selfish and cooperative behav-iors depends critically on the kind of societythey occur in.43

Social behavior can exist—to someextent—in all societies. In very competitivesocieties, self-serving behavior tends to bemore successful than cooperation. But in asociety characterized by cooperation, altruis-tic behaviors tend to be favored over selfishones. In other words, the balance betweenaltruism and selfishness is not hardwired inpeople at all. It depends critically on socialconditions: rules, regulations, cultural normsand expectations, government itself, and the




Source: Defra

Figure 4–3. Domain Satisfaction by Social Group, England

Relationships

Accommodation

Standardof living

Local area

Day-to-dayactivities

Health

Leisure

Control

Achievementof goals

Future financialsecurity

Community

-15 -10 -5 0 5 10

Key (examples of occupations in each social group)

AB: doctor, lawyer, accountant, teacher, nurse, police officerC: junior manager, student, clerical worker, foreperson, plumberD: manual worker, shop worker, apprenticeE: casual laborer, unemployed

Percentage difference from overall average

ABCDE

set of institutions that frame and constrain thesocial world.44

So there are some searching questions toask about the balance of the institutions thatcharacterize modern society. Do they pro-mote competition or cooperation? Do theyreward self-serving behavior or people whosacrifice their own gain to serve others? Whatsignals do government, schools, the media,and religious and community institutionssend out to people? Which behaviors are sup-ported by public investment and infrastruc-ture and which are discouraged?

Increasingly, it seems, the institutions ofconsumer society encourage individualismand competition and discourage social behav-ior. Examples are legion: private transport isencouraged through incentives over publictransport; motorists are given priority overpedestrians; energy supply is subsidized andprotected, while demand management isoften chaotic and expensive; waste disposal ischeap, economically and behaviorally, whilerecycling demands time and effort. Thesekinds of asymmetry represent an “infrastruc-ture of consumption” that sends all the wrongsignals, penalizing pro-environmental behav-ior, making it all but impossible even forhighly motivated people to act sustainablywithout personal sacrifice.45

Equally important are the subtle but dam-aging signals sent by government, regula-tory frameworks, financial institutions, themedia, and education systems. Salaries inbusiness are higher than those in the publicsector, particularly at the top; nurses andthose in the caring professions are consis-

tently poorly paid; private investment capitalis written down at high discount rates, mak-ing long-term costs invisible; success iscounted in terms of material status; childrenare becoming a “shopping generation”—hooked on brand, celebrity, and status.46

At one level, the task facing sustainabilityis as old as the hills: balancing individual free-doms against the social good. This relies cru-cially on being able to make prudent choices,at the individual and the social level, betweenthe present and the future. Rampant indi-vidualistic behavior that seeks short-termgratification ends up undermining well-beingnot just for the individual but for society asa whole. So the task for sustainability—indeed, for any society—is to devise mecha-nisms that prevent this “undermining ofwell-being” and preserve the balance betweenpresent desires and future needs.

Oxford economic historian Avner Offeraddresses exactly this task in The Challenge ofAffluence. Unaided, argues Offer, individualchoices tend to be irredeemably myopic. Peo-ple favor today too much over tomorrow, inways that—to an economist—are entirelyinexplicable under any rational rate of dis-counting of the future. Offer’s unique con-tribution is to suggest that this fallibility has(or in the past had) a social solution. And thatsolution is precisely what affluence is in theprocess of eroding.47

To avoid trading away long-term well-being for the sake of momentary pleasures,society has evolved a whole set of “commit-ment devices”: social and institutional “mech-anisms” that constrain people’s choices inways that moderate the balance of choiceaway from the present and in favor of thefuture. Savings accounts, marriage, normsfor social behavior, government itself in somesense—all these can be regarded as examplesof mechanisms that make it a little easier forpeople to curtail their evolutionary appetites




Increasingly, it seems, the institutionsof consumer society encourageindividualism and competition anddiscourage social behavior.

for immediate arousal and protect their ownfuture interests. And, indeed, the interestsof affected others.

The “challenge” Offer addresses is thataffluence is eroding and undermining thesecommitment devices. The increase in familybreakdown and the decline in trust havealready been noted. Parenthood has beenplaced under increased financial and socialpressure in industrial countries. And in termsof economic commitment, it is telling thatsavings rates fell worldwide in the secondhalf of the last century, declining by 5–10 per-centage points across the United States andEurope. Meanwhile, consumer debt hassoared, rising from $1 trillion to $2.5 trillionin the United States alone between 1995 and2007. The role of government itself has beenincreasingly “hollowed out” as politicians onboth left and right sought to bolster eco-nomic output and free up the “invisible hand”of the market.48

The drivers behind these trends are com-plex, but a key responsibility, argues Offer,lies with the relentless stream of noveltyinherent in consumption growth. Evidenceseems to bear this out. “Accelerating therate of innovation is a top priority for tech-nology managers,” notes the U.S.-basedIndustrial Research Institute. The rate ofinnovation is driven in turn by the structuralreliance of businesses and the economy ongrowing consumption. Novelty keeps peo-ple buying more stuff. Buying more stuffkeeps the economy going. The continuingexpansion of the market into new areas andthe continuing allegiance of consumersappear to be vital to this process—even asthey erode commitment devices and under-mine well-being.49

The end result is a society “locked in” toconsumption growth by forces outside thecontrol of individuals. Lured by humanity’sevolutionary roots, bombarded with per-

suasion, and seduced by novelty: consumersare like children in a candy store, knowingthat sugar is bad to eat, but unable to resistthe temptation. This is a system in whichno one is free. People are trapped by theirown desires. Companies are driven by theneed to create value for shareholders, tomaximize profits. Nature and structure com-bine to lock people firmly into the “ironcage” of consumerism.50

Living Well—and Within Limits

Put simply, sustainability is about living well,within certain limits. For this to happen,across a global population approaching 7billion and expected to reach 9 billion by2050, people’s patterns of consumption haveto change.51

Achieving this is a colossal task. But it is notan impossible one. A proper understanding ofthe relationship between individual desiresand the social good is vital here. As noted ear-lier, consuming comes naturally tohumankind. Restraint does not. Changerequires a supportive social environment.People are torn constantly between self-enhancement and self-transcendence. Thereis little individuals can do to shift their under-lying nature. But the balance between self-serving and social behaviors is malleable at thesocial level. In one social context, selfishnesswill imprison us, impoverish people’s lives,and may ultimately destroy the living envi-ronment. In another, the common good willprevails and people’s lives will be richer, moresatisfying, and more fulfilling.

There is clear evidence of an appetite forchange. During an 18-month project, theSustainable Consumption Roundtable in theUnited Kingdom identified a strong desire forcollective action. I Will If You Will—the titleof the Roundtable report—was a common




theme emerging from a range of socialresearch. This effect is not confined to theUnited Kingdom. The evidence on down-shifting and simplicity, reactions against con-sumerism, the high levels of commitment tochange (even in developing countries) foundin the HSBC survey, a rising interest in alter-natives to consumerism: all these are real,demonstrable effects. But good intentionsare not enough, and they will continue to beundermined unless physical infrastructure,institutions, and social structures change.52

Who is capable of influencing these widerstructures? Ultimately, of course, all sectionsof society must take responsibility for change.Government, business, and consumers allhave some role to play; the media, commu-nity groups, religious institutions, and tradi-tional wisdom are all essential influences onthe social environment. But without strongleadership from government, change will beimpossible. Individuals are too exposed tosocial signals and status competition. Busi-nesses operate in competitive markets. A tran-sition from self-interest to social behaviorsrequires changes in underlying structures—changes that strengthen commitment andencourage social behavior. Government isthe principal agent in protecting the socialgood. A new vision of governance thatembraces this role is critical.

Two or three key tasks are vital here. Inthe first place, policies need to support aninfrastructure of sustainability: access to reli-able public transport, recycling facilities,energy efficiency services, maintenance andrepair, re-engineering and reuse. Systematicbiases against these facilities have to be dis-mantled and policies to encourage thembrought into place.53

The second key task lies in establishingfiscal and institutional frameworks that sendconsistent signals to businesses and consumersabout sustainable consumption. A core exam-

ple of this is the role of a “social cost of car-bon” in providing incentives for investmentsin low-carbon technologies and behaviors.The Stern Review on the economics of cli-mate change suggests that this cost mightbe as high as $85 per ton of CO2. There is nodoubt that internalizing this cost in marketprices and investment decisions would havea major influence on reducing carbon emis-sions. The review also cast doubt on prevail-ing discounting practices, suggesting thatzero or even negative discount rates might beappropriate when looking at projects withlong-term impacts on the environment.54

But the role of government is not confinedto fiscal frameworks. The way energy indus-tries are regulated, for instance, has a pro-found effect on the incentives for demandmanagement and energy service companies.Product policy can have a significant influenceon access to durable, efficient products thatminimize environmental harm. Recent EUlegislation, for example, has already led to pro-gressive improvements in the efficiency ofenergy-consuming appliances. Australiapledged early in 2007 to outlaw incandescentlightbulbs before 2010. The 27 EU nationshave now followed that example. Surveyingevidence of policy successes, the SustainableConsumption Roundtable found that pro-gressive standards, clearly signaled to manu-facturers in advance, are a particularly effectiveinstrument for moving toward more-sus-tainable consumption.55

The influence of government on socialnorms and expectations is, at first sight, lessobvious. Policymakers are uncomfortablewith the idea that they have a role in influ-encing people’s values. But the truth is thatgovernments intervene constantly in the socialcontext. Myriad different signals are sent out,for example, by the way education is struc-tured, by the importance accorded to eco-nomic indicators, by guidelines for public




sector performance, by public procurementpolicies, by the impact of planning guide-lines on public and social spaces, by the influ-ence of wage policy on the work-life balance,by the impact of employment policy on eco-nomic mobility (and hence on family struc-ture and stability), by the effect of tradingstandards on consumer behavior, by thedegree of regulation of advertising and themedia, and by the support offered to com-munity initiatives and faith groups. In allthese arenas, policy shapes and helps create thesocial world.

As this chapter suggests, the drift of theseinfluences over the last few decades has beenaway from encouraging commitment and infavor of encouraging consumption. But thereare some striking counterexamples: placeswhere strenuous efforts have been made torein in consumerism and focus more specifi-cally on well-being. Several nations, includ-ing the United Kingdom, Canada, and China,have begun to develop “well-beingaccounts”—new ways of measuring nationalprogress alongside or in place of the GDP.(See Chapter 2.) In late 2007, the Organisa-tion for Economic Co-operation and Devel-opment, the European Commission, andseveral nongovernmental groups cohosted amajor international conference, “BeyondGDP,” designed to look at more effectivemeasures of social progress.56

A crucial arena for action lies in advertis-ing, particularly ads directed at children.Global advertising expenditures now amountto $605 billion (with the United States aloneaccounting for $292 billion). The figure isgrowing at the rate of 5–6 percent a year,with online advertising growing faster thanany other sector, at between 30 percent and40 percent a year. The impact of this, par-ticularly on children, is pernicious. Market-ing pressure has been linked explicitly torising childhood obesity.57

At an international conference in 2006,the World Health Organization stopped shortof banning advertising to children, but Scan-dinavian nations have taken a more proactivestance. In Sweden, TV advertising to chil-dren under 12 is banned. Norway, too, hasrestrictions on children’s advertising, and theConsumer Ombudsman has an educationalrole in Norwegian schools. Recent advertis-ing guidelines in Norway include a ban onadvertising cars as “green,” “clean,” or “envi-ronmentally friendly.” Although a Norwe-gian plan to develop anti-consumption advertsfailed to attract funding in the United Nations,the nongovernmental group Adbusters, basedin Vancouver, Canada, remains a focus ofresistance to commercial advertising. Perhapsmost striking of all, São Paulo, Brazil, thefourth largest city in the world, has recentlybecome the first city outside socialisteconomies to ban outdoor advertising.58

Religious leadership has declined sub-stantially in industrial countries. But tradi-tional wisdom is still an important influenceon the debate about living well. In less sec-ular societies, religion plays a number ofroles. It warns against material excess; it pro-vides a social and spiritual context for self-transcendence, altruism, and other-regardingbehavior; and it offers a space for contem-plation in which to make sense of people’slives in deeper and more meaningful waysthan those provided by the fleeting consola-tions of consumerism.

One thing is clear: if a part of the functionof consumerism is to deliver hope—as indi-cated earlier—then countering consumerismmeans building new avenues of hope thatare less reliant on material goods. In countries




Australia pledged early in 2007 to outlawincandescent lightbulbs before 2010.

where religious institutions are still strong, thistask is much easier. In Southeast Asia, forexample, in response to the economic crisis ofthe mid-1990s, the King of Thailand revivedthe traditional concept of the SufficiencyEconomy, built on Buddhist principles, andprovided a much-needed frame of referenceto help countless microenterprises in ruralvillages survive the economic shocks of therecession and build a sustainable future inits aftermath. In the mountain Kingdom ofBhutan, progress is being reconceived in partas a spiritual endeavor. In many Islamicnations, the framework for moral restraint isalready in place. From a western perspective,this framework is often seen as oppressive ofindividual freedoms, particularly for women.But Islam—and other religious traditions—are important sources of understanding thelimits of relying on human nature to protectthe public good.59

In the final analysis, the consumer societyoffers neither a durable sense of meaning inpeople’s lives nor any consolation for losses.The erosion of religious participation in theWest offers one more example of crumblingcommitment devices. The examples in thischapter bear testament to the desire forchange and the visionary courage of individ-uals, communities, and a handful of politicalleaders prepared to initiate that change. Mil-lions of people have already discovered thattreading more lightly allows them to breathemore easily. And it offers a new creative spacefor social change—a place where family,friendship, community, and a renewed senseof meaning and purpose are possible.

A sustainable world is not an impover-ished world but one that is prosperous indifferent ways. The challenge for the twenty-first century is to create that world.





Walk into any kitchen around the world andthere’s a good chance that meat or seafoodsit neatly at the center of the meal. This isespecially true at any top restaurant in NewYork, Rio, or Beijing. But billions of peopleall over the world have hamburgers or porkchops or fish fingers with their families athome every night. Even the poorest peopleoften spend their extra income on some oddcuts of meat or fish bones for soup. In fact,meat and seafood are the two most rapidlygrowing ingredients in the global diet. Yet interms of resource use, these are also two ofthe most costly.

In 2006 farmers produced an estimated276 million tons of chicken, pork, beef, andother meat—four times as much as in 1961.On average, each person eats twice as muchmeat as back then, about 43 kilograms. Andthe fishing industry harvested about 141million tons of seafood globally in 2005,the last year for which data are available.That was eight times as much as in 1950,with each person on average eating fourtimes as much seafood as before. (See Fig-

ure 5–1 and Table 5–1.)1

For people living in wealthy nations,seafood is an increasingly popular healthfood option; with its high levels of fatty acidsand trace minerals, nutritionists recognizeseafood as essential to the development andmaintenance of good neurological function,not to mention a reduced risk of cancer,heart disease, and other debilitating condi-tions. In poorer nations in Asia, Africa, andLatin America, people are also eating morefish if they can afford it. And Chinese con-sumers now eat roughly five times as muchseafood per person as they did in 1961, whiletotal fish consumption in China has increasedmore than 10-fold. For more than a billionpeople, mostly in Asia, fish now supply 30percent of their protein, versus just 6 percentworldwide.2

The good news is that there are methodsof raising beef, pork, and chicken that do notcreate mountains of toxic manure and con-sume huge amounts of grain and water, as wellas techniques for catching fish that do not endup destroying coral reefs and ensnaring

C H A P T E R 5

Brian Halweil and Danielle Nierenberg

Meat and Seafood:The Global Diet’s Most

Costly Ingredients

seabirds and turtles. These innovations will bemuch cheaper in terms of energy and resourceuse as well as health impacts. But the price thatconsumers pay at the store or market willlikely rise. Rethinking how fish and meat areproduced will mean that consumers in indus-trial countries will have to eat fewer of theseproducts—surf-and-turf dinners for execu-tives may become a thing of the past, as willcheap fast-food meals of fried fish and ham-burgers that have become a dinnertime staplefor busy families. Eating less of these foodsnow, however, is a sort of investment in thefuture, since it will mean saving family farms,improving rangeland, reducing water pollu-tion, and—in the case of wild fish—preserv-ing a catch that is increasingly scarce.

Changing Production MethodsHow did the meat and seafood that people eatchange so dramatically? Industrial meat pro-duction took off in the early twentieth cen-tury with a series of changes in animal

breeding and farmstructure and with therise of corporateagribusiness. BeforeWorld War II, cattlewere raised on the openrange, eating a grass-based diet. Chickens—raised mostly for theireggs, not meat—wereallowed to forage out-doors for grass andinsects. Pigs, while usu-ally enclosed in openair pens, were given suf-ficient space to nest androot, as well as accessto fresh air and sun-light. And the manurethese animals produced

was used efficiently to fertilize crops.3But starting in the 1930s farmers began

raising chickens for meat as well as eggs.Researchers developed new, higher-efficiencyfeed for these meat chickens, now called broil-ers. Then scientists discovered that addingantibiotics to feed caused these birds—andother farm animals—to gain weight quicker.Since the 1950s, the time it takes to raisebroiler chickens decreased by half, from 84 to45 days. Today broilers eat less than half asmuch feed and reach a weight of 2 kilogramsin about one third as much time. By the1960s, pigs and cows were also being raisedin feedlots and confined animal feeding oper-ations—indoor enclosures that can hold thou-sands of animals.4

In the case of fishing, the technologieswere different but the broad changes in theindustry were largely the same. Fishing fleetsbecame larger, more powerful, and better atextracting fish from ever more remote cornersof the ocean. Boats now depend on devicessuch as sonar technology, satellite navigation



Meat and Seafood:The Global Diet’s Most Costly Ingredients

1950 1960 19801970 1990 2000 2010

Mill

ion

Ton

s

Seafood

Meat

Source: FAO

Figure 5–1. World Meat Production and Seafood Harvest, 1950–2006

0

50

100

150

200

300

250

systems, depth sensors, and detailed maps ofthe ocean floor. Enormous nets made out ofsynthetic fibers and huge winches give boatsaccess to previously unreachable deep-seaareas where fish gather and spawn. Somefishing boats in the Atlantic Ocean use spot-ter planes, while in the Pacific fishers use heli-copters to seek out schools of prized fish andscoop them up in huge quantities. Thesetechnologies are part of the reason that thewild fish catch holds steady at about 70 mil-lion tons even though scientists estimate thatthe fishing industry has eliminated 90 percentof the large fish in the ocean.5

When these practices first emerged in fish-ing ports and rural farming areas, they mighthave seemed like a good idea—more seafoodharvested by bigger boats and fewer fishers;more meat on a more reliable schedule at alower price. Agribusiness executives saw prof-its jump. Politicians supported the shift in theinterest of competing better with othernations, having more abundant food sup-plies, and in some cases lowering food prices.

But these lower prices were an illusion. Byraising meat in factory farms and grabbing fishand other seafood from the ocean with huge

trawlers and other industrial fish-ing techniques, current produc-tion methods are endangeringpeople’s health while also threat-ening the long-term stability ofthe land, oceans, and genetic diver-sity that sustain production itself.

In one particularly ironic case,producing meat in midwesternfactory farms may actually bereducing the fish harvest from oneof the most productive U.S. fish-eries. The fertilizers used to growcorn for animal feed run off intosurface water and eventually maketheir way down into the Gulf ofMexico, where they have created

a “dead zone” the size of New Jersey. Thenitrogen-based fertilizers encourage algaeblooms that rob other ocean life of oxygen.This area produces some $662 million worthof seafood each year, nearly one fifth of theentire fishing yield from the United States.And although there is only anecdotal evi-dence of a decline in fisheries harvests in theGulf, experience from other less severe deadzones around the world shows that catchescan drop precipitously.6

Emerging concerns about these two foodsources—including avian flu and other newdiseases in the case of meat and outrightdepletion and contamination in the case ofseafood—are prompting consumers, fishers,farmers, and agribusiness to search for bet-ter alternatives.

Going Back to NaturePart of the reason that livestock and fishfarms have become ecological disasters is thatthey have moved away from mimicking theenvironment in which animals exist naturally.Decades ago, before the big jump in pro-duction, livestock played a symbiotic role on




Country Meat Seafood

(kilograms (percent (kilograms (percent per increase per increase

person) since 1961) person) since 1961)

China 55.5 14.6 25.8 5.4Japan 91.0 1.7 66.5 1.4European Union 44.3 5.9 26.5 1.5United States 123.5 1.4 23.2 1.8India 6.0 1.6 4.9 2.6

World 42 1.8 23.5 1.8


Table 5–1. Meat and Seafood Consumption in Top Five Countries or Regions, 2005,

and Increase since 1961

most farms—grazing on cropland before orafter production and providing essential fer-tilizer in the form of manure. Fish pondsoccupied a similar place on most farms, feed-ing off of agricultural waste and helping toenrich soil. But once farmers removed live-stock and fish production from the land, theneed for inputs jumped and the manure beganto pile up.7

In places as diverse as the Philippines andIowa, some farmers are going back to moretraditional methods of farm animal produc-tion. Outside Manila, for example, innovativefarmers have learned from the centuries-longpractice of raising livestock and fish together.By rearing hogs, chickens, and tilapia and bygrowing rice, these farmers have created a self-sustaining system: the manure from the hogsand chickens fertilizes the algae in pondsneeded for both tilapia and rice to grow. Andin central Iowa, pig farmers are remodeling“conventional” concrete sheds for raisingpigs into open areas with deep bedding andoutdoor access and raising heritage pig breeds,like Berkshires and Tamworths. These breedsare more used to living outdoors, and becausethey are allowed to forage, their meat is tastierand healthier than factory-farmed pork.8

These farms produce very little waste, pro-vide a diversity of food, and give farmers amuch needed sense of both food and eco-nomic security if prices for meat or fish fluc-tuate. The farms also cut down on veterinarycosts: Animals that are raised outdoors rarelysuffer from the respiratory ailments and otherillnesses common in factory farms. Andbecause farmers raising grass-fed animals havefewer of them than factory farms do, they are

much better at spotting and treating sick andinjured animals and at preventing potentialpandemics like avian flu.9

Of course, going back to a more tradi-tional way of raising meat and fish is notcompletely practical. Many people who usedto farm have moved away from the country-side, and farms are bigger and more concen-trated than they once were, all of which makesit hard to return to a more integrated formof production. But meat and seafood farmersaround the world are mixing a dose of old-time practices with certain lessons from mod-ern ecology and showing that they can raisejust as much food, while greatly reducingthe harm caused by their farms.

For years, for example, the pig industryhas said that gestation crates—concrete stallsthat do not allow pigs to move much, turnaround, or act in other natural ways—are themost economical way of meeting demand forpork products. But recent Iowa State Uni-versity research that compared the costs of rais-ing sows (female pigs) in gestation crates andalternative structures found otherwise. Insteadof confining pigs in crowded factory farms, theresearchers reared sows in group hoophouses—pens that allow the animals to nest instraw and walk around freely. A two-year studyfound that sows in hoop houses had more livebirths than those in confinement facilities.Researchers also found that group housingcould reduce production costs by as much as11 percent compared with gestation crates.Pigs are not only very social creatures, butwhen allowed to nest together they can bet-ter control their own temperatures, whichcan improve overall health and performance,the researchers claimed.10

This type of mangement-intensive farmingwill also create more jobs. According to agri-cultural economist William Weida, one reasonfactory farms claim that they are profitable isthat they need fewer people to take care of the




Outside Manila, innovative farmers havelearned from the centuries-long practiceof raising livestock and fish together.

animals. But recent evidence indicates thatwhen animals are well cared for they per-form better. Smithfield, for example, theworld’s largest pork producer, found at oneof its hog farms in Mexico that productivityincreased when they had more people tend-ing the pigs. These practices are part of amuch wider movement toward humanelyraised and environmentally sustainable prod-ucts from animals that were raised on grass.11

Raising cattle, cows, pigs, and chickens—and raising fewer of them—in more naturalenvironments also has some significant ben-efits for what is likely the most pressing envi-ronmental issue today: climate change.Researchers at the University of Wales arelooking at how introducing differentgrasses—which are what ruminants are meantto eat—into cattle diets can help reduce themethane emissions from belching, flatulentcows. While the diet fed to cattle and dairycows on factory farms encourages them togain weight quickly, it also leads to a varietyof digestive problems. Scientists believe thatmore-digestible feed will reduce these prob-lems and thus help curb methane emissions.Not surprisingly, some of the grasses foundcommonly in U.K. pastures and meadows—including white clover, rye, and a flowercalled bird’s foot trefoil—are highlydigestible. And a Swedish study in 2003found that beef cattle raised organically ongrass emit 40 percent less greenhouse gasesand use 85 percent less energy making beefthan cattle raised on grain.12

While improving meat farming largelymeans moving animals out of grain-focusedfeedlots and back onto the land, the simplestway to reform fish farming is by moving backdown the food chain toward species that donot require as much fish feed. As seafoodproducers have begun farming fish to com-pensate for the depletion of wild fish stocks,farmed fish have grown to account for 40 per-

cent of all seafood eaten around the world.Industry analysts suspect this share will be wellabove half in the next few years. But much likethe move to concentrated factory farms formeat, fish farming has been transformed fromits ancient roots of efficiently reusing veg-etable scrapes, weeds, and manure to raise afew carp or catfish.13

The closely confined fish on industrialfarms require massive inputs of feed, energy,and biocides to control disease, while alsogenerating large amounts of manure. Today,fish farmers raising tuna, salmon, striped bass,shrimp, and other carnivores consume con-siderably more fish—anchovy, herring,capelin, and whiting—in the form of feedthan they produce. In 1948, only 7.7 percentof total marine catch was reduced to fish-meal and fish oil. Now about 37 percent ofglobal landings are reduced to feed, elimi-nating an important historical and futuresource of human sustenance.14

Understandably, farmers raise carnivorousfish like salmon, tuna, and cod in large open-ocean pens because of the high prices thesefish command. Only a shift in taste by con-sumers will help push farmers toward raisingmore-efficient species like carp and catfish aswell as shellfish. In the short term, however,fish farmers are at least starting to move—inline with the urgings of various concerned cit-izens’ groups—in a better direction.15

Consider salmon, the first species to beraised in fish farms on a large scale. Severaldecades of production in nations like Chile,Norway, and the United States have shownthat such farms also lead to large amounts ofcoastal pollution from waste and excess feed,the use of antibiotics and other chemicalsto control disease, and the occasional escapeof millions of salmon into nearby waters,where they often spread disease to remainingwild salmon.16

In response, the National Environmental




Trust and other conservation groups, fishingorganizations, and marine scientists launchedthe Pure Salmon Campaign. The group haseight primary areas—such as waste, disease,and escapes—that they encourage salmonfarms to address. In particular, the campaignhas been lobbying for a move toward closed-container farms, so that water can be reusedand any pollution from the fish can be treatedand kept out of the surrounding waters. Andthey have started lobbying the world’s largestsalmon farming companies—includingMarine Harvest, which controls more than 20percent of global production—with a com-bination of shareholder resolutions and directnegotiations with corporate boards. Mostrecently, they helped convince Marine Har-vest’s largest shareholder (an avid angler forwild salmon) of the importance of closed-con-tainer farms.17

But what about the high feed require-ments in salmon, shrimp, and other carnivo-rous fish farms? Borrowing principles fromancient fish farms that raised several species ofcarp that each fed on a different plant or thatcombined ducks, fish, snails, and other organ-isms that fed off each other, integrated farmscan reduce feed requirements and waste whilegenerating more edible seafood than a fishmonoculture does. While large-scale appli-cations are still relatively few and far between,raising salmon with bottom-feeding fish, mus-sels, sea urchins, or algae can help eliminatemost nitrogen “leakage” from the salmon,while also producing other harvestable crops.(Mussels actually grow 50 percent faster nearsalmon pens.)18

In Norway, several large farms have foundthat introducing cleaner fish—a species thatcleans parasites and leftover food off otherfish—into salmon pens dramatically reduceslice (the major disease of farmed salmon,which also has been spreading to and deci-mating wild salmon throughout the world)and feed wastage (as the cleaner fish scavengewhat the salmon miss) and that the cleanerfish can later be harvested to turn into fish-meal. Salmon production remains the samewhile waste drops by more than half, theincidence of disease drops, and the farm har-vests two or three additional crops.19

Because oysters, clams, scallops, mussels,and other shellfish eat algae and can help fil-ter and reduce excess nutrients that run intothe water and promote algae blooms, coastalcommunities around the world are usingshellfish farms to remove nutrients from bays,rivers, and coastal waterways. Studies haveshown that enhancing shellfish beds is acheaper way to remove nitrogen from thewater than sewage treatment plants. Thisallows sunlight to reach the bay bottom sothat grasses and the other bases of the foodchain thrive. “By providing these three ser-vices—filtration, stabilization and habita-tion—oysters engineered the ecosystem,”wrote shellfish expert Rowan Jacobsen in AGeography of Oysters when describing the his-toric role of oysters in places like the Chesa-peake Bay on the east coast or Puget Soundin the west.20

A return to oyster farming could not onlyresult in lots of new jobs and shellfish to eat.It might actually be the best way to restoreinland estuaries, coral reefs, and coastal ecosys-tems damaged by pollution, including themore than 200 large dead zones that havebeen caused by excess nutrient runoff. More-over, the metal cages that hold the shellfishin these operations function as artificial reefs.Fishers have learned that striped bass, shad,




In many densely populated Asian nations,where demand for seafood is growingfastest, fish farming is a natural additionto existing rice farming operations.

and other species congregate around them.21

In many densely populated Asian nations,where demand for seafood is growing fastest,fish farming is a natural addition to existingrice farming operations. This isn’t new. Arche-ological evidence shows that Chinese farmershave been raising fish in rice paddies for nearly3,000 years. Vegetable scraps and cropresidues are fed to fish, which in turn producewaste that is used to fertilize the fields. Farm-ers can also use fewer pesticides and herbi-cides, since fish help control pests byconsuming the larvae and eating weeds andalgae that compete with rice for nutrients.(Fish farming also helps to control malaria,since fish eat mosquito larvae.)

Farmers practicing rice-field culture inBangladesh have managed to reduce pro-duction costs by 10 percent, and the averagefarm income has increased by 16 percent injust three years, buoyed by sales of fish fry andfingerlings as well as of fish that farmers donot eat. One hectare of rice field typically pro-duces between 250 and 1,500 kilograms offish. Thousands of rural Bangladeshis havealready adopted this form of affordable aqua-culture. And researchers suggest that farm-ers could quickly adapt this integrated systemon about 40,000 hectares, generating10,000–60,000 tons of fish, worth roughly$40 million a year.22

Such benefits are not restricted to Asia. Arecent project that focused on increasing pro-duction at several hundred small-scale fishfarms in Cameroon found that basic techni-cal assistance—including regularity of feeding,proper stocking densities, and a harvest sched-ule—boosted production from 498 kilogramsto 2,525 kilograms of fish per hectare andincreased cash returns 16-fold. Theresearchers estimated that in areas with goodmarket access, similar investments could add5,300 tons of fresh fish to the food supply, putan additional $50 million into the local econ-

omy, and produce profits for each farm in therange of $2,000 a year—twice the averageincome per person.23

A Change in IncentivesFor governments interested in being ahead ofthe pack in promoting ecological meat andseafood farms, the biggest priority is chang-ing the major financial incentives they give tofarmers and fishers. Right now, most subsidieskeep farming and fishing mired in the statusquo of destructive production. For instance,governments give farmers nearly $300 billioneach year to grow a handful of commoditieslike corn and soybeans, which not onlyencourages chemical use and discouragesdiversity on the farm—since farms get paidbased on how much of these crops they har-vest—it also brings down the prices of thesecrops and turns corn and soybeans into avery cheap way to fatten animals.24

The Washington-based EnvironmentalWorking Group reports that direct subsidiesfor livestock between 1995 and 2005 totaled$2.9 billion in the United States alone. Dur-ing the same time, corn and soybean pro-ducers—who provide, in effect, the fuel forconfined animal feeding operations—receivedapproximately $50 billion and $13 billionrespectively.25

The estimated $30–40 billion in fisheriessubsidies each year goes mainly to low-inter-est loans to replace old boats with more pow-erful, newer ones, to fishing port development,and to payoffs from wealthy nations that wishto gain access to the fishing grounds of poorercountries. As one historic analysis of fisheriessubsidies noted, “in the 1950s and 1960s,the more boat-building subsidies you gave, themore fish you got.” But since more than twothirds of ocean fisheries are now fullyexploited, continued subsidies mean that toomany fishers are going after too few fish.26




As Daniel Pauly of the Sea Around UsProject at the University of British Columbianotes, the public pays for these subsidies withtax dollars and is rewarded with cheaper fishonly in the short term. As in agriculture, thewealthiest nations and the largest boats reapmost of the benefits: the United States, theEuropean Union, and Japan account for75–85 percent of fisheries subsidies.27

Because this support structure favors larger,less diverse, more capital-intensive opera-tions, the prevailing policy actually discour-ages more diverse and humane livestock farmsand less destructive fishing operations.

Subsidies have proved particularly resis-tant to reform as the recipients have amassedpolitical clout on a par with the payouts theyreceive. But a first approach would be to goafter the most egregious subsidies, includ-ing fuel subsidies for fishing fleets. Ships thathave to travel farther to find fish gobble uptremendous amounts of energy keeping thefish cool on the long trips back to shore. In2000, fisheries around the world burnedabout 13 billion gallons of fuel to catch 80million tons of fish. In other words, theworld’s fleets use about 12.5 times as muchenergy to catch fish as the fish provide tothose who eat them.28

Consider bottom trawling. Dragging anet across the ocean bottom has been likenedto clearcutting a forest in search of squirrelsand chipmunks. Such fishing is energy-inten-sive and destroys habitat, including sensitivedeep-sea areas that can harbor future popu-lations of fish. Governments still give bottomtrawlers about $152 million in subsidies. Thatis about 25 percent of the total value of theboats’ catch, even though this fleet only yields

about 10 percent of the catch in profits. Inother words, the subsidies are the only reasonfishers are still using the technique.29

Or consider subsidies in many develop-ing nations that either directly or indirectlyfavor raising exotic breeds of animals. TheFarm Animal Genetic Resources Division ofthe U.N. Food and Agriculture Organiza-tion reports that subsidies for veterinary drugscan encourage raising animals that are notsuited to particular climates or that have resis-tance to certain pests. But if these subsidieswere removed and replaced with compensa-tion for farmers who raised their animals out-doors on grass or who worked to conserverare breeds, the environmental and publichealth benefits could be wide-ranging.30

In both farming and fishing, subsidyreform does not have to mean fewer jobsand less food. Redirecting subsidies that goto the largest operations can actually createmore jobs, since small livestock farms andfishing vessels both employ more people perunit of food harvested. A study in Norwayfound that small-scale fisheries generate fivetimes as many jobs per unit of landed valueas large-scale ones. Small-scale fishers are alsolikely to use more selective and less destruc-tive fishing practices—catching tuna withhandlines, for instance, instead of long linesthat snag sharks and seabirds or using passivetraps to only catch certain fish instead ofdragging, which kills everything in the net.31

And despite the fears of farmers and gov-ernments that eliminating subsidies woulddestroy agriculture, farmers and agribusinesscan actually thrive with zero subsidies. InNew Zealand, in 1984 a newly elected gov-ernment stopped paying farmers for growingcrops and raising animals. It was a shock torural communities. But instead of destroyingthem, production of milk quadrupled.32

Without subsidies for fuel and grain, NewZealand dairy farms have turned to nurturing




In both farming and fishing, subsidyreform does not have to mean fewerjobs and less food.

the nation’s abundant pasture. Farmers shiftedaway from Jersey cows, with milk rich in but-terfat, to larger Friesians, which provide moreprotein-rich milk. A “Kiwi cross” of the twobreeds resulted in a higher-protein milk in amore compact, hardier animal. Today, cowsin New Zealand cost less to feed and yieldmore milk solids, making them more prof-itable. Sheep farmers also responded, reduc-ing their huge herds of mostly small and fattylambs, importing breeds from Finland andDenmark to improve the fertility of theirewes, and producing larger, leaner lambs thatwere both less expensive to raise and moreappealing to health-conscious consumers.33

In other cases, subsidies can help jumpstarta completely different regulation of theoceans. Some maritime nations, includingBelgium, Canada, China, Germany, NewZealand, and the United Kingdom, are begin-ning to shift their fisheries subsidies towardestablishing marine reserves in which a swathof ocean is made off-limits to any fishing.34

In contrast to the current system, whichregulates fish species by species and which setssometimes controversial limits on how muchof each can be caught in a given time, marinereserves do not require expensive data col-lection programs in order to gain a detailedunderstanding of the fish stock. Nature man-ages itself; the entire ecosystem gets protec-tion rather than just one species, and fishhave a safe place to get big, spawn, and pro-duce young fish that migrate out of the pre-serve. Evidence shows that fish populationsrecover rapidly in such reserves and thatnearby fish catches and sizes increase dra-matically after a reserve is set up.35

A recent study estimated that establish-ing reserves for all the world’s major fish-eries would cost $5–19 billion each year andcreate about 1 million jobs. Beyond increas-ing the fish catch, these reserves make idealcenters for tourism and help restore coral

reefs, mangroves, and other ocean ecosys-tems, yielding other benefits to society. Del-egates at the 2002 World Summit onSustainable Development and the 2003 WorldParks Congress called for the establishmentof a global system of marine protected areas,and scientists estimate that making just 20percent of the oceans off-limits to fishingwould be sufficient. Today only 1 percent ofthe world’s ocean area is currently protected.36

Embracing the Ethical Governments and policymakers can shift pol-icy and enact regulations on food, but it isconsumers and big buyers who can rapidlyreshape the market and make the most impactby voting with their food dollars. From farm-friendly companies like Niman Ranch andHeritage Foods U.S.A. to major corpora-tions like Whole Foods, and even SmithfieldFoods, business is starting to meet consumerdemand for safe, humane, and sustainablemeat production. The same is happening inthe seafood supply chain—from fishing coop-eratives whose members are returning to lessdestructive artisanal methods to large super-market chains that are marketing sustainableseafood as the healthier choice.

There are two sides to this innovation—amove by the food industry to embrace eco-logically sustainable food and label it as suchand a reciprocal response from shoppers whoseek out this choice. In some cases consumershelp set the relationship in motion. Heritageand rare breeds of livestock are coming backin vogue because of their unique qualities:healthier meat, milk, and eggs and better fla-vor. More sustainable fish also are often theones that have a lower risk of mercury cont-amination, because they tend to be lower onthe marine food chain.

These markets for ethical meat and seafoodcannot grow without clear labels and certifi-




cation programs that ensure that one farmeror fisher is different from another—and thatconsumers are really getting what they pay for.In the case of seafood, the impetus for suchcertification actually came from Unilever, theDutch food and consumer products giant. Inthe 1990s, Unilever—then the world’s largestseafood buyer—faced considerable pressurefrom its customers and from environmentalgroups to rethink its seafood purchases. Butthe company needed some guidance on whichspecies to avoid and which to favor.37

Working with WWF, Unilever helped cre-ate the Marine Stewardship Council (MSC)in 1997 to certify fish populations as sus-tainable and to provide direction for thenascent sustainable seafood market. TheMSC is now supported by at least 100 cor-porate, environmental, and consumer orga-nizations in more than 20 nations, all ofwhom have a stake in the future of the globalseafood supply. Certified fisheries can usethe group’s “Fish Forever” ecolabel, signi-fying that their product was caught usingenvironmentally sound, economical, andsocially responsible management practices.More than 300 seafood products bearingthe MSC blue ecolabel are available in super-markets in nearly 30 nations.38

Certain seafood companies are beginningto base their entire business on “the storybehind the fish”—how it was raised, caught,and processed—just as many supermarketsand agribusinesses now capitalize on risingglobal interest in organic produce, grass-fedbeef, and other “environmentally friendly”food choices. Consider EcoFish, a distributorbased in the state of New Hampshire.Founded in 1999 as the only company inthe world whose sole mission was to identifyand market seafood originating from envi-ronmentally sustainable fisheries, EcoFish’sproducts are now found in more than 1,000stores and 150 restaurants throughout the

United States. Another U.S. firm, CleanFish,specializes in finding a market for seafoodcaught by smaller-scale fishers around theworld, whose artisanal techniques are lesslikely than large-scale fishing fleets to harm themarine environment (and the quality of thefish flesh).39

In contrast to certification through theMSC, an expensive process that can takesome time and begins in response to requestsfrom fisheries, EcoFish and CleanFish seekout seafood supplies from around the worldand then assess whether they meet certainstandards. This has allowed the two firms tooffer a wider range of seafood—includingfarmed seafood—and to offer products yearsbefore they receive MSC certification.EcoFish recently received an investment grantthat it hopes will allow its sales to grow five-fold in the next three years, to $15–20 mil-lion. EcoFish products are now available in243 branches of Loblaws, Canada’s largestseafood retailer.40

These innovations in sales pitch have away of being contagious, particularly whenthey involve big players in the market. InJune 2007 Tyson Foods—one of the largestmeat processors in the world—decided toquit doing something that has been a hallmarkof industrial animal agriculture since the1950s. The company announced that thebirds it sells to grocery stores and restaurantsall over the country would no longer betreated with antibiotics. This move was notaltogether altruistic or even based on healthconcerns about antibiotics resistance. Instead,Tyson was reacting to consumer demand forantibiotic-free meat products.41

Once one major industry player makesthe shift, its competitors often must do thesame or risk losing business. In early 2006,Darden Restaurants—parent company ofRed Lobster, the top seafood restaurant chainin the United States, with 1,300 locations—




announced plans to certify all its farm-raisedshrimp “to ensure it is grown in a sustainableway, with minimal impacts on the environ-ment.” And Wal-Mart, the world’s largestretail store and the largest food seller in theUnited States, announced that within threeto five years it would be certifying that all itsseafood for the North American market wasraised sustainably. Critics suggest the stan-dards could be stiffer, and implementation isfar from assured.42

Other big companies are also jumping onthe natural, organic, or humanely raised band-wagon, partly for economic reasons. Smith-field announced in 2005 that it would onlybuy from suppliers who did not use antibioticson their animals. Burger King—the secondlargest fast-food company—has said that it willtry to buy animals that are given more livingspace. Natural foods giant Whole Foods willintroduce labeling criteria in 2008 that giveconsumers detailed information about howthe meat on their plates was raised, treated,and slaughtered.43

Consumers are also looking to connectdirectly with livestock producers. A few yearsago it was hard for consumers to find farmswhere they could buy grass-fed and pasture-raised eggs, meat, and milk. Today there aremore than 800 U.S. and Canadian farms listedon the Web site Eatwild.com, an organizationthat promotes grass-raised animal products.44

Fishing communities are a growing allyin this movement. Fishers are often the firstto know that a given fish supply is endan-gered. So it is not surprising that fishers areusing the newfound consumer awarenessabout the state of the world’s fisheries toredefine their own role. In some cases thismeans returning to older fishing techniquesthat are less destructive and that help preservethe quality of the seafood. The Cape CodCommercial Hook Fishermen’s Association,faced with depletion of the cod stock that his-

torically sustained its members, decided topromote “old fashioned” hook lines thatmean considerably less bycatch and fish thatare less likely to get damaged, so that theirtexture and taste are usually superior.45

In other cases, like Alaska’s wild salmonfishery or wild shrimp harvesters off VietNam’s coast, fishers are forming coopera-tives to manage a given fishery collectively andperhaps even to cut down on the total catch.When it is their own survival at stake, they areproving to be quite innovative. And just asseafood companies are beginning to see fishas a form of wildlife rather than just a com-modity, fishers are making a similar shift inmindset, adopting a marketing strategy thattreats the fish as a higher-value product ratherthan a low-cost raw material for processing.46

Moving Down the Industrial Food Chain

For the poor, whose diets might be confinedto starchy staple crops, meat and seafoodbring both increased status and added nutri-tion. For the wealthy, a meal is not completeunless it includes chicken, pork, or beef, whilehealth-conscious consumers often replace thetraditional meat serving with tuna, sword-fish, or some other seafood. But consumersneed to rethink their relationship with allthese foods in order to keep them on themenus in fine restaurants as well as on theplates of people in the developing world.

Under this new food paradigm, peoplewill need to reconsider the place of meat intheir diets. Raising animals outdoors on grasswill necessarily mean that there are fewer ofthem to eat, and higher prices for sustainablyand humanely raised meat will mean shiftingthis from the center of each meal. The sameis true for seafood. Fish, especially the big,carnivorous species, will not be as readilyavailable, and consumers will have to eat




fewer of them and more of certain otherfish. Chefs, large food buyers, and consumerswill need to explore less well known fishspecies and choose seafood that is lower onthe marine food chain.

Many consumers are giving up meat alto-gether as the health and environmental ben-efits of doing so become clearer. And it isbecoming easier to obtain meat alternatives.Researchers at the Vrije University of Ams-terdam, for example, are developing alterna-tive meats based on peas and other legumesthat are highly nutritious, extremely eco-nomical, easy to prepare, and—perhaps mostimportant—tasty. And consumer perceptionof these products has been positive, espe-cially when people learn more about howtheir meat is raised and the ecological impactof raising animals in a densely populatednation like the Netherlands.47

While the growth of industrial meat andseafood production is likely inevitable in thedeveloping world, livestock producers andfishers everywhere have an opportunity toimprove meat and seafood. When it comes toproducing meat, eggs, milk, and seafood,bigger does not necessarily mean better—oreven more profitable.

For both meat and seafood, eating lower onthe food chain generally reduces the harmdone by these products. In the case of fish, thesmaller, herbivorous species (shellfish,anchovies, catfish, and tilapia) are less endan-gered and fished in a less destructive way thanthe larger, carnivorous species (tuna, sword-fish, and shark). For meat, eating fewer animalproducts in general and eating eggs, beef,

pork, and chicken from animals raised on anatural diet of grass is healthier for people, forthe animals, and for the environment.

Many of the innovations that will reducethe ecological burden of meat and seafood canalso help make these foods more available topoorer communities. Adding fish ponds torice paddies and coastal agriculture is an easyway to boost a farmer’s income and dietaryoptions. Setting up no-fish zones aroundcoral reefs and spawning grounds boosts thefish catch for both rich and poor fishers. Andwhile cows or pigs bred for industrial-scaleproduction may not thrive in poor areaswhere farmers cannot provide feed and vet-erinary inputs, hardier, indigenous breedsmay be the best hope for adding milk andeggs to the local diet.

Rather than burden consumers withlengthy lists of “good” and “bad” food, agroup called Slow Food International hastried to give seafood lovers, as a start, somebasic rules of thumb that depend on a moreholistic understanding of what is happeningin the oceans. With a membership thatincludes 100,000 people in more than 80nations, Slow Food offers an alternative tofast-food culture by celebrating regionalcuisines, distinct crop varieties, and forgottenfood traditions.48

The organization held a meeting in 2007called Slow Fish that brought together small-scale fishers, chefs, and seafood companies tosuggest how people could continue enjoyingseafood without compromising responsibility.Participants called for support of “small-scaleinshore fishing and ancient methods of fish-ing, processing and preserving which are sus-tainable and produce outstanding productsthat form part of our cultural identity.” Theyurged people to eat fish lower on the foodchain—such as the smaller, spinier fish thathave long been part of Mediterranean cui-sine—and to support traditional, low-impact




Slow Food offers an alternative to fast-food culture by celebrating regionalcuisines, distinct crop varieties, and forgotten food traditions.

types of fish farming, such as oyster farmingand low-density freshwater pool systems.49

In Peru, several marine scientists havetaken this message to heart and have launcheda campaign to change the image of theanchoveta from something that only poorpeople eat to a fish that could be turned intoa gourmet item consumed by connoisseurs.The Peruvian anchovy accounts for aboutone tenth of the wild fish netted around theglobe each year. And yet nearly all of thesesmall fish—chock full of the same beneficialfatty acids found in tuna, salmon and otherbig fish—get ground into fish meal and fishoil that will be used to fatten pigs and chick-ens in factory farms in North America,Europe, Japan, and other areas.50

As part of Discover the Anchovy Week in2006, some 18,000 people tasted anchoviesat 30 restaurants in Lima. Fresh anchovies arenow available in many of the nation’s markets,and the government is supplying the fish aspart of its hunger programs. Researchers esti-mate that Peru could employ many morepeople and generate 10 times the revenues ifthe high-volume, low-value fishmeal industrywere retooled to carefully package theanchovy as a fresh fish for local consump-tion and export.51

Part of the global impact of this gastro-nomic shift is that it would make much bet-ter use of beleaguered fish populations. “Wecan still savor seared ahi and grilled swordfishsteaks—they have the best meat and fewbones, after all—but we must reserve them asa luxury product,” notes Martin Hall, chiefscientist of the Dolphin Tuna Program atthe Inter-American Tropical Tuna Commis-sion. He explains that “it takes close to 60 mil-lion metric tons of potentially edible fish peryear to feed the three million metric tons ofthe three major tropical tuna species we har-vest annually. If we could replace some ofour tuna sandwiches with the anchovies, sar-

dines, squids, and other species the tuna eat,we would open up a substantial supply ofprotein that could feed millions more.”52

In Japan, recent reductions in tuna catchquotas and soaring prices have promptedsushi chefs and home cooks in this fish-lov-ing nation to search for substitutes. TheJapanese consume about three quarters ofthe world’s annual tuna catch. As the NewYork Times reported in the summer of 2007,Tadashi Yamagata, vice chairman of Japan’snational union of sushi chefs, has been exper-imenting with tuna alternatives atMiyakozushi, his family’s busy lunchtimerestaurant in Tokyo. His most successful sub-stitutes were ideas he “reverse imported”from American sushi bars, like “smoked duckwith mayonnaise and crushed daikon withsea urchin.”53

Other groups, like Heritage Foods USA,encourage customers to eat antique or her-itage breeds of cows, pigs, chickens, andother foods in order to save them from extinc-tion. The most well-known example is theturkey variety known as Bourbon Reds. Thesebirds were almost extinct because of industrialfarming practices that favor fast-growing butflavorless, big-breasted birds. Such birds areraised on factory farms, are never allowed tomate (they reproduce by artificial insemina-tion), and are pumped full of antibiotics. Butthanks to a consumer awareness campaignpromoting the hearty, distinctive flavor ofBourbon Reds, these birds are in highdemand—last year Heritage Foods sold 3,000Bourbon Reds in the United States forThanksgiving—and more and more farmersare raising them.54

In the developing world, groups such asGRAIN and the League for Pastoral Peoplesare working hard to ensure that livestockgenetic diversity is on the agenda of policy-makers worldwide. Corporate agribusinesses,says GRAIN, have “dramatically increased




their control over the livestock industry inrecent years,” and this makes the food system“dangerously dependent on a few corpora-tions and a vulnerable, narrowing geneticbase.” The group also warns that the vastknowledge attained by livestock keepers overmillennia is quickly disappearing and thatthere is an urgent need for pastoralists andlivestock keepers to “reclaim their rights.”55

Such a historical view is useful. Meat andseafood have long been a part of the humandiet, but the form they take has changed aswild populations of fish have waxed andwaned, as hunted game gave way to domes-ticated livestock, and as human desires andculinary fads shifted and spread. The meat ofsharks was not in wide demand until recently,for example, when shark fin soup—an ancientChinese dish that can cost $200 a bowl andwas once reserved for the kitchens of thewealthy—became a more common menu itemin economically booming China. The roaringmarket in these fins, which can fetch $700 akilogram and entice shark hunters from as faraway as Ecuador, is driving the killing ofroughly 100 million sharks each year and theextinction of most major shark species.56

As part of a recent shark awareness cam-paign, the conservation group WildAidreleased several graphic videos of sharks being“finned” that were later aired on television inTaipei, Hong Kong, and Singapore. The

group also features Asian celebrities like filmdirector Ang Lee and Taiwan’s PresidentChen Shui-bian in public service announce-ments asking people not to eat shark fin soup.These efforts seem to be paying off. BothThai Airways and Singapore Airlines pulledshark fin soup from their first-class services in2000, for instance. And in late 2005, severalhigh-profile institutions in Hong Kong,including Disneyland and Hong Kong Uni-versity, stopped serving shark fin soup fol-lowing protests by animal rights and marineconservation groups.57

Following their lead would mean breakingwith long-standing tradition, but it is notunprecedented. Stark white veal flesh hasbecome a symbol of cruel caging techniques,while “rosey veal” from calves allowed towalk with their mothers is now showing upon menus. Savvy seafood processors are start-ing to favor wild harvested shrimp overshrimp raised on patches of deforested man-groves. Shark fins, like so many ecologicallytaxing food items that the planet can tolerateonly on a small scale, are something peoplewill need to give up.58

But we know that not all meat and seafoodis created equal. And innovative farmers, fish-ers, and food companies have already shownthat providing safe, tasty, and humane fooddoes not have to cost our health and theenvironment so much.





Over the past half-million years, the world’sclimate has seen four ice ages and four warmperiods separating them, with extensive glac-iers engulfing large swaths of North America,Europe, and Asia and then retreating, thou-sands of species displaced, and the shape ofcoastlines rearranged as sea levels rose and fell.Yet throughout these hundreds of thousandsof years, the atmospheric concentration ofcarbon dioxide (CO2), which plays a key rolein regulating the climate, has never risenabove 300 parts per million.1

In 2007, the atmospheric concentration ofCO2 passed 382 parts per million—and it isalready at the equivalent of 430 parts permillion if the effect of other greenhouse gasesis included. (See Figure 6–1.) Humanity is atrisk of creating a climate unlike any seenbefore—unfolding at an unnatural, acceler-ated pace—more dramatic than any changesin the climate since Earth was last struck bya large asteroid nearly a million years ago.Unless greenhouse gas emissions begin todecline within the next decade, we risk trig-gering a runaway disruption of the world’s cli-

mate, one that could last centuries and thatour descendants would be powerless to stop.2

The world is entering uncharted territory.Fossil fuels made the modern economy andall of its material accomplishments possible.But building a low-carbon economy is nowthe central challenge of our age. Meetingthat challenge will require restructuring theglobal energy industry through technologi-cal, economic, and policy innovations thatare as unprecedented as the climate change itmust address.

Avoiding CatastropheOnly recently have scientists understood thatchanges in the concentration of carbon diox-ide, methane, and other less common gasescould trigger an ecological catastrophe ofstaggering proportions. The climate, it turnsout, is not the vast, implacable system itappears to be.

Past climate changes have been caused bytiny alterations in Earth’s orbit and orienta-tion to the sun—providing, for example, just

C H A P T E R 6

Christopher Flavin

Building a Low-Carbon Economy

enough added energy to warm the planetover thousands of years, increasing the con-centration of carbon dioxide in the atmos-phere, and in turn triggering even largerchanges in the temperature, which scientistscall a positive feedback. Today’s massiverelease of CO2 and other greenhouse gases isleading to far greater changes to the atmos-phere in a period of decades.3

Scientists now project that within thedecades immediately ahead, the capacity of theearth and ocean to absorb carbon emissionswill decline, while vast changes in the Arcticmay further accelerate warming. Melting tun-dra will release millions of tons of methane, agreenhouse gas more powerful than CO2.And as the Arctic ice pack disappears in sum-mer—nearly half is already gone—it will be likeremoving a large air conditioner from Earth’snorthern hemisphere. This will further warmthe climate and could mean the end of the mil-lion-year-old Greenland ice sheet—which byitself contains enough water to raise worldwidesea levels by more than seven meters.4

When the world will reach such a tipping

point—or whether italready has—is notknown. But it is alreadyclear that ecologicalchange of this magni-tude would lead tounprecedented disrup-tions to the world’seconomies. A ground-breaking 2006 studyled by former WorldBank chief economistNicholas Stern con-cluded that climatechange could cutglobal economic out-put by between 5 and20 percent. In his 2007book, The Age of Tur-

bulence, Alan Greenspan, the leading free-market economist of the day, included climatechange as one of five forces that could derailthe U.S. economy in the twenty-first cen-tury. The uneven and disruptive nature ofthese changes could set off an even moreserious crisis as conflict within and betweensocieties undermines their stability.5

In 2006 the combustion of fossil fuelsreleased 8 billion tons of carbon to the atmos-phere—nearly a million tons every hour—with coal and oil contributing roughly 40percent each and natural gas accounting forthe rest. (The manufacture of cement releasednearly another 350 million tons, while defor-estation and agriculture contributed roughly1.6 billion tons.) Global fossil fuel carbonemissions have increased fivefold since 1950and are up 30 percent just since 1990. Today,fossil fuels provide four fifths of the energythat powers the global economy.6

Burning fossil fuels on this scale is a vastand risky experiment with Earth’s biosphere;scientists are still not sure when the world willcross an invisible but catastrophic threshold




1740 1770 1800 1830 1860 1890 1920 1950 1980 2010

Car

bon

Dio

xide

(pp

m)

Ice coremeasurements

Atmosphericmeasurements

Source: NOAA, ORNL

Figure 6–1. Atmospheric Concentration of Carbon Dioxide, 1744–2004

270

290

310

330

350

370

390

of no return. But growing evi-dence suggests that it may beclose. James Hansen, Director ofthe NASA Goddard Institute ofSpace Studies, is among a growinggroup of climate scientists whobelieve that the world shouldmake every effort to avoid push-ing the atmospheric concentra-tion of CO2 beyond 450 parts permillion and the effective concen-tration (including methane andtrace gases) beyond 500 parts permillion. This would limit theincrease in the average global tem-perature to 2.4–2.8 degrees Cel-sius above pre-industrial levels. The increaseso far is just under 0.8 degrees Celsius.7

To keep the world’s climate within therange it has occupied for at least a millionyears, current emission trends will need to bequickly reversed, according to the complexmodels used by scientists and included in thereport of the Intergovernmental Panel onClimate Change (IPCC) released in early2007. The IPCC scenario that most closelymatches likely ecological limits suggests thatglobal carbon emissions will need to peakbefore 2020 and be reduced by 40–70 per-cent from the current emissions rate by 2050,eventually falling to zero.8

The magnitude of the challenge is clearwhen the emissions path needed to stay belowan atmospheric CO2 concentration of 450parts per million is compared with the currentpath. (See Table 6–1.) The U.S. Departmentof Energy forecasts that both world energyuse and carbon emissions will grow nearly 60percent by 2030—an average rate of 1.8 per-cent per year. This would take emissions tonearly 12 billion tons in 2030 and, assumingcontinued growth at that rate, to almost 16billion tons in 2050—nearly four times theannual emissions of 4 billion tons that would

be needed to keep the CO2 concentrationbelow 450 parts per million.9

Complicating the challenge is the factthat the energy needs of poor countries suchas India and China have accelerated in recentyears as they entered the most energy-inten-sive stages of their development—buildingindustries and infrastructure at an astonish-ing pace. In 2006, industrial countries, withless than 20 percent of the world’s popula-tion, contributed roughly 40 percent ofglobal carbon emissions, and they are respon-sible for more than 60 percent of the totalcarbon dioxide that fossil fuel combustionhas added to the atmosphere since the Indus-trial Revolution began. But this picture isnow changing rapidly, particularly in China,where emissions are now rising at 10 percenta year—10 times the average rate in indus-trial nations. By 2006, China’s fossil fuelemissions were only 12 percent below theUnited States—and gaining rapidly. (SeeTable 6–2.) Emissions are also growingquickly in the Middle East, where rapid pop-ulation growth, rising oil wealth, and low,subsidized energy prices have led to sky-rocketing energy demand.10

At the G-8 Economic Summit in Ger-




2050Business Stabilization

Indicator 2006 as Usual Scenario

CO2 concentration(parts per million) 382 ~550 < 450

Energy (billion tons oil equivalent) 12 22 16

Energy-related carbon emissions (billion tons) 8 16 4


Table 6–1. Global Energy Use and Carbon Emissions in 2006 and in 2050

Under Two Scenarios

many in June 2007, Canada, France, Ger-many, Italy, and Japan called for a 50-percentcut in global emissions by 2050—consistentwith the trajectory needed to keep atmos-pheric concentrations below 450 parts permillion. Although Russia and the UnitedStates abstained from that portion of the finalstatement, it is clear that the need for drasticcuts in emissions is increasingly accepted bypolitical leaders as well as scientists. This is anambitious goal, and achieving it will meanreversing an upward trend in carbon dioxideemissions that has been under way for a cen-tury and a half.11

Providing energy services for the muchlarger global economy of 2050 while reduc-ing emissions to 4 billion tons of carbon willrequire an energy system that is very differ-ent from today’s. For the world as a whole tocut emissions in half by 2050, today’s indus-trial countries will need to cut theirs by morethan 80 percent. Getting there depends onthree elements in a climate strategy: captur-ing and storing the carbon contained in fos-

sil fuels, reducing energy con-sumption through new technolo-gies and lifestyles, and shifting tocarbon-free energy technologies.12

A variety of combinations ofthese three strategies can in theorydo the job. Princeton scientistsRobert Socolow and StephenPacala have broken the task downinto 15 1-billion-ton “wedges”of reductions—including suchoptions as improved fuel econ-omy or massive construction ofwind farms—that policymakerscan choose from. The key ques-tion is which combination ofstrategies will minimize the sub-stantial investment cost but alsoprovide a healthy and secureenergy system that will last.13

Phasing out oil, the most important fos-sil fuel today, may turn out to be the easiestpart of the problem. Production of conven-tional crude oil is expected to peak andbegin declining within the next decade ortwo. By 2050, output could be a third ormore below the current level. Reliance onnatural gas, which has not been as heavilyexploited as oil and which releases half asmuch carbon per unit of energy as coal, ismeanwhile likely to grow.14

But the slowdown in the rate of discoveryof oil and gas is pushing world energy mar-kets toward dirtier, more carbon-intensivefossil fuels. The greatest problem for theworld’s climate is coal, which is both moreabundant and more carbon-intensive thanoil, and the “unconventional” energy sourcessuch as tar sands and oil shale, which at cur-rent oil prices have become economicallyaccessible.

The central role of coal in the world’s cli-mate dilemma has led policymakers and indus-trialists to focus on so-called carbon capture




Carbon CarbonCountry Carbon Emissions, Emissions,or Region Emissions* Per Capita Per $ GDP

(million (tons) (kilograms pertons) $1,000 GDP (PPP))

United States 1,600 5.3 120China 1,400 1.1 140Western Europe 930 2.2 71India 400 0.4 97Japan 330 2.6 78Africa 300 0.3 130

World 8,000 1.2 120

*Does not include emissions resulting from gas flaring, cement making, orland use change.Source: See endnote 10.

Table 6–2. Energy-Related Carbon Emissions, Selected Countries, 2006

and storage (CCS). Although it is only likelyto be feasible for large, centralized uses of fos-sil fuels, many energy planners are countingon it. They hope to build a new generationof power plants equipped with devices thatcapture carbon either before or after the com-bustion of fossil fuels and then pipe the CO2into underground geological reservoirs orinto the deep ocean, where it could in prin-ciple remain for millions of years.

Coal can either be gasified (as it already isin some advanced power plants), with theCO2 then separated from the other gases, orit can be directly burned in a super-criticalpulverized plant that also allows the captureof carbon dioxide. Three significant CCSprojects are in operation in Algeria, Canada,and Norway. The facilities in Algeria andNorway simply capture CO2 that is extractedtogether with natural gas, which is mucheasier than capturing CO2 from coal com-bustion. A better demonstration of technicalfeasibility is offered by the sequestration pro-ject in Weyburn, Canada, which capturesCO2 from a coal gasification plant. How-ever, even these advanced facilities lack themodeling, monitoring, and verification thatare needed to resolve the many outstandingtechnical issues.15

The United States, the European Union,Japan, and China have all launched govern-ment-funded CCS programs in the last fewyears, but the pace of the programs is sur-prisingly lethargic, given the urgency of theclimate problem and the fact that much of thepower industry expects CCS to allow con-tinued reliance on the hundreds of coal-firedpower plants that today provide over 40 per-cent of the world’s electricity. A 2007 studyby the Massachusetts Institute of Technology(MIT) concluded that the U.S. Departmentof Energy’s main program to demonstratelarge-scale CCS is not on track to achieverapid commercialization of key technologies.

Locating, testing, and licensing large-scalereservoirs where carbon dioxide can be storedis a particularly urgent task.16

In light of the lead times required for tech-nology development and demonstration, itwill be 2020 at the earliest before significantnumbers of carbon-neutral coal plants comeonline. Nor is it guaranteed that CCS plantswill be competitive with other carbon-freegenerators that are likely to be in the marketby that date. But the bigger question iswhether that would not be too late, consid-ering the hundreds of new coal-fired powerplants that are currently being considered inChina, the United States, and other nations.To have any hope of halving carbon emissionsby 2050, it is hard to avoid the conclusionthat the uncontrolled burning of coal willneed to be eliminated—and soon. In themeantime, a growing number of climateexperts are calling for a moratorium on build-ing new coal-fired power plants unless oruntil CCS becomes available.

The Convenient TruthMany energy industry executives argue thatreducing carbon emissions as rapidly as sci-entists now urge would risk an economic col-lapse. According to conventional wisdom,the available alternatives are just too small,unreliable, or expensive to do the job. In2001, for example, Vice President DickCheney described saving energy as a moralvirtue but not important enough to play amajor role in the national energy policy pro-posals he was developing at the time. TheWorld Energy Council, which represents thelarge energy companies that dominate today’senergy economy, declared in 2007 thatrenewable energy has “enormous practicalchallenges.It is unlikely to deliver a significantdecarbonisation of electricity quickly enoughto meet the climate challenge.”17




A thorough review of studies that assess thepotential contribution of new energy options,as well as the rapid pace of technological andpolicy innovation now under way, points to theopposite conclusion. Improved energy pro-ductivity and renewable energy are both avail-able in abundance—and new policies andtechnologies are rapidly making them moreeconomically competitive with fossil fuels. Incombination, these energy options representthe most robust alternative to the currentenergy system, capable of providing the diversearray of energy services that a modern econ-omy requires. Given the urgency of the climateproblem, that is indeed convenient.

The first step in establishing the viability ofa climate-safe energy strategy is assessing theavailable resources and the potential role theymight play. Surveys show that the resourcebase is indeed ample; the main factors limit-ing the pace of change are the economic chal-lenge of accelerating investment in new energyoptions and the political challenge of over-coming the institutional barriers to change.

Energy productivity measures an econ-omy’s ability to extract useful services fromthe energy that is harnessed. From the earli-est stages of the Industrial Revolution, energyproductivity has steadily advanced; in theUnited States, the economy has grown 160percent since 1973, while energy use hasincreased 31 percent, allowing the nation’senergy productivity to double during theperiod. Germany and Japan, starting withhigher productivity levels, have achieved com-parable increases. But even today, well overhalf of the energy harnessed is converted towaste heat rather than being used to meetenergy needs.18

This suggests enormous potential toimprove energy productivity in the decadesahead. Light bulbs, electric motors, air con-ditioners, automobiles, power plants, com-puters, aircraft, and buildings are among the

hundreds of systems and technologies that canbe made far more efficient, in many casesjust by using already available technologiesmore widely—such as compact fluorescentlight bulbs and hybrid electric vehicles. Fur-ther gains can be made by altering the designof cities—increasing the role of public trans-port, walking, and cycling, while reducingdependence on automobiles.

A global assessment by the McKinseyGlobal Institute of the potential to improveenergy productivity concluded that the rate ofannual improvement between now and 2020could be increased from 1 percent to 2 per-cent, which would slow the rate of globalenergy demand growth to just 1 percent ayear. If these gains are extended to 2050, thegrowth in world energy use could be held toroughly 50 percent, rather than the doublingthat is projected under most business-as-usualscenarios. This large difference represents thecombined current energy consumption ofEurope, Japan, and North America.19

The greatest potential turns out to lie inthe most basic element of the energy econ-omy—buildings—which could be improvedwith better insulation, more-efficient lighting,and better appliances, at costs that would bemore than paid for by lower energy bills.With technologies available today, such asground-source heat pumps that reduce theenergy needed for heating and cooling by70 percent, zero-net-energy buildings arepossible that do not require fossil fuels at all.All countries have untapped potential likethis to increase energy productivity, but thelargest opportunities are found in the devel-oping nations, where current energy pro-ductivity tends to be lower. Future increasesin energy productivity will not only reduceconsumption of fossil fuels, they will make iteasier and more affordable to rapidly increasethe use of carbon-free energy sources.20

On the supply side, one of the post-carbon




energy sources receiving much attention thesedays is nuclear power, which already plays amajor role in some countries but faces con-siderable obstacles to its expansion in thedecades ahead. (See Box 6–1.) Renewableenergy, in contrast, relies on two primaryenergy sources—sunlight and the heat storedbelow the earth’s surface—that are availablein vast abundance. The sunlight alone thatstrikes Earth’s land surface in two hours is

equivalent to total human energy use in ayear. While much of that sunlight becomesheat, solar energy is also responsible for theenergy embodied in wind, hydro, wave, andbiomass, each with the potential to be har-nessed for human use. Only a small portionof that enormous daily, renewable flux ofenergy will ever be needed by humanity.21

Several studies have assessed the scale of themajor renewable resources and what their




Nuclear power is a largely carbon-free energysource that could in theory help phase out fossilfuels. More than 300 nuclear plants currentlyprovide 15 percent of the world’s electricity. Butthis energy source has been plagued by a rangeof problems, most fundamentally high cost andthe lack of public acceptance, that have halteddevelopment for more than 20 years in most ofEurope and North America. Over the past decade,global nuclear capacity has expanded at a rate of less than 1 percent a year; in 2006, the worldadded 1 gigawatt of nuclear capacity but 15 giga-watts of wind capacity.

Major efforts are now under way to revivethe nuclear industry—driven by a combination of high natural gas prices, concern about climatechange, and a large dose of new government sub-sidies.Technology advances have led several com-panies to develop modestly revamped plantdesigns that are intended to make nuclear plantseasier to control, less prone to accidents, andcheaper to build. The most importantinnovations are to standardize designs andstreamline regulatory procedures. So far, twonuclear plants are being built in Europe, severalare under construction in China, and the UnitedStates is expecting as many as 32 plants to beordered by the end of 2008. Unfortunately forthe industry, several different plant designs arebeing promoted by different companies, limitingthe potential for standardization.

It is too early to tell whether these nuclearplants will be economical enough to launch awave of construction.The first new European

reactor has been under construction in Finlandand is already two years behind schedule and $1 billion over budget. A study by a KeystoneCenter panel composed of academics, energyanalysts, and industry representatives estimatedthe cost of new nuclear power at 8–11¢ per kilo-watt-hour—more expensive than natural gas-and wind-powered generators. And because oflarge capital requirements and long lead times,nuclear plants face a risk premium that othergenerators do not.

Energy planners will also have to reckon withthe scale and pace of construction that would beneeded to make a serious dent in the world’s cli-mate problem. MIT researchers estimate that1,000–1,500 new reactors would be needed by2050 for nuclear to play a meaningful role inreducing global emissions—a construction pace20 times that of the past decade and five timesthe peak level in the 1980s.

Many advocates of nuclear power argue thatgiven the urgency of doing something about cli-mate change quickly, it must be pursued. Speed,however, is not one of nuclear power’s virtues.Planning, licensing, and constructing even a singlenuclear plant typically takes a decade or more,and plants frequently fail to meet completiondeadlines. Due to the dearth of orders in recentdecades, the world currently has very limitedcapacity to manufacture many of the criticalcomponents of nuclear plants. Rebuilding thatcapacity will take a decade or more.


Box 6–1.What About Nuclear Power?

practical contributionto the energy economymight one day be. Onestudy by the NationalRenewable EnergyLaboratory in theUnited States, forexample, concludedthat solar thermalpower plants built inseven states in the U.S.Southwest could pro-vide nearly seven timesthe nation’s existingelectric capacity from allsources. And mountingsolar electric generatorson just half of the suit-able rooftop area couldprovide 25 percent ofU.S. electricity. In thecase of wind power, the Pacific NorthwestLaboratory found that the land-based windresources of Kansas, North Dakota, and Texascould meet all the nation’s electricity needs,even with large areas excluded for environ-mental reasons.

These reports demonstrate that resourceavailability will not be a limiting factor as theworld seeks to replace fossil fuels. Withimproved technologies, greater efficiency,and lower costs, renewable energy could oneday replace virtually all the carbon-based fuelsthat are so vital to today’s economy. (SeeFigure 6–2 and Table 6–3.)22

Designs for a New Energy Economy

The greatest challenge for the widespreadadoption of renewable energy sources is fittingthem into an energy system that was designedaround fossil fuels—fuels that have the advan-tage of being concentrated and easily stored.

To seriously de-carbonize the energy economy,ways must be found to power everything fromtransportation to the latest electronics onseemingly ephemeral energy sources such assolar energy and wind power.

Electricity is the single most importantelement of today’s energy system, essential forlighting, cooling, electronics, and many indus-trial processes; its role will only grow as newtechnologies allow grid electricity to be usedfor plug-in hybrid cars and to heat and coolhomes efficiently through ground-sourceheat pumps. Electricity also happens to be theoutput of the largest and most easily replacedcontributor to carbon emissions: coal-firedpower plants. It is therefore fortuitous thatsolar, wind, geothermal, ocean, and bioenergyare all able to produce electricity.

From the generator’s viewpoint, the maindisadvantage of most of these electricitysources is their intermittency—wind and solar,for example, tend to be available only 25–40percent of the time, depending on the tech-




WorldEnergy Use

Solar Wind Geo-thermal

Biomass Hydro-power

Ocean

Ener

gy F

low

(ex

ajou

les

per

year

)

425

>1600

600500

>250

50 <1

Source: UNDP, Johansson et al.

Figure 6–2. Estimates of Available Energy ResourcesUsing Today’s Technology

0

500

1000

1500

2000

nology and site. Intermittency turns out,however, to be not as big a problem forrenewable electricity as utility engineers onceanticipated. Power companies are alreadyaccustomed to dealing with fluctuatingdemand, and even conventional power plantsare sometimes shut down unexpectedly. Sointermittency is not a new concept, thoughdealing with it does take planning and a will-ingness to make adjustments in grid operationas penetration levels rise.

Power companies in some regions havealready gained experience in operating gridsthat include a sizable number of wind tur-bines. Several U.S. utilities have found thatwhen wind turbines meet 10 percent of peakpower demand, only minimal adjustments togrid operations are needed. And in areas ofnorthern Europe, where wind contributesover 20 percent of peak power, only minorstrengthening of grids and adjustments tothe operations of other generators arerequired. Utilities with substantialhydropower capacity have the ability toquickly ramp up power generation whenneeded, but most use gas turbines to provide

“peak power” when demand is particularlyhigh (or when other generators are not work-ing.) Strengthening weather forecasting capa-bilities and interconnecting multiple,dispersed wind farms also enables utilities toavoid most problems related to high levels ofdependence on wind power.23

As reliance on coal is reduced in thedecades ahead, it is likely that many regionswill move well beyond the 20 percent thresh-old for wind, solar, and other intermittentpower sources. To do this, they can pursuesome combination of three strategies: addlocal generating capacity using microturbinesand fuel cells, move to digital “smart” gridsthat are more flexible in their ability to bal-ance demand and supply, and develop thecapacity to store energy economically so thatit is available when needed.

The digital grid would allow the electric-ity system to operate much the way the Inter-net does—an electronically controlled gridthat responds in real time to decisions madeby users, providing the same kind of effi-ciency, interconnectivity, and precision as thedigital devices that it powers. One advantage




Energy Source Potential Contribution

Solar water heaters Could provide half the world’s hot water

Solar cells Could supply 10 percent of grid electricity in the United States by 2030

Solar power Seven states in U.S. Southwest could provide more than 7,000 gigawatts of solarplants generating capacity—nearly seven times U.S. electric capacity from all sources

Wind power Could provide 20 percent of world’s electricity; offshore wind farms could meet all of European Union’s electricity needs

Biomass One billion tons could be available for energy conversion in the United States in 2025, replacing one third of current oil use

Geothermal heat Could provide 100 gigawatts of generating capacity in the United States alone

Wave and ocean Long-run contribution could be on same order of magnitude as current world thermal energy energy use


Table 6–3. Estimates of Potential Contribution of Renewable Energy Resources

of such a system is that the electricity meter canbe transformed into a consumer gateway thattransmits price signals instantaneously andallows unneeded devices to be turned offwhen prices are high or renewable resourcesare not as available. Kurt Yeager, who directsthe Galvin Electricity Initiative, believes thatthe introduction of digital grids will increasethe ability to achieve higher levels of relianceon intermittent renewable generators.24

The ability to store energy is also devel-oping rapidly. Wind farm operators’ desire toqualify for the “capacity credits” earned whenpower can be generated during peak periodshas pushed some to explore storage options,notably in the form of compressed air that canbe kept in underground steel pipes or in geo-logical formations. One company plans tomount a compressor under the structure thathouses the generating components and sendthe compressed air down the tower, where itwill be stored underground; when electricityis needed, the compressor is reversed, gen-erating electricity. TXU, a large electric powercompany in Texas, recently canceled eightcoal-fired power plants and is planning insteadto build a 3,000-megawatt wind farm—largerthan any now in operation—that may includecompressed air storage.25

The development of less expensive,longer-lived batteries will further ease theway to greater reliance on renewable energy.Portable electronic devices and hybrid elec-tric cars are rapidly increasing demand foradvanced batteries made of nickel metalhydride and lithium; as they become lessexpensive and more widely used, these willallow power companies and consumers tocomplement distributed micro-solar gener-ation with distributed storage. And theplanned introduction of plug-in hybrid carsby General Motors and Toyota in the nextfew years will allow automobiles to run onsunlight and wind power as well as renew-

able biofuels, while the cars themselves canbe plugged into the grid and used as “peak-ing plants” when demand is high.26

Flexible, secure electricity grids will befurther aided by a new generation of micro-power generators that is being developed.Small-scale gas turbines, sterling engines, andfuel cells can easily generate up to a third ofthe total electricity supply, with the wasteheat available for use in the buildings in whichthey are located. And unlike the large powerplants that dominate today’s power system,micro-generators will be able to respondquickly to shifts in demand. In the longer run,the natural gas that currently courses throughthe world’s gas pipelines may be replaced byhydrogen or ammonia that is produced froma broad range of renewable resources.

The ability to integrate new energy sourcesinto the existing energy infrastructure willspeed the transition and reduce its cost.Already, wind power is being blended intomany electric grids, while ethanol is beingadded to gasoline. In Brazil, most new cars aredesigned to run on any mixture of ethanoland gasoline. In Germany, local producershave begun to add biogas (methane) to nat-ural gas pipelines. And in Japan, many home-owners are generating electricity with solarcells—sending power to their local grids aswell as drawing from them.27

The Economics of ChangeWhen oil was first discovered in westernPennsylvania in the 1860s, it was virtuallyuseless—far more expensive than coal and,prior to the development of the refinery orinternal combustion engine, useless for trans-portation. Even as oil became widely used forlighting in the late nineteenth century, theidea that it would become a dominant energysource—let alone reshape the global econ-omy—was inconceivable.




The history of economic transformationfollows a familiar path. Dominant technolo-gies and businesses are generally reliable andeconomical, and over time they develop anetwork of institutional and political supportthat effectively resists change. New tech-nologies and businesses generally enter aniche of the broader market, offering a highercost service that meets specialized needs. Butover time the new competitor becomes moreeconomical and widens its share of the mar-ket, eventually undercutting the cost of thedominant player and gradually remolding theinstitutional infrastructure to meet its ownneeds. The transition from one generation oftechnology to another is often gradual atfirst, but then speeds up as the economicadvantage flips.

According to conventional wisdom, theenergy sector is far from such a transforma-tion. New renewable energy sources representless than 2 percent of the total energy supply,and in 2007 total U.S. government supportof renewable energy R&D came to little morethan $600 million—about what the gov-ernment spent in Iraqin a single day. Whatthese figures fail to cap-ture is the recent infu-sion of private- sectorcapital and technologyand the fact thattoday’s renewableenergy pioneers are notlimited to “energytechnology” but ratherdraw on fields as diverseas semiconductorphysics, biotechnology,aerodynamics, andcomputer engineer-ing.28

Over the past five

years, the manufacture of wind turbines hasgrown at 17 percent annually, and solar cellsat a 46-percent annual rate. This rapid growthhas turned these industries into lucrative busi-nesses, with demand outrunning supply andprofits soaring. Some $52 billion was investedin renewable energy in 2006, up 33 percentfrom 2005. (See Figure 6–3.) At that level,investment in renewable energy is alreadyone quarter that of the oil industry—andgaining ground rapidly. Some of the world’sleading corporations have made major invest-ments in renewable energy, including AppliedMaterials (solar photovoltaics (PV)), BP (windand solar PV), General Electric (wind),DuPont (biofuels), Goldman Sachs (wind,and central solar), Mitsubishi (wind), RoyalDutch Shell (wind, hydrogen, and solar PV),Sharp (solar PV), and Siemens (wind).29

Corporate R&D on clean energy tech-nologies reached $9.1 billion in 2006. A sin-gle company, Vestas Wind Systems, spent$120 million on R&D in 2006, while theU.S. government spent less than $50 mil-




2000 2001 2002 2003 2004 2005 2006

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Figure 6–3. Global Investment inRenewable Energy, 2000–06

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lion on wind R&D. Even these numbersunderstate private R&D, which is oftenembedded in commercial projects, andexclude R&D investments by privately heldcompanies, many of them funded with ven-ture capital and other forms of equity invest-ment. Venture capital and private equityinvestment in clean energy totaled $8.6 bil-lion in 2006, 69 percent above the 2005level and 10 times the 2001 level. (See Chap-ter 13.) By early 2007, these investments hadhelped create 146 clean energy start-up com-panies with names such as Nanosolar,Celunol, SunPower, E3 Biofuels, and Miasole,most of them working to develop and com-mercialize new energy technologies.30

These tiny firms may be the real gamechangers in the new energy industries, fol-lowing in the footsteps of companies likeMicrosoft and Google, which quickly came todominate their more established competi-tors—bringing a level of innovation that largerfirms are rarely capable of.

In Silicon Valley, clean energy is helpingdrive a post-dotcom revival. Although it isregrettable that serious investment in renew-able energy did not begin earlier, the sci-ence and technology available today willallow the industry to achieve performanceand cost goals that would not have beenpossible in the past.

One example is photovoltaics, where pro-ducers are pursuing a host of strategies forreducing materials requirements, raising effi-ciency, and lowering manufacturing costs ofthe crystalline cells that dominate the market.Other companies are developing new thin-film photovoltaic materials that hold thepromise of dramatic cost reductions. Withdemand outrunning supplies of PV materialsin the past two years, price trends have tem-porarily reversed their usual downward course.But the industry is planning to increase itsmanufacturing capacity as much as eightfold

over the next three years, and dramatic pricedeclines are likely, spurring the industry todevelop new applications and markets thatwould not be feasible today.31

Beyond the advance in technology, theeconomics of renewable energy will furtherimprove as the scale of production rises—the same phenomenon that has successivelyturned televisions, personal computers, andmobile phones from specialty products forhigh-income technology pioneers into mass-market consumer devices. An analysis of pro-duction costs in several manufacturingindustries by the Boston Consulting Groupfound that each time cumulative productionof a manufactured device doubles, productioncosts fall by 20–30 percent.32

The annual production of wind turbines isnow doubling every three years—and wind isalready competitive with natural gas–firedpower in the United States. It would be com-petitive with coal-fired power plants if theyhad to pay the current European CO2 priceof $32 per ton. Solar electricity is still twiceas expensive as retail grid electricity in mostmarkets, but annual production is doublingevery two years—which should cut costs inhalf in the next four to six years.33

Making Energy Markets WorkAdvancing technology, rising energy prices,and the growing move to place a price on car-bon emissions in many parts of the worldhave created an extraordinarily favorable mar-ket for new energy technologies. Reaching atrue economic tipping point will depend onmore than these simple variables, however.Energy markets virtually everywhere are reg-ulated, complex, often inefficient, and rarelypredictable. What happens to the energyeconomy, and to the world’s climate, in theyears ahead will be heavily influenced by hun-dreds of policy decisions made at interna-




tional, national, and local levels—and whetherthese new policies can be sustained.

Many energy economists argue that thereason fossil fuels dominate today is theirinherently lower cost compared with thealternatives. This suggests that putting a priceon carbon—likely through a carbon dioxidetax or a regulatory cap on emissions such asthe one in Europe—would solve the climateproblem. Getting the price signals right isan essential step, but its limits are demon-strated by the modest impact that the $50increase in the cost of a barrel of oil has hadon petroleum consumption in the past fiveyears. That is equivalent to a carbon dioxideprice of $120 per ton; the current price of acarbon credit in Europe is $32 per ton, whileone of the leading climate bills before the U.S.Congress would cap the price of carbon at$12—equivalent to $5 per barrel of oil.34

The neoclassical economic view assumes aneconomically frictionless world in which buy-ers and sellers have all the information and cap-ital they need, and there are no serious barriersto the introduction of new technologies. Atthe extreme, neoclassical economists soundlike economic fundamentalists, envisioningan idealized, mechanistic economy that isnever found in the real world. Economicresearch beginning in the 1920s has shownthat the costs of transactions can greatly limitthe effectiveness of markets, while otherresearch suggests that people’s behavior oftenfails to follow neoclassical rules. Nobel laure-ate economist Douglass North has shownthat laws, customs, and social priorities greatlyinfluence the working of the economy. With-out them, most markets would work ineffi-ciently if at all.35

Because energy markets have been shapedmore than most others by government pol-icy, institutional constraints, and the power oflarge industrial enterprises, simple economictheory provides minimal insight about how

to spur change. The electric power industryis particularly far from the neoclassical model,governed as it is by extensive governmentregulation that is intended to facilitate devel-opment of large, reliable electric systems,with one company dominating most localgrids and in some cases owning the trans-mission lines and power plants as well.

Although this economic model has beenbroadly successful in delivering affordableelectricity to billions of people, it has done somainly by making it easy to add energy sup-ply—but providing much less incentive oropportunity to improve energy efficiency.Regulations have also favored large fuel-inten-sive generators at the expense of smaller, cap-ital-intensive units. The result is an electricitysystem that is far from the economic ideal—and that will require major reforms if it is tomaximize economic efficiency, let aloneaccount for the massive environmental exter-nalities represented by global climate change.

The profits of most electric utilities aredetermined by regulators based on theamount of power sold. This naturally makesthem proponents of growth—the more elec-tricity consumers buy, the more profitablethe utility is. And as long as the regulatorapproves, there is no risk in building a powerplant since there are no competitors, andcosts are borne by the consumer. The utilityalso bears little risk if the plant burns a fuelwhose price is volatile—fuel adjustmentclauses allow price increases also to be passedto the customer.

Although consumers should in theory beinterested in making investments in energyefficiency whenever it is economical, theyface many obstacles, including a lack of cap-ital to invest in conservation and a lack ofinformation about which investments makesense. Perceiving the lack of demand, poten-tial manufacturers and installers of energy-effi-cient equipment have little incentive to scale




up production or build businesses that wouldfacilitate efficiency improvements.

One of the easiest ways to overcome thesekinds of market barriers is government man-dates. Since the 1970s, many governmentshave required that home appliances, motorvehicles, and buildings meet minimum effi-ciency standards in order to be sold, andthese standards have been gradually ratch-eted up over time. Additional tightening isnow in order, and many governments aremoving quickly in that direction. Averageauto efficiency standards, for example, willsoon move to 47 miles per gallon in Japanand 49 miles per gallon in Europe, and theU.S. Congress is considering tightening theU.S. standard, which has been stuck at 27.5miles per gallon for over two decades.Another approach to requiring efficiencycan be seen in the law recently passed inAustralia to phase out the use of most incan-descent light bulbs, which would be replacedby compact fluorescent bulbs that are fourtimes as efficient.36

Government mandates are also being usedto compel the construction of more energy-efficient buildings and to require the intro-duction of renewable energy into electricitygrids as well as the markets for liquid fuels. Sev-eral national governments and 24 states in theUnited States now have binding “renewableportfolio standards” requiring that specifiedamounts of renewable electricity be added totheir grids. In Spain, a recent update of build-ing codes requires all new buildings to incor-porate solar water heaters. As of April 2008, thestate government of Baden-Wurttemberg,Germany, will require that 20 percent of newbuildings’ heating requirements be met withrenewable energy. Brazil, the United States,and the European Union are among the juris-dictions that require that a minimum propor-tion of biofuels be blended with gasoline anddiesel fuel, spurring growth in their use.37

Such mandates can patch over some of theholes in a market economy, but they are at bestblunt instruments that do not harness the fullpower of the market to effect change. Whilethey are a useful backstop to ensure that min-imal rates of change occur and to remove thevery worst technologies from the market, it isalso essential that markets reward innovationand investment that strives to achieve the bestpossible performance. One important step inthis direction is to de-couple electric utilities’profits from the amount of power they sell byintroducing a regulatory formula that insteadrewards utilities for providing the best serviceat the least cost. California regulators havealready made this change; as a result of this andother policies, Californians use less than halfas much electricity per person as other Amer-icans do. (See Figure 6–4.)38

John Hoffman, an energy efficiencyexpert and former U.S. Environmental Pro-tection Agency official, has proposed anadditional strategy for spurring efficiencyinvestments—a “transaction bridge” thatallows manufacturers and installers to sharein the savings derived from installing more-efficient equipment in buildings. This wouldmotivate them to continually develop bettertechnologies, to work with utilities to accel-erate the development of new markets, andto scale up both production and installa-tion in order to lower cost. This mechanismcould also be used to spur introduction ofmicro-power technologies such as photo-voltaics, as well as ground source heatpumps. And Hoffman has proposed a simi-lar system for motivating the productionand sales of efficient vehicles.39

European governments have developedanother economic tool to spur investmentin renewable energy. Beginning in the early1980s, Denmark decided to reduce its depen-dence on oil-fired generation by encouragingits agricultural industry to enter the power




business by selling wind- and biomass-basedelectricity to the utilities at prices set by gov-ernment. This stopped the utilities fromthwarting potential competitors, and overtwo decades it reduced Denmark’s depen-dence on fossil fuels and made it a leadinggenerator of renewable power.40

Germany and Spain adopted similar mar-ket access laws in the 1990s, and they toomoved quickly into the leading ranks ofrenewable energy development. Over time,the prices governments set have beenadjusted downward as the cost of renewabletechnologies has fallen. As a result of this law,Germany now holds the pole position insolar PV and wind-generating capacity—despite the fact that it has modest resourcesof sun and wind.41

The Final Tipping PointThere are good reasons to think that theworld may be on the verge of a major trans-formation of energy markets. The powerfulinteraction of advancing technology, private

investment, and policyreform have led to apace of change unseensince men like ThomasEdison and Henry Fordcreated the last greatenergy revolution acentury ago. But is itenough? Will the com-ing years bring theaccelerated change andtr i l l ions of dol lars of investment thatNicholas Stern esti-mates is needed toreverse the tide of cli-mate change?42

The answer to thatquestion will likely be

found not in the messy world of economicsbut in the even messier world of politics.Can the enormous power of today’s indus-tries be set aside in favor of the commongood? Time is growing short. In the UnitedStates alone, 121 coal-fired power plantshave been proposed. If built, they could pro-duce 30 billion tons of carbon dioxide overtheir 60-year lives. China is building thatmany plants every year.43

There were growing signs in 2007 that theyears of political paralysis on climate changemay be coming to an end, spurred by thewarnings of scientists and the concerns ofcitizens. One sign of the changing times isthat many of the planned coal plants areunder attack by local and national environ-mentalists, and some have already beenscrapped. Germany recently announced thatits centuries-old hard coal industry will beclosed by 2018. Several potentially game-changing political developments in 2007 areworth noting:• Twenty-seven major U.S. companies—from

Alcoa and Dow Chemical to Duke Energy,




1960 1970 1980 1990 2000 2010

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Figure 6–4. Electricity Use Per Capita, Californiaand Rest of United States, 1960–2006

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General Motors, and Xerox—announcedsupport for national regulation of CO2emissions.

• The European Union committed to reduc-ing its carbon dioxide emissions 20 percentbelow 1990 levels by 2020, and memberstates are ramping up their energy effi-ciency and renewable energy programs inorder to achieve these goals.

• China announced its first national climatepolicy, pledging to step up its energy effi-ciency and renewable energy programs andacknowledging that earlier policies werenot sufficient.

• Seventeen states in the United States movedtoward adopting regulations on CO2 emis-sions, increasing pressure on the U.S. Con-gress, which was considering nationallegislation.

• Brazil recognized the threat that climatechange poses to the country’s economi-cally crucial agriculture and forestry indus-tries and signaled a new commitment to

strengthening international climate agree-ments.44

As negotiations begin on the internationalclimate agreement that will supplant theKyoto Protocol after 2012, the world’s polit-ical will to tackle climate change will be putto an early test. The politics of climate changeare advancing more rapidly than could havebeen imagined a few years ago. But the worldhas not yet reached the political tipping pointthat would ensure the kind of economic trans-formation that is required. And the dividebetween industrial and developing countriesover how to share the burden of action muststill be resolved.

As people around the world come tounderstand that a low-carbon economy couldone day be more effective than today’s energymix at meeting human needs, support forthe needed transformation is bound to grow.Urgency and vision are the twin pillars onwhich humanity’s hope now hangs.





In financial capitals across the world, bro-kers are hard at work trading a key com-modity of the twenty-first century: carboncredits. These are allowances or offsets thatrepresent a quantity of carbon dioxide (CO2)or other greenhouse gas (GHG) measured intons of carbon dioxide equivalent.1

Regions, countries, and states are settinglimits or caps on the amount of greenhousegas that can be emitted each year—limits thatare typically passed on to large emitters suchas power plants and factories in certain indus-tries. If these plants reduce their emissions—by installing low-carbon technologies orimproving the energy efficiency of their pro-duction processes, for example—and emitless than their allowed limit under the cap, thecompanies can sell unused allowances to util-ities or companies that are emitting more gasthan legally allowed. The effect is to put aprice tag on greenhouse gas emissions—andto create an economic incentive to look forways to reduce them.

The platforms for exchanging such cred-its are part of a rapidly growing global carbon

market. They take several forms, includingcap-and-trade systems in countries meetingKyoto Protocol emissions targets and creditexchanges for energy-related industries.Recent years have also seen the rapid growthof voluntary carbon markets, in which indi-viduals, businesses, and communities invest inprojects that offset their emissions.

There is little question that carbon marketsare here to stay: some analysts project thatthey will constitute the world’s largest com-modity market in the years ahead. But carbonmarkets are in their infancy. There are majorchallenges, such as adequately addressing ver-ification, certification, and monitoring. Andthese markets must be scaled up substantiallyif they are to significantly decrease the con-centration of greenhouse gases in Earth’satmosphere. Despite the remaining hurdles,today’s burgeoning efforts by businesses,governments, and individuals to reduce car-bon emissions and exchange credits are crit-ical first steps toward ensuring that futuregenerations inherit something priceless: a sta-ble climate.2

C H A P T E R 7

Zoë Chafe and Hilary French

Improving Carbon Markets

S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S

The Shape of Carbon Markets Today

In the last few years, carbon markets movedfrom the realm of economic theory into thatof practical reality—due in no small measureto the Kyoto Protocol to the U.N. Frame-work Convention on Climate Change. Underthis accord, 38 industrial countries agreedto cut their greenhouse gas emissions to, onaverage, 5.2 percent below 1990 levelsbetween 2008 and 2012. This commitmentbecame legally binding on participating coun-tries in early 2005, after the protocol hadbeen ratified by the required number of coun-tries. By October 2007, the protocol hadbeen ratified by 174 countries and the Euro-pean Union (EU).3

The emissions reductions required underthe protocol are just a small fraction of what sci-entists now believe will be needed to limitglobal average temperature increases to 2degrees Celsius and to avoid crossing potentiallycatastrophic thresholds in Earth’s climate sys-tem. (See Chapter 6.) Still, the reductions madeunder Kyoto represent a critical first step.4

The inspiration for today’s rapidly grow-ing carbon markets comes from a successfulU.S. experiment with trading sulfur dioxideand nitrogen oxide credits. This market wascreated in the early 1990s primarily to addressthe problem of acid rain. As a result of thisexperience, the U.S. government successfullypushed for the inclusion of similar provisionsin the Kyoto Protocol, overcoming initialskepticism from other countries. Ironically, theU.S. government has so far refused to ratifythe protocol that contains the very provi-sions it championed, while the EU has createdthe most ambitious trading system to date.5

The protocol created three innovative mar-ket-based instruments to encourage its cost-effective implementation:• The Clean Development Mechanism

(CDM) allows countries with emissionsreduction commitments under Kyoto toreduce their burden by investing in emis-sions reductions in developing countriesthat are party to the protocol but not heldunder it to any specific reductions.

• Joint Implementation (JI) allows coun-tries to meet their reduction targets byinvesting in projects that reduce emissionsin other countries bound by Kyoto tar-gets, usually those in Eastern Europe andthe former Soviet Union.

• Emissions trading allows parties with emis-sion targets to trade portions of theirnational emission allocations among them-selves.6

So far, most of the credits generated underthe terms of the Kyoto Protocol have involvedthe CDM, although some projects underJoint Implementation have also begun. Trad-ing of emissions allocations between countrieshas not yet started, but it could begin as earlyas 2008—the first year of the Kyoto Proto-col’s initial commitment period.7

Carbon trading in all of the major marketsreached an estimated total value of $30.1billion in 2006, almost triple the amounttraded in 2005. The EU Emissions TradingScheme (EU-ETS) accounted for more than80 percent of the total value of carbon cred-its traded in 2006, with credits related to theClean Development Mechanism coming in adistant second. (See Table 7–1.)8

Within the broad category of carbon cred-its, there are two distinct segments: allowancesand project-based transactions. Allowancesare allotted through a government cap-and-trade system or by a financial institution witha binding emissions reduction schedule, suchas the Chicago Climate Exchange (CCX).Global trade of allowances has increasedrapidly, from 328 million tons of CO2 equiv-alent in 2005 to 1,131 million tons in 2006.The value associated with these trades rose



Improving Carbon Markets S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S

from just under $8 billion in 2005 to $24.6billion just one year later.9

Project-based transactions are associatedwith specific carbon reduction projects. Com-panies and governments can acquire creditsfrom international emissions reduction projectsand count the reductions toward their nationalcaps using the Clean Development Mechanismor Joint Implementation. And individuals,businesses, universities, municipalities, or orga-nizations can seek to reduce their own “car-bon footprints” by voluntarily investing inspecific emissions reduction projects.

In sum, carbon trading can be described aseither allowance-based (under a cap-and-trade scheme) or project-based, and it can bepart of a compliance market (such as the EU-ETS) or a voluntary transaction.

Capping and TradingMeasured by both volume and value,allowance-based systems dominate today’scarbon markets. At least three such systems

are currently operating—the European UnionEmissions Trading Scheme, the New SouthWales Market in Australia, and the ChicagoClimate Exchange in the United States—andmore are being formed.

The EU-ETS has grown to become thelargest carbon trading platform. Establishedas an important component of the Euro-pean Union’s strategy for achieving its Kyoto-mandated emissions target, the EU-ETSallows European reduction credits to bebought and sold alongside credits createdthrough projects in developing countries(through the CDM) or in economies in tran-sition (through JI). The EU-ETS includesthe 15 countries that originally committedthrough the protocol to collectively reducetheir greenhouse gas emissions by 8 percentfrom 1990 levels by 2012 under what isknown as the “European bubble.” An EUDirective translated this commitment intospecific emissions reduction targets for eachmember country. The EU-ETS also allowsnewer EU member states to participate in the



S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S Improving Carbon Markets

2005 2006

Market Volume Value Volume Value

(mill. tons of (million (mill. tons of (million CO2 equiv.) dollars) CO2 equiv.) dollars)

EU Emissions Trading Scheme 321 7,908 1,101 24,357New South Wales 6 59 20 225Chicago Climate Exchange 1 3 10 38Primary Clean Development

Mechanism* 351 2,638 475 4,257Joint Implementation 11 68 16 141Other compliance 20 187 17 79Other voluntary markets 6 n/a 13 55

Total 716 10,863† 1,652 30,153

* Primary sales of credits generated through the CDM are distinguished from the secondary market, which exists whenthese credits are resold through a market mechanism such as the EU-ETS. † Excludes over-the-counter voluntary market.Source: See endnote 8.

Table 7–1. Carbon Transactions, Selected Markets, 2005 and 2006

trading scheme in order to meet theirnational reduction targets of 6–8 percent,as agreed under the protocol.10

The EU-ETS has recorded strong growthsince it began operations, more than triplingthe tons of CO2 equivalent traded in its firsttwo years—from 321 million in 2005 to1,101 million in 2006. The value of thetraded carbon also tripled over that time,climbing from $7.9 billion in 2005 to $24.4billion. The program currently involves atleast 12,000 companies across the EU whoseallowances and transactions are recorded inregistries. These registries are vital for keep-ing track of legitimate transactions and mak-ing sure that credits are not double-countedor resold.11

During its initial test phase, from 2005 to2007, the EU-ETS traded only CO2 emis-sion allowances associated with power andheat generation and select industries, includ-ing oil refineries, iron and steel plants, andfactories making cement, glass, bricks, ceram-ics, and pulp and paper. These sourcesaccount for 45 percent of CO2 emissions inthe EU. The second phase corresponds withthe Kyoto Protocol’s first emissions reduc-tion commitment period, which runs from2008 to 2012. It is expected that this phasewill integrate additional emissions sources,such as aviation, and other greenhouse gasesbeyond carbon dioxide.12

The New South Wales market is the sec-ond largest allowance-based market to date.Australia’s most populous state, New SouthWales, set mandatory emissions reductionstargets in 2003; its market whirred intomotion two years before trading began onthe EU-ETS. Targets apply specifically tothe state’s power sector—meaning that largeelectricity buyers or sellers must reduce or off-set emissions from production of the elec-tricity they supply or use. They can buycertificates from low-emission generation of

electricity, improved generator efficiency,reduced electricity consumption, or forestrycarbon sequestration projects to meet theirtargets. (So far, this market does not includecredits generated through the CDM or JI.)In 2006, 20 million tons of carbon dioxideequivalent were traded on this market, worth$225 million.13

The third largest allowance-based marketis the Chicago Climate Exchange. Started in2003, the CCX differs from the other twomarkets described here in that it was notestablished by a government. Any entity thatjoins the CCX does so voluntarily. CCX mem-bers must, however, legally adhere to theemissions reduction schedule stipulated by theexchange. Trading volume on the CCX sur-passed its 2006 total in the first half of 2007,putting it on course to double its tradingvolume over one year.14

Businesses and organizations join CCX atdifferent membership levels: full membershave significant direct emissions, includingindustrial companies, states, and municipal-ities. They can purchase or sell credits. Asso-ciate members are organizations, universities,and companies with negligible direct emis-sions that agree to buy credits to offset 100percent of the emissions associated with theirenergy purchases and business travel. CCXmembers have a range of motives for joining,such as to respond to public demand foraction on climate change or to gain earlyexperience with emissions trading on theassumption that mandatory U.S. systems willsooner or later be created.15

While the Chicago Climate Exchangegrows, pressure is building within the UnitedStates for federal regulation of greenhouse gasemissions through a cap-and-trade system.Prospects for some form of national legisla-tion improved in January 2007 with the for-mation of the United States Climate ActionPartnership, an alliance of major U.S. com-




panies and prominent environmental orga-nizations. The partnership, which has grownto include more than 30 businesses and orga-nizations, is calling for national legislationon “significant reductions” of GHG emissionsusing a multi-pronged strategy based arounda cap-and-trade program. More than a dozencompeting pieces of legislation are currentlybeing considered by the U.S. Congress.16

In the absence of effective federal action onemissions reductions, several other allowance-based carbon markets have been proposed orare in the process of being created by statesand provinces within the United States andCanada. (See Box 7–1.) Meanwhile, the cen-tral government in Australia has announcedthat it will develop a national cap-and-trademarket for greenhouse gas emissions by 2012.Legislators and regulators working to develop

these systems are carefully studying the Euro-pean experience.17

One of the biggest surprises at the EUEmissions Trading Scheme was the precipi-tous drop in the price of emissions contractsfor credits to be counted in 2007 (known asDecember 2007 contracts); the price sankfrom a peak of $34 per ton to nearly zero inearly 2007. The second phase will have morestringent emissions caps, so future contractsare currently trading at higher prices. (See Fig-ure 7–1.) (Emissions contracts have anassigned date, according to the date the cred-its will be produced; contracts can be tradedseveral years in advance, for delivery at futuredates.) The price crash for December 2007contracts coincided with the announcementthat more permits had been allocated throughthe EU National Allocation Plan process than




Regional Greenhouse Gas Initiative(RGGI): This program was initiated in 2005through the support of state governors in thenortheastern United States. Cooperationbetween at least 10 states will lead to a regionalcap-and-trade system that will regulate the emis-sions associated with most power plants in theregion. Collectively, participating states haveagreed to cap regional CO2 emissions at 1990levels by 2014 and to reduce them to 10 percentbelow that level by 2018. When the programgets going in 2009, some 188 million carboncredits representing one ton of carbon each willbe distributed to participating states, which willin turn allocate or auction them to power plantswithin their borders. The program could beextended beyond power plants to include otherlarge emitters after the initial trading period iscompleted.

California: The state passed landmark legis-lation in 2006 that mandates a 25-percent reduc-tion in CO2 emissions by 2020, with emissionsreductions expected to reach 174 million tons of CO2 equivalent. It is expected to establish a

cap-and-trade system based largely on emissionsreductions among major emitters in-state. Emis-sions trading is scheduled to begin in 2012. Cali-fornia stands to benefit from the establishmentsix years ago of the California Climate ActionRegistry—a voluntary system of GHG emissionsaccounting that was set up to protect andreward companies that chose to take earlyaction in anticipation of future regulatoryrequirements. (Other states, including Florida,Minnesota, New Jersey, and Oregon, have sincepassed similar legislation.)

Western Climate Initiative: Created inFebruary 2007, this scheme involves California, fiveother western states, and the Canadian provincesof British Columbia and Manitoba. Modeledsomewhat on RGGI, the initiative has set aregional emissions reduction goal of 15 percentbelow 2005 levels by 2020 and is establishing a market mechanism for achieving it. (Threeother states and three provinces have also joinedas observers.)


Box 7–1. North American Carbon Trading Systems under Development

were needed, resulting in an oversupply forthe first phase of the EU-ETS. Political andspecial interests lobbying led in part to overlygenerous permit allocations, combined withinadequate historical emissions data. Thishighlights the key importance of establishinghigh-quality baseline data if cap-and-trademarkets are to function effectively.18

A significant problem in the recent EU-ETS experience was that the vast majority ofemissions permits were distributed for free tolarge emitters rather than offered for salethrough an auction. (See Box 7–2.) Whetherpermits are allocated or auctioned, the rightto emit carbon gains a value when a carboncap exisits—and that value is reflected inincreased electricity prices. Because largeemitters were given permits for free, theyreaped windfall profits when electricity pricesrose while their production costs did not.British power companies, for example, madean estimated $1.5 billion in profits as a resultof the carbon permits they were issued for freeby the U.K. government, and German utili-

ties are expected toenjoy windfall profitsworth $44–91 billionbetween 2005 and2012 as a result ofemissions creditsgranted to them underthe EU-ETS.19

There is a good sideto the price rises,though: in general,consumers react tohigher electricity pricesby increasing energyefficiency and buyingless electricity. JörgHaas of the HeinrichBöll Foundation andPeter Barnes of theTomales Bay Institute

explain that “as emissions trading is meant asa way of internalizing external costs, it is nec-essary that prices reflect these new costs.”But they and other critics nonetheless ques-tion whether large emitters should profitfrom free allocations of a public good: theatmosphere’s capacity to absorb carbon. Whileallocating permits amounts to a subsidy forelectricity companies, auctioning can encour-age a more equitable distribution of permitrevenues.20

The EU-ETS allows large emitters tomeet their caps in part by purchasing cred-its via the Clean Development Mechanismand Joint Implementation program; this pro-vision has also elicited criticism. Some groupsworry that wealthy countries will fail to makesignificant in-country reductions, relyinginstead on the relatively cheap credits gen-erated in developing countries or economiesin transition. This fear is one reason thatforestry-related credits have so far beenbanned from the EU-ETS. The World WideFund for Nature–UK (WWF–UK) recently




Apr 05 Sep 05 July 06Feb 06 Dec 06 May 07 Oct 07

Dol

lars

per

tC

O2

December 2007

December 2008

Source: ECX

Figure 7–1. Average Price of EU EmissionsContracts, 2005–07

0

5

10

15

20

25

30

35

reviewed nine National Allocation Plans forthe second phase of the EU-ETS, conclud-ing that up to 88 percent of the EU emis-sions reductions required by 2012 couldtake place outside of the European Union.WWF–UK argues that this is contrary to theKyoto Protocol and EU directives, both ofwhich specify that Kyoto mechanisms besupplemental to domestic actions.21

Some lessons from Europe are alreadybeing incorporated there and elsewhere. Cur-rent prices indicate that the prices of contractsfor the second phase of the EU-ETS will rise,with more-aggressive emissions caps makingpermits scarcer. As of early October 2007,EU-ETS contracts for December 2008 (fordelivery just before emissions levels are eval-uated for 2008) were trading around $30per ton of carbon dioxide equivalent.22

And U.S. policymakers appear increasinglyconvinced that auctioning is the best approach

for allocating permits. Under the RegionalGreenhouse Gas Initiative in the northeast-ern part of the country, all participating stateswith announced rules have opted for 100percent auctions, and California is consider-ing a similar requirement for its climate reg-istry. Most of the cap-and-trade proposalsbefore the U.S. Congress call for a share ofpermits to be auctioned and for a percentageof the revenue generated to be allocated forpublic benefit.23

Under the auctioning systems being con-sidered in the RGGI program, earned rev-enues would be used in part to finance publicspending on climate-related programs, suchas the promotion of energy efficiency. Federalproposals currently under consideration alsoenvision investing auction proceeds in alter-native energy development (including cleancoal), cleaner transportation technologies,and climate-related initiatives to lessen the




When carbon trading began under the EU-ETS,European governments had to decide how manyemissions permits each company covered by theEU-ETS would receive. There were two majoroptions: to auction permits or to allocatepermits to companies based on their historicalemissions. In an auction, companies list theamount they are willing to pay for a given quan-tity of permits, and a market price is established.Under allocation, or “grandfathering,” companiesreceive permits for free based on the amountthey emitted in past years.

Governments decided that in the first phaseof EU-ETS (2005–08), no more than 5 percent of permits could be auctioned in each membercountry. (Only four countries used auctions atall.) In Phase II (2008–12), up to 10 percent ofpermits will be auctioned.

Prices will rise anytime carbon emissions arerestricted—whether through allocation or auc-tioning. When permits are allocated to com-

panies, production costs usually remain about the same, despite the rise in electricity prices,because the permits are basically given as a sub-sidy—so businesses and associations favor thisoption. When permits are auctioned, the averagecost of production can increase, and the revenuefrom the auction is redistributed either throughtax breaks for consumers, assistance to energy-intensive sectors, or investments in low-carbontechnologies. In general, economists support auc-tioning permits.

Some 80 percent of businesses polled saidthat the EU Directive should not allow for moreauctioning in the future, in part because they areworried they will not be able to compete withsectors not covered by the EU-ETS or with com-panies abroad—worries that researchers say arelargely unfounded due to domestic protectionscovering many industries.


Box 7–2. Who Gets Permission to Emit?

impacts of climate change on low-incomecommunities in the United States and else-where. Peter Barnes has gone further, propos-ing that all citizens should share benefits fromcarbon emissions permits. When permits to“use” atmospheric capacity are auctioned,the revenues would be placed in a publictrust. Through a mechanism similar to theAlaska Permanent Fund, which distributesroyalties to Alaskans for oil extracted from theNorth Slope, citizens would receive their fairshare of the trust’s value. (See Chapter 10.)24

The Kyoto Mechanisms in Action

The Kyoto Protocol’s flexibility mechanismslink countries that have a shared interest increating projects to reduce greenhouse gasemissions—harnessing industrial countries’interest in investing in lower-cost efficiencyprojects overseas and pairing that with devel-oping countries’ interest in receiving financ-ing and cleaner technologies. Internationalcarbon finance flows to developing countriescould climb as high as $100 billion a year incoming decades, according to U.N. estimates,roughly equivalent to total spending on for-eign aid in 2006.25

Investments in project-based transactionsfunded through the Clean DevelopmentMechanism and Joint Implementation havegrown rapidly since the protocol’s flexibilitymechanisms became operational. Since 2002,CDM credits worth 920 million tons of CO2equivalent have been generated—equal toone fifth of the EU’s total emissions in 2004.In 2006 alone, CDM projects led to certifiedemissions reductions (CERs) of 475 milliontons of carbon dioxide equivalent, with atotal value of more than $4 billion. JointImplementation projects have gotten off toa slower start. Nonetheless, 16 million tonsof CO2 equivalent were transacted through JI

in 2006, worth $141 million.26

Since the creation of CDM credits beganin 2002, China has registered 118 projects,accounting for the highest share of expectedCERs (75.4 million, 45 percent of the globaltotal). While India has registered the mostprojects (282), these projects are expected togenerate 27.8 million CERs (about 17 per-cent of the global total). China’s domina-tion of the CDM market is expected tocontinue: adding up all the CDM projectsthat are in the process of being verified andregistered, it is expected that by 2012 Chinawill generate almost 53 percent of all CERsand India will be home to 16 percent. (SeeFigure 7–2.)27

By contrast, Latin America as a whole hasonly registered 290 CDM projects worth33.6 million CERs, and sub-Saharan Africahas issued 13 projects worth 3.8 millionCERs (just 2.3 percent of the global total).Though there are 33 sub-Saharan AfricanCDM projects now in the pipeline, they areexpected to account for about the same lowpercentage of the global total by 2012.28

Despite Africa’s opportunities to gain out-side investment for sustainable developmentthrough the Kyoto mechanisms, the continenthas thus far received an abysmally low shareof CDM investment. To counteract this wor-rying trend, six U.N. agencies have formedthe Nairobi Framework, an initiative aimed atimproving CDM implementation in Africa bybuilding the capacity of countries in theregion to develop and implement projects.29

The largest volume share of CDM projectsto date involves “fugitive emissions”—that is,those that trap and dispose of fuel emissions,halocarbons, and sulfur hexafluoride. Pro-jects that destroy the greenhouse gas HFC-23 (a potent byproduct created during themanufacturing of a class of refrigerant gasesknown as HCFCs) have generated the largestshare of CDM credits to date, accounting




for 50 percent of all issued credits.30

There are significant concerns about theseprojects, however, including that the lure ofearning CDM credits has created a perverseincentive for countries to produce moreHCFCs than they would otherwise, despitethe fact that HCFCs are both an ozone-depleting substance and a greenhouse gas. Anadded problem is the high price of buyingthese credits relative to directly subsidizingneeded technology. By one estimate, installingthe equipment needed to eliminate HFC-23emissions at the 17 remaining refrigeratorplants producing HFC-23 in developingcountries would cost only $142 million—$6.5 billion less than purchasing CDM cred-its generated by capturing the HFC-23.31

In any event, a decline in new HFC-23projects in 2007 suggests that these oppor-tunities have largely been exploited. A shift isunder way toward other projects, includingenergy efficiency, hydroelectric, and methanecapture from landfills. (See Figure 7–3 andTable 7–2.)32

In 2001, the parties to the Kyoto Proto-

col agreed that coun-tries could work towardtheir emissions targetsby encouraging carbonsequestration in vege-tation and soil throughforest management,cropland management,grazing land manage-ment, and revegetation.Now the CDM isbeginning to approveprojects from the sectorknown as LULUCF,for land use, land usechange, and forestry.This sector includesprojects started since1990 that focus on

afforestation (planting new trees) or refor-estation (planting replacement trees).33

Despite their potentially important role instabilizing the climate, forestry and land useprojects have been tightly restricted underCDM rules. As of September 2007 one pro-ject was registered—a reforestation project inChina’s Pearl River Basin. (Eleven otherforestry projects, in seven countries, werebeing evaluated.) The World Bank is seekingto expand forestry and agriculture projectfunding through its BioCarbon Fund andits new Forest Carbon Partnership Facility,with the aim of helping countries gain cred-its by protecting existing forests—a conceptknown as “avoided deforestation.” Althoughcountries cannot yet generate credits throughthis approach, it is likely that avoided defor-estation will be included under the CDM inthe future.34

Voluntary standards are now being devel-oped to help guide the LULUCF sector inthe future and to maximize the benefits offorestry projects. The Climate, Communityand Biodiversity Alliance (CCB) is a group of




Source: UNEP

Figure 7–2. Distribution of CDM Credits Expected 2002–12, for All Projects in Pipeline

China(53%)

India (16%)

Brazil (7%)

Other (20%)

South Korea (4%)

12 companies and nonprofit organizationsthat are working together to implement stan-dards for carbon ventures. Projects must meet15 standards—addressing land tenure, com-munity impacts, and biodiversity impacts,among others—in order to be certified. Theymay earn additional points if they satisfy 8other standards, on issues like capacity build-ing, adapting to climate change, and nativespecies use. Both CDM and voluntary mar-ket projects can earn CCB certification.35

With Joint Implementation projects,energy projects dominate the overall portfo-lio in both number and overall volume.Between 2003 and 2006, energy projectsaccounted for nearly two thirds of the volumeof JI projects, with energy efficiency and pro-jects switching from carbon-intensive fuelsto renewable energy accounting for 28 per-cent of the total, biomass for 13 percent,wind energy for 12 percent, and hydroelec-tric projects for 8 percent. Projects financedthrough JI are predominately located in East-ern Europe, with Ukraine accounting for thelargest volume between 2003 and 2006 (21

percent). Russia (19percent) and Bulgaria(18 percent) are alsohome to many JI pro-jects.36

European buyerslead both the CDMand JI markets, with 86percent market share.This reflects the factthat the EuropeanUnion is party to theKyoto Protocol andcan use emissions cred-its purchased under theCDM and JI to meetits emissions reductionstargets.37

Elaborate rules gov-erning the CDM and Joint Implementationhave been painstakingly negotiated among theparties to the Kyoto Protocol over the last sev-eral years to ensure that projects meet keyquality-oriented criteria. For example, inorder to be approved a project must be cer-tified to be “additional”—in other words,that it would not have taken place if theCDM did not exist. A second requirementrelates to a concept known as leakage: busi-nesses and governments proposing CDMprojects must show that they are not simplyshifting activities from one place to another.38

Although these requirements were cre-ated with the best of intentions, they have ledto some unanticipated problems. One diffi-culty has been that the transaction costs asso-ciated with the CDM are so high that onlylarge projects can absorb them. It typicallycosts $50,000–250,000 to shepherd a pro-ject through the approval process—or onaverage some 14–22 percent of the projectedrevenue from the sale of the carbon credits.This is a particular obstacle for the world’spoorest countries, such as those in Africa,




Source: UNEP

Figure 7–3. Sources of CDM Credits Expected 2002–12, for All Projects in Pipeline

Fugitive emissions(35.7%)

Biogas,biomass energy,

landfill gas(18.4%)

Transport (0.2%)

Other (1.9%)

Afforestation and reforestation (0.3%)

Agriculture (2.0%)Energy(30.1%)

Energyefficiency(11.5%)

where potentially eligible projects tend tobe smaller in scale and thus less able to affordthe high transaction costs. However, theWorld Bank and private brokers are workingto aggregate smaller projects and reducetransaction costs. Africa also stands to ben-efit from the expected future inclusion ofmore LULUCF projects.39

The CDM has been criticized for lax over-sight on its rules. For the first several years ofoperation, every project proposed wasapproved. Since then, there has been tighterscrutiny by the CDM Executive Board, andsome projects have been rejected. In August2007, for example, a large gas-capture pro-ject slated for Equatorial Guinea was turned

down on the grounds that it was unclearthat the project would not have happenedanyway—meaning the project developersmay have been trying to cash in on whatwas in fact business as usual.40

Assessing Voluntary Carbon Markets

In the absence of government caps on carbondioxide emissions—or sometimes alongsidethem—businesses, organizations, and indi-viduals are voluntarily purchasing credits thataim to mitigate greenhouse gas emissions.Often referred to simply as “carbon offsets,”these credits are bought and sold over the




Host Country/Authorized Other GHG

Project Participants Parties Reductions Description

(tons of CO2equiv. per year)

Clean Development Mechanism

Reforestation for Guangxi watershed management in Pearl River Basin

BRT Bogotá,TransMilenio Phase II to IV

Lawley Fuel Switch Project

Osório Wind Power Plant Project

Table 7–2. Selected Clean Development Mechanism and Joint Implementation Projects

China:XinghuanForestry DevelopmentCompany

Colombia:TransMilenio S.A.

South Africa:Corobrik

Brazil:Ventos do Sul Energia

BioCarbon Fund,IBRD

ItalySpain

Netherlands:CorporaciónAndina deFomento

Netherlands:Statkraft Markets BV

Spain:Enerfin EnerventoS.A.

25,795

246,563

19,159

148,325

First forestry project registeredunder CDM; 4,000 hectares ofnew forest will sequester carbon,conserve soil and water, and gen-erate revenue for local farmersfrom sale of CDM credits.

First transportation project to beregistered under CDM; a Bus RapidTransit system will increaseefficiency of public transportation.

Corobrik’s Lawley brick factorylocated in Gauteng province ofSouth Africa will switch from usingcoal to natural gas.

The wind power complex, thelargest in Latin America, will gen-erate 150 megawatts, enoughpower to meet the needs of650,000 residents.

counter or through an established tradingmechanism such as the Chicago ClimateExchange. Ecosystem Marketplace, a U.S.-based group that tracks markets for a varietyof ecosystem services, estimates that in 2006at least 23.7 million tons of CO2 equivalentwere exchanged in voluntary carbon mar-kets, with 10.3 million tons moving throughthe CCX. Many more voluntary credits wereexchanged in so-called over-the-countertrades—transactions made outside of formalmarket structures, often between an offsetprovider and a private citizen.41

People in North America or Europe are

increasingly encouraged to buy carbon offsetsto negate the climate impacts of their every-day activities. The airline ticket consolidatorExpedia, for example, teamed up with carboncredit broker TerraPass to offer customersthe opportunity to offset the carbon dioxidegenerated during their flights; TerraPass, inturn, uses the fees it collects to buy carboncredits produced by verified wind, biomass,or industrial efficiency projects. And JivaDental in the suburbs of London advertisesitself as the first “carbon-neutral” dental prac-tice in the world; the office buys carbon off-sets created by projects in India, Mexico, and




Host Country/Authorized Other GHG

Project Participants Parties Reductions Description

(tons of CO2equiv. per year)

Joint Implementation

Rehabilitation of the district heating system in Donetsk Region

Switch from wet to dry process at Podilsky Cement

Landfill gas recovery in Moscow

RBTI Biomass Waste-to-Energy Project


Table 7–2. continued

Ukraine

Ukraine

Russia

Latvia

Ireland-basedCRH plc,Dublin

826,875 (total by 2012)

750,000

4,122,016(2008–12)

5,337

Old boilers will either be replacedor upgraded; switch to natural gasfrom coal/oil; pipe length will bedecreased and pipe insulation willbe enhanced; introduce combinedheat and power plants; reduceheat loss, improve efficiency, anddecrease fuel consumption.

Cement will be produced throughdry process rather than throughenergy-intensive wet process.

A landfill gas recovery and flaringsystem will be constructed toreduce release of landfill methane.

Boilers will be introduced at theBaltic Timber Industries so bark andwood waste can be used to gener-ate electricity for the company.

the United States. Jiva Dental is just one ofmany institutions, events, and enterprises toclaim “carbon neutrality.” (See Box 7–3.)42

One specific type of renewable energy off-set sometimes traded on the voluntary mar-ket is the renewable energy credit (REC),which represents power generated fromrenewable sources and fed into the grid. Useof RECs as carbon offsets is controversialbecause the energy sources are not tested foradditionality—in other words, it is difficult toknow if they represent renewable energyproducts that would not have occurred any-way without financing from the purchase ofthe credits.43

Forestry and tree-planting projects are aprevalent but controversial method of seques-tering carbon and producing voluntary off-set credits. A recent report from theAmsterdam-based Transnational Institutequestions the claims of several well-known

organizations or companies that sell forestry-based carbon offsets. The report documentsincidents in which groups advertised thatbuying their offsets would support the plant-ing of new forests when, in reality, consumers’money was going toward purchase of car-bon sequestration rights to existing forests.44

The report also calls attention to an inci-dent in which a community was displaced bya forestry project and then moved to anotherforested location, clearing the area to buildtheir new homes. This allegedly happenedwith a project unfortunately located at a dis-puted boundary area in a Ugandan nationalpark—the site of ongoing forced evictionsand conflicts over resource rights. Some res-idents forced to move away from this sitehad little choice but to fell trees at their newlocation, perhaps cancelling the intendedbeneficial effects of the offset project. Whilesome of the examples in the report are quite




When “carbon-neutral” became the Oxford Amer-ican Dictionary’s 2006 Word of the Year, manyhailed it as the mainstreaming of an importantenvironmental topic. But what does it really meanto be carbon-neutral? Is it at all possible to docu-ment such a claim? Businesses, organizations,conferences, sporting tournaments, concerts,and individuals are certainly trying to.

Some critics argue that carbon neutrality is anempty descriptor, in part because it sometimestakes years for the emissions being offset toreally be neutralized. Offsets based on forestryprojects, for example, often calculate a 99-yearlifespan, during which the tree will absorb carbondioxide at varying rates.Trees are by no meansguaranteed to live for this amount of time, andthere are still uncertainties about the carbonemissions associated with their decay.

There are also significant questions about theoften-opaque algorithms used to determine theemissions that a person or organization would

need to offset in order to truly erase theirimpact on the global atmosphere, especially foremissions associated with air travel. Althoughseveral well-recognized methodologies do exist,such as the World Business Council for Sustain-able Development (WBCSD)/World ResourcesInstitute GHG Protocol, not all voluntary offsetsites use this methodology.

While the term carbon-neutral is surely allur-ing, buyers do need to beware when purchasingoffsets and using this term. Some critics arguethat offsets are a cheap way of pushing aside moreserious questions about ongoing consumptionpatterns. Others urge that people should gobeyond carbon-neutral and look toward a “carbon-positive” future—one in which peopleare proactively repairing damage to the climatethrough lifestyle changes, business practices, andeveryday purchases.


Box 7–3. Carbon Neutrality—Not a Neutral Term

old, the authors’ main points remain valid:without proactive legislation, concerns overland tenure could easily escalate as forestryprojects increase in frequency and size.45

Given the frequent changes in scientificfindings, certification systems, and due dili-gence that affect carbon credits, purchasersneed to ask about the origins of carbon off-sets and how they are verified. By under-standing the differences among various offsetproducts, their certifiers, and the availablestandards, buyers can get a sense of whetherthey are getting value for their money. Thiswill clarify the process involved in offsettingcarbon emissions and will put pressure onthose generating and brokering the credits toensure that customers are truly getting the“offsets” they believe they are paying for.46

A note of caution: while carbon offsetsoffer some positive benefits, they are not apanacea. The carbon emissions associatedwith high-consumption lifestyles will not beneutralized by simply buying carbon offsets.(Nor would it even be possible to produceand offer for sale enough credits to attemptthat feat.) Improving energy efficiency anddecreasing consumption are key first steps todecreasing carbon emissions.

With the energy sources currently used togenerate electricity, the building standardsthat dictate construction of houses andoffices, and the industrial regulations thatinfluence how appliances and clothes aremanufactured, it is clear that governmentrules and regulations have great power overthe emissions associated with everyday lives.

With the right legislation, people will be ableto purchase better products and there will beless need to consider buying carbon offsetson a voluntary basis. Until that happens,carbon offset purchases will be made moremeaningful by simultaneously lessening con-sumption and lobbying for more effectivenational legislation.

The Future of Carbon Markets

As emissions reduction projects and carbontrading increase rapidly, financial analysts,environmental researchers, and human rightsadvocates will jostle to fine-tune the imple-mentation. Perhaps the most crucial issue toimprove is the ability to prove that GHGreductions are indeed happening as marketed.Several recent cases spotlighted by the mediamake this clear. In one case, Toby Nichol,communications director at EasyJet, a low-cost airline in Europe, warned carbon offsetbuyers to beware the “snake oil salesmen” thatlure do-good customers into paying exorbi-tantly high fees for offset services. EasyJet hadoriginally intended to offer its passengerscredits from carbon offsetting brokers, but thecompany found that the quality of the cred-its offered was questionable and the markupwas high, so it decided to purchase the cred-its from the CDM instead.47

Reliable emissions calculators and rep-utable certification and verification schemeswill help ensure that carbon credit purchasersare getting what they paid for. These tools arecrucial to the continued success of this nascentmarket. Several protocols help project man-agers ensure that they are correctly calculat-ing the environmental benefits they market.Perhaps best known is the WBCSD/WorldResources Institute GHG Protocol, whichstandardizes accounting methods. The Inter-




By understanding the differences among various offset products, their certifiers,and the available standards, buyers can get a sense of whether they are getting value for their money.

national Organization for Standardizationhas also released a useful methodology (ISO14064) with four components: organizationreporting, project reporting, validation andverification, and accreditation of validation orverification bodies. But there is concern thatthese tools do not sufficiently address thekey issue of additionality.48

While lack of certification and oversightcontinues to be a problem in some sectors ofthe carbon market, a new problem is emerg-ing: there may be too many competing cer-tification and registration schemes. EcosystemMarketplace counted at least 15 major certi-fication programs and standards available forthe U.S. voluntary carbon offset marketalone.49

Several certification systems stand out inthe crowd, however: The Gold Standarddeveloped by WWF is one of the mostfocused certification schemes. Endorsed bymore than 40 organizations, it certifies onlyrenewable energy and energy efficiency pro-jects, excluding any forestry or land use pro-jects. It was originally developed to spotlightexceptional CDM projects when there waswidespread skepticism regarding the CDMgoverning body’s ability to screen projectsadequately. The Gold Standard has createda registry for emissions reductions traded onthe voluntary market to ensure that the samecredits are not sold multiple times. At thesame time, an increasing number of certifi-cation and standard programs are focusingnot only on the quantifiable environmentalaspects of offset projects but on larger socialand biodiversity characteristics as well. TheClimate, Community and Biodiversity Stan-dards and Social Carbon are two examples ofthis approach.50

Other initiatives target one specific seg-ment of the market, such as voluntary offsets.In 2007 a consortium of organizations—including the International Emissions Trad-

ing Association, the Climate Group, WBCSD,and the World Economic Forum—contin-ued work on the Voluntary Carbon StandardFramework, a global standard for project-based emissions reductions. The goal of thisstandard is to ensure uniformity, additional-ity, and registration in an extremely varied vol-untary offsets market.51

While the inner workings of the globalcarbon market are being refined, it is impor-tant not to lose sight of the larger picture:how to best integrate emissions trading intothe architecture of future international climategovernance. It is widely agreed that the cur-rent Kyoto target is not stringent enough tomeet the overall goal of the 1992 climatechange treaty—preventing dangerous levels ofhuman interference with the climate system.Kyoto was always intended as simply a firststep. The initial phase of Kyoto emissionstargets comes to an end in 2012, and gov-ernments will soon begin formal negotia-tions over what should come next. Apost-2012 target is needed, among other rea-sons, to provide a clear signal to the market.As British economist Nicholas Stern explains:“Creating an expectation that a policy is verylikely to be sustained over a long period is crit-ical to its effectiveness.” Belief in the futureviability of an effective global carbon market,underpinned by strong emissions reductiontargets, is key to behavior change.52

Countries already bound by the KyotoProtocol have recently recognized that globalemissions must be reduced 25–40 percentbelow their 1990 levels to avoid catastrophiclevels of climate change. But this goal has notbeen agreed to by countries that are not partyto the Kyoto agreement—notably the UnitedStates, which is alone responsible for some 20percent of global carbon dioxide emissionsfrom fossil fuel burning. In upcoming nego-tiations, governments will consider strength-ening the reduction targets included in the




protocol in the post-2012 period. They willalso likely discuss the possibility of addingtargets for developing countries, where emis-sions are growing rapidly but from a small percapita base.53

The future of the CDM is linked closely tothese discussions of post-Kyoto targets. Thereis widespread agreement that the currentdesign, while an interesting experiment, isnot putting a meaningful dent in the rapidincrease in greenhouse gas emissions in manydeveloping countries. One way to restruc-ture the CDM would be to allow developingcountries to obtain credits for implementingbroad-based policy reforms rather than piece-meal projects. As a move in this direction, theCDM Executive Board recently approvednew procedures for a “programmatic CDM,”in which countries can initiate a number ofsmall projects under one larger program. It ishoped that this will result in greater emissionsreductions and will make the investment morecommercially attractive by reducing hightransaction costs.54

Some critics ask whether limits should beplaced on countries’ ability to purchase CDMcredits to meet domestic reduction targets,particularly while developing countries arenot subject to binding emission limitations.Another remaining issue is whether a globalemissions trading system will eventually becreated, building on and linking today’s ongo-ing experiments with instruments as diverseas the EU-ETS, the regional trading blocs

developing in North America, the CleanDevelopment Mechanism, and the many vol-untary offset programs now available.55

Whatever the future may hold for inter-national carbon markets, they are properlyviewed as only one of many strategies that willbe needed to help reverse the powerful forcesfueling steadily rising greenhouse gas emis-sions. A range of other tools will also beimportant, including carbon taxes and policyreforms to reduce carbon emissions in key sec-tors such as buildings, transportation, andforestry. (See Chapter 6.) Individual actionsto reduce carbon emissions are also essential—from shortening trips to using public trans-portation whenever possible, purchasing localgoods, improving energy efficiency at homeand in the office, and lobbying for moreeffective government emissions reductionpolicies.56

Although far from a magic bullet, carbonmarkets will be a significant feature of theglobal economic landscape in the years anddecades ahead. One of their most importantbenefits is political: they are creating power-ful economic constituencies that favor stricterinternational action to stabilize Earth’s cli-mate. This development stands poised to fun-damentally alter the political calculussurrounding climate change negotiations inthe years ahead—perhaps finally breaking thelogjam that has so far stalled global efforts toreduce greenhouse gas emissions.57





Water is as essential to economies as it is tohuman life. Clean drinking water is needed forthe health of productive populations, butonly 10 percent of global water use is actu-ally for household consumption. Agriculturalwater is needed to produce food and fiber.Water is a direct input in virtually all indus-trial production processes, and it is needed toproduce hydropower and to cool thermalpower plants, which together account for thevast majority of world energy supplies. Inlakes and rivers it is used for transportation,fisheries, and recreation.

Water is also essential, however, to sustainthe ecosystems people live in and depend on.It must be recognized for its value as an envi-ronmental resource that underpins economiesand societies. Consider the findings from a dis-parate set of recent economic analyses:• Wastewater treatment services provided by

the Nakivubo Swamp to the citizens of

Kampala, Uganda, are worth $363 perhectare of swamp area per year.

• Wetland products in the Zambezi basin inSouthern Africa—including crops, live-stock, fish, and tourism—are valued at anaverage $48 per hectare.

• The net market value of downstream floodprotection given by avoiding upstreamdeforestation through the establishmentof the Mantadia National Park in Mada-gascar is estimated at $12.67 per hectareper year.1

Recognition of water’s full range of valuescomes at a time when societies are confrontedwith mounting water shortages and the factthat clean and reliable water can no longer betaken for granted, even for those who canafford it. Over the last century water usageincreased sixfold, twice the rate of populationgrowth. Fifty years ago people did not per-ceive water as a globally scarce resource. But

C H A P T E R 8

Ger Bergkamp and Claudia W. Sadoff

Water in a Sustainable Economy

Dr. Ger Bergkamp is head of the Water Programme at IUCN–The World Conservation Union. Claudia W. Sadoff is Economic Adviser at IUCN and Principal Economist at the International WaterManagement Institute.


today competition for clean water is becom-ing the norm in many regions. Experts esti-mate that by 2025 over three quarters of thepeople in the world will face some degree ofwater scarcity. Already 2.8 billion people—40percent of the global population—live inbasins with some level of water scarcity. Nearlyhalf of the world’s river systems are degradedto some degree, and the flows in some riversno longer reach the ocean.2

In some locations and economies waterscarcity is a matter of physical shortage; inothers, it is an issue of economic or sociopo-litical access. Physical water scarcity can bedefined as a situation in which water use isapproaching or exceeding sustainable lim-its—that is, where more than 75 percent of

flows are withdrawn for agriculture, industry,or domestic purposes. (See Figure 8–1.) Inthis sense, dry areas may not be water-scarceif there is adequate water to meet alldemands, while wetter areas may be effec-tively water-scarce. Economic water scarcityoccurs when human, institutional, infra-structural, or financial limitations preventpeople from gaining access to water eventhough there is enough available locally innature to meet human demands. The exis-tence of water resources and the managementand delivery of water services are dual but dis-tinct constraints.3

Shortages in water stem from growingeconomies, rising populations, and chang-ing lifestyles. The result: ever increasing



Water in a Sustainable Economy S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S

Figure 8–1. Physical and Economic Water Scarcity

Little or no scarcity: <25 percent of river flows withdrawn for human uses

Physical scarcity: >75 percent of river flows withdrawn for agriculture, industry, domestic purposes

Approaching physical scarcity: >60 percent of river flows withdrawn

Economic scarcity: <25 percent of river flows withdrawn, but human, institutional, and financial capital limit access to water

Not Estimated Source: IWMI

demand and competition for water. News-papers are filled with warnings of a “globalwater crisis” and impending “water wars.”Although these headlines may be hyperbole,there is simply no question that the way waterresources are managed today is unsustain-able. The resource is vulnerable to overex-ploitation and pollution and increasinglyscarce relative to current and future demands.Uncertainties associated with climate changeare adding to communities’ vulnerability toan unreliable and scarce water resource.

Growing demands and rising competitionover water mean that choices must be made—choices over allocating water for differentpurposes. Drinking water and sanitation, foodand fiber production, hydropower genera-tion and industrial production, river trans-portation and the maintenance of ecosystemsand their services: all these need water.Choices must also be made in the ways wateris used—whether it is wasted or conserved,polluted or protected, overextracted or man-aged sustainably, valued for all its uses orsimply exploited for a few.

The increased recognition of the value ofwater for economies and the impending watershortages present, surprisingly, an opportunityto move toward a more sustainable globaleconomy. As economies are closely linked tothe way water is used, managing water wiselybecomes an economic imperative rather thana luxury available only to those who canafford it. Moving in this direc-tion, however, requires significantchanges in the way water is viewedand managed. The practical stepsneeded include more inclusive andtransparent decisionmaking,investments in new technologiesto enhance water use efficiencyand water productivity, and a care-ful alignment of economic signalsand incentives.

Water in Today’s EconomyMore than 70 percent of the world’s water isused for food and fiber production in agri-culture (see Table 8–1), a source of liveli-hood for some 80 percent of the world’spoor. Industry consumes an additional 20percent, and less than 10 percent of globalfreshwater abstraction is used for drinkingwater and sanitation. Water used to sustainecosystem services is left out of these globalcalculations, as are navigational, recreational,and other direct and indirect uses that donot involve monitorable withdrawals of waterfrom rivers, lakes, or groundwater reserves.4

As the primary user of water, agriculture isat the heart of the water management chal-lenge. While the average person requires twoto five liters of water a day for drinking, aver-age daily food intakes embody some 3,000liters of water. Diets in wealthier countriesinvolve even higher water usage. A singlehamburger requires over 10,000 liters ofwater, taking into account what is used to pro-duce corn to feed the cows. The Interna-tional Water Management Institute recentlycompleted a five-year comprehensive assess-ment of water management in agriculture todetermine whether there will be sufficientwater to grow enough food in 2050. It foundthat this will only be possible with real changesto the way in which the world produces foodand manages the environment.5



S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S Water in a Sustainable Economy

Domestic andRegion Agriculture Industry Residential

(percent)Developing countries 81 11 8Industrial countries 46 41 13World 70 20 10


Table 8–1.Water Use by Sector

A number of global trends related to agri-cultural production are set to have profoundeffects on the global water balance. Growingpopulations and changing diets are the pri-mary drivers, likely tempered to some degreeby gains in land and water productivity. Tradein food and fiber products could either easeor aggravate water scarcity. A surge in biofuelproduction may help mitigate climate change,but it will certainly consume great volumes ofwater. In many places, agricultural water con-straints are beginning to pinch, while in grow-ing economies the competition for waterfrom industries and municipalities is rising.6

Water use for energy production, industry,and services is the next largest user of waterglobally and the most rapidly growing one.Typically, developing economies tend to behighly dependent on agriculture, with therelative share of industrial production risingas the economy grows. Water use patternsmirror these trends: industries in industrialeconomies withdraw twice the global average(over 40 percent), while those in developingcountries account for roughly 10 percent ofnational water usage.7

While drinking water and sanitation claima relatively modest share of the global waterresource, access to safe drinking water is rec-ognized as an urgent global priority. Thechallenge of providing these services, how-ever, is daunting. Worldwide, more than 1.1billion people currently lack access toimproved water supplies, and over 2.7 billionlack sanitation. These people are, of course,the very poor. Two thirds of those withoutaccess to water earn less than $2 a day. In2000, at least 1.7 million deaths were attrib-

uted to unsafe water, sanitation, and hygienepractices—all, in theory, preventable.8

In September 2000 the global communityagreed to a set of Millennium DevelopmentGoals (MDGs) that includes reducing by halfthe proportion of people in the world livingwithout access to water and sanitation by2015—at an estimated cost of some $30 bil-lion a year. At this time it appears that this tar-get can be achieved, although not uniformlyin all countries. But the MDG goal for drink-ing water is not an end point. World popu-lation—today over 6.5 billion people—isexpected to reach around 9 billion by 2050.Clean, potable water will need to be providedto all. Moreover, the challenge of ensuringsustainable access will remain long after theMDG investment targets are (or are not)met. In industrial countries, for example, itis estimated that $200 billion a year is neededjust to replace aging water supply and sani-tation systems, reduce leakage rates, and pro-tect water quality.9

As agriculture, industry, and households viefor ever larger shares of water, ecosystemsrisk being the greatest losers. To continue toprovide a range of provisioning, regulating,and cultural services, ecosystems need cleanwater. This demand, however, is often nottaken into account when water is abstractedfrom aquifers or rivers are used as sewers. Tomaintain downstream ecosystems and theirservices, societies need to keep (semi-) naturalriver flows and leave water of sufficient qual-ity in the river. This is referred to as the “envi-ronmental flow.” Maintaining or restoringenvironmental flows forms a real challengewhen economic growth and developmentintensify the competition for increasinglyscarce water resources.10

It is clear that some level of tradeoff needsto be made between economic developmentand water for ecosystems. Increasingly, how-ever, efforts to enhance economies and the




As agriculture, industry, and householdsvie for ever larger shares of water,ecosystems risk being the greatest losers.

environment go hand in hand. People arenow defining dual benefits from keepingrivers alive and investing in economic sec-tors toward greater water use efficiency. Cit-izens are calling for action to protect water,air, and forests. Consumers are demanding“greener” businesses practices, which createsdirect economic returns for sustainable man-agement of natural resources and ecosystems.Growing recognition of the value of ecosys-tems and their services for economies is oftenbehind these changes.

Managing water across scales. Water short-ages are most clearly seen at local levels, butmanaging water is a challenge at all scales.Because water is bulky and expensive to storeand move, it is generally managed and allo-cated at a fairly local level. Integrated waterresources management—a process promotingthe coordinated development and manage-ment of water, land, and related resources—focuses on the basin level and tries to reconcilevarious water users and demands to arrive ata sustainable system. Working at basin level isoften difficult, however, because political andadministrative boundaries rarely correspondwith hydrological ones.11

At the national level, reservoirs andpipelines are built that store and transportwater to where it is needed, potentiallyenabling water management on a country-wide scale. Most countries aspire to inte-grated water resources management at thenational level, but this requires significantcoordination across a range of institutionsand stakeholders.

At the international level, integratedapproaches are being proposed in trans-boundary river basins. Transboundary riversjoin countries, so uses in one country arelikely to have direct impacts on others. Thereare more than 260 such rivers in the world,posing potential conflicts over water but alsoreal potential for cooperation. Transbound-

ary basin management initiatives are increas-ingly being seen, with many positive results.12

Trade in goods that embody significantamounts of water can also transcend thisresource’s local nature. Rather than movingwater itself from scarce to plentiful regions,“virtual water” can be traded by exportingwater-intensive goods from wet to dryregions. In these ways, while water is managedlocally, it can have impacts on (and be affectedby) water management and economic policiesat many scales.13

Water management and equity. Waterpolicies and investments can have importantequity impacts through the opportunitiesand risks they create for different groups andindividuals within an economy. The avail-ability of and access to reliable water of goodquality in a particular region will help spurthat region’s growth, whereas absence ofwater or lack of access to it can reduce eco-nomic opportunities and investments. Pro-viding access to water of good quality at anaffordable price creates incentives and oppor-tunities for different sorts of economic activ-ities in different places. Not doing soeffectively forecloses opportunities or makesthem unprofitable. Thus the mix and char-acter of economic activities undertaken in aregion—the structure of the regional econ-omy, in other words—is influenced by waterpolicies and infrastructure investments,whether intentionally or incidentally.

Great wealth has been built in many coun-tries where early settlers and entrepreneursobtained valuable water rights or passed thecost of pollution and natural resource degra-dation on to others or to future generations.In other countries, millions of people remainin poverty due in part to the burden of water-borne diseases and a lack of reliable waterfor agriculture or other forms of economicdevelopment.

The Human Development Report 2006




prepared by the U.N. Development Pro-gramme highlighted the fact that the watercrisis is a challenge of poverty, inequality, andunequal power relationships as much as it isabout physical water scarcity. The issues ofequity and power, in addition to the strongspiritual and cultural associations that societieshave with this vital resource, give rise to anextremely complex and often emotive polit-ical economy around water.14

Valuing Water for Sustainability

The value of water as a resource that under-pins economic activities is evident in alleconomies, but it is much less evident in eco-nomic statistics. Its value and that of relatedecosystem services are poorly understood andrarely explicitly factored into tradeoffs anddecisionmaking. Prices virtually never reflectwater’s full value, so water users do not see itsfull value or the need for conservation. Theseflawed “market signals” guide everyday eco-nomic decisions. If they do not recognizethe value of water, then—broadly speaking—neither will the economy.

The value of water is also obscured inmeasures of macroeconomic performancesuch as the gross domestic product (GDP).In the System of National Accounts, fromwhich the GDP is calculated, water for con-sumption or as an input into production isuniversally undervalued by using the priceactually paid for its use. Unlike other inputsthat are sold in competitive markets, thisprice is generally far less than water’s realeconomic value and often even less than thecost of supplying it. Under these circum-stances, neither producers (who receive pricesignals that do not value water) nor policy-makers (who receive economic analyses thatdo not value water) can know whether theyare using water beneficially or simply squan-

dering it. Furthermore, the costs of degradation of

water resources and related ecosystem servicesare not accounted for in national incomeaccounts. Whereas investment in manufac-tured capital, such as a water treatment plantor a dam, is reflected as an increase in a coun-try’s wealth, investments in “natural assets”such as wetlands, watersheds, or groundwa-ter aquifers are not included at all, even if theyserve equivalent functions as produced cap-ital. (See Box 8–1.) In fact, quite the oppo-site tends to be true: the inflated incomederived by overexploitation or degradation ofnatural assets is reflected as (apparently) stronggrowth. At the macroeconomic level, there-fore, decisionmakers are receiving perversesignals regarding the impacts—and, in par-ticular, the sustainability—of their develop-ment strategies.

Since the 1970s, many people haveworked to reintroduce the value of the envi-ronment and natural resources into eco-nomics and thereby promote moresustainable economic decisionmaking. (SeeChapter 2.) These perspectives are groundedin the recognition that natural resources,while once abundant, are now clearly a con-straint in some circumstances. Again, waterprovides an excellent demonstration. Theuse of deep groundwater was once con-strained by the technology and capital neededfor pumps and fuel. Groundwater abstrac-tions since the 1950s, with the advent ofmotorized drilling rigs and pumps, haveincreased from 100–150 cubic kilometersper year to 950–1,000 cubic kilometers.Today groundwater is significantly overex-ploited in many countries. As a consequence,water tables fall, wells run dry and no longerprovide water for human and agriculturalneeds, and fragile ecosystems such as wetlandsare degraded. The constraint is no longercapital or labor, but the resource itself.15




Total economic value (TEV) has becomea recognized means of capturing both themarket values (those that can be observedthrough market trades) and the nonmarketvalues of natural resources. (See Box 8–2.)16

While efforts are being made to ensurethat the value of water is better incorporatedinto economic decisionmaking, similar effortsare being made to ensure that the economicvalue of the resource is recognized in watermanagement decisions. In January 1992, inadvance of the U.N. Conference on Envi-ronment and Development in Rio, the Inter-national Conference on Water and theEnvironment was held in Dublin, Ireland.Some 500 participants—government expertsand representatives from nongovernmentalgroups around the world—endorsed theDublin Principles, which distilled global goodpractice in water management and were a

milestone in the area of sustainable resourcemanagement. (See Box 8–3.)17

Principle 4, on water’s economic value,unleashed a spirited debate. Many peopleheld the view that water was a “gift of nature”or a “basic human right” and that it shouldtherefore be provided free of charge. “Wateras an economic good” was seen as a denial ofwater as a social or environmental good andan effort to “capture” and “commodify” theworld’s water. Yet Principle 4 was notintended as anything quite that radical andwas not meant to deny the environmental orsocial aspects of water—these features were infact underscored in the very first principle.Nor was it intended to call into questionwhether access to water for basic humanneeds would remain a priority relative toother economic uses. There was, and still is,a strong global consensus that this is the case.




Fifty years ago sustainability was simply not apart of the vocabulary, and water was not a par-ticular consideration for economists. Classicaleconomists recognized land (meaning all naturalresources), labor, and produced capital as thebasic sources of wealth. Neoclassical economistsfocused only on labor and capital, with “land”treated as just another interchangeable form ofcapital. The general view was that naturalresources were abundant relative to demand andtherefore not an important focus for the econo-mist, whose task it was to allocate scarceresources—those whose use constrained alter-native economic opportunities. There was littleappreciation of the fact that the environment isused not only as a “source” of valuable inputs butalso as a “sink” for the waste and pollution of theeconomy. Neither was there much thought aboutthe possibility that the world might reach a scaleof resource exploitation at which the capacity ofboth the “source” and “sink” functions of theenvironment could become a binding constraint

on well-being and economic growth.The focus on produced rather than natural

capital is particularly stark when it comes towater. Prices are typically related to the capitaloutlays required to deliver water (that is, theinfrastructure and the operations and mainten-ance charges) without any component of valueattributed to the resource itself. Not only doesan undervalued water resource tend to beoverused, it also induces distorted prices thatprovide poor information about whether invest-ments make sense. It provides no insight intowhether economic activities are actually creatingvalue or whether the resource is running out andneeds to be conserved. It must be said, though,that water delivery is highly capital-intensive, andproduced capital will therefore remain a crucialfocus for financial and economic analyses ofwater investments. The point to recognize is thatthe value of water resources also matters, andthat water’s availability, quality, and timing cannotsimply be “assumed.”

Box 8–1.Water as Capital

Principle 4 was included to highlight theimportance of recognizing the full range ofeconomic values that can be derived fromwater, of allocating all water resources effi-

ciently and equitably, and of delivering waterservices (including sanitation and wastewatertreatment) cost-effectively.

Recognizing water as an economic good




Total economic value has become a widely usedframework for looking at the value of eco-systems.TEV is typically disaggregated into twocategories, use values and non-use values.

Use value has three elements:Direct use value, which is mainly derived from

goods that can be extracted, consumed, or enjoyeddirectly. Examples include drinking water, fish, andhydropower, as well as recreation activities.

Indirect use value, which is mainly derived from the services that the environment provides,including regulation of river flows, flood control,and water purification.

Option value, which is the value attached tomaintaining the possibility of obtaining benefitsfrom ecosystem goods and services at a laterdate, including from services that appear to havea low value now but could have a much higher

value in the future because of innovations inmanagement or new information.

Non-use values, on the other hand, derivefrom the benefits that ecosystems may providethat do not involve using them in any way,whether directly or indirectly:

Bequest value is the value derived from the des-ire to pass on ecosystems to future generations.

Existence value is the value people derive fromknowing that something exists even if they neverplan to use it. Thus people place value on theexistence of blue whales or pandas even if theyhave never seen one and probably never will, asdemonstrated by the sense of loss people wouldfeel if these animals ever became extinct.


Box 8–2.Total Economic Value

Use Value

Total Economic Value

Non-Use Value

Existence Value(right of

existence)

Bequest Value(future generation

possible use)

Option Value(our future

possible use)

Direct Use Value(resources

used directly)

Indirect Use Value(resources

used indirectly)

•Provisioning services (ex. water, fish)•Cultural and amenity services (ex. recreation)

•Regulating services (ex. flood prevention, water purification)

•All services (including supporting services)

•All services (including supporting services)

•Supporting services (ex. panda, blue whale, wild eagle)

brought the value of water itself to the fore-ground. When water was abundant relative todemand, the challenge of water managementwas to raise the capital and find the skilledengineers to deliver the service. Where therewas a demand for water, engineers createdsupply by developing new sources and design-ing delivery systems. The resource was notperceived as a constraint. Economists wereinvolved in water resources development onlyto the extent that they could assist in defin-ing a least-cost approach to delivering newwater supplies.

Highlighting water’s economic value inother uses, including ecosystem uses, helpedshift the paradigm of water management froma supply-side focus on an unlimited resourceto one that also includes demand manage-ment of a limited resource. Today, calls fornew water supplies are questioned and water

conservation is increasingly seen as one ofthe options to “fulfill” future water demands.Can people do more, or better, with thewater already in use? Is it really necessary totap “untapped” resources, and for what pur-pose? What will these additional abstractionscost, and how will they affect ecosystems andcurrent water users? Do benefits justify eco-nomic, environmental, and social costs? Thesequestions, in turn, prompt innovations in theway water is managed.

Innovations That Turn the TideFortunately, given the pressures on watersupplies and quality described earlier, inno-vations are constantly being made in the wayswater is used and managed. Innovations occurin the way water is stored and distributed,allocated and priced, and used and reused




Fresh water is a finite and vulnerableresource, essential to sustain life, develop-ment and the environment. Since water sus-tains life, effective management of waterresources demands a holistic approach, linkingsocial and economic development with protec-tion of natural ecosystems. Effective managementlinks land and water uses across the whole of acatchment area or groundwater aquifer.

Water development and managementshould be based on a participatoryapproach, involving users, planners andpolicy-makers at all levels. The participatoryapproach involves raising awareness of theimportance of water among policy-makers andthe general public. It means that decisions aretaken at the lowest appropriate level, with full pub-lic consultation and involvement of users in theplanning and implementation of water projects.

Women play a central part in the provi-sion, management and safeguarding ofwater. This pivotal role of women as providersand users of water and guardians of the living

environment has seldom been reflected in insti-tutional arrangements for the development andmanagement of water resources. Acceptance andimplementation of this principle requires positivepolicies to address women’s specific needs andto equip and empower women to participate atall levels in water resources programmes, includ-ing decision-making and implementation, in waysdefined by them.

Water has an economic value in all itscompeting uses and should be recognizedas an economic good. Within this principle, itis vital to recognize first the basic right of allhuman beings to have access to clean water andsanitation at an affordable price. Past failure torecognize the economic value of water has led towasteful and environmentally damaging uses ofthe resource. Managing water as an economicgood is an important way of achieving efficientand equitable use, and of encouraging conserva-tion and protection of water resources.


Box 8–3.The Dublin Principles

for productive and ecosystems purposes. Mas-sive investments are being made in new waterstorage and delivery systems, while estab-lished water systems and management prac-tices are being reassessed in light of climatechange predictions. New technologies arechanging the ways in which water is used,cleaned, and reused to meet human, eco-nomic, and environmental needs. Seriousefforts are also being made in the “software”of water management, to make better use ofcurrently available water, to safeguard thequality and integrity of water resources, andto clarify goals and risks by involving stake-holders in design and decisionmaking.

Innovations in technology. Technologicalinnovations already offer many ways of man-aging water more efficiently, productively,and sustainably. Industries are investing innew technologies and processes that dimin-ish water use and wastewater discharges.Household consumers are being offeredwater-saving technologies such as low-flushtoilets, low-flow showers, and faucet aera-tors to diminish demand. Agricultural pro-ductivity is being leveraged by drip irrigationand other targeted water delivery technolo-gies and by soil fertility and conservationtechniques. Moreover, the adoption of estab-lished agronomic good practices could lead toreal gains in water productivity in many coun-tries. In rainfed agriculture, which accountsfor some 80 percent of global cropland andthe livelihoods of most of the world’s poor,adoption of already proven technologies couldat least double current crop yields. Innova-tions in agriculture are particularly benefi-cial because agriculture is such a largeconsumer of water that a relatively small per-centage decline here could allow a relativelylarge percentage increase in other uses.18

Water supplies are being enhanced inmany countries using innovative wastewatertreatment and reuse techniques. Break-

throughs continue in desalination, whereadvances in technologies and energy effi-ciency have brought costs down dramati-cally in the past decade so that desalinationis now an economic option for water suppliesin the coastal cities of industrial countries.Singapore, a recognized leader in urban watermanagement, has diversified its water sourcesby leveraging innovations in water reuse,desalination, stormwater management, mul-tipurpose water storage, and high-qualityrecycled water. Singapore has also pursueddemand management measures, such asreducing water losses due to leakage in pipesand restructuring its water pricing and accesspolicy to encourage more-efficient water usewhile ensuring low-cost water for poorhouseholds.19

Managers are increasingly looking at invest-ments in and management of “natural waterinfrastructure” such as watersheds, wetlands,lakes, and floodplains to be used as comple-ments or even substitutes for infrastructure likedams, weirs, and wastewater treatmentplants—all while providing biodiversity, aes-thetic, and recreational benefits that are allincreasingly valued. In Costa Rica, for exam-ple, the water utility of the Heredia region payslandholders to protect forest on the hill slopesfrom which they derive their water, whichhas proved to be very beneficial for bothlandowners and municipal water customers. Inthe United States, the government is consid-ering converting strategic tracts of the coastalareas that were battered by Hurricane Katrinainto public wetlands, to help mitigate theimpacts of future hurricanes.20

Innovations in management. Water man-agement practices are evolving. Integratedwater resources management is now a uni-versal aspiration—albeit one that is quite chal-lenging to implement. River basinorganizations are being established to man-age water holistically at the basin level, some




using highly sophisticated computer modelsto grapple with the complexity of their riversystems. Stakeholder consultations are con-sidered routine good practice these days inorder to better understand the social andlivelihood impacts of water management deci-sions, although structuring these consultationsto have meaningful impact is a continuingchallenge. Environmental flows is an innov-ative framework for ensuring that adequate in-stream water is allocated to sustain the healthof river systems, with much work ongoing asto how to establish and institutionalize envi-ronmental flow regimes.21

The range of current innovations includefinding better options for water manage-ment and also better ways of making choicesamong those options. The importance ofbetter decisionmaking in water managementwas highlighted in 2000 in the report ofthe World Commission on Dams. Built onan awareness of the range of interrelatedinterests and impacts of water management,multistakeholder consultations are increas-ingly being used to strengthen policy designand implementation. This apparently obviousinnovation—to consult the people who willbe affected—has proved essential in enhanc-ing sustainability.22

The private sector is also innovating. Moti-vated both by consumer demand for“greener” products and the recognition thatsustainable strategies can be extremely cost-effective, many corporations now find thatsustainability makes good business sense.Increasingly, progressive companies are work-ing with community and stakeholder groupsto create water management partnerships.The Sustainable Agriculture Initiative (SAI) isan example of a major food industry effort:some 30 partners are actively supporting thedevelopment and implementation of sustain-able agricultural practices to safeguard thefuture availability of natural resources and

enhance their efficiency. Nestlé, a founder ofthe SAI, has recently begun targeted trainingsin water management for farmers who supplythe company with its primary commodities.23

Innovations in market-based tools. Mar-ket signals and incentives, which have oftenled to overexploitation and degradation ofwater resources, can and are increasinglybeing used to enhance the sustainability ofwater management. One way this can bedone more effectively is through water pricesand wastewater fees. These can signal thetrue value of water to every user, so that peo-ple are aware of—and bear—the full coststhey incur when using or degrading water.Prices set to reflect the full costs of sustain-able water management should also, by def-inition, generate sufficient revenues toaccomplish this.

Water managers are beginning to con-struct better-targeted pricing schemes basedon a range of tariff structures, on surveytechniques to determine consumers’ will-ingness and ability to pay for services, and onmore sophisticated monitoring and infor-mation systems. Prices can be structured tomeet multiple objectives: allocate waterresources efficiently; ensure financial viabil-ity so that reliable service can be delivered;provide affordable access to clean water fordrinking, cooking, and washing require-ments; and encourage water conservation.Wastewater fees are being targeted to ensurewater quality and to encourage industriesto minimize overall volumes of water use.Water pricing, however, tends to be a con-troversial topic. (See Box 8–4.)24

Water pricing, however, is not a panacea.




Integrated water resources managementis now a universal aspiration—albeit onethat is quite challenging to implement.

In some countries cultural practices and beliefshamper or even forbid the use of water pric-ing. In some cases it may be uneconomical or

infeasible to recover water fees at all. Fortu-nately, there are numerous market-basedtools, as well as legal, regulatory, and partic-ipatory ones, that can aid the sustainablemanagement of water. In all cases, good gov-ernance and consumer and environmentalprotection will be crucial for the sustainablemanagement of water.

Water markets, tradable water rights, andwater quality credits are increasingly beingused to enhance the efficiency of water useand allocation within and across sectors. Watermarkets are arrangements in which users aregranted water rights—sometimes rights ofownership but more often time-bound userights (called usufruct rights)—which theycan sell or trade. In a functioning market,water can thus be “moved” to higher valueuses in a transparent transaction that bothincreases the productivity of water and dimin-ishes tensions among competing users.Appropriate and capable institutions are nec-essary to ensure transparency, enforcement,and protections for vulnerable groups andecosystems.

Efforts are being made to explicitly incor-porate water into calculations of GDP, toensure that macroeconomic indicators pro-vide more rational guidance about the impactof water use on economies. These effortsare part of a broader movement toward envi-ronmental accounting that began in the late1980s and was consolidated in 2003 with theSystem of Environmental and EconomicAccounting. The United Nations recentlydeveloped a more detailed, specialized Sys-tem of Environmental-Economic Accountingfor Water. There appears to be a good dealof interest in these accounts but little sys-tematic adoption to date, particularly indeveloping countries.25

The concept of “genuine savings” isanother innovation in conceptualizing macro-economic measures of sustainable wealth.




Economic water pricing does not necessarilyrequire charging the very poorest users thefull cost of water. There are likely to be caseswhere targeted subsidies will be needed tomeet the basic water needs of the poor. But itis essential to understand the actual level ofsubsidy embodied in water prices—that is,the difference between the price paid by theconsumer and the true value of the water andits associated delivery costs—and to maketransparent policy decisions based on thosefull costs. It is also absolutely essential tounderstand who receives those subsidies.

Governments have traditionally subsidizedall water use rather than just targeting poorerpeople.When this happens, those who usethe most water receive most of the subsidy.So a poor family who uses, say, 50–100 litersof water each a day for basic needs wouldreceive a subsidy on that volume of water.Meanwhile, a wealthy family might consume10 or 100 times that amount of water towash cars, water lawns, and fill swimmingpools and would receive 10 or 100 times thatamount of subsidy. By subsidizing (undervalu-ing) all water, all users are effectively encour-aged to overuse it. Underpricing water alsomeans that utilities cannot recover theircosts, which often leads to poor service andan inability to extend municipal systems andprovide water to new users.

“Getting the prices right” does not meanthat water should be made unaffordable tothe very poor, who consume just a very smallshare of the water governments deliver. Rather,it means pricing the vast majority of water ina way that encourages productive use andconservation, and carefully structuring andtargeting pro-poor subsidies as the exceptionrather than the rule in water pricing.


Box 8–4. Water Pricing and Water Prices

(See also Chapter 2.) Rather than focusing oneconomic production (like GDP), thisapproach looks at an economy’s creation ordepletion of wealth—broadly defined. Gen-uine savings takes net savings measures for aneconomy and subtracts the value of resourcedepletion and environmental degradation(and adds the value of investment in humancapital) to arrive at a measure that more fullyreflects the changes in the real sources ofwealth of an economy. By this measure, manycountries are being progressively impover-ished by negative genuine savings patterns.Using this to identify losses in wealth canhelp direct policymakers toward a more sus-tainable development path, economically andenvironmentally.26

Trade can also influence water manage-ment decisions, both positively and nega-tively. Global trade in agricultural goods candiminish water stress and take pressure offecosystems if, for example, water-intensivegoods are exported from water-rich areasand imported by water-poor regions, as notedearlier. Recent studies suggest that such tradein virtual water could reduce worldwidewater use in agriculture by 6 percent. It mustalso be kept in mind, however, that packag-ing, storing, and transporting large volumesof goods also carries its own environmentalfootprint.27

Health and safety standards, such as waterquality standards imposed on traded agricul-tural products, can be drivers for reform andinvestment in environmental protection. (Onthe other hand, in some instances standardscan effectively create trade barriers againstpoor countries.) Diminished barriers to tradein environment-enhancing or water-savingtechnologies and services can help spreadstate-of-the-art solutions. The World TradeOrganization’s current Doha Round of nego-tiations includes the first multilateral negoti-ations on trade and environment, with a

specific call to diminish barriers to water pro-vision and wastewater treatment services.(See Chapter 14.)

In the absence of effective national regu-lation frameworks and enforcement, how-ever, global markets can aggravate water stressand ecosystem degradation by creating strongincentives for individuals or corporations toproduce inappropriate products (such aswater-intensive exports from water-scarceregions) using destructive practices (pollutingor overabstracting water sources, for exam-ple), which can result in overexploitation ofresources, excessive pollution, and the degra-dation of ecosystem services on which thepoor and the environment rely.

Paying for ecosystem services is anothermarket-based tool that seeks to create incen-tives for maintaining a water resource or pay-ing for watershed services. (See Table 8–2.)These payment mechanisms are differenti-ated by the degree of government interven-tion in administration of the schemes andthe characteristics of the buyers and sellers.Four types of approaches are distinguished:• private payment schemes;• cap-and-trade schemes, under a regulatory

cap or floor;• certification schemes for environmental

goods; and• public payment schemes, including fiscal

mechanisms.In practice, many initiatives are a mix of theseapproaches, adapted to local needs and con-text. (See also Chapter 9.)28

Private payment schemes have the lowestlevel of government intervention. In these,private entities agree among themselves toprovide payments or rewards in return formaintenance or restoration of a watershedservice. The actual transaction mechanisms insuch schemes can take many forms; the mostpopular ones are transfer payments, land pur-chases, cost sharing, and the purchase of




development rights to land.With transfer payments, a service seller

receives money from a service buyer in returnfor the protection or restoration of a water-shed service. For example, a hydroelectricpower company experiencing increasinglyirregular water flows might decide to paylandowners upstream to change their man-agement practices. Here the company assumesthat a different management practice willimprove water supply.

In a land purchase, a private party maydecide to buy land from another private party

with the aim of safeguarding the watershedservices provided there. Strictly speaking,this is a mechanism for payment for water-shed services only if the land is purchased andthen leased back to the former owner undera contract stipulating how the land can beused or managed.

In the third type of private paymentscheme, beneficiaries of watershed servicescan agree among themselves to share thecosts that must be met by service sellersupstream to maintain or restore watershedservices. For example, if conversion of nat-




Watershed Price PaidActivities Services Service Service (per hectare

Location Compensated Provided Buyer Seller per year)

Murray Darling Basin,Australia

Sarapiqui watershed,Costa Rica

Costa Rica

United States

State of Paraná,Brazil

Rhine-MeuseBasin, France


Table 8–2. Selected Examples of Payments for Watershed Services

Reforestation

Protecting,sustainably managing, andreplanting forests

Protecting,sustainably managing, andreplanting forests

Soil conservation

Watershedrestoration

Reduced-inputfarmmanagement

Salinity controlFreshwater supply

HydropowerRegulation of flowsSedimentation

control

Freshwater supplyWildlife habitatCultural heritage

and identity

Soil protectionSedimentation

controlWater quality

controlRegulation of flow

Freshwater supplyWildlife habitat

Water quality control

Freshwater supply

Downstreamfarmers’ association

Energia Global(hydropowercompany) andNational Fund forForest Financing(FONAFIFO)

National ForestOffice and FONAFIFO

U.S. Departmentof Agriculture

State of Paraná

Perrier Vittel (private bottler of mineral water)

Governmentand upstreamlandowners

Privateupstreamlandowners

Privateupstreamlandowners

Farmers

Municipalitiesand privatelandowners

Upstream farmers

$45

$48

$45–116

$125

$170

$230

ural vegetation upstream is affecting waterquality, downstream landowners can agreeto share the costs of compensating orrewarding upstream landowners for main-taining or establishing preferred land uses incertain areas.

In cap-and-trade schemes, a cap is estab-lished for, say, the release of pollutants orabstraction of groundwater. In the case of pol-lution, the cap is the aggregate maximumamount of pollution that can be released byparticipating entities. (See also Chapter 7.)Tradable pollution permits or credits are thenallocated by dividing up the allowable over-all total among polluters. Industries or com-panies can sell permits they do not need toother participants who need more than theywere allocated. This rewards companies ableto cut their pollutant discharge and penalizesthose who pollute more heavily, creating anincentive for them to invest in pollution con-trol. Trading increases the economic effi-ciency of water and environmentalmanagement by enabling companies or land-holders to buy permits from those able tocomply in a cheaper way.

Certification or eco-labeling schemes area third payment mechanism for watershedgoods and services. Transactions occurbetween private parties, but payment isembedded in the price paid for a traded prod-uct, such as certified timber, fish, or organicproduce. Payments under this approach canbe made to suppliers as, for example, a fixedsum, a fixed sum per hectare, or a price pre-mium on products sold.

Public payment schemes are the most com-mon form of payment scheme for environ-mental services and have the highest level ofinvolvement by public agencies. Service buy-ers in these schemes are public authoritiessuch as municipalities or national govern-ments who are typically motivated by theneed to provide safe drinking water or regu-

late river flows. Mechanisms for payment inthese schemes include user fees, land pur-chase, and land easement, which are rights tothe specific use of land owned by others.

Environmental taxes are fiscal mechanismsthat can be used to ensure that some or all ofthe external costs of land use are internalizedin the decisionmaking process. They createdirect price signals for producers and con-sumers. Taxes can be used as a positive incen-tive when people are exempted from payingthem. Taxes can also be used negatively—todiscourage consumption or activities that aredetrimental to the environment.

Aligning Economic and Water Policies

Water management and economic manage-ment is a two-way street. Water manage-ment affects the performance and structureof economies—and economic policies havean impact on the condition of waterresources. The sustainability of economiesand water-related ecosystems could bestrengthened by better aligning the two andby looking for more-efficient and more-equitable uses of water resources across var-ious sectors and users.

On the one hand, water managementshould be designed with due consideration forits economic implications. What sorts of eco-nomic activities will be encouraged or dis-couraged? Are these prospective changesconsistent with broader economic, environ-mental, and social goals? Are they likely toenhance growth or sustainability? Who willbenefit and who will be harmed? How willthis affect poor people and the broader dis-tribution of wealth?

On the other hand, those making eco-nomic policies should consider the implica-tions for water management. Will sectoraland macroeconomic policies encourage more-




efficient and sustainable water managementor lead to waste, overexploitation, and degra-dation of the water resource and aquaticecosystem? Can policies be modified or com-pensatory mechanisms put in place so thateconomic incentives are aligned to promotesustainable water management?

In a sustainable economy, social, economic,and regulatory incentives need to be alignedto promote:• water use patterns that are sustainable;• water allocations that enhance current and

future welfare; and• water investments, technologies, and prac-

tices that promote efficiency, water quality,conservation, and ecosystem integrity.Today’s water use patterns are clearly not

sustainable. There is strong evidence thatunder a business-as-usual scenario there willnot be enough water to produce the foodneeded to feed the world in 2050. Currentpractices are also depleting and degradingmany ecosystems, raising serious concernsfor the future of the natural environmentand the sustainability of ecosystem services.Grappling with environmental and ecosys-tem dynamics remains the main challengefor sustainable water resources managementin industrial and developing countries alike.29

There is reason for both optimism andactivism. We are not on a straight-line path to

the future, and the best available informationsuggests that over the coming decades theworld can make the changes necessary tofeed the planet and sustain it at the sametime. As described in this chapter, a range ofinnovations in technologies and managementpractices are increasing the potential pro-ductivity of water in all its various uses. Thesupply of water available for people and theenvironment is also effectively being enhancedthrough increasingly sophisticated manage-ment and technologies. Ecosystem diagnos-tics and management techniques aredemonstrating cost-effective means for sus-taining and even strengthening ecosystemhealth.30

Broader consultations and more struc-tured and transparent decisionmaking is help-ing water managers to capture the range ofwater’s value and to avoid many of the envi-ronmental and social missteps of the past.Increasing recognition of the need to sustainecosystem services and the desire to conservethe natural environment are also leading to acloser alignment of economic signals andincentives with sustainability.

Together these innovations, and those stillto come, can help ensure the sustainability ofwater management, ecosystems, andeconomies. The challenge is to change.





Protecting the world’s biodiversity requiresanswers to a few not entirely rhetorical ques-tions: Assuming agreement of the need toprotect Earth’s biological wealth, how muchwould you be prepared to pay to protect anendangered fly? Would you spend $1.50,$15, $150,000, or more? How about societyas a whole, how much should society spendon the protection of this fly? Does the answerdepend on the nature of the fly itself? On itsrole in the ecosystem? Or is the calculus basedon something else—perhaps on what youmust give up to save the fly, or your standardof living, or your priorities?

The questions may seem crass and mate-rialistic—and in some ways they are—butthey are essential if the world is to conservethe species and ecosystems that sustainhumankind. The reason is simple: like manyother important matters, the staggering lossof biodiversity is really a matter of values—andnot just the principles that allow people to dis-

tinguish right from wrong, but also the moremundane concept of economic values.

In a way, the issue boils down to the factthat the world is losing species and ecosystemsbecause the economic system has a blindspot. It sends signals that cutting down arainforest to grow soybeans or palm oil plan-tations makes more economic sense thanleaving that forest intact. It says that buildinga shopping mall to sell iPods is more valuablethan having a wetland that buffers coastsagainst storms, filters water, and providesnesting ground for birds. Is it, therefore, anysurprise that people take such signals seri-ously?

Or, to put it another way, the fact that theU.S. suburban landscape appears to havemore bowling alleys than wetlands is simplya symptom of an economic system that hasits values—used here in the sense of itsprices—wrong. It is what economists call aproblem of externalities. Some values—like

C H A P T E R 9

Ricardo Bayon

Banking on Biodiversity

Ricardo Bayon is Director of Ecosystem Marketplace, a leading source of information on market andpayment schemes for ecosystem services.


that of a species of woodpecker or of a par-ticular ecosystem such as a rainforest or a wet-land—do not enter into the economicsystem. They are external to it, and so theyare not taken into account when economicdecisions are made.

Indeed, for eons the price of nature hasbeen woefully close to zero. Supply out-stripped demand, and priceless came to meanworthless. But that equation is changing.Priceless nature is becoming increasinglyscarce (see Box 9–1) and therefore needs tobe made valuable once again. Giving someeconomic value to biodiversity would makeit easier to protect. At the very least, stand-ing rainforests would not compare so unfa-vorably when considered against soybeanfields and palm oil plantations. Their valuewould no longer be zero.1

It may sound strange, even counterintu-itive, but the solution to the loss of biodiver-sity may actually lie in the very same marketsthat appear to be causing the problem. It maylie in creating payment schemes for biodiver-sity, mechanisms that give nature a value andthat force the economy to look into its blindspots. Luckily, a good number of countries—from Australia and Brazil to the UnitedStates—have been experimenting with suchschemes, sometimes for more than 20 years,and there is much to be learned.

Countries use a variety of mechanisms forgiving value to ecosystems and the servicesthey provide. In essence, these can be sum-marized as follows:• Government sets the price: This is done either

by fining those who damage the ecosystems(through endangered species laws, forinstance) or by paying those who conserveit (providing tax breaks or subsidies forconservation, for example). While thesesystems are useful and play an importantrole in protecting biodiversity, they sufferfrom a fundamental flaw: they do not send

the right signals to the economy; they donot permit society, via markets, to deter-mine and understand the actual value (theprice) of biodiversity.

• Voluntary transactions set the price: Usersof ecosystem services voluntarily agree onthe value with those who provide the ser-vices. These “self-organized private deals”are sometimes mislabeled as “markets,”but true markets depend on multiple buy-ers and multiple sellers meeting regularlyto exchange goods and services. In con-trast, in most cases these are one-time-only deals. They may also take the form of“voluntary biodiversity offsets,” in whichan individual or company that damagesbiodiversity pays to “protect, enhance, orrestore” an equivalent amount of biodi-versity somewhere else.

• A hybrid system sets the price: In this casescarcity of a traditionally “public” good isestablished through government regula-tion, which then forces buyers and sellers tonegotiate in order to set a price for thegood or service in question. Examples ofthis include various “cap-and-trade”schemes in the United States for sulfurdioxide and in Europe for greenhouse gases(see Chapter 7). These schemes create truemarkets because they generate demand forservices from multiple buyers and thereforelead to the provision of services from mul-tiple sellers.This chapter focuses mainly on the third of

these mechanisms, regulatory cap-and-tradesystems. While government payment schemesand voluntary biodiversity offsets areextremely useful and are likely to account forthe majority of global payment schemes forbiodiversity in the near future, they tell moreabout where we are now than where we mightbe in the future. The new and emerging reg-ulated markets for biodiversity offsets hold thekey to that future.



Banking on Biodiversity S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S

The Fly in the Ointment

Before delving too deeply into these issues,however, a story: There is a small town nes-

tled in the sand dunes east of Los Angeles—Colton, California—that provides some ideaof the new world that may be emerging as aresult of regulated markets for biodiversity off-


The loss of biodiversity is tremendous anddisturbing, and it continues to grow at an expo-nential rate (see Figure)—even though scientistsfor decades have been saying that species andecosystems are important, that they provideinvaluable goods and services, that they keeppeople fed and clothed and Earth habitable.

The Millennium Ecosystem Assessment, oneof the most comprehensive scientific assess-ments of the world’s biodiversity ever under-taken, came to this sobering conclusion:“Humanactions are fundamentally, and to a significantextent irreversibly, changing the diversity of lifeon Earth, and most of these changes represent aloss of biodiversity.” The authors cited ample evi-dence to support their conclusion. For example:• Virtually all of Earth’s ecosystems have now

been dramatically transformed through humanactions. More land was converted to croplandin the 30 years after 1950 than in the 150 yearsbetween 1700 and 1850.

• Some 35 percent of mangroves have been lost in the last two decades in countries where

adequate data are available.• Over half of the 14 biomes assessed have exper-

ienced a 20–50 percent conversion to human use,with temperate and Mediterranean forests andtemperate grasslands being the most affected.

• There are approximately 100 well-documentedextinctions of birds, mammals, and amphibiansover the last 100 years—a rate 100 timeshigher than background rates.

• Some 12 percent of bird species, 23 percent ofmammals, and 25 percent of conifers arecurrently threatened with extinction. Inaddition, 32 percent of amphibians are threat-ened with extinction, but information is morelimited and this may be an underestimate.

Sociobiologist E. O.Wilson attributes the lossof biodiversity to five forces summarized in theacronym HIPPO—habitat loss, invasive species,pollution, population growth, and overexploita-tion of species for consumption (essentially over-consumption).While he is correct in singling outeach of these forces, they are in many ways inter-connected: the first three are byproducts of the

last two.They are essen-tially the result of humannumbers multiplied byhuman greed.And giventhat human population isexpected to go from 6 bil-lion in 2000 to 9 billion in2050 and that per capitaconsumption of every-thing from water andenergy to oil and food is growing at practicallyexponential rates, thepressures on biodiversityare likely to becomeunbearably intense.


Box 9–1.The Escalating Problem of Biodiversity Loss

1970 1975 1980 1985 1990 1995 2000

Popu

latio

n In

dex

(197

0=

100)

Marine species

Terrestrial species

Freshwaterspecies

All vertebrate species(Living Planet Index)

40

60

80

100

120

The Living Planet Index is an indicator of the state of the world’s biodiversity:it measures trends in populations ofvertebrate species living in terrestrial,freshwater, and marine ecosystems.

Source: MA


S P E C I A L S E C T I O N : PAY I N G F O R N AT U R E ’ S S E RV I C E S Banking on Biodiversity

sets. Colton is smack in the economic centerof San Bernadino county, one of the fastest-growing counties in the United States.

But there is a fly in Colton’s ointment offuture economic growth. The city is cur-rently involved in a series of legal battles overhow much it should be prepared to pay tosave an endangered fly: the Delhi SandsFlower-loving Fly, a rather pretty insect that,like a butterfly, hovers and sips nectar fromlocal flowers. This tiny creature has the dis-tinction of being the first fly—and only theseventeenth insect—to be declared an endan-gered species in the United States.2

According to the U.S. Endangered SpeciesAct (ESA), no individual or entity, public orprivate, can harm an endangered species—noteven a fly—without a permit from the gov-ernment. Thus shortly after this fly was listedas an endangered species, construction of ahospital in San Bernadino county ground toa halt. The hospital had planned to pave overseven acres of occupied fly habitat, but thatall of sudden became illegal. The hospitalthen had to spend $4 million redrawing itsplans, moving its parking lot 250 feet, andmaking a few other minor changes. All so itwouldn’t harm a fly.3

How much is a fly worth? Do you judgeby what the fly does? With this fly, scientistsdo not know the answer to that question.They know that pollinators, such as this fly,tend to have important and symbiotic rela-tionships with the plants they feed on. Insome cases, without the pollinator the plantcannot reproduce. Perhaps the flower-lovingfly plays that role. Or it could be a cornerstonespecies, without which an entire ecosystemcould collapse. Or maybe protecting this flywill protect dozens of other species, some ofwhich may not even have been discovered yet.Or maybe not.

E. O. Wilson has written: “I will arguethat every scrap of biological diversity is price-

less, to be learned and cherished, and neverto be surrendered without a struggle.” Thestate of California, in contrast, has a moremoderated view. Having determined that thefly should be protected, it decided to let themarket decide what it costs to conserve it.And the market determined that the goingrate in California for Delhi-sands fly habitatis currently somewhere between $100,000and $150,000 an acre.4

This story is interesting not so muchbecause it is hard to believe that people arebuying fly habitat—let alone paying$150,000 for it—but rather because it forcessociety to answer that crass and materialis-tic question: How much is nature reallyworth? Some would argue that the ques-tion should not even be asked. And yet soci-ety answers this question “by default” everyday. Every time people buy soybeans, forexample, they are putting a value on theAmazonian rainforests that were cleared togrow them. At least in the case of the fly, theprice tag is clear, evident, and visible. If adeveloper wants to pave over fly habitat, itwill cost the company (in today’s market) asmuch as $150,000 an acre.

If that were all there was to this story, theconcept of putting a price on endangeredspecies would be quite troubling. It impliesthat someone could pay the price set by themarketplace and then go ahead and destroythe last surviving population of a species. Butthat is not what is happening. The $150,000paid to pave over the fly’s habitat is actuallybeing used to protect or create habitat for thatsame fly somewhere else. It is, in other words,an “offset”—not unlike the carbon offsetspeople are buying to counteract their green-house gas emissions. (See Chapter 7.)

As the money goes into legally and finan-cially protecting the flies forever (at least intheory), in a way it is a market, or at least amarket-like mechanism. It puts a value on




endangered species and habitat, turning theminto marketable assets. It puts a cost on thefly for those who would harm it, and at thesame time it creates a value for those whowould conserve it. It is this marvelousalchemy—turning cost into value, liabilityinto asset—that may ultimately allow societyto preserve biodiversity. But does it work?And, if so, how does it work?

Wetland Mitigation BankingSince the mid-1980s the United States hashad a series of functioning biodiversity mar-kets worth more than $3 billion a year. Thissystem is currently the largest and most wellestablished experiment on Earth on creatingbiodiversity markets. Although these are mar-kets and they involve the private sector, it isgovernment that makes these markets possi-ble. The system that makes the flower-lovingfly worth real cold, hard cash begins withgovernment regulation. Indeed it has its rootsin two very important U.S. laws: the CleanWater Act (CWA) and the EndangeredSpecies Act, both passed in the 1970s.5

Although the Clean Water Act is basicallydesigned to prevent the dumping of chemi-cals into the nation’s rivers, it is also in somerespects a rather innovative biodiversity law—thanks to section 404, which attempts toprevent the placement of dredged and fillingmaterials into the “waters of the US.” Any-one wishing to dredge or fill a wetland con-sidered of national importance in the UnitedStates must first obtain a permit through aprogram administered by the U.S. ArmyCorps of Engineers and the U.S. Environ-mental Protection Agency (EPA).6

In considering whether to award this per-mit, EPA and the Corps are supposed to fol-low a process known as “sequencing,” inwhich the first step is to determine if thedamage to the wetlands can be avoided. If it

cannot, the next step is to minimize the dam-age. Finally, the developer is supposed to off-set, mitigate, or compensate for any damagethat cannot be minimized. This hierarchyshould be considered in all forms of offsets,but it is not usually codified into law. Section404 of the CWA is an exception.7

The law is also quite clear on what is con-sidered appropriate compensation for thedamage to wetlands: developers must “create,enhance, or restore” an amount equal to orgreater than the amount being damaged in awetland of “similar function and values” in thesame watershed. In some special cases, pro-tecting a similar wetland is considered suitablecompensation, though this is rare. The lawrecognizes that not all wetlands are equal.Someone cannot damage a wetland in Cali-fornia and protect one in New Jersey. Inshort, the law is trying to ensure “no netloss” of wetlands.8

The compensation for any developmentprojects that harm wetlands—whether doneby private developers or the government—canbe undertaken by the developers themselvesor by third parties. And the Army Corps ofEngineers and EPA are charged with over-seeing this process and making sure the com-pensation happens.

One of the most interesting repercussionsof this law is that there are now private, for-profit, wetland mitigation bankers who makemoney by creating, enhancing, and restoringwetlands and then selling the resulting “wet-land credits” to needy developers. (See Box9–2.) They buy wetland areas in parts of theUnited States that are likely to experienceeconomic growth; they work with the Corpsand EPA to get “credits” for their “creation,enhancement, and restoration” of wetlands(hence creating a “wetland bank”); and thenthey sell these wetland credits to developerswho find themselves in need of compensation.In other words, wetland mitigation banking




is possible because the government is restrict-ing supply and allowing the market to set aprice—a value—on this particular aspect ofbiodiversity.9

In a way, it amounts to governments tin-kering with the economic infrastructure inorder to protect those aspects of biodiversitythat should be valued, the externalities. Andit is no small matter: Although there are noreliable figures on the size and value of wet-land banking, the best guess is that there aremore than 400 wetland banks throughout theUnited States, that the market for wetland

mitigation is worth more than $3 billion ayear, and that entrepreneurial wetland miti-gation bankers account for about one third ofthat business. The rest is composed of peo-ple doing their own wetland mitigation inorder to obtain permits or paying the gov-ernment or nonprofit groups a fee instead ofcompensation.10

Although wetland mitigation banking hasproved to be a rather innovative concept—fueling the growth of a new “nature man-agement industry”—it is important to pointout that it is by no means perfect. Like all


Steve Morgan is a duck hunter who now makes a living as a wetland banker. He came to this business via a strange and somewhat circuitousroute. In the late 1980s, Morgan and a fewcolleagues bought a piece of land in central California to create a “hunting club,” a placewhere streams and wetlands would attract theducks they so loved to hunt. Unfortunately forMorgan—or perhaps fortunately—the wetlandsthat served as a rest stop on the ducks’ flywaywere also slated to serve as the site of a majorhighway bypass. Under the U.S. Constitution, thegovernment can force private landowners to selltheir land (assuming adequate compensation)when it is deemed in the “public interest.” In legal jargon, the law is called “eminent domain.”

Naturally, Morgan was furious. But in discus-sions with the local authorities, he found out thatwhile it was perfectly legal for the U.S. govern-ment to strip him of his duck-hunting grounds in order to make a highway, it was not legal—thanks to the Clean Water Act—for anyone todamage the wetland without “minimizing andmitigating” (or offsetting) that damage.

Morgan decided to take advantage of this sit-uation. He bought 315 acres of his neighbor’sfarm across the street and then “enhanced andrestored” the existing wetland complex byremoving invasive species and returning water tothe system of streams and channels that had in

the past been dammed, dredged, or filled (thusattracting his beloved ducks).With the approvalof the U.S.Army Corps of Engineers and EPA, hethen turned around and sold the wetland creditsfrom this land (for tens of thousands of dollarsan acre) to the Department of Transportationthat was building the highway on his formerhunting club, allowing them to offset the damageto the wetland they wanted to pave over by pro-tecting the restored wetlands on his new prop-erty. The end result was that Steve Morgan hadcreated the first “wetland mitigation bank” westof the Mississippi.

Based on this success, Morgan went on tofound a wetland mitigation company called Wild-lands Inc. Two decades later, this has become amultimillion-dollar business that employs some100 people and manages thousands of acres ofrestored wetlands. (It is also involved with speciesmitigation banking.) In March 2007,Wildlandsreceived a major capital infusion from ParthenonCapital, a private equity investment firm thatmanages some $1.5 billion.

In destroying his wetlands, the governmenthad upended Steve Morgan’s life, but that gavehim a whole new way of making a living andpushed him to become an accidental pioneer fora whole new industry.


Box 9–2.The Evolution of a Wetland Banker



innovations, it has come in for some seriouscriticism. Some of these critiques are reallyabout a reticence to assign a dollar value tobiodiversity, reflecting an inherent dislike forthe use of markets and capitalist tools to pro-tect nature.11

The critics often argue that the only wayto protect nature is for government torestrict its use and strongly enforce thisrestriction. Although there is clearly a placefor this type of protection, there are otherpowerful tools that should be used as well.Besides, without wetland banking U.S. wet-lands would be worth little or nothing, andthey would continue to disappear understrip malls, airports, and highways. Withbanking, their loss has at least a very realmonetary cost and can generate funds thatmay actually lead to the creation of new, verysimilar wetlands. More important, this costsends a signal: developers who want todevelop a site that has wetlands will spendconsiderably more per acre, so they hadbetter be absolutely sure they must havethat particular site.

Two other criticisms do merit concern,however. The first has to do with the factthat it is notoriously difficult to “create,enhance, or restore” wetlands, so the wetlandacre used as compensation may be inherently“less valuable” in terms of biodiversity thanthe acre being damaged. Partly for this rea-son, many of the U.S. wetland banking sys-tems require that each acre damaged becompensated with two, three, or more acresof wetland “created, enhanced, or restored.”It is a form of overcompensation or insuranceand, while it alone does not resolve the mat-ter, it does help.

So far the studies on the quality of thewetlands created as compensation are mixed.In one study conducted in Ohio, scientistslooked at the 12 oldest of the state’s 25wetland mitigation banks. Although these

had been studied and monitored by theArmy Corps and EPA, the study found thatmany were not up to standard when checkedagainst stringent scientific criteria. Indeed,against these measurements only three banksscored in the “successful category,” while fivepassed in some areas and failed in others. Theremaining four failed nearly every assess-ment, functioning more like shallow deadpools than wetlands. More disturbing, noneof the government agencies charged withoversight were taking the bank managers totask for this fact. Overall, however, the studyfound that the banks were most successfulwhen they maximized the areas defined aswetland, minimized areas of open water,and had similar plant and animal life to nat-ural wetlands.12

Despite its implicit criticism of banking, thestudy’s author, wetland ecologist John Mack,remains one of the more steadfast supportersof mitigation banking. He says that the con-clusion from his study should not be thatbanking as a concept is flawed but ratherthat, when done properly, it can succeed. Heargues that by using better designs, perfor-mance standards, enforcement, financing,and an appropriate watershed approach, wet-land mitigation banking can produce high-quality wetlands.13

The second important criticism centerson how wetland mitigation banks are mon-itored and implemented. How is it possibleto ensure that an acre of wetland protectedtoday will still be there tomorrow, the dayafter, and the day after that? There is also arelated question: Will funding be ensuredto maintain the newly created wetland? Toaddress these issues, the Corps and EPArequire that wetland bankers provide bothlegal and financial assurances that the “cre-ated, enhanced, or restored” wetland willlast (presumably) in perpetuity. The legalassurances usually take the form of conser-




vation easements (legal restrictions on the useof land) held by third parties (usually a non-profit or the government). The financialassurances can take a variety of forms. Theyare either trust funds set up to produce theinterest necessary to run the bank or bondsor letters of credit that hold the bank finan-cially liable for the protection of the wet-lands.14

In addition to these assurances, wetlandmitigation banking requires a considerableamount of enforcement and verification. Itneeds the government agencies overseeingthe system to continuously monitor andensure that the promised wetland protectionis delivered. Such “perpetual oversight,” how-ever, is costly and is usually very difficult forunderstaffed and underfunded governmentagencies. Nevertheless, as the mitigationindustry grows it may generate the fundsneeded to monitor itself.

Despite these warranted criticisms, wetlandmitigation is still probably a better systemthan the alternative—which, realistically,amounted to little or no real protection. Evenif there were no wetland banking, roadswould still be built, airports would still beconstructed, and shopping malls would stillgo up. Wetlands, in other words, would stillbe damaged. History shows that society hasnot been very good at blanket prohibitions onthe use of land.

And even if all further damage to biodi-versity could realistically be prohibited, theproblems of government enforcement andmonitoring would still exist. It just wouldbe spread out across tens of thousands ofprojects, and tens of thousands of acres ofdamaged wetlands, rather than across hun-dreds of wetland banks. In fact, numerousgovernment officials report that the existenceof wetland mitigation banking makes it eas-ier for them to carry out their monitoring,enforcement, and protection work.15

Endangered Species:From Liabilities to Assets

If endangered species are so important, sovaluable, why does the economic system seethem as liabilities? The perverse unintendedconsequence of the Endangered Species Act—forcing people to see endangered species asa liability—is nothing new. Ever since the actwas passed some 30 years ago people havebeen complaining that listing an endangeredspecies places an unfair burden on the privatelandowners whose land harbors these species.In such cases, they argue, the incentive is notto protect an endangered species but ratherto get rid of it fast, before anyone knows it isthere. (See Box 9–3.) This is what some havecalled the “Three Ss Approach to Endan-gered Species Management”: shoot, shovel,and shut up.16

Critics of the ESA have often used this atti-tude to argue that the act needs to be revisedor even dismantled. But rather than throwthe legislative baby out with the bathwater,there are other, less drastic approaches. Oneof these involves a process known as conser-vation banking. In the 1990s, people beganlooking for a better way to accomplish theESA’s objectives—one that instead of penal-izing private landowners for harboring endan-gered species would perhaps reward them.

To do this, they created a system reminis-cent of wetland banking. Under this system,landowners with an endangered species ontheir land can get a permit to harm thatspecies (known as an “incidental take” permitin the euphemistic language of the govern-ment) if they can show they have compen-sated for it by creating habitat for that samespecies somewhere else. Again, as with wet-land banking, this has paved the way for pri-vate, for-profit, species bankers to createhabitat for endangered species, get creditfrom the government for any new members




of that species found on their land (“new”meaning above an initial baseline), and sellthose credits to other developers who intendto damage that species’ habitat or harm thespecies somewhere else.17

Not much is known about the size andbreadth of species banking across the UnitedStates, though it appears that there are morethan 70 species banks and that these mighttrade anywhere from $100 million to as muchas $370 million in species credits each year.Whatever the size, the use of conservationbanking means that species banking, alsoknown as “conservation banking,” can turna species liability into a species asset.18

This is just what one company in Colton,California, discovered. While the municipalgovernment there sued the federal govern-ment over the Delhi Sands Flower-loving Fly,saying the government had no place regulat-ing where people can build their houses, asand and gravel company called Vulcan Mate-rials Corporation acquired 130 acres of primefly habitat—the largest remaining contiguous

area of it in the Colton dunes. But instead ofhiring lawyers and attacking the fly’s endan-gered species status, Vulcan decided to see ifit could make the fly pay.19

Working with the U.S. Fish and WildlifeService and the Riverside Land Conservancy,Vulcan set up a conservation easement onthe land, created a management plan for thefly habitat, established a baseline for flies onits land, and obtained the right to sell “flyhabitat credits” above that baseline to needydevelopers. The bank opened in June 2005and by December had already sold three of itscredits. Although Vulcan will not officiallyrelease the sale prices, reliable sources estimatethat at least one credit sold for $100,000,although they also say the price has now risento $150,000 per acre, as mentioned earlier.20

According to Kevin Klemm, the owner ofthe development company that was Vulcan’sfirst customer, the credits were worth it: “TheVulcan Materials people were tremendous.They were business-like and accommodat-ing. They didn’t waste any time. The bank is


Ben Cone is a tree farmer in North Carolina.He owns 7,200 acres of pine forest that he wasmanaging on an 80–100 year rotation. Thesystem made sense for him because he couldharvest different portions of his land at differenttimes and take the largest, most valuable trees.And it was good for a wide variety of speciesthat lived on his land. In particular, it was goodfor red cockaded woodpeckers, which like tomake their nests in pine trees that are at least 80years old. These woodpeckers are endangered,however. So when they were discovered onCone’s land, the U.S. government prohibited himfrom harvesting some 1,500 acres of forest. Thisban alone is alleged to have cost Cone some$1.8 million in lost revenues.

Following the prohibition, Cone did what any rational landowner would do: he started har-

vesting the trees on the rest of his land on amuch quicker rotation schedule (around 40years). Understandably, he did not want thosetrees to be still standing after 80 years andthereby become a tempting home for the endan-gered woodpeckers. It wasn’t Cone’s preferredmodus operandi, since the trees were less valu-able and needed to be harvested on a quickerrotation, but he could not afford to have more ofhis land placed “off-limits” by endangered wood-peckers. And, ultimately, it was bad for the wood-peckers and many other forms of biodiversitythat would have probably preferred the moremature (and presumably more diverse) forestsmade up of 80-year-old trees.

Source: See endnote 16

Box 9–3. Perverse Incentives on Endangered Species



a tremendous value… I spent six years of mylife trying to build 18 buildings.” And pre-sumably he got nowhere because the gov-ernment made it illegal for him to harm theflower-loving flies. Now, with a bank fromwhich to buy offsets, he has an option. Topeople like Klemm, the rapid response miti-gation solution now offered by the Vulcanbank is no doubt a blessing.21

And Vulcan is not alone. There are nowconservation banks in the United States thatsell credits on everything from vernal poolfairy shrimp and valley elderberry longhornbeetle to tiger salamanders, Gopher Tor-toises, and prairie dogs. As noted, these mar-kets may be worth as much as $370 milliona year. The conservation of endangeredspecies has thus become a very real, and veryprofitable, business opportunity.22

Government Programs:Benefits and Drawbacks

Outside the United States, several other coun-tries are also experimenting with regulatedbiodiversity offsets. (See Table 9–1.) Forinstance, the Australian states of Victoria andNew South Wales either already have or aresetting up schemes similar to the U.S. system,although with a few important differences.The BioBanking system in New South Waleshas proposed a scheme whereby some areaswould be deemed too sensitive for develop-ment. These would be “red-flagged” andwould ideally be the sites where species bank-ing would occur. In other words, the Aus-tralians are looking at addressing one of themain pitfalls of the U.S. system: a lack ofbroad-based, landscape-level planning todetermine which areas are most needed forconservation. For now, it looks like theBioBanking scheme will be voluntary, butthe hope is that, since compensation for dam-age is obligatory, BioBanking will be cheaper

than the alternatives.23

In the state of Victoria, the BushBrokerscheme is mandatory and applies to nativevegetation. The principle is simple: whoeverharms native vegetation in Victoria needs tooffset that damage by creating or protectingthe same type of vegetation in the same biore-gion. Applying this scheme, on the otherhand, is extremely complicated. There areliterally dozens of vegetation systems andbioregions, which makes finding the rightmatch a daunting task. To address this prob-lem, the government of Victoria is buildinga sophisticated computer matching systemthat it expected would be operational by theend of 2007.24

While cap-and-trade regulated offsetschemes to protect biodiversity can indeedcreate real markets and can be extremelypowerful when used correctly, they alsorequire strong government oversight, effec-tive legal systems, enforcement of rules andregulations, and robust financial institutions.These conditions may be found in someindustrial countries, but they are not the con-ditions of much of world—especially in thoseparts that hold most of the world’s biodiver-sity, places like parts of Central and SouthAmerica, Congo, China, Indonesia, Mada-gascar, and Mexico. So what can be done inthose parts of the world?

Fortunately, the underlying conceptbehind both conservation banking and wet-lands mitigation banking—that is, putting avalue on biodiversity—applies in all coun-tries, even if the exact systems for providingthese payments may not. Even the U.S. gov-ernment has a multimillion-dollar-a-year pro-gram to help farmers and private landownersconserve. It comes in the form of Farm Billpayments such as the Wetlands Reserve Pro-gram, the Conservation Security Program,the Conservation Reserve Program, and theEnvironmental Quality Incentives Program.25




In Brazil, the government requires that aminimum amount of a landowner’s territorybe kept in forest cover. There is also a law on

Brazil’s books that requires compensationfor damage to biodiversity, although the lawsto determine that compensation are not ade-


Country or Region Program Legislation Policy goal

United States

Australia,New SouthWales

Australia,Victoria

WesternAustralia

Brazil

Canada

EuropeanUnion


Table 9–1. Examples of Legal Requirements for Biodiversity Offsets

Species Mitigation (ofwhich conservationbanking is one tool)

Wetland Mitigation

Forest Regulationand National Systemof ConservationUnits

Fisheries Act

Habitats and BirdsDirective

Endangered Species Act 1973 asamended and the Guidance on Estab-lishment, Use and Operations of Conservation Banks

Clean Water Act 1972 Chapter404(b)(1) and the US Army Corps ofEngineers regulations (33 CFR 320.4(r))

Green Offsets for Sustainable Develop-ment: Concept Paper (2002); NativeVegetation Act (2003) and subsequentregulations (2005); the ThreatenedSpecies Conservation Amendment (Biodiversity Banking) Bill 2006

Native Vegetation Management Frame-work (2002) and subsequent amend-ments to related Acts; BushBroker–native vegetation credit registration and trading: Information Paper (2006)

Native Vegetation Act (2003); Environ-mental Offsets: Position Statement No. 9 (2006)

Lei No. 4771 of 1965; Lei No. 14.247 of 22/7/2002, Lei No 9.985 of18/7/2000, Decreto No. 4.340 of22/8/2002

R.S. 1985, c. F-14, Policy for the Manage-ment of Fish Habitat (1986), and theHabitat Conservation and ProtectionGuidelines, Second Edition (1998);see especially Subchapter 35(l) and Subchapter 35(2) of the Fisheries Act

Council Directive 92/43/EEC of 21 May1992 on the conservation of naturalhabitats and of wild fauna and flora andCouncil Directive 79/409/EEC

To offset adverseimpacts to threatenedand endangered species

“No overall loss of values and functions”(1990);“net gain” (2004)

“Net environmental gain”

“A reversal, across theentire landscape, of thelong-term decline inextent and quality ofnative vegetation, leadingto a Net Gain”

“Net environmental benefit”

No net loss of habitatunder a defined mini-mum forest cover forprivate landholdings

No net loss in capacityof habitat to producefish

Maintain overall (ecological) coherenceof the sites



quately established yet. Similarly, in places asfar afield as South Africa, Colombia, and theEuropean Union, laws requiring or encour-aging biodiversity offsets are either beingconsidered or already being implemented.26

The Chinese government has long had aprogram known as Grain for Green (the offi-cial title translates as the Sloping Lands Con-version Program, or SLCP) that pays farmersto keep forest cover on hillsides. Its aim is tohelp conserve watersheds and prevent floods,but it also affects biodiversity conservation.This is not a market-based system, however;it is a system of government subsidies and pay-ments. The money comes directly from taxrevenues and is redistributed based on certainestablished criteria. While the SLCP systemdoes help increase the value of standing forests(and has an astounding budget of $43 billionover 10 years), it does not directly link theusers of the biodiversity services with theproviders of those services. Governmentmediates the transaction, so the users of theservice are not receiving information on thecost of their use.27

Mexico is introducing a similar system. Itwas modeled on a program for water con-servation in the country known as Pago porServicios Ambientales Hidrológicos (PSAH,or Payment for Environmental HydrologicalServices). The PSAH is interesting in that itcollects a fixed amount of revenues fromwater users and then redistributes it to key tar-geted forested watersheds across the country.The principle here is that by helping protectforested areas in key watersheds, the pay-ments will help support the provision ofwater-related ecosystem services throughout

the country. The program started in 2003 andpays between $30 and $40 a hectare for for-est conservation, depending on the type offorest being protected. Currently the pro-gram is paying for the management of closeto a million hectares.28

Building on its success with water services,Mexico has received a grant from the GlobalEnvironment Facility to establish a similarprogram to make payments for biodiversityconservation. The problem with this approachis twofold. First, as in China, the money iscoming from philanthropic sources or thegovernment. Second, the payment and thepayer are severed from the actual servicebeing received. In other words, while allMexicans contribute a bit of the money theypay for water to the PSAH, they often do notknow they are making this contribution. Andthe money they pay is not necessarily used inthe watersheds that supply those individualswith water. Again, the link between buyerand seller is not direct. This makes it difficultfor users of the service to make decisionsbased on the economic costs of their use.29

One of the most talked about paymentfor ecosystem services programs, as these areoften called, is the Pago por Servicios Ambi-entales (PSA) program created by Costa Ricain 1996. Private landowners in Costa Ricawho protect their forest cover receive a pay-ment from the National Forestry Trust Fund.These payments are made at a base rate of $40per hectare but can vary depending on typeof forest cover. Most of the money for thistrust fund comes from a tax added to fuel salesin Costa Rica, but this is supplemented by“environmental credits” sold to businessesand other sources of international finance.Between 1996 and 2003, the Costa RicanPSA program had enrolled more than314,000 hectares of forested land, transferringmore than $80 million to landowners in theprocess.30




Private landowners in Costa Rica whoprotect their forest cover receive a paymentfrom the National Forestry Trust Fund.

Once again, this is a government-run pro-gram where the user and provider of thebiodiversity services are not closely linked.Also, like China’s Grain for Green programand Mexico’s PSAH, the price per hectare ofbiodiversity is set by government, not via adirect market-based mechanism. They arein effect government monopsonies (onebuyer without competition, the opposite ofa monopoly) for biodiversity services, and assuch they may be paying too little or (thoughthis is less likely) too much for the conser-vation of biodiversity. The price is largelyarbitrary and based on the government’sability to pay rather than on supply anddemand for the service.

Despite these drawbacks, the programs inChina, Mexico, and Costa Rica have beenextremely successful at giving added eco-nomic value to biodiversity and, someobservers say, have also been successful intheir overall goal of increasing forest cover.

A particularly interesting and differentapproach to payments for biodiversity ser-vices is found in Victoria in Australia.Through two programs there—known asBushTender and EcoTender—the state hasestablished a reverse auction system for pro-viding government payments to privatelandowners who conserve local biodiversity(among other goals).

The pilot for BushTender took place inVictoria in 2003, and according to MarkEigenraam, one of its architects, it “used anauction system to distribute environmentalfunds to landholders who were interested inimproving terrestrial biodiversity on theirproperties. The implementation of Bush-Tender led to 5,000 hectares of native vege-tation on private land being secured undermanagement agreements. In economic terms,it created the supply side of a market fornature conservation and generated signifi-cant cost savings when compared with pre-

vious grant-based systems for distributingconservation funds to landholders.”31

BushTender’s success is now being fol-lowed up with EcoTender, in which the stateis inviting local landholders to submit com-petitive “bids” for government funding to payfor improved management of remnant veg-etation and revegetation on their properties.“Where BushTender focused on a single envi-ronmental outcome (increasing terrestrialbiodiversity), EcoTender aims to achieve mul-tiple environmental benefits, includingimprovements in saline land and aquatic func-tion,” explains Eigenraam.32

What is interesting about BushTender andEcoTender is that they use government’smonopsony buying power to invite bids thateffectively serve to discover the “best” priceat which biodiversity conservation will beachieved. Nevertheless, the buyer is onceagain the government using tax revenues, sothe connection between the buyer or user ofthe biodiversity services and the seller is stillnot direct.

Voluntary Biodiversity OffsetsBeyond government regulation, numerouscompanies have begun to set up biodiversityoffsets voluntarily in places like Qatar, Mada-gascar, and Ghana because they think it makesgood business sense to do so. Like the vol-untary carbon markets described in Chapter7, the number and investment in such offsetsis presently modest. But they are likely tobecome much more widely used as a part ofstandard business practice. Some observersbelieve that they could serve as the precursorsto larger, more broad-based biodiversity mar-kets in the long term. Essentially, they demon-strate that there can be a business case forinvesting in biodiversity conservation.

To understand whether, when, how, andwhere voluntary biodiversity offsets should be




undertaken, the Washington-based non-governmental group Forest Trends estab-lished the Business and Biodiversity OffsetsProgram (BBOP). This is a partnership ofover 50 companies, governments, conserva-tion experts, and financial institutions frommany different countries and led by ForestTrends and Conservation International. TheBBOP partners believe that biodiversity off-sets may help achieve significantly more, bet-ter, and more cost-effective conservationoutcomes than normally occur in the contextof infrastructure development. The programaims to demonstrate conservation and liveli-hood outcomes in a portfolio of biodiversityoffset pilot projects; to develop, test, and dis-seminate best practice on biodiversity off-sets; and to contribute to policy and corporatedevelopments on biodiversity offsets so theymeet conservation and business objectives.33

Companies undertake biodiversity offsetsfor one or more of three reasons: they arerequired to by national legislation (as in theUnited States, with wetland mitigation bank-ing and conservation banking), they areencouraged to or facilitated by Environmen-tal Impact Assessment legislation or otherplanning procedures, or they find a legiti-mate business case to get involved. BBOPstaff have identified numerous benefits forcompanies in doing this; namely, voluntaryoffsets can help companies:• ensure continued access to land and capi-

tal and to the license to operate;• bring competitive advantage or favored sta-

tus as a partner;• increase investor confidence and access to

capital;• reduce risks and liabilities;• ensure strong and supportive relationships

with local communities, government reg-ulators, environmental groups, and otherimportant stakeholders;

• influence emerging environmental regula-

tion and policy;• assure “first mover” advantage for innova-

tive companies; and• maximize strategic economic opportuni-

ties in emerging markets (for instance,establishing companies to implement off-sets).34

Currently BBOP is working with partnerson projects in a variety of countries, includ-ing Ghana, Kenya, Madagascar, Qatar, SouthAfrica, and the United States, and is explor-ing projects in Argentina, China, Mexico,and New Zealand. Some of the companies theprogram is working with or in discussionswith include Newmont Mining, Rio Tinto,Shell, and AngloAmerican.35

As these experiences mount up, and ascase studies become available on best-practicebiodiversity offsets, it is likely that both thesupply and demand for these offsets will grow.Countries that establish clear policies mayimprove land use planning and use marketmechanisms to create aggregated offset areasthat achieve significant conservation out-comes in high biodiversity-value areas.

How Much Is Nature Worth?Whether through voluntary offset mecha-nisms, government-mediated paymentschemes, or full-fledged markets in offsets, theconcept of payment for biodiversity servicesis beginning to take hold. More important,these approaches are beginning to subvertthe current economic model that is blind tothe value of biodiversity, to the services thatspecies and ecosystems provide, and to thecosts inherent in destroying the natural wealthon which human well-being depends.

The problem these systems are trying toaddress is self-evident: When iPods are valuedover whale pods, the economic system willdeliver ever more species of iPods and wipeout yet another species of whales. When wet-




lands are seen as nothing more than mos-quito-infested swamps, they will lose out toshopper-infested malls. And as land becomesever more scarce, the problems will simply beaggravated. The economic system is not bro-ken. It is doing exactly what it was set up todo: deliver more of what people value—or atleast more of what the imperfect price signalssay people value—and less of what they don’t.

As this chapter documents, the solution tothe problem may actually lie in using marketsand the economic system to our advantage.Imagine how powerful it would be if marketforces—the same market forces that haveinexorably pushed for the destruction of rain-forests and the extinction of countless

species—could be used to protect species, togive them a real value in people’s everydaydecisions of what to eat, what to wear, andwhat to buy.

To return to the questions at the start ofthis chapter: How much should society beprepared to spend to protect nature? Theanswer will in large measure determinewhether humanity ends up living in a worldof whales, wild tigers, and wetlands or a worldof pavement, iPods, and pollution. Betteryet, we can hope that through a form of eco-nomic jiu-jitsu these market mechanisms willmake it possible for the pavement and theiPods to co-exist comfortably with the whalesand the wetlands.





It is an article of faith among economiststhat a resource without a private propertyregime is destined for overuse. Yet on Bali, anisland in the Indonesian archipelago, that isnot the case. For centuries rice farmers therehave coordinated their use of scarce waterthrough social networks built on the innatehuman capacity to manage such resources ina cooperative manner.1

The system is based on what anthropolo-gists have called “water temples,” whichenfold the water sharing within a context oftraditional Balinese religion. But actually thenetworks function through a form of bottom-up cooperation in which the temples pro-vide a venue through which producers cancoordinate their water use. Modern com-puter analysis has found that the resultingallocation is close to ideal in terms of theproductivity of the farms. It defeats pests nat-urally and uses the available water to maxi-mum effect.2

Bali’s water sharing system is a textbook

example of commons management—a tra-ditional property arrangement that hasworked effectively for centuries in a widevariety of resource contexts but that econo-mists today either disparage or ignore. Thatwas the case in Bali, when in the late 1960sthe government decided to push rice farmersinto the modern age. It bypassed the watertemples, hired hydrologists to install modernwater systems, and pushed Green Revolu-tion techniques, complete with heavy pesti-cides, upon the farmers.3

The result was a disaster. Insects soondeveloped resistance to the chemical pesti-cides. Crop yields plummeted. In the end, thegovernment had to relent, and the farmersreturned to the social productivity arrange-ments that the experts had deemed relics ofan unenlightened past.4

Fast forward to 2001 in the United States,when Jimmy Wales set out to create an ency-clopedia online. He thought first of the cor-porate Britannica model, only staffed by

C H A P T E R 1 0

Jonathan Rowe

The Parallel Economy of the Commons

Jonathan Rowe is a fellow at the Tomales Bay Institute and is founding codirector of West Marin Commons.

volunteers. He established panels for peerreviews, assigned articles to recognizedexperts, and then waited for something tohappen. Not much did. Economists might seethe problem right away—a kind of corollaryof the problem they would see in Bali. Writ-ers lacked a property right in their output andtherefore a monetary “incentive” to activatetheir dormant mental assets. Wales was famil-iar with that lure; he was a refugee from theworld of options trading and understood therole that incentives play in business. Butinstead he went in a different direction.5

He tried writing an entry himself (onoption trading) and discovered it was like“handing in an essay at grad school.” It justwasn’t any fun, and the top-down corporatestructure was the reason why. So Wales shiftedgears. He abolished the expert peer-reviewpanels and put informal teams of coordinatorsin their place. More important, he droppedthe idea of assigning entries and let userswrite them on any topic they desired. Thenthese same users would check one another foraccuracy and bias. A discussion page for eachentry would provide a forum in which tohash these issues out and a written record thatevery user could retrace.6

In other words, Wales created—or rather,seeded—a social network instead of an eco-nomic mechanism in the conventional sense.People were engaged not as profit seekersfrom the economics texts but as social beingswho get a kick out of producing in this way.Within two weeks the project had generatedmore articles than it did in two years of thetop-down model.7

The result is Wikipedia, the free onlineencyclopedia that now has almost 2 millionarticles in English and smaller numbers inabout 250 other languages—for a total ofalmost 8 million articles. Nature magazinecompared a sample of science articles fromWikipedia with corresponding ones in Bri-

tannica. It found that the difference in accu-racy was “not particularly great.”8

Technophiles attribute this social produc-tivity to the magic of silicon chips and theWeb. Tech leads and people follow. Yet in real-ity the Web is just a new venue for the samehuman capacity that found expression in thewater temples of Bali. It is a long way fromone to the other, in time as well as space. Butin both the rice fields and on the Web, socialstructures and social norms are doing jobs—creating and managing resources that areheld in common—that conventional eco-nomic wisdom says only monetary incentivesand private property rights can do.

Moreover, both draw on a side of humannature that does not exist in the economicstexts and that has fallen off the radar in west-ern economic life. People are not supposed toproduce something for nothing. They arenot supposed to be able to manage a scarceresource without a regime of private propertyrights to keep them in line or else the edictsof an authoritarian state. They are not sup-posed to but they are—and with results thatequal if not surpass those produced by theprevailing economic model.

The rice farmers on Bali are an example ofa mode of local resource management that hasworked for eons, from the alpine pastures ofSwitzerland to the irrigated rice fields of thenorthern Philippines. Today this model isreappearing in many precincts of the economyat large—from the revival of traditional mainstreets, public spaces, and community gardensto the resistance to the corporate enclosure ofuniversity research and the genetic substrateof material life.9

It is as though something latent in humannature is breaking through the concrete of thecorporate economy and the bureaucratic state.The result is not just effective and generativeuse of the asset, but also a dividend in theform of social cohesion and trust that can be




as important as the product itself. A new fieldcalled “behavioral economics” (a phrase thatought to be redundant but revealingly is not)has been rediscovering and giving empiricalshape to this. Researchers have demonstrated,for example, that people seek fairness in eco-nomic dealings and not just their own gain.They seek stability over the long term and notjust a quick buck.10

Such insights are not really news to mostpeople. But recognition of them by at least apart of the economics profession helps putpolicies that derive from them into play in thehigh-level debate. In particular, it gives newlegitimacy to the commons—a form of prop-erty that is neither the market nor the state,public nor private, but rather that people

hold jointly and together rather than sepa-rately and apart. (See Box 10–1.) As gov-ernments look for models for conservingnatural resources for the long haul, a largepart of the answer could lie here.11

How Tragic Are the Commons?

To most economists, a commons is by defin-ition “tragic” because it is prone to overuse.Their standard reference point is an articlethat appeared in Science in 1968 called “TheTragedy of the Commons.” Though theauthor, Garrett Hardin, was a biologist, hisarticle was strangely lacking in scientific inquiry.It was more like economics—that is, a logical




Property is not a metaphysical absolute. It is aninstrument that societies design to advance par-ticular ends. There are many different kinds—corporate, marital, municipal, partnership,cooperative, and so forth—all of which aredefined socially for different purposes. Today,two categories of property dominate the publicdebate: public and private. This follows from anideological spectrum that offers the public andprivate “sectors” as the only options from whichto choose.

Yet a third kind of property—common prop-erty—is neither public nor private in the usualsense. Historically it has served well for organiz-ing the use of natural resources of many kindsand for defining the rights and responsibilities of people regarding these. In England, much agri-cultural land was held in common until the eigh-teenth and nineteenth centuries. In practice thiswas similar to community gardens today. Individ-uals had their own plots, but the underlying ownership was in common.

The concept permeated the early thinkingabout property generally, including what todayare called the public and private realms. In theearly U.S. colonies, private woodlands typically

were regarded as commons for purposes of sub-sistence, such as hunting, fishing, and even cuttingwood. The woodland commons sustained slavesduring their bondage. To resubordinate themafter emancipation, the southern planters closedthe commons and thereby shut off a key part oftheir livelihoods.

Residues of the earlier thinking exist today inregards to wildlife and more broadly in the legaldoctrine of the public trust. Ancient Roman lawdeclared that some things are common by theirvery nature—primarily air, sky, wildlife, and navi-gable waters. Government did not own theseand therefore could not privatize them, even iflegislators wanted to. Much like trustees of anestate, governments have a legal obligation tomaintain the asset for the benefit of the public at large.

Today the public trust prohibits governmentsfrom turning over to private parties the coast-lines and navigable waters (and perhaps otherthings as well) that they have a responsibility toprotect for future generations. Commonproperty is encoded for the long haul.


Box 10–1. Property: A Social Construct

extrapolation from assumptions about realityrather than an actual investigation of it.12

Hardin simply assumed that all commonsare free-for-alls, and he took no account of thehuman capacity to create rules to governaccess and use. He bid his readers to “picture”a hypothetical pasture, which he peopledwith hypothetical herders enlisted from theeconomics texts. These individuals existedoutside of any social structure and traditionand lacked a capacity even to talk to oneanother. They all behaved as the texts saidthey would and according to what they call“rationality.” They let their herds loose inthe pasture in a single-minded effort to max-imize their own gain, with no thought for thefuture or for anybody else. The pasture wasdepleted, and the tragedy was born.

There is a large irony here. Hardin wasassuming the psychology of the large corpo-ration and projecting it onto the pasture.This is the very institution that free marketadvocates, who cite Hardin as gospel, want toentrust the pasture to through privatization.They are purporting to solve the problemby embracing a purer version of it.

What Hardin overlooked is that peopledo not necessarily behave as economistsassume they do. As historian E. P. Thompsonobserved, Hardin failed to grasp “that com-moners themselves were not without com-mon sense.” Thompson was referringspecifically to the common-field agriculture ofhis own England. Households had their ownplots, but the rights to these were a matter ofcustom rather than of legal title, and thesame was true of access to other lands forhunting, foraging, and grazing.13

Commoners pooled their implements andlabor for joint maintenance and the like. Theycombined their herds to fertilize their respec-tive plots. The destruction that Hardindeclared to be an axiom simply did not hap-pen. To the contrary, the system worked well

for those who constituted it.The historical and anthropological literature

is full of examples of commons-based man-agement of limited resources. Regardingwater, the irrigation systems in Bali are notexceptional. Spain has had similar systems,called huerta, for almost 600 years. The farm-ers whose land adjoins each canal elect theirown chief executive, called a syndic, whoresolves disputes between them in a tribunalheld twice a week. They get water from thecanal on a rotating basis. During droughts, thecrops with the greatest need get first priority.14

Especially suggestive are the zanjera ofthe northern Philippines. Tenant farmersthere join together and build irrigation sys-tems on dry private land in exchange for userights to that land. In effect they becomejoint semi-owners through sweat equity. It isgrueling work. The dams break routinelyduring the monsoon season and must berebuilt sometimes three or four times in a sin-gle year. Members typically work somethinglike 40 days a year on the zanjera and insome cases close to double that.15

There are more than a thousand of thesein the province of Illocos Norte, according toone estimate. They have an ingenious systemfor allocating water to make sure everyonegets a share. They divide the land into threeor more sections and members get a plot ineach section, in differing sequences alongthe canals. This way each member can havea plot that is close to the front of an irrigationline. Even in times of drought, everybodygets something. In addition, officials of thezanjera get extra land at the tail end of theline. This gives them extra motivation toensure prudent use so that at least some watermakes it that far.16

There are many examples of common pas-tures working effectively as well. In the alpineregion of Switzerland, for example, the graz-ing pastures typically are commons, as are




forests, irrigation systems, and paths androadways connecting private and commonproperty. Farmers generally have private landfor their own crops. The commons and theprivate exist in symbiosis, a little like the com-mon areas of a co-op or condominium apart-ment building. Each form of property servesthe purpose for which it is suited best.17

In the Swiss village of Törbel, residentsformed a commons association over 500 yearsago. They established a rule that memberscould graze no more cattle on the commonpasture than they could feed during the win-ter. As of a decade or so ago the rule still wasin effect. It is general practice throughout theAlps—another example of the common sensethat Hardin and others assumed that com-moners lack.18

Hardin practically could have looked out-side his California window, at the westernplains, to test his hypothesis against reality.The early cattle ranchers there were not saintlypeople. But they also were not stupid. Theyfound ways to cooperate rather than destroy-ing the habitat that sustained their herds andthemselves. They adopted the practice ofbranding from Mexicans, to distinguish dif-ferent herds. They cooperated on roundupsand cattle drives. Most important in the pre-sent context, these ranchers limited their cat-tle herds and worked to keep out newcomers.It was not always pretty. But it also was notthe tragedy that the “tragedy thesis” assumesis inevitable in a pasture not enclosed by aproperty regime.19

Hardin’s essay won applause in environ-mental quarters, mainly because it was notreally about the commons. It was a case forpopulation control, and the tragedy thesisserved merely as a grim parable to that end.From the start, however, anthropologists andothers who actually studied commons-basedsocial arrangements objected to Hardin’sbroad-brush dismissal of the commons. Even-

tually, Hardin himself had to modify hisstance. He acknowledged that the problem isnot common ownership per se but ratheropen access—that is, commons in which thereare no social structures or formal rules togovern access and use.20

Such cases do exist, of course. The fisherieson the East Coast of the United States are anobvious example of an open access regime;Earth’s atmosphere is another. Whentragedies occur, there generally has been abreakdown in the social structure that oncegoverned use, or else a scale at which suchstructures are not possible, or new tech-nologies of exploitation for which the exist-ing rules are not sufficient. Populationpressures have played a role as well, as in themountain forests of the Philippines.21

But population generally has not workedalone. There also has been the invasion of acorporate, governmental, or other externaland exploitive force. Native Americans did noteradicate the buffalo on the western plains; furhunters from outside did. Local residentshave not sliced the tops off mountains inAppalachia or befouled the land and water inquest of coal bed methane gas in the RockyMountains. Outside corporations have. Whenthe fishery off of Brooklyn and Queens inNew York City began to collapse in the1960s, it was not because of local fishersalone. Rather it was a combination of garbagebarges and factory trawlers that brought thisfishery to the brink.22

It is strange that the reigning policy focusis on the tragedy of the commons when actu-ally the tragedy of the corporate is probablya greater threat.

The Tragedy of the CorporatePrivatization of the commons usually meanscorporatization of them. When a govern-ment sells resources, such as oil rights or




ocean plots, individuals rarely have the meansto buy them. To free-market believers, this isa distinction without a difference. Corpora-tions are really just economic persons, theysay, only bigger. But that is like saying that afederal bureaucracy is no different than atown meeting democracy, because both are“government.”

As Adam Smith observed often, humansare social beings. They have a capacity forempathy and a desire to be esteemed by theirpeers. “Nature, when she formed man forsociety,” Smith wrote in his Theory of MoralSentiments, “endowed him with an originaldesire to please, and an original aversion tooffend his brethren.” This desire actuallygoes deeper, Smith said, because we aspiretruly to be “what ought to be approved of.”Right or wrong, that is an assumption onwhich his theory of a benign and generativemarket was based. The modern corporationdoes not fit this model.23

The corporation is a creature of lawyersrather than of nature. It embodies the purefinancial calculus of the ciphers that inhabitthe economics texts. The bottom line reallyis the bottom line. This is not because cor-porations are run by bad people. On thecontrary, the financial calculus is built intocharters through which corporations acquirelegal life—fixed in the operating system, asit were.

This institutional machinery was designedfor an era in which resources seemed limitlessand the consumption of them the only urgentmandate. It was set loose on this landscapeand did what it was supposed to do—digmines, drill wells, build factories, lay tracks,generally eat like an adolescent and consumeeverything in sight. Today, however, it hasbecome like an appetite without a shut-offswitch, the adolescent who never grew up. Ithas no built-in capacity to say “enough.”

The main internal constraints are financial,

in the form of quarterly earnings statements,the demands of shareholders and creditors,and the like. These push generally towardliquidating nature, not husbanding it. Speak-ing of a rival who controls his own companyand so can think “long term,” Richard Par-sons, the CEO of Time Warner, observed, “Ifalmost anybody else did it, they’d get killed”by shareholders and Wall Street analysts.24

The paradigmatic case is that of PacificLumber, a California company that in the1980s owned most of the major old-growthredwood forest still in private hands. PacificLumber was unusual. The chief executivewas a lifelong timberman by the name of A. S. Murphy, who believed in harvesting nomore than the forests could replace. “Theirapproach,” said David Harris, author of TheLast Stand, “was basically to treat the forestas capital and try and live off the interest.”25

This virtue did not go unpunished.Pacific’s self-discipline meant its forests wereripe for less conscientious plucking. Its cleanbalance sheet—Murphy believed in pay-as-you-go—left plenty of room for a raider toload up the company with debt. This is exactlywhat happened. During the leveraged buy-outboom of the 1980s, a corporate chief by thename of Charles Hurwitz teamed up withMichael Milken and Ivan Boesky, two of themore infamous financiers of the era, to takeover Pacific Lumber. They mortgaged thecompany to the hilt to finance the purchase.26

Then Hurwitz began to liquidate theforests that Murphy had conserved, in orderto pay off the debt. Finance trumped hus-




The problem is not common ownershipper se but rather open access—that is,commons in which there are no socialstructures or formal rules to governaccess and use.

bandry, as it most often does. Externalrestraints are vulnerable at best, given thepolitical influence of those whom they aresupposed to restrain.27

But there is a more fundamental prob-lem—namely, the way the modern corpora-tion lies outside the constitutional structurethat the nation’s founders erected to keepinstitutional power in check. The corporationsof today did not exist when the United Stateswas founded. Adam Smith actually dismissedthem as inherently too cumbersome andbureaucratic, their managers too given to“negligence and profusion.” Individual entre-preneurs, nimble and resourceful, would out-wit them every time.28

Smith was talking about the joint stockcompanies of his day, which were govern-ment-sanctioned monopolies such as the EastIndia Company. He did not know that freeincorporation laws soon would release thecorporation from its legal strictures and oblig-ations. He could not have known that theselawyer-created entities then would acquirethe constitutional protections intended forhuman beings, through a Supreme Courtprocedure that was irregular at best.

The result is an institution that has out-grown both its legal and conceptual contain-ers, including the ones of Smith’s own theory.Although this is especially the case in theUnited States, it is true to some degree in mostnations in which corporations operate. Evena diligent U.S. Congress can go only so far interms of regulation. Nor have organized laborand consumer interests been an effective coun-terweight. Labor unions represent only some12 percent of the workforce in the UnitedStates and often side with employers onresource issues, as when autoworkers opposefuel efficiency standards for cars.29

The companies that own the resources—oil, coal, gas, and so forth—and thosepremised on their use have an insatiable

hunger that drives—indeed, requires—theinvasion of the commons. The appetiterequires more, and the commons is wherethat more lies. This institutional engine isprogrammed to take whatever in nature andsociety did not have a protective shell aroundit. There are efforts to reform the corporationfrom within, by rewriting the charters underwhich they operate. Whether that succeeds ornot, there still will be a need to establish a newkind of outer boundary, so that corporationscannot claim everything.

Reclaiming Common SpacesEnclosure is the process by which a com-mons is taken for private use and gain. It hasa long history. War and conquest excepted,the original enclosures in Anglo-Americanhistory largely were the work of the BritishParliament, which parceled out the commonlands to private owners, often with inade-quate compensation—if any—for the com-moners whose rights and subsistence weretaken in the process.

The U.S. government followed the exam-ple of its British parent on many fronts. TheDawes Act in 1887 broke up the tribal com-mons for many Native Americans andimposed on them a private ownership regime,as did the Alaska Native Claims SettlementAct a century later. The North AmericanFree Trade Agreement, enacted in 1994,declared the water commons a private com-modity for purposes of international trade. Italso helped erode the ejido system of landtenure in Mexico, which was based on com-munal rather than market values.30

The parceling out of the broadcast air-waves to private corporations was part of thissame lineage. In recent decades the processhas metastasized from discrete acts into awholesale assault. From the microcosm ofthe gene pool to the far reaches of space,




corporations have been transgressing allboundaries and laying claim to that which pre-viously was assumed to belong to all.

Often corporations have direct help fromgovernment, such as the expansion of theintellectual property laws that made possiblethe patenting of seeds and genes. The Bushadministration has worked to parcel out tractsof ocean to corporate fish farmers. There areefforts in Congress to privatize outer space aswell, for the purpose of advertising. Themomentum now is so great that corporationsoften need no direct help at all.31

The escalating enclosures of recent decadeshave prompted a response that is almost likean autoimmune reaction. Spontaneously, allover the world, people are seeking to re-establish boundaries and to reclaim territorythat has been lost. The environmental move-ment is one example of this, as are the cam-paigns against corporate globalism andgenetically modified (that is, corporatelyenclosed) food.

This is a movement that defies standardideological categories. Genuine conservativesoppose the decimation of traditional mainstreets by “big box” stores and the com-modification of childhood, among otherthings. Those of a more leftward bent opposeas well the enclosure of university research bya corporate patent regime, the privatizing ofwater and other resources, and a host of kin-dred incursions.

Boundaries are not the only issue. Therealso has been an instinctive groping back tothe social dynamic that animated the earlycommons and made resource sharing in thempossible. Community gardens have becomeincreasingly popular in North America, forexample. There have been no official sur-veys, but the American Community Gar-dening Association estimates there are nowroughly 18,000 such gardens in the UnitedStates, with 750 in New York City alone. In

Toronto, the number increased from 14 to 69between 1987 and 1997. These operate muchthe way the original common field agriculturedid in England. People have their own plotsbut often share tools and know-how, andpitch in on maintenance as well. The result isgenerative socially as well as agriculturally. Astudy in upstate New York found that a thirdof the gardens gave rise to broader neigh-borhood improvement projects such as treeplanting and crime watch. “It is very peace-ful now,” said a resident of Richmond, Vir-gina, about a community garden reclaimedfrom a decrepit neighborhood park. “It bringspeople together.” (See also Chapter 11.)32

Another example is the revival of com-mon spaces in cities across the United States,from Pioneer Square in Portland, Oregon, toCopley Square in Boston. Three decades agoDetroit tried to renew its decaying down-town with a corporate fortress called Renais-sance Center. The Center became awhite-collar island, the decay continued, andrenaissance never came. In the late 1990s,someone had the idea of taking the oppositeapproach. Instead of a private corporate space,the city would create an open common one.33

The result is Campus Martius, in the heartof downtown. Symbolically enough, Detroitactually rerouted automotive traffic to accom-modate it. (The Renaissance Center hadhoused the corporate offices of GeneralMotors.) Now life is coming back down-town. There are some 200 concerts andevents a year, plus ice skating in the winter.People are coming in from the suburbs.Investment is coming too: some $500 millionworth. The Compuware corporation hasmoved 4,000 employees in from the suburbsto be close to this new center of activity.34

This actually is how markets began—incommon spaces, especially the plazas aroundchurches. Markets were festive social occasionsbefore they became “economic” ones in the




narrow modern sense. Farmers’ markets todayare direct descendents of those early ones, andthey are spreading rapidly for much the samereason. According to the U.S. Department ofAgriculture, the number of farmers’ marketsgrew by 150 percent between 1994 and2006. Today there are more than 4,300 in theUnited States, and people are flocking tothem not just for local and organic food. Itis also for the festive sociability, the fun ofbeing out among neighbors, the freedomfrom the hyper-calculated marketing enclo-sures of corporate supermarkets and malls.35

Neighbors are starting to create their own

common spaces for this kind of spontaneoussociability. In Portland, the City Repair pro-ject is turning traffic intersections into pub-lic squares. In Baltimore and Boston,neighbors have closed off back alleys andturned them into commons for their blocks.In some cases people actually have shortenedtheir own backyards in order to make thecommon space larger. The so-called NewUrbanism—which is really the old village-ism—expresses a similar desire to restoresocial content and interaction to the normalflow of daily life.36

Such movements are not about expandingthe governmental sphere. To the contrary,they are about stopping incursions into thecommons sphere and protecting the genera-tive social process (as opposed to the bureau-cratized governmental process) that occursthere. They are parallel expressions of thesocial productivity that is emerging on theWorld Wide Web. Together they provide atemplate for a new/old kind of resource man-agement as well.

From Community to Conservation

The lobster fisheries of Maine illustrate howsocial process can translate into husbandryof a resource commons. These fisheries areorganized informally within the state’s manyharbors, which are small enough to be com-munities. The fishers that work these watersknow and watch one another. Each has a ter-ritory that has been worked out informally.

The enforcement of these informal terri-tories, as well as of restrictions on takingundersized, oversized, or egg-bearing lob-sters, is a community function more than abureaucratic one. “As most lobstermen live inthe same town, send their kids to the sameschool, and rely on one another in emergen-cies,” Colin Woodard observed in his bookThe Lobster Coast, “social sanctions can bemore effective than a dozen wardens.” Thewardens do exist. But the social networksthat have evolved around these commonsmake them less needed.37

Maine fishers often toss back all the femalelobsters in their traps, not just the egg-bear-ing ones, even though they don’t have to.Unlike the hypothetical herders in Hardin’shypothetical pasture, these actual common-ers are not without common sense. It is notentirely coincidental that the state’s lobsterfisheries are thriving, even though the num-ber of fishers making a majority of theirincome from lobsters more than doubledbetween 1973 and 1998.38

This is the same kind of social structurethat makes commons so productive in thealpine pastures of Switzerland, the rice fieldsof the Philippines, and many other settings.It is an argument for management that islocal and community-based, and it raisesquestions about the assumptions behind acorporate global economy. Such arrange-ments are not always possible, however, espe-




At present the institution that bestembodies commons functions outside the public sphere is the trust.

cially in a mobile market culture such as theUnited States. Then too, some commons aresimply too large, such as watersheds, theoceans, and the atmosphere.

The challenge, then, is to devise formalinstitutions that replicate the essential featuresof commons even if they cannot include allthe social dynamic of local and traditional set-tings. In other words, it means scaling upcommons management just as the corpora-tion scales up business management fromthe individual entrepreneur. One essentialfeature is equity and mutual benefit. Com-mons serve all, either equally or by a just dis-tributional standard, subject to necessaryrules for access and use. Central Park is opento all New Yorkers whether they live inHarlem or on Central Park West, so long asthey obey the rules.

The second essential feature has to dowith time. Corporations are designed to seekshort to midterm gain. They move to themetronome of the quarterly earnings state-ment. The market theory that justifies them,moreover, has no concept of the future inregards to resources. Maximize gain todayand the future will take care of itself, thetheory goes. The needs of future genera-tions actually are discounted, which meansthat market calculus always values the presentgeneration more than it does future ones.

Commons, in contrast, turn that assump-tion upside down. Properly designed, they areencoded to preserve assets for the futurerather than to liquidate them for the pre-sent. They embody the way neighbors mightthink about a wooded hillside as opposed tothe way developers would. There are timeswhen government management can play thisrole. Central Park functions admirably as acommons under public ownership.

But government ownership is not alwayspossible—or necessarily the best course. In theUnited States, continuing pressures on the

Arctic National Wildlife Refuge and onnational forests illustrate the vulnerability ofa system that is ultimately political. Even at thelocal level there are pressures to invade parksand other public spaces with corporate spon-sorships, advertising, and so on. The nationalparks are treasures, but there is increasingneed for an alternative to government own-ership that is not so tied to the corporate-gov-ernment nexus.39

No solution is without problems, but someare less problematic than others. At presentthe institution that best embodies commonsfunctions outside the public sphere is thetrust. (See Box 10–2.) Existing trusts are pri-marily local or regional and have discreteboundaries. The next challenge is to apply theconcept to larger commons such as the atmos-phere and oceans or with entire watersheds.One possibility is to scale up the trust modelone step further and use something that lookslike a “market mechanism” but that actuallyserves nonmarket ends. For example, PeterBarnes of the Tomales Bay Institute has pro-posed a Sky Trust, which would serve astrustee for the atmosphere much the way abank serves as trustee for a family trust. Tounderstand the Sky Trust model it helps toconsider briefly what it is an alternative to.40

The air pollution debate in recent years hasfocused on something called tradable pollu-tion rights. Under this scheme corporationsessentially get grandfathered rights to theirpast levels of dumping in the sky. If theyreduce their emissions they can then sell theair space they are not using to another com-pany—thus reaping a financial bonus for pastbad behavior.

This approach is called “market-based”because it involves the buying and selling ofdump space as opposed to just regulatorylimits. (Such limits still would exist, but theywould cap the dump space overall while com-panies worked out through trading which




ones used how much.) The ability to selldump space presumably provides an “incen-tive” for companies to reduce their emissionscontinually. The problem is that the systemrewards most those who polluted the most.It also ignores the equitable owners of thesky—that is, all of us.

A commons-based approach would use asimilar market dynamic, but it would startfrom a different premise and achieve a much

broader beneficial result. The premise is thatthe sky belongs in some sense to everyone,which is why it is a commons. Corporationsshould not own it; they only can rent dumpspace from the owners. Accordingly, underthe Sky Trust, there would be annual auctionsfor the available dump space, within strictand diminishing limits. The proceeds wouldgo into the trust, where it could be used forinvestment in clean energy, cash dividends




Trusts exist by definition to maintain an asset fortheir beneficiaries, future as well as present. Theyhave all the protections of private property onthe outside, but inside they can be designed foropposite ends. It is not surprising that this legalform has emerged as a way to graft commons-type management of limited resources onto aneconomic system that is not always the mostreceptive host.

One example is the Pacific Forest Trust, whichhelps protect private forests in the United Statesfrom both clearcutting and development. Aboutfour fifths of U.S. forestland is privately owned,and some 6,070 square kilometers (at least 1.5million acres) of this forest disappears each year.The Pacific Forest Trust is working to halt thistrend by acquiring conservation easements, whichare a kind of property right in conservation use.Mineral rights give a corporation the right toextract resources; conservation easements givethe trust the right to protect the land against usesthat would compromise its ecological functions.

The private owners keep the land and theright to harvest it sustainably. They donate or sellto the trust the rights to develop the land. Thetrust holds these rights so that no one else canuse them. In this way the public gets the benefitsof living, breathing forests for the long haul, whileowners still can harvest timber if they choose. Ineffect, this harkens back to the time in U.S.history when private forests were deemed com-mons for purposes of sustenance. Back then sus-tenance meant cutting trees for firewood. Todayit also means refraining from cutting trees to

protect the larger ecological functions of the for-est.

A similar example is the Marin AgriculturalLand Trust (MALT), which buys developmentrights to the rolling farm and ranch lands on thewestern edge of Marin County, California. Ranch-ers get to keep and work their land and pass it on to heirs. The public gets stunning andunspoiled landscapes, plus active stewards on theland. To date, MALT has protected nearly 15,400hectares—roughly half the ranchland in thecounty—on 58 family farms and ranches. Giventhe development pressures in west Marin andthe trophy palaces that Bay Area millionaires arelusting to build, the importance of MALT to oneof the nation’s most stunning landscapes is hardto exaggerate.

Another example is the Oregon Water Trust,which restores water flow to crucial and endan-gered streams. It does this by acquiring waterrights and by working with farmers and otherproperty owners to find ways to reduce theirtake from the streams. As with land and foresttrusts, the property owners keep their land.All they give up is a portion of their water flow.That in turn becomes a commons that the orga-nization holds in trust for the well-being of peo-ple and habitat, present and future.

And in New York City, the Trust for PublicLand now holds 70 community gardens. It helpedsave these from Mayor Rudolf Giuliani’s effortsto sell the gardens to developers.


Box 10–2.Trusting Commons

to the owners, or some combination of thetwo. Sky Trust could help finance a long-term solution to climate change, not justreduce emissions.41

The Sky Trust would operate much like theAlaska Permanent Fund, which distributesrevenues from that state’s oil lands. But therewould be one crucial difference. The Per-manent Fund encourages drilling, becausemore drilling means more revenues for theowners. Sky Trust, in contrast, would encour-age less pollution because it would reward thecommons owners—all of us—for tough emis-sion limits. When less dump space is available,the auction price will be higher, as a simplematter of supply and demand.42

This commons-based approach has beengaining ground due in part to the failure ofa permit trading scheme in the EuropeanUnion. Even the Deutsche Bank and theConservative Party in the United Kingdomnow back the auction model, as do the gov-ernors of New York and Massachusetts. Theconcept is basically that of parking meters.When you take a scarce resource from thecommons, be it parking space on the streetsor dump space in the sky, then you have topay the ultimate owners. And you can takeonly as much as the natural and social systemscan carry.43

The approach could be applied to seabedmining, under the Law of the Sea Treaty,and in a host of other ways. It has implicationsalso for public revenues more broadly. Start-ing from a commons standpoint, rather thana conventional economic one, would bringthe ecological and the moral into economicalignment. As Winston Churchill, an advocateof this approach, once put it as a young Mem-ber of Parliament: “Formerly, the only ques-tion of the tax gatherer was, ‘How muchhave you got?’ Now we also ask, ‘How didyou get it?’”44

Churchill was getting at the distinction

between income earned by productive invest-ment or toil and income that came fromcashing in on something that nature or soci-ety already had created. The question is notwhat people make, he was saying, but ratherwhat they take from the common pool.Specifically he was talking about land.

Land is not just a gift of nature as opposedto a product of human enterprise (with rareexceptions, such as landfills). The value ofurban land arises from the investment of theentire society rather than of a particular owner.The difference in value between a parcel inBridgeport, Connecticut, and one of identi-cal size on Park Avenue in Manhattan has lit-tle to do with the efforts of individual ownersand much to do with the investment thathas gone on around them.

It is a social creation rather than an indi-vidual one, and therefore a form of com-mons. When individuals profit from increasesin this location value—that is, the value of thesite, as opposed to any buildings or improve-ments they have made on the site—they arereaping where they have not sown and areexpropriating for themselves a gain that right-fully belongs to the society at large.

There is a social component in all gain, ofcourse. But with land the case is almost pure.The consequences of permitting this expro-priation from the commons are grim eco-logically as well as in terms of justice. The lureof land gains feeds the speculation that drivesdevelopment far into the hinterland. Itencourages sprawling low-density develop-ment; when taxes on the site (or socially cre-ated) component of real estate are low, thereis no need to use the land intensively to gen-erate revenue to pay the tax.

The current property tax includes the valueof both land and buildings. Typically the landportion is understated, because commercialowners like to attribute site value to the build-ing so they can depreciate it. Shifting the




property tax from buildings to land wouldencourage more-efficient use of this limitedresource. (Zoning is necessary to prevent thehigh-rising of stable low-rise neighborhoods.)It also would reclaim for society what societyhad created, thus achieving equity as well asecological sanity.

Numerous cities have tried this approach:Sydney and Canberra in Australia, Taiwan,and indirectly Singapore and Hong Kong.Almost 20 cities in the state of Pennsylvaniahave done so too, and the results have beenpromising. Officials in Harrisburg, Pennsyl-vania, claim that the number of vacant lotsand structures downtown has dropped by 90percent. Many localities have used theapproach in a more limited way, by recoup-ing the value of public improvements frombenefited property owners. One study foundthat the Washington, D.C., metropolitan areacould have paid for most of its Metro transitsystem by recapturing the site value increasesalong the Metro route.45

After a long hiatus, interest in site valuetaxation is reviving. A computer simulation forKing and Clark Counties in Washington statefound that taxes on parking lots and vacantbuilding lots—that is, the most wastefuluses—would more than double, while taxeson car-oriented strip development would goup by a quarter. Neighborhood shoppingdistricts would have decreases, as would apart-

ments and most single family residences.46

That would be a win both ecologicallyand politically—and socially as well. It is sug-gestive, moreover, of the larger possibilitiesof shifting the tax burden from what peopleand corporations make or buy in total towhat they take from the common weal in theprocess. Taxing the takings from the com-mons would encourage people to take bet-ter care of it. It would mean less waste of landand other resources and therefore denserpatterns of development that are moreresource-efficient.

That in turn would increase the occasionsfor human interaction and community in thecourse of daily life. Thus the wheel comes fullcircle. The measures necessary to protect thecommons actually would foster the kind ofsocial arrangements that make that protectionmore feasible.

For decades we have been told that thereare only two choices for the management ofscarce resources: corporate self-seeking orthe bureaucracy of the state. But there isanother way. Commons management hasworked for centuries and is still workingtoday. It can be adapted to the most pressingglobal problems, such as climate change. Anew phrase is about to enter the policy realm.To “market-based” and “command-and-con-trol” we can now add “commons-based.”





To the west is Vermont Avenue, one of themost congested traffic corridors in Los Ange-les, tiled with a mosaic of fast-food chains, nailsalons, and dollar stores, all nested in a half-dozen strip malls. To the east lie three autorepair shops, housing, and a giant concretechurch that dominates the street. To thenorth, there are two more auto body shops,three overcrowded schools, and a couple ofcar dealerships. And to the south, just beyondthe Bresee Community and Youth Center, aretwo giant supermarkets with equally giganticparking lots, tailored to be one-stop shoppingfor people commuting along the VermontAvenue corridor.1

In the middle of this car-centric infra-structure—what some might call “sprawl”—lies a little green oasis: the Los AngelesEcovillage (LAEV). This community, twosmall apartment buildings with about 55 res-idents, was started in 1993 as a demonstra-tion project on how a community cantransform its surroundings, helping to createa sustainable society.2

In its 15 years, the LA Ecovillage has had

many impressive victories. Within its grounds,LAEV has facilitated technology and lifestylechanges, such as installing solar panels andcomposting facilities, providing rent reduc-tions for people who live car-free, and trans-forming its courtyard into a 7,000-square-footgarden that produces nine types of fruits andmany more vegetables as well as a lush com-mon area to sit and relax in. LAEV has alsoincubated businesses like the BicycleKitchen—a shop that repairs bikes and thattrains neighborhood children in bicycle main-tenance skills. And perhaps most important,the community has influenced the broaderpolitical process of Los Angeles, from lendingsupport to “green” mayoral candidates toengaging in public planning processes, suchas the restoration of the Los Angeles River,transportation planning, and local redevel-opment—all while continuing to be an afford-able, accessible place to live, located within a10-minute walk of two subway stops and 20bus lines.3

Through its built infrastructure, the socialrelationships it generates, and the way of life

C H A P T E R 1 1

Erik Assadourian

Engaging Communities for a Sustainable World

it promotes, the LA Ecovillage highlights thepowerful contributions that communities canmake in helping to facilitate the transitionto a sustainable society. (See Box 11–1 for thedefinition of community used in this chapter.)4

Community practices and choices aboutland use, technologies, and transportationcan be used to model sustainable living. Theproduction of social capital—the glue thatholds communities together—can be tappedto help community members become leadersin sustainability and can provide the resiliencethat helps communities weather difficulttimes. Communities’ engagement in eco-nomic activities can help localize agricultureand the production of other essential goods.And their unique design can help stimulatenew ways to finance sustainability. Whilenational and global-level initiatives will beessential for building a sustainable world,community-level programs may prove indis-pensable in providing better models and theleadership to drive global-level change.

Modeling SustainabilityPerhaps most concretely, a community man-ifests its values through its physical design.Local gardens, solar panels on rooftops, andwind turbines spinning on a hilltop are typi-cal signs of an ecologically minded commu-nity. Built primarily to reduce ecological andfinancial footprints of communities, thesedesign features also play a strong role in mod-eling a sustainable way of living. Many aresimple enough to be taken on by practicallyany community. No matter the size—whethera small town or a neighborhood block—thereare immediate opportunities to retrofit a com-munity’s design and thereby lower its envi-ronmental impact, save money, and modelsustainability as well.

Often all that is needed to make thesechanges is a bit of social support and peer edu-

cation. This has proved to be the case inLydney, England, where residents set up aCommunity Energy Club to help bringenergy efficiency measures and small-scalerenewable energy projects to the area. Sinceit started in 2001, the club has grown to 115members who together have introducedabout 500 energy efficiency measures. Alto-gether these efforts will save 3,865 tons of car-bon dioxide (CO2) emissions over the life ofthe projects—a significant amount consider-ing that the average U.K. resident producesabout 9 tons of CO2 emissions each year.5

Other times, what is needed is not justsocial support but mobilization of a com-munity’s resources—for example, to invest ina community-owned wind farm. In 2006,Findhorn Ecovillage in Scotland completedinstallation of four wind turbines that have acapacity of 750 kilowatts. Together theseproduce 40 percent more electricity than thecommunity needs, allowing them to generaterevenue by selling some back to the localutility through the broader grid system. Ofcourse, this project took several years to planand construct, but now the wind farm pro-vides the community with both a source ofclean electricity and revenue.6

Opportunities to enhance the sustain-




Community typically refers to a wide range ofgroupings of people: a church, a city, a politicalparty or other affiliation. But more funda-mentally, a community suggests a group ofgeographically rooted people engaged in rela-tionships with each other (though many ofthe examples of community discussed in thischapter have relevance to broader definitionsof community as well). Through theserelationships, members in a community haveshared responsibilities—as the Latin roots ofthe word suggest: com (with) munis (duties).


Box 11–1. What Is a Community?

ability of a community when building or justrenovating are nearly boundless—limitedonly by the energy, commitment, andresources of the community. Unlike at thehousehold level, where design options can belimited, nearly the entire metabolism of acommunity can be adjusted to be more sus-tainable: from where fresh water is obtained,

to how food is produced, to how waste istreated. (See Table 11–1.) Most of thesetake significant time and effort to imple-ment—or financial resources when built bya contractor—but in the end they can helpbring the community together (through theplanning and construction of the project), cutcosts, and reduce ecological impact.7




Sector Project Location Description

Energy Micro Inverie, In 2002, this remote Scottish community on the Knoydarthydroelectric Scotland peninsula finished refurbishing a 280-kilowatt hydro-generator electric generator, which now provides electricity for at

least 65 properties.

Energy Biomass ZEGG, Belzig, The 80 residents of ZEGG obtain their heating from a Germany wood-chip-fired heating plant, with the wood sustainably

harvested from the local area.

Energy Biogas Hammarby In this Stockholm district 1,000 residences obtain their Sjöstad, cooking gas from biogas that is generated from the Stockholm, district’s wastewater.Sweden

Food Permaculture Kibbutz Lotan, Kibbutz Lotan maintains an array of sustainable agriculture Production Arava Valley, features, including organic gardens, composting, trellising,

Israel and community-supported agriculture. It also maintains a migrating bird preserve of five distinct habitats.

Water Rainwater Christie Walk, This 27-unit Adelaide community captures all on-site rain-Catchment harvesting Adelaide, water and uses it to maintain its 870 square meters of

Australia rooftop and surrounding gardens.

Sewage Ecological Berea College This community’s “ecological machine” processes about Treatment machine Ecovillage, 12,700 liters of wastewater each day using a combination

Kentucky, of bacteria, snails, and plants. Some of this water is then United States stored for use on the community’s lawns and garden.

Sewage Constructed Ecoovila, In this 28-family community, sewage is processed in a bio-Treatment wetlands Porto Alegre, logical system that uses reed beds to filter water—water

Brazil that is then used to irrigate the community’s gardens.

Sewage Water reuse Solaire In this luxury apartment building, a water reuse system Apartments, filters wastewater and reuses it for toilet flushing and the NewYork City, building’s cooling tower. In 2006, this system recycled aboutUnited States 73,000 liters per day, reducing total water needs by one third.

Transportation Car sharing BedZED, Forty residents subscribe to a community carsharing London, venture, obtaining access to electric cars that are charged England by solar energy.


Table 11–1. How Selected Communities Model Sustainability

The ecovillage and co-housing movementsare perhaps the best illustrations of the oppor-tunities that exist in designing communitiesto be sustainable through the mobilization ofresident energy and resources. An ecovil-lage, in particular, has the goal of creating “ahuman-scale, full-featured settlement, inwhich human activities can be harmlesslyintegrated into the natural world in a way thatis supportive of healthy human development,and can be successfully continued into theindefinite future.” While none have achievedthis high ideal, many have made great strides.A resident of Findhorn Ecovillage has justhalf the ecological footprint of an averageindividual in the United Kingdom. And inGermany’s Sieben Linden Ecovillage, percapita CO2 emissions are just 28 percent thenational average.8

While co-housing communities are typi-cally more focused on developing a con-nected community than on reducingenvironmental impact, they often incorporatemany ecological designs as well as addinganother important element—namely, clus-tered homes. Instead of spreading out houses,co-housing communities group homestogether, enabling them to preserve moreland as open space or farmland and to facili-tate community connections by having neigh-bors within walking distance. At the center ofthese houses there is also typically a commu-nity house, where meetings, dinners, andother activities are regularly held.9

Ecovillages and co-housing communitiesare not the only communities that can imple-ment these changes. Indeed, with 385 regis-tered ecovillages (though the actual numberis greater if broader village networks areincluded) and about 500 co-housing pro-jects worldwide, these serve more as modelsfor other communities than as solutions them-selves. Many of the projects these communi-ties implement are readily replicable by any

group of like-minded neighbors. Small groupswithin a broader setting can come togetherand start a sustainability project, such as a car-pool, community garden, or weekly potluckdinner of locally grown food.10

People can even convert their neighbor-hood into an ad hoc ecovillage—like resi-dents in the neighborhood of Phinney Ridgein Seattle, Washington, did. Phinney Ecovil-lage members hold regular meetings andgatherings to help neighbors reduce theirecological impact. In spring 2007, the groupstarted a new neighborhood global warmingproject. This venture, partly funded by agrant from the city government specifically forneighborhood-based climate change efforts,is helping to mobilize residents to changetheir behavior to reduce fossil fuel use—everything from switching to a push lawnmower that relies on human power ratherthan fossil fuels to lowering their thermostatsand turning off appliances not in use.11

Cultivating CommunityConnections

Not all capital is tangible. Communities gen-erate an often underappreciated asset calledsocial capital, the relational glue that holdscommunities together, or as political scientistRobert Putnam defines it, “connectionsamong individuals—social networks and thenorms of reciprocity and trustworthiness thatarise from them.” As individuals in a com-munity interact, work together, and tradefavors, a level of trust and feelings of reci-procity form. This is what makes a commu-nity a community rather than just peopleliving near each other.12

In industrial countries, social capital is anincreasingly scarce asset, according to Putnamand other social scientists. Since 1985 theaverage American has lost connection to oneconfidant each—going from three other peo-




ple to confide in to just two. Today, nearly aquarter of Americans do not have anyonelike that in their lives. But where social cap-ital exists, or where there is the will to rebuildit through regenerating relationships, there isgreat opportunity to improve opportunity, lifequality, and sustainability. Communities,regardless of the obstacles they face, can usesocial capital to form sustainable communitydevelopment projects, empowering them-selves as they work together on projects thatincrease their well-being while reducing theirecological impact.13

Social capital yields important dividends.Psychological research demonstrates that thebreadth and depth of a person’s social con-nections is the single best predictor of hap-piness. And social isolation translates directlyinto physical health concerns as well. Morethan a dozen long-term studies in Japan,Scandinavia, and the United States, for exam-ple, show that the chances of dying in a givenyear, no matter the cause, are two to fivetimes greater for people who are socially iso-lated than for people with close family, friends,or community ties.14

Social capital is generated in a variety ofways. Some communities, particularly eco-villages and co-housing groups, do so bysharing resources. Some have a shared caravailable that residents can rent or borrow,thus freeing more of the community to livecar-free. Many have shared major appliances,including washing machines and dryers. Oth-ers have created “tool libraries” for lawnmowers, chain saws, and other implementsthat may only be needed once a week,month, or year. One community tool is oftenmore than enough and saves members sig-nificant cost in purchasing and maintainingthese goods. Many people also barter food orgoods they produce in exchange for whatother residents produce. Along with goods,some communities share services, such as

babysitting and day care, and even elder care.This helps create the ties that bind commu-nities together.15

While an economist would regard theseshared goods or nonmarket exchanges as areduction in economic activity (and thus anegative development), they actually mayincrease community members’ quality of life.A recent study of individuals living in eco-villages and co-housing communities foundthat although they earned significantly lessthan people in Burlington, Vermont (a townwith a similar demographic makeup to thecommunities studied), members expressedlife satisfaction levels equal to Burlingtonians.Indeed, 50 percent of residents had incomesof less than $15,000 a year yet life satisfactionlevels equal to Burlingtonians—the majorityof whom earned over $30,000 a year. Theconclusion of the study was simple: ecovillagemembers successfully substituted social cap-ital for the possessions they own, thus enjoy-ing a similar quality of life with much lessconsumption—and as a result a reduced eco-logical impact as well.16

Sharing within a community also helps toestablish a different cultural norm, one basedin cooperation instead of conspicuous con-sumption and competition. Indeed, this men-tal shift can help channel the urge to “keepup with the Joneses” into a more construc-tive form—namely from one of rivalry overwho has the biggest SUV or McMansion towho has the lowest ecological footprint. (SeeChapter 4.)

Many communities have even institution-




Sharing within a community alsohelps to establish a different culturalnorm, one based in cooperationinstead of conspicuous consumptionand competition.

alized these educational efforts, providingschools for community children that maintainan ecocentric curriculum. For example, theBerea College Ecovillage in Kentucky includesthe Berea Early Learning Center, for the stu-dents’ children in day care (most residents ofthe ecovillage are “nontraditional” studentswho have children). This eco-friendly daycare introduces preschool students to recy-cling, gardening, and composting.17

Beyond the ecovillage, communities aretrying to rebuild community connections ininnovative ways, with one of the most inter-esting being the “third place.” This termwas coined by sociologist Ray Oldenburg todescribe informal public gathering places—the place after home and work (the first andsecond places) that people tend to spendtheir time in. Being informal gathering places,they have many important roles: connectingthe community, integrating newcomers andvisitors, offering staging areas in times oflocal crisis, and providing a set of local storeowners who tend to watch over and helpthe community.18

Over the past several decades, neighbor-hood hangouts have increasingly beenreplaced by soulless franchises that are typi-cally identical in design, lack local flavor, andrarely serve community needs. Today, how-ever, many neighborhoods are starting toconsciously recreate third places and the com-munity ties that they facilitate. And some areeven starting to recognize that these placescan not only serve a central role in cultivat-ing social capital, they can also serve as impor-tant tools in shaping environmental values.

These “sustainable third places” not only

build community ties, they also adopt greenbusiness practices and help educate cus-tomers about living sustainably—using suchtools as periodic lectures, discussion groups,informational guides, and books they sell.Sustainable third places can also synergisti-cally support other sustainable business sec-tors—particularly food production. Localrestaurants, not bound by franchise con-tracts, can order food directly from localfarmers, helping to support local agricul-tural production. And sustainable third placescan encourage their customers to getengaged in sustainability efforts, for examplehelping to set up volunteer groups to workon a local ecological restoration project orenvironmental campaign.

One example of a sustainable third place isthe White Dog Cafe in Philadelphia. JudyWicks founded the cafe in 1983 in a 100-year-old house on Sansom Street, after joiningwith her neighbors to fight to prevent this andother houses from being torn down to makeroom for a new shopping mall. The WhiteDog now fills three adjacent houses, servingup local food, running on wind power, andhosting regular “Table Talks” on a variety ofsocial and environmental topics. Wicks wasone of the first to serve local food in Philadel-phia, a niche she could have attempted tomonopolize. Instead, she started a foundation(and supported it with 20 percent of thecafe’s profits) that worked to expand localfood use in the city, by helping other restau-rants to localize and connecting farmers andbusinesses in the city. And the White Dog isnot alone. There are hundreds of sustainablethird places around the world, each with itsown priorities and projects.19

Cafes, in particular, have great potential toshape people’s values and mobilize commu-nities. Throughout history, teahouses andcoffeehouses have been a central stagingground to discuss revolutionary action, with




Throughout history, teahouses and coffeehouses have been a central stagingground to discuss revolutionary action.

organizers of both the American and FrenchRevolutions discussing plans and organizingactions in coffeehouses. Today, organizationslike the Green Café Network are starting tomobilize cafe owners to use their spaces to“mainstream sustainability”—teaching mil-lions of Americans who visit a cafe each dayhow they can live greener. The Network,started in San Francisco in 2007, helps locallyowned cafes reduce their ecological foot-prints and become certified green businesses.It also aims to change customer consumptionpatterns and promote green lifestyle prac-tices by using partner cafes to teach sustain-ability—through hosting talks, eco-artexhibits, and educational displays and dis-tributing information.20

Localizing EconomicProduction

The dairy at the Cobb Hill Cohousing com-munity in Hartland, Vermont, that producesaward winning cheeses, the bakery in theecovillage of Lakabe near Pamplona, Spain,that bakes bread for 25 stores in surroundingtowns, the herbalist business at the EarthavenEcovillage that makes medicines from herbsfound in the surrounding bioregion—thereare countless local businesses employing peo-ple from the community, providing a sus-tainable living, and helping to relocalize aneconomy that has become increasingly glob-alized and environmentally destructive. Thebenefits of localizing economic activity havebeen well chronicled and can include pro-viding a more stable source of jobs andincome, a reduction in use of fuel for trans-portation, businesses more willing to adapt tostricter environmental regulations (as opposedto closing and rebuilding elsewhere), and alarger percentage of profits circulating withinthe community instead of being concentratedin the hands of far-off investors.21

One key sector of the economy ripe forlocalization (in addition to energy production,discussed earlier) is food production. Farmingtoday depends on massive amounts of petro-leum-based inputs: fuel to run the tractors andship food thousands of kilometers, fertilizersand pesticides, and packaging often derivedfrom petroleum. While oil is cheap and theeffects of climate change appear relativelyminor, this may not seem to be a problem. Butwith ramped-up efforts to regulate green-house gas emissions, potential disruptions ofagricultural production due to climate change,and increasing competition over a finite sup-ply of oil, the cost of far-off food will mostlikely increase, as will its scarcity.

Local farming can address these problems,reducing oil dependency and the ecologicalimpacts of industrial-scale agriculture whileproviding many other benefits, such as health-ier, tastier food, heightened food security,and increased community interactions. Grow-ing food locally reduces the fuel used to shipgoods long distances. From farm to market,fruits and vegetables in the United Statestravel between 2,500 and 4,000 kilometers onaverage—generating 5 to 17 times more CO2emissions than the equivalent amount of localfood. Eating locally produced food can reducean individual’s carbon footprint by about2,000 kilograms per year.22

A study of 200 residents in Philadelphiafound that residents who gardened not onlyhad increased access to healthier foods—eat-ing more fresh vegetables and fewer sweets—but also saved at least $100 a year in foodcosts. Community gardens often help buildsocial capital as well. In a study of 63 com-munity gardens in upstate New York, peoplein 54 of these worked cooperatively—sharingtools, work, or harvest. Moreover, having acommunity garden improved many residents’attitudes about their neighborhoods, reduc-ing problems like littering, while also spurring




broader community revitalization efforts.23

As more local farms and gardens are estab-lished, a growing number of farmers’ marketsand community-supported agriculture (CSA)operations are sprouting up. In the UnitedStates, there are now more than 4,300 farm-ers’ markets and 1,100 CSA farms. These tieconsumers and producers together—educat-ing consumers about the source of their food,giving farms a better source of income, and,with CSAs, providing working capital to farm-ers (because CSA members purchase inadvance a share of a farmers’ annual produc-tion). Being part of a CSA or farmers’ mar-ket can help reconnect consumers directlyto the food cycle, obtaining fresh food straightfrom a farmer. And farmers’ markets helpincrease community interactions: patronsshopping at these markets typically have 10times more social interactions than thoseshopping at grocery stores.24

To cultivate the local food movement,many community groups and nongovern-mental organizations (NGOs) are creatingcommunity gardens and small farms. Someare driven by food security concerns, othersenvironmental worries, and still others sim-ply by the facts that local, organic produceusually tastes better and is healthier than foodproduced in far-off farms or greenhouses andthat local gardens can strengthen communityties and give people an opportunity to exer-cise and reconnect with nature.

In Chicago and Milwaukee, GrowingPower is working to create local sustainablefood systems through a combination of train-ing local farmers, supporting farmers’ markets,setting up local food processing and distrib-ution facilities, and converting the manyunderused spaces in these two cities—likethe 60,000 vacant lots in Chicago—into gar-dens and farms. One impressive innovation isthat the organization is working directly withthe Chicago city government, being paid by

the city to set up community gardens andurban farms in public parks. This not only sus-tains the projects but redirects money thatwould have gone to for-profit landscape busi-nesses toward providing food and job train-ing to underserviced residents. In 2006, oneof these projects—a 1,900-square-meterurban farm in Grant Park—trained 25 youngpeople in farming and produced over $15,000worth of food that was donated to foodpantries and soup kitchens.25

To expand this beyond certain cities orregions, a national grassroots network calledRooted in Community (RIC) is working tohelp young people set up community gar-den, local farms, and other local food projects.Since 1998, at least 75 grassroots groups havebeen engaged with the network, and RIC hasstrengthened the skills of hundreds of com-munity leaders through national trainings.26

But can gardens and local farms actuallysupply more than a small fraction of a com-munity’s food? Cuba—after reducing annualoil imports from 13 million to 6 million tonsin one year because of the collapse of theSoviet Union and the U.S. embargo—provedthat the answer to this question is yes. Atthat time, Cuba had the most industrializedagricultural system in all of Latin Americaand even used more than twice as much fer-tilizer per hectare as U.S. farmers did. But theSoviet collapse and subsequent lack of oil,chemical fertilizers, pesticides, and otherindustrial agricultural inputs forced Cuba tolocalize agricultural production rapidly. Today,after considerable innovation, the countrynow delivers much of its agricultural pro-duce from small urban farms and communitygardens. In Havana alone, there are morethan 26,000 food gardens, spreading across2,400 hectares of land and producing 25,000tons of food.27

Americans typically have ample space todevote to food gardens. During World War




II, Americans set up 20 million home andcommunity gardens—Victory Gardens—thatprovided 40 percent of civilians’ fresh veg-etables, allowing farms to concentrate onproviding for the troops. Today, in contrast,Americans maintain 10 million hectares oflawns, often with assistance from toxic pesti-cides and fertilizers. These lawns could read-ily be replaced with gardens, producing anew source of local food and reducing toxicchemical usage. The key to this transitionwill ideally stem from increased support by

community groups, NGOs, and governmentagencies. Realistically, however, a major dis-ruption in food production, like the oneCuba experienced, will also trigger a returnto local farming. Future ecological disruptionsmay also speed the transition to a new model.(See Box 11–2.)28

Beyond food production, efforts to local-ize the economy are taking some novel forms.NGOs are taking a lead in reducing depen-dence on the globalized economy. One—The Relocalization Network—is helping to




On the outskirts of Barcelona, a former lepercolony now houses a new community. In 2001,a group of 30 squatters took over this propertythat had lain vacant since the 1950s and createdan eco-squatter community, Can Masdeu. Whilesquatters typically are viewed as a problem, thisgroup has taken unused land and is now a modelsustainable community—maintaining a compost-ing toilet, a constructed wetlands for processinggray water, homemade solar thermal panels,even a “bici-lavadora” (bicycle-powered washingmachine). Moreover, the community provides 28 community garden plots to neighborhoodresidents, maintains a regular meeting space for a variety of social activist groups, and sets up a sustainable third place on Sunday nights: theRurbar, selling food and beer that the com-munity produces.

Can Masdeu also offers another benefit: itshows that life can go on in a climate of uncer-tainty, where community members have no rightsto ownership, where police have attempted toexpel them by force, and where financial capitalto invest is scarce. The leper colony, founded inthe seventeenth century, functioned withoutelectricity, obtained its water from mountainsprings, and grew its own food. While Can Mas-deu has electricity today, its water and sewagetreatment and much of its food production arenot dependent on it. The community—in pared-down form—could function even if the globaleconomy seized up and died tomorrow.

Communities can play a significant role inhelping reduce ecological problems that currentlythreaten the future of human civilization. But dueto a lack of leadership by the worst polluters andpositive feedback cycles like thawing permafrostand the melting Arctic ice cap, it may be too lateto prevent the worst effects of climate change—such as a sea level rise of 15 meters that themelting of Greenland and western Antarcticawould trigger. Add to this growing social disrup-tions from increased competition over petroleumsupplies and the possible breakdown of globalgovernance as new resource rivalries form, andthe picture looks bleak indeed. If this scenario—“the long emergency,” as author James HowardKunstler calls it—becomes the new reality, thencommunities will once again become central inproviding for themselves. Local food provision,local energy production, and the basic technolo-gies needed to maintain a water supply andprocess sewage safely may mean the differencebetween a high quality of life and abject poverty.

If humanity cannot mobilize to prevent anecological collapse, any effort by communities toincrease their self-sufficiency and reduce depen-dence on far-off goods that will become scarce asthe global economic system falters will help themsurvive in a less stable future, much as the resi-dents of Can Masdeu are doing now.


Box 11–2. Preparing for the Long Emergency

coordinate 166 groups in 13 countries, pro-viding an online learning and networkingforum for communities working to lowertheir reliance on a fragile, globalized eco-nomic system. Efforts of these many groupsare impressive—ranging from local commu-nity education projects to town and city res-olutions to reduce dependence on oil.29

Networks like BALLE—the BusinessAlliance for Living Local Economies—arealso helping to drive localization forward.BALLE, consisting of more than 15,000businesses, has 51 networks spread over 26regions in North America (states and Cana-dian provinces). These networks help con-nect local businesses, with the goal ofstrengthening exchange of goods locallywhile helping to enact public policies tosupport decentralized ownership of busi-nesses, fair wages, and good stewardship ofthe environment.30

Some towns and cities are also lookingholistically at how they can localize theireconomies. For example, in Willits, Califor-nia, the WELL (Willits Economic LocaLiza-tion) initiative is educating town residentsabout the benefits of and opportunities tolocalize the economy. So far WELL hasfocused on assessing current resource use inWillits—such as the amount of energyimported and the CO2 emissions producedper capita—and it is now turning to figuringout how best to reduce the town’s ecologi-cal impacts and reduce dependence on theglobal economic system. In the United King-dom, there are also 21 Transition Towns—towns, neighborhoods, villages, and citiesthat are setting up “transition initiatives” inwhich they try to move toward localization,reduce oil dependence, and lower the eco-logical impact of their economies.31

With growing disparities between rich andpoor worldwide and the global growth ofslums, there is a strong need to merge the

empowerment of communities like those justdescribed with efforts to meet people’s basicneeds independently and sustainably. Com-munity-driven development (CDD) is onestrategy to address poverty in this way. WithCDD, poor communities are the lead actorsin development efforts, not passive recipi-ents of aid, and are empowered to focus onthe priorities they choose—whether that behealth, education, sanitation, or other press-ing issues—and given the assistance they needto succeed.

Sometimes CDD efforts are initiateddirectly by communities, but many are sup-ported by either NGOs or international agen-cies that can provide financial or technicalassistance. For example, a Zambian NGO, theNorth Luangwa Wildlife Conservation andCommunity Development Programme, hasworked to reduce poaching in the NorthLuangwa National Park by empowering com-munities to make a living through farmingand other more sustainable enterprises, whilealso setting up local clinics and educationprograms. Started in 1994, this program nowreaches more than 35,000 people.32

The United Nations and other interna-tional agencies are also increasingly usingCDD. The COMPACT program (Commu-nity Management of Protected Areas Con-servation), for instance, is a joint project of theU.N. Development Programme and theGlobal Environment Facility that providesgrants of less than $50,000 to communitiesin World Heritage Sites to help establish pro-jects that improve community well-beingwhile reducing people’s impact on the sur-rounding ecosystems. Around Mount Kenya,where deforestation is a significant concern,COMPACT has worked with villages to setup a microhydro generator and sustainablefood projects like beekeeping and trout farm-ing, and it has worked with schools to providemore efficient cookstoves—all of which help




reduce community dependence on firewoodwhile offering new economic opportunities.(For more on CDD in developing countries,see Chapter 12.)33

Financing Sustainable Communities

Underlying local economic enterprise thereneeds to be sustainable community finance,which can mobilize community funds toinvest in local green endeavors—an essentialelement if businesses like local farms and sus-tainable third places are to thrive. Tradition-ally, community development financialinstitutions (CDFIs)—including develop-ment banks, credit unions, loan funds, andventure capital funds—finance projects thatbuild affordable housing, create livable-wagejobs, or provide essential services such ashealth care. (See also Chapter 13.) Althoughthese investments are comparatively small—at just $20 billion in the United States—theeffects of community investing are impressive.A survey of 496 U.S. CDFIs found that in2005 these institutions financed 9,074 busi-nesses that established or sustained 39,151jobs, and they facilitated the building or ren-ovation of 55,242 units of affordable hous-ing and 613 community facilities ineconomically disadvantaged communities.34

While interest in CDFIs has grown sig-nificantly over the past years—with totalinvestments quintupling between 1997 and2005—few of these investments are targetedtoward sustainable community development.If they were, they could have not just an eco-nomic impact but an ecological one as well.Some ecovillages have small banks that do justthis. In Italy, the community of Damanhurmaintains a co-operative that invests members’savings in existing community businesses aswell as giving loans and business advice tocommunity members trying to start new sus-

tainable businesses.35

On a larger scale, ShoreBank Pacific inWashington State sees itself as a sustainablecommunity development bank. This bank,with assets of $113 million, lends to com-munity businesses while also proactively help-ing clients in a variety of industries to useenergy efficiently, reduce waste, conserveresources, and shift production toward agreener model. This starts with a review of thebusiness by a staff scientist and continueswith consultations throughout the course ofthe loan, offering strategic advice on how tobecome sustainable.36

Instead of creating banks, some commu-nities are actually creating their own curren-cies. These can take many forms. Some, likeIthaca Hours, are pegged against an hour oflabor, thus valuing all work equally. Others arepegged to a national currency. The Berk-Share is one of these. In Great Barrington,Massachusetts, there are about $760,000worth of BerkShares circulating; they areaccepted by some 300 local businesses—fromcoffeeshops to grocery stores. A local bank iseven considering creating a credit card basedin BerkShares. And Great Barrington is notalone. There are over 4,000 community cur-rencies around the world.37

While the true economic impact of thesecurrencies is relatively minor, they do pro-vide many benefits to communities that usethem. Because franchises typically do nottrade in community currencies, these systemshelp create support—and loyal customerbases—for local businesses. They also helpbuild community support networks. Accord-ing to a U.K. study, local currencies helpmany users develop a network of peoplethey could call on for help, as well as help-ing people cope with unemployment. Andlocal currencies can help address specificsocial needs in a community. In Japan, manyareas use fureai kippu (caring relationship




tickets): helping the sick and elderly withdaily living will earn the helper some tickets,which can then be exchanged for help whenthat person is sick or can be given to sick orelderly relations to use. This has enabledmore elderly people to continue living intheir homes and communities rather thanmoving to convalescent homes.38

Another innovative way to finance sus-tainable communities involves harnessing theprofits of a new breed of business called“social enterprise.” This term refers to busi-nesses that achieve their social missionsthrough their earned income strategies. Forexample, Greyston Bakery in New York Citywas founded in 1982 to provide jobs for thechronically unemployed. Today, the profits ofthis $6.5-million business provide fundingfor health clinics, day care centers, afford-able housing, and other social services thathelp address poverty in New York City. Andin Thailand, the resort and restaurant Cab-bages and Condoms uses its five restaurantsand two resorts to promote safe sex and AIDSprevention while generating revenue for thePopulation and Community DevelopmentAssociation, an NGO that works on ruraldevelopment, AIDS education, populationgrowth, and environmental protection.39

Although few social enterprises currentlyfocus on sustainable poverty alleviation, whenthey do they can make an important contri-bution to redesigning the economy to servethe needs of communities in an ecologicallyresponsible manner.

Communities Mobilizing Society

Beyond design and helping to rebuild localeconomies, communities can use members’energy and resources to help green societymore broadly—restoring local ecosystems,educating the broader public, or engaging in

efforts to reform local or even national polit-ical agendas.

One way communities are readily engag-ing in this effort is helping with ecologicalrestoration projects in their area. The LosAngeles Ecovillage was instrumental in help-ing the Bresee Center design The BiminiSlough Ecology Park at the end of LAEV’sstreet. Now the runoff from two neighbor-ing streets drains into a small stream in thepark. Here the water is cleaned by streamplants on its way back to the watertableinstead of moving directly to the ocean, withall of its pollutants, via the storm drain.40

An example of a much broader-rangingrestoration project comes from the commu-nity of Las Gaviotas in Colombia. This villagewas established on degraded savanna andmade it a point to replant 8,000 hectares ofsurrounding land with forest—an area largerthan Manhattan. Along with providing thecommunity with food and tradable forestproducts, this land now absorbs 144,000tons of carbon a year and will continue to doso while the forest grows. Gaviotas’ efforts areimpressive, but the village’s decades-longplan is even more ambitious: Gaviotas hopesto replant another 3 million hectares withthe help of other villages and towns; that’senough to absorb a quarter of Colombia’sannual carbon emissions.41

Some communities—in particular ecovil-lages—are reaching out globally to local lead-ers to help spread the knowledge needed tomake towns and larger regions sustainable.Many ecovillages have regular trainingcourses. At The Farm, an ecovillage in Sum-mertown, Tennessee, the Ecovillage TrainingCenter hosts dozens of training workshops—from how to install solar panels to how to cul-tivate and build with bamboo. Ecovillageslike The Farm also host longer apprenticeshipsfor people wanting to learn about the manyaspects of community sustainability. In 2003




many ecovillage and other community sus-tainability leaders founded Gaia University,which offers accredited bachelors and mastersdegrees in Integrative Ecosocial Design, inwhich students learn how to design societal,community, and personal behaviors that arein line with ecological principles.42

Communities are also increasingly gettinginvolved in local political efforts. Today inthe United States, many of the 300,000 home-owners associations (HOAs) ban their mem-bers from hanging clothes outside to drybecause of the perception that clotheslineslook unsightly and thus reduce property value.Yet if Americans dried just half of their clothesoutside instead of in dryers that were poweredby coal-fired power plants, they could saveenough electricity to shut down eight suchplants and reduce CO2 emissions by 23 mil-lion tons. Communities and community

groups are approaching HOAs to get this andother sustainability measures implemented.Project Laundry List is an organization thathelps homeowners appeal to their HOAs andthat is coordinating broader efforts to changestate laws to uphold “the right to dry.”43

At the town and city level, there are evenmore opportunities to foster local-level sus-tainability through policy changes. A keystrategy is to push for “smart growth,” shift-ing urban planning away from car-depen-dent low-density housing to one of walkableneighborhoods with a mix of commercialand residential space. Smart growth is essen-tial for reducing car dependency and for mak-ing towns and cities more sustainable. Somecommunities are joining broader coalitionsworking on campaigns as varied as increasingpublic transit, organizing to make cities bicy-cle-friendly, and lobbying to strengthen urban




Until recently, the 15-acre Dockside Lands parcelin Victoria, British Columbia—the province’s cap-ital on Vancouver Island—was the epitome of anunderused property. Purchased by the city for asingle dollar in 1989, this prime real estate laylargely ignored for years, crippled by an industriallegacy that left the soil saturated with petro-chemicals and toxic heavy metals. Now the site is poised to become the greenest neighborhoodin Victoria, thanks to collaboration between thecity and two developers,Windmill DevelopmentGroup and VanCity Enterprises. The first of threedistinct neighborhoods, Dockside Wharf, is setfor completion in 2009 and will include 268 resi-dential units of varying sizes. By the time it iscompleted around 2018, the development willaccommodate approximately 2,500 people.

The developers have promised to deliver 26LEED platinum-rated buildings in addition to animpressive green infrastructure and have evenpledged to pay penalties up to CDN$1 million if certification goals are not met. One hundredpercent on-site sewage treatment is projected to

save CDN$81,000 a year in city fees. On-siteenergy generation, including solar panels and abiomass gasification system fueled by wastewood, will further reduce pressure on Victoria’sinfrastructure. Preliminary studies indicate thatDockside Green’s goal of carbon neutrality mayeven produce excess energy that can be soldback to the city. Residents can stroll down a cen-tral greenway irrigated only with recycledrainwater, ride mini-transit vehicles that run onbiodiesel, and check their personal energy con-sumption via monitors in each home.

Walkable, dense neighborhoods with a varietyof housing units, lively public areas, and commer-cial space will help foster a sense of community.Planners have also been careful to integrateexisting industry, interspersing light industrialspace among the housing units, thus preservingDockside Green’s distinctive harbor industryheritage.

—Meghan Bogaerts


Box 11–3. Dockside Green: Developers Taking the Lead

growth boundaries. Another innovative strategy is to educate

developers about the importance of smartgrowth. Some developers are starting to rec-ognize the profitability of building develop-ments along these lines, tapping into thegrowing demand for environmentally friendlycommunities and the many governmentincentives that subsidize such projects. (SeeBox 11–3.)44

But the key will be making smart growththe norm for developers. One impressive effortis being led by the U.S. Green Building Coun-cil (USGBC). This organization’s LEED pro-gram (Leadership in Energy andEnvironmental Design) has helped providegreen certification schemes for all type ofbuildings: commercial, residential, and others.

USGBC is now working on a new“LEED for Neighborhood Development”certification system. This standard, currentlyin its pilot phase, will provide a grade forplanned neighborhood developments, givingpoints for designs that connect communities,reduce vehicle use, and create local jobs. Italso includes prerequisites such that anydevelopment that compromises wetlands oragricultural lands, is located in a flood zone,or is built “60 miles from anything” (as Pro-gram Manager Jennifer Henry puts it) can-not be certified. For well-plannedneighborhoods, developers can receive ahigh grade (platinum or gold), which mayhelp expedite permission from local planningboards and make developers eligible for taxbreaks or other incentives.45

Currently 238 projects are involved in thepilot phase of the LEED for NeighborhoodDevelopment, ranging from sustainable com-munities like the Los Angeles Ecovillage tolarge urban projects. In 2009 the USGBC willfinalize the program once the pilot phaseconcludes and public comments are received.Once finished, new communities that areforming can use these standards, and existingcommunities can lobby local governmentsto ensure that these standards are used whennew developments are planned.46

Another innovative idea that has started tospread around the world is that of the “eco-municipality.” In essence, eco-municipalitiesare efforts by coalitions of community mem-bers, local NGOs, and town officials to cre-ate long-term comprehensive sustainabilityplans for their towns, villages, or cities. Over-torneå, Sweden, became the first eco-munic-ipality in 1983. Since then, more than 60municipalities in Sweden, ranging from vil-lages to cities of 500,000, have followedsuit—as have 20 Estonian municipalities andmunicipalities in 10 other countries.47

Because communities are by their naturesmall, their ability to address global environ-mental problems is often overlooked bynational governments. But with proper sup-port, they can have a dramatic impact. Thekey will be getting governments to recognizecommunities’ potential and tap into it. TheUnited Kingdom may be the first country toproactively do so. Parliament is close to pass-ing the Sustainable Communities Act, whichwould provide local councils with direct accessto the office of the Secretary of State andfund local sustainability projects—includingthose that support local businesses, protect thelocal environment, and build communityconnections and political activity.48

When national policy is changed in theright way, the effects can be impressive. Whilesmall-scale wind and other major projects are




Eco-municipalities are efforts bycommunity members, local NGOs,and town officials to create long-term comprehensive sustainability plans for towns, villages, or cities.

often difficult to implement because of zon-ing restrictions, in some countries govern-ments have actually facilitated them. Sincethe 1970s, Denmark has allowed communi-ties, co-operatives, small companies, andtowns to establish small renewable projectsand obtain a set price for the electricity theyprovide to the grid. Today, over 80 percentof wind turbines are owned by co-operatives,local companies, or individuals. Along withtriggering a major investment in wind energy(over 20 percent of Denmark’s electricitycomes from wind), local ownership and theresulting local profits have led to broad pub-lic acceptance.49

National policy changes have great poten-tial and could take many forms. Imagine the

impact of initiatives like California’s MillionSolar Roofs, which provides financial incen-tives and other support to individual home-owners to put solar panels on their roofs.Similar efforts could mobilize communitiesaround the world: a 10,000 Town Wind Co-op Project; a 100,000 Neighborhood EnergyClub Initiative; a Million Community Gar-den Program; or a $10 Billion SustainableCommunity Investment Initiative could alldrive community sustainability efforts to thenext level. The key will be mobilizing com-munities around the world to educatenational policymakers on the benefits localefforts can bring—and to challenge them tomake these happen.50





Niger was all but given a death sentence in the1970s when drought-propelled desertifica-tion, rapid population growth, and unsus-tainable farming practices threatenedecological collapse and mass human suffering.Women on average each gave birth to morethan seven children, and the population wasexpected to double in the next two decades.Families who had worked their land for gen-erations could see the tell-tale signs: it was tak-ing longer and longer to get to trees andfresh water, and the Sahara desert was gettingcloser and closer.1

Thirty years later there is startling evi-dence of a turnaround, thanks to changesundertaken beginning in the mid-1980s. (SeeFigure 12–1.) At that time, farmers in severalvillages were taught to carefully plow aroundtree saplings when sowing crops of millet,sorghum, peanuts, and beans. Careful nur-turing, along with other simple soil and waterconservation practices, saplings became trees,

putting down roots and a buffer against top-soil erosion and crop loss.2

The quick-growing native trees becameassets that families used to supplementincomes, provide insurance against crop fail-ure, and meet their own needs. The treesprovided wood for charcoal, foliage for ani-mal fodder, and fruit for food. News spreadthrough social networks and marketplaces inthe more densely populated regions of thecountry until an area of 7 million hectares,about the size of the state of West Virginia,was re-greening with trees.3

Did farmers do this alone? Hardly. Betterrains helped, and so did the government.But the standard anti-desertification strategyof massive tree planting projects was not whatmade the difference. The forest law previouslystated that both land and trees were the prop-erty of the state. Recognizing that farmers hadde facto ownership of the trees and wereinvesting in their regeneration, the govern-

C H A P T E R 1 2

Jason S. Calder

Mobilizing Human Energy

Jason Calder is Director of the Engaging Citizens and Communities in Peacebuilding Project at FutureGenerations.

ment wisely amended the forest code, givingfarmers formal property rights. This addi-tional security helped reinforce a trend andadd momentum. The forest service began tochange from policing tree cutting and levy-ing fines to partnering with communities toassist regeneration. Nongovernmental orga-nizations (NGOs), the Peace Corps, anddonors helped promote the new practicesthrough training programs and farmer-to-farmer visits.4

Notwithstanding this support, it was theenergy invested by the farmers of Niger thatfueled this massive transformation of landand livelihoods. The result is a more complexagricultural system and a more diverse econ-omy that is helping farmers invest in regen-erating once-infertile lands. Today farmerscredit their efforts with lowering poverty,improving nutrition, and reducing vulnera-bility to hunger. The average distance a

woman must walk for firewood in the Zinderregion has declined from 2.5 hours in 1984to half an hour today. When a regionaldrought and massive locust invasion hit in2005, many of the villages in the “greenbelt” reported no child deaths from malnu-trition because they were able to sell wood inlocal markets to purchase expensive cerealsthat normally would have been beyond reach.5

This success story from Niger demon-strates that the greatest untapped resource insolving the problem of global poverty andenvironmental decline is the poor themselves.They have the most unambiguous incentiveto change their condition, yet this simple factis all too rarely embraced by governments, aidworkers, and the market. In the face of depri-vation, discrimination, and oppression, thepoor are all too often offered charity, manip-ulation, and condescension.

But there are signs that this is beginning to




Figure 12–1. Farmer-managed Tree Regeneration in Galma Village,Niger,1975 and 2003

1975 2003

USGS and Institut Géographique National du Niger

change. Over three decades of grassroots com-munity development experiences that began asa search for an alternative to mainstream eco-nomic development have coalesced into newapproaches to citizen and community empow-erment that embrace partnerships with gov-ernments and markets while maintaining anemphasis on self-reliance and self-help.

As with traditional community-based devel-opment, this newer community-driven devel-opment recognizes that the poor must be theactive authors of their own destiny and thatdevelopment cannot be sustainable if it dis-locates people from their communities andresources. Recognizing poverty as much morethan a lack of income, the new approachesemphasize building assets, expanding free-doms, and mobilizing the poor to overcomethe voicelessness and powerlessness that aredefining characteristics of poverty.6

Informed by an emphasis on incentivesand client knowledge, community-drivenapproaches are being implemented by NGOs,businesses, and large organizations like theWorld Bank. Perhaps most promising is thatpractitioners are tackling the question of howto scale up community-driven change overwide geographic areas involving significantnumbers of people.

While the international community setsambitious development targets like the Mil-lennium Development Goals, it is not clearhow to achieve them. So far, the debate ispolarized between mobilizing massive finan-cial resources for technical fixes and piecemealresponses sought by entrepreneurs. But finan-cial resources and technology, althoughimportant, are not the binding constraints.Experimentation and local solutions are alsoimportant, yet the scale of the challengedemands a more ambitious response. As thehopeful case of Niger demonstrates, what isrequired are ways of tapping into the ultimateresource: human energy.7

Grounding Action in Local Realities

Thanks to several encouraging developmentsin the 1990s (see Box 12–1), there are signsthat thinking in international developmentpolicy circles is converging around severalsensible propositions that could reorient theglobal poverty fight. The first is that no one-size-fits-all model of development can beapplied anywhere. The generally poor recordof various western-inspired plans for devel-opment has been well documented. Eventhe World Bank draws this conclusion in itsreading of the development experience ofrecent decades: “The central message...isthat there is no unique universal set ofrules….we need to get away from formulaeand the search for elusive ‘best practices.’”8

Referring to the standard set of free mar-ket reforms promoted by western develop-ment institutions since the 1980s, in 2006development economist Dani Rodrik notedthat “the question now is not whether theWashington Consensus is dead or alive; it iswhat will replace it.” It is increasingly acceptedthat each country’s path to success will be dif-ferent, based on the particular obstacles andopportunities set forth by their histories, cul-tures, social institutions, political climates,and geographies.9

The second sensible proposition is thatpoverty is about much more than lack ofincome. The U.N. Development Programmehas been publishing annual Human Devel-opment Reports since the early 1990s; itsHuman Development Index combines health,education, and income as an alternative mea-sure of national progress. (See Chapter 2.)Informed by the role of social capital andinstitutions, this is also about more thaninvesting in the “social side” of development.A much broader view is emerging: develop-ment is about the expansion of freedoms that







The 1990s were a period of momentous changein global affairs, with significant consequences forinternational development and, in particular, theenvironment for more holistic, less prescriptive,more locally driven development.

First, with the end of proxy wars betweenEast and West and the historic “third wave” ofdemocracy resulting in greater political openness,it was no longer defensible for rich nations toprop up and defend corrupt and authoritarianregimes with aid dollars (although by no meanshas that practice ended). This opened discussionsabout issues of good governance—democracy,accountability, transparency, rule of law, and cleangovernment—that had long been swept underthe carpet in official international development.Evidence emerged over the decade that donorsslowly but surely were becoming more selectivein who received their aid.

As it became more difficult to tolerate unac-countable behavior on the part of aid recipients,the tables were turned on the providers. Devel-oping countries and social activists argued forgreater “ownership” of development by thosewho ultimately lived with the consequences ofaid. Society-wide attempts to transform econo-mies from the top down through “structuraladjustment” were deeply resented. In an era ofpolitical opening and concern for good govern-ance, it became clear that development policiesshould be the result of public dialogue betweencitizens and their governments at all levels, andnot principally the result of conditions imposedon cash-strapped governments.

The World Bank instituted sweeping changesin the late 1990s requiring governments to con-sult with citizens on strategies and policies forpoverty reduction. There is still plenty of debateon whether governments yet really “own” theirdevelopment programs, particularly in the macro-economic arena, but reform of developmentassistance and “aid effectiveness” are major top-ics of reform.

Second, it became undeniably clear that thecountries that had made the most progress withsustained growth and poverty reduction werefollowing their own unique paths. The good news

was that the absolute number of people living onless than $1 a day worldwide had decreased by500 million between 1981 and 2001, mainly as aresult of growth in China and India. Yet the for-mer had done so without democracy and tradi-tional private property rights, while the latterhad a significant government role in the economy.

In addition to these and the well-known EastAsian “miracle” economies, countries such asBangladesh, Botswana, Egypt, Mauritius, Sri Lanka,Tunisia,Viet Nam, and others also achieved pro-gress with “unorthodox” strategies. Meanwhile,countries that had supposedly gotten theirmacroeconomic fundamentals in order—Bolivia,Brazil, Mexico, Philippines, and Venezuela, forexample—had very mixed records. This experi-ence argued for much more humility among pol-icy reformers and international institutions, andmuch greater attention to the specific conditionswithin countries.

Third, globalization of trade, investment, tech-nology, and communications accelerated humancontacts and shrank the psychological distancebetween people. Private capital flows outstrippedofficial development assistance by wide margins,although only small amounts went to Africa.Global threats such as climate change, terrorism,and disease, with their various connections tohuman deprivation, made it increasingly clear thata more robust global engagement on povertywas imperative.

Fourth, the United Nations sponsored a succession of international conferences on theenvironment, population, food security, socialdevelopment, women, and housing that shaped a broad international consensus on fightingpoverty. These culminated in the adoption of theMillennium Development Goals by the U.N. Gen-eral Assembly in September 2000, followed bythe International Conference on Financing forDevelopment in Monterrey, Mexico, to considerhow to fund the goals’ achievement through public and private financial flows. This agendahelped establish new norms for internationaldevelopment cooperation.


Box 12–1. Reshaping the Development Agenda in the 1990s

people experience, requiring the interactiveengagement of citizens and communities withstate and markets.10

By the early 1980s, there was growingfrustration about the top-down, expert-dri-ven nature of prevailing development mod-els. Many commentators saw that the key toreversing this was to value and build on localknowledge and respond to the “felt needs”of communities, an idea articulated by Brazil-ian educator and activist Paolo Freire. Later,Robert Chambers helped popularize a seriesof participatory or community-based devel-opment techniques that were effective instimulating greater community awareness,identifying local needs, highlighting localassets, and mobilizing community actionaround projects of their own conceptionthat fit with their cultures, ecologies, and

local economies.11

Use of these techniques exploded in the1980s and 1990s in NGO projects and beganto be adopted by institutions such as the U.S.Agency for International Development, theUnited Nations, and the World Bank. Muchhas been learned and accomplished by com-munity-based approaches, but most have notsucceeded in igniting fundamental transfor-mation of societies in an age of globaliza-tion. (See Box 12–2.)12

Several pitfalls have been common. Insome cases the use of participatory techniquesby donors and NGOs was nothing more thanan attempt to co-opt communities into devel-opment schemes that had already been fullyformulated elsewhere. After all, British andFrench colonial administrations in Africa andelsewhere had used involvement of “tradi-




Scope. Many projects were conceived on a nar-row basis, such as helping communities buildschools or increase food production.These mayrespond well to an NGO’s particular expertise,a congressional earmark, a bureaucratic priority,or the demand for straightforward quantifiable“results,” but they do not reflect the real worldof individuals and communities whose problemsand challenges are complex and interrelated.Integrated rural development programs in the1970s and 1980s attempted to combine socialand economic needs, but they proved unsustain-able and gave little room for local voice. Morerecent area development programs have hadgreater success.

Scale. Community-based projects were toosmall and localized to make much of a difference,given the scale of the problems faced. Despitesuccess, replication “a village at a time”’ was notfeasible. In addition, many supporters of theseprojects assumed that eventually someoneelse—the government, a donor agency—woulddo the work of replication.

Sustainability. Community-based projects toooften failed the “walk-away test” and essentiallycollapsed or were abandoned by communitieswhen the funding ran out and a sponsoring NGOor aid agency left. There may have been commu-nity involvement, but not true community own-ership. Communities learned to use outsideresources for a one-time effort, not how to seekout, create, and manage partnerships.

Structural change. The obstacle to resolvingmany community problems lies outside the com-munity in institutions and political and socialstructures. Community-based projects that dealtexclusively with the local, no matter how partici-patory, would never achieve fundamental trans-formation. Until development is understood asan inherently political process of people claimingbasic rights, people will never ultimately reshapethe structural forces in society that are responsi-ble for the deprivation, discrimination, exclusion,vulnerability, and violence that mark the lives ofthe poor.

Sources: See endnote 12.

Box 12–2. Common Critiques of Community-based Development

tional leaders” and “community participa-tion” as a means of exerting social control. Ina reprise of this role, NGOs and private con-tractors, who were increasingly the conduitsof official foreign aid, were driven by donor-mandated results and timetables rather thancommunity needs, capabilities, agency, andvision. Many of these “participatory devel-opment” projects weren’t all that participa-tory from the perspective of the poor.Captured by elite interests or simply involv-ing information sharing or consultation butno real control or influence, these were a farcry from the liberating process of local ini-tiative and social movement that their advo-cates claimed.13

Many of these projects also idealized com-munities in ways that undermined their poten-tial. First, they imagined communities ashomogenous and harmonious entities whenoften they were far more complex units withinwhich needs and interests were mediated bypower, caste, ethnicity, age, religion, or gen-der. Second, many NGOs who supportedthese projects were ideologically or other-wise antagonistic toward working with gov-ernment or the private sector. Their efforts attimes isolated communities or promoted thenaive notion that bottom-up mobilizationalone would overcome the powerful andentrenched forces arrayed against them. As aresult, many community activities remainedessentially local projects and failed to affect orengage wider social and political structuresthat were driving poverty, environmentaldegradation, and social injustice.14

These criticisms were one helpful reminderof the inherently political nature of poverty.The poor are poor because the rich and pow-erful have created institutions to serve theirinterests. The landmark Voices of the Poorstudy, which gathered the views of 60,000poor men and women from 60 countries,confirmed that the poor saw their humanity

devalued by the world around them. Sus-tainable routes out of poverty would have toinvolve the poor not only by building theirassets and capabilities but by engaging withthe institutions and structures of governanceand markets. Engaging this governanceagenda involves communities participating inpublic budgeting decisions, scrutinizing pub-lic and private development projects, giving“report cards” to government ministries,and campaigning for greater access to pub-lic information.15

The Unlimited ResourceIncreasing poor people’s freedom of choiceand action to shape their own lives is criticalto achieving development outcomes becauseit taps into their natural energy and incentive.World Bank research on this topic has dra-matically expanded theoretical and practicalapproaches to understanding and measuringempowerment. It requires the poor to buildtheir individual assets (material, financial) aswell as their capabilities (human, social, psy-chological, political). The poor also requiregreater collective assets and capabilities, asthese provide security, preserve culture, pro-vide meaning, protect the local environment,and expand voice and power. Particularlycritical is the role of collective organizationsand social movements. Informed by theseconcepts, efforts to stimulate community-driven development are showing promise inovercoming some key shortcomings of earlyefforts at community-based development.16

A leading example is the Self-EmployedWomen’s Association (SEWA), a 30-year-oldgrassroots movement that has empoweredsome of the most marginalized of India’spoor women. Where economic growth hasoutpaced employment growth, many Indianwomen take up casual labor or self-employ-ment in the informal sector, including load




pulling, street vending, and home-basedwork. In addition to poverty and insecurity,these women are regularly cheated by employ-ers, charged exorbitant interest by money-lenders, and forced to pay bribes to police andpublic officials to ply their trades. Despitetheir varied and dispersed occupations, laboractivist and SEWA founder Ela Bhatt believedthese women could be organized and helpedto become more self-reliant.17

SEWA today has over 700,000 rural andurban members in seven states. It has orga-nized women to fight for their rights to fairtreatment, ranging from better prices fortheir goods and services to influencing the for-mation of India’s first National Policy onStreet Vendors. To secure income and assets,SEWA has formed 76 cooperatives in a vari-ety of fields—from tree growing and handi-crafts to milk production and salt farming. Itgives women skills training and marketingassistance, helping them to avoid exploitativego-betweens.18

The organization helps its members gainaccess to state-provided services (where theyexist) and lobby for improvements of inade-quate services. If these approaches do notwork, SEWA helps members organize the ser-vices for themselves. SEWA today maintains anetwork of services to meet basic needs suchas child care, health care, insurance, and hous-ing. More than 300,000 women have used itsprimary health services and 110,000 are cov-ered by its insurance program.19

The movement has grown and sustained awide scope of activities and services involvinghundreds of thousands because of its orga-nization, values, leadership, and flexibility.SEWA’s decentralized structure and strongvalue system have kept the movement respon-sive to the women’s needs. Bhatt emphasizesthe fundamental difference between runningan organization and sustaining a movementlike SEWA: “The movement flows at times

faster and at other times slower, and mayoccasionally be deflected around an obstacle,but it always moves in the same direction.”20

Daniel Taylor and others at the develop-ment NGO Future Generations considercommunity-driven solutions the basis forredirecting globalization, reducing inequality,and preserving and restoring the environ-ment. They maintain that most developmentprojects fail because they seek to control andmanage communities rather than unleashenergies and potential. Instead of buildingconfidence and resourcefulness, such pro-jects teach dependence on outside actors andfunding. When funding runs out and theproject ends, communities are left waitingfor the next project.21

Taylor has developed a simple system ofcommunity-driven learning and adaptationcalled Seed-Scale—a process that helps com-munities to marshal and direct their energy inways that fit their economy, ecology, and cul-ture at a pace that is natural and organic.Seed-Scale is based on four simple principlesembedded in a seven-step community dia-logue and planning process. (See Box 12–3.)These are so intuitive that communities, nomatter how daunting their situation, canquickly and easily absorb and use them tomobilize and channel their efforts.22

The idea of building purposeful humanand social energy is at the center of Seed-Scale. To catalyze it, the poor must believethat a better future is possible and that theycan bring about positive change. ArjunAppadurai of The New School has devel-oped the idea of the “capacity to aspire” tounderstand this aspect of empowerment. Itis a cultural capacity based on how the poorlearn and understand their “place” in societybased on wider cultural norms. It is an abil-ity to navigate the wider world that is devel-oped through experimentation and learningin a way that helps to expand the horizons of




the possible.23

In the beginning, anything can be thespark that nurtures this capacity, whether it isa mother learning to treat her baby’s diarrheawith homemade oral rehydration solution, afarmer learning better farming techniques,or a group effectively confronting a pollutingindustry in its community. The critical insightis that the ownership of the success and itsdeeper meaning resonates within the com-munity, which outsiders need to accept andbuild from.

In Seed-Scale, the initial emphasis of out-side assistance is on guidance with themethodology and facilitation of communityaccess to knowledge that responds to local pri-orities in areas such as health and hygiene, lit-eracy, natural resource management, andincome generation. This happens by teaching

simple techniques or by taking individualsto see successes in other places. People adoptsomething new when they see others doingit in circumstances similar to their own.

Since 1997 Future Generations has appliedSeed-Scale in the northeast Indian state ofArunachal Pradesh, which shares a borderwith Bhutan, China, and Burma. Arunachalis home to 125 tribal groups and the centerof biological diversity for all the bananas andcitrus fruit in the world. In this isolated areaof India, communities have persisted for cen-turies in very basic conditions. While theBritish Empire never successfully penetratedthis area during colonial rule, outside inter-ests are encroaching on the state today, eye-ing its vast potential for hydropower andtimber. The government has promised thepeople of Arunachal a great deal since inde-pendence, but little has been delivered. Socialconditions are harsh, particularly for women.Polygamy and child marriage are entrenchedtraditions, and forced labor is still practicedby some ethnic groups.24

Today, from four core sites radiating acrossmore than 100 villages, communities inArunachal Pradesh are actively and creativelysolving their own problems. Small successesare keeping communities motivated and mov-ing forward. Village Welfare Workers takethe lead—gathering data on health, eco-nomic, and environmental issues; deliveringhome-based services; and mobilizing thecommunity to action on a wide scope ofissues and advocating for change. Workstarted with women’s groups but laterexpanded to include men. Health improve-ments came from communities learning howto treat diarrhea and pneumonia, improvematernal care, have safer child births, immu-nize children, and monitor child growth.25

Husbands who were initially unsupportiveof their wives’ involvement quickly changedtheir minds when their families’ health and




Build from success. Every community has arecent or distant success that can be the basisfor inspiration and insight as to how the com-munity can work together.

Engage in three-way partnerships. Part-nerships require that communities, state andmarket actors, and outside individuals (asfacilitators, knowledge brokers, and changeagents) all work together.

Make decisions based on evidence.Objective data can inform decisions and helpmeasure progress. Learning simple surveytechniques gives villagers a deeper under-standing of their environment and powerover information collection.

Measure results through behaviorchange in individuals and communities.Behavior change happens when peopleperceive something works and is in their self-interest to continue.


Box 12–3. Basic Principles of Seed-Scale

welfare improved. They have gained access tomicrocredit and have started small businesses.They also have improved farming techniquesand learned how to improve food security andnutrition. Impressed with the success inArunachal, the state government asked thateach new village council be trained in theSeed-Scale methodology so that the 6,000 vil-lages in the state could be equipped to orga-nize a process of local change.26

Perhaps the most impressive indicator ofcommunity empowerment is demonstrated bywhat the women have done to change somedeep-seated social norms and institutions.Indian law exempts tribal areas from lawsbanning polygamy and child marriage, so thepractices flourish. Some of the women incommunity action groups were from the low-est rungs of the social hierarchy, as one-timechild brides and the third or fourth wives ina household. Once their value to their fami-lies and communities was enhanced throughnew knowledge and practices brought backfrom village health trainings, they found thevoice to argue against child marriage andbecame part of a gathering community pres-sure to end the practice voluntarily.

Dialogue started within a few women’sgroups spread and then percolated up into vil-lage council meetings. A petition was drawnup and endorsed by men and women at aseries of public meetings and given effect bytribal leaders. When rumors surfaced of an oldman planning to take a child bride (hisfourth), he was confronted and stopped bythe community and reminded that this prac-tice was no longer acceptable. This new atti-tude has held up throughout an areaequivalent to 10 percent of the state. It isnoteworthy that this change was the result ofan organic process that was directed by thecommunity. For this reason it is likely to besustained because it reflects changed rolesand behaviors.27

What has transpired in these cases represents a different way of achieving theMillennium Development Goals. An empow-erment approach sees citizens as the authorsof their own destiny, not passive vessels await-ing government programs, services, or edu-cational campaigns to catch up with them.While financial resources are an importantcomponent of any community developmentplan, the first question addressed by empow-erment approaches is whether the plan can bemobilized from within by using existing assetsdifferently or through partnerships with oth-ers. What is perhaps a greater challenge isthe fact that this approach requires outsideexperts and agencies to relinquish controland agree to an iterative effort that startsmodestly and will take unexpected directionsas well as its own time.

Scaling Up Local SuccessesOne of the greatest challenges for develop-ment organizations is taking a success thatis working locally and translating it to theregional or national level. This principallyinvolves understanding why somethingworked in a particular place and time andthen determining how those lessons can beapplied elsewhere. In some cases, expansiondepends on a quantum leap of investment;in others, it may depend more on removingbarriers to entrepreneurial activity or mak-ing government agencies more transparentand accountable. Numerous approaches toscaling up successful programs exist. (SeeBox 12–4.)28

Each approach has its place. The biologi-cal approach would not be appropriate, ofcourse, to respond to a natural disaster orbuild a transnational highway system. Butthe explosion or campaign approach is notappropriate for community-driven develop-ment. Yet too often such top-down, expert-




driven approaches are the favorite of aid agen-cies and politicians because they deliver tan-gible goods quickly: school buildings,hospitals, large dams, airports, and the like.These are not undesirable per se, but thisapproach is not good at engaging the humanelement. For example, the spread of micro-credit programs in Bangladesh used the blue-print approach for expansion initially but wasforced to adopt the biological approach whenthe limitations of the initial model werereached and it became clear that site-specificsolutions were needed to ensure that the

poor were reached. The Millennium VillageProject of the Earth Institute combines ablueprint approach offering villages choicesfrom a list of over 40 poverty reduction inter-ventions with a campaign approach for thedistribution of commodities like bednets, buthere again it is not clear how much localadaptation, ownership, and integration withlocal institutions will develop.29

Some promising programs to stimulatecommunity-driven development reachingmillions of people are being supported by theWorld Bank using essentially a blueprint




Blueprint approach. A technical solution thathas worked under a set of generally widespreadcircumstances is codified into a plan for replica-tion on a large scale. Attempts are sometimesmade to tailor to local conditions during imple-mentation, but to communities this is essentiallya process that operates down from the top or infrom the outside. Local actors might comment onproposed implementation but not on the basicplan. Examples include many nature preserves,appropriate technology projects, large-scale micro-credit programs, and infrastructure expansion.

Explosion or campaign approach. Thisinvolves a large-scale, concentrated effort tomarshal resources to deliver commodities orservices in response to a generally narrow need.Food, humanitarian aid, and reconstruction assistance after a natural disaster are typicalexamples. Campaigns focused on disease eradi-cation, such as the global smallpox campaign inthe 1970s, are another example. While intensiveand generally effective in achieving results, thismethod is not well suited for systemic change,local variation, or sustainability in terms of localownership. In fact, some of the favorite disease-specific programs of donors are accused ofundermining national health systems, anddonated food aid’s deleterious impact on localagricultural economies has long been known.

Additive approach. Typical “bottom-up” pro-

jects engage in site-specific activity (a communityor cluster of villages) for an extended period oftime, developing local leaders and change fromwithin. Often implemented by NGOs or religiousmission groups, these projects get to know thelocal circumstances and adapt to local conditions.Replication is additive as success spreads villageby village, community by community. Given thatthese are often pioneering initiatives or demon-stration projects, proponents of this approachargue that governments or others with largerbudgets have an obligation to adopt and expandthese projects. Going to scale with this approachis very slow and dependent on outside resources.

Biological approach. Drawing comparisons tothe way species evolve in nature, this approachsupports local experimentation and adaptation(“evolutionary adjustments”) and then sets anenabling environment for rapid expansion. Itcombines the local focus of the additive modelwith the growth potential of the explosion andblueprint approaches, but unlike the latter theimpetus comes from within adapting communi-ties. Government plays an important role inremoving obstacles and facilitating expansion.The potential for exponential growth, healthyrelationships, and balanced and organic growthmake this approach more self-sustaining.


Box 12–4. Common Ways to Scale Up Successful Programs

approach but still managing to support localcollective action and give discretion to com-munities in the selection of projects to fund.They are designed to institutionalize com-munity participation in decisionmaking.Funding is transferred directly into villagebank accounts to be used for the projectsselected by elected local committees follow-ing extensive public dialogue. The programsupports various NGOs to help facilitatecommunity participation and the inclusion ofmarginalized people. Critical to their effec-tiveness are built-in systems to promotetransparency and control corruption. TheKecamatan Development Program (KDP)of Indonesia and the National SolidarityProgram (NSP) of Afghanistan are twoexamples of the Bank’s new approach toscaling up successes.

Between 1998 and 2006 KDP covered34,233 of the poorest villages in Indone-sia—about half the villages in the country. Theprogram is significant for the World Bank,representing almost half its lending portfolioto the country. KDP provides grants in therange of $60,000 to $110,000 to districts foruse in projects chosen by the community.Open public meetings are held at the hamlet,village, and kecamatan (district) levels todetermine priorities; independent facilitatorsensure the participation of women and thedisadvantaged. Projects are carried out byvillages with local labor and materials.30

The KDP promotes transparency by usingthe local media and billboards to publish theamount of funding provided to each com-munity and the details of the contracts. Inaddition, the media are given unhindered

access to information needed to investigateand publicize incidents of corruption. Rig-orous evaluations of KDP have shown that ithas made important contributions to behav-ior change and social norms in project areascompared with control sites, even taking intoconsideration the broader democratic trendsin the country during the period. More peo-ple are participating in local decisionmakingforums, including more women. In East Java,67 percent of survey respondents in KDPvillages say decisionmaking is more democ-ratic now, compared with 46 percent in non-KDP villages.31

The NSP in Afghanistan is implementedthrough a partnership between the govern-ment and NGOs and is the only program tohave reached all 34 provinces, affecting 13million Afghans—two out of every three ruralindividuals. In rural Afghanistan, where noform of local election has taken place indecades and where some traditional leadershave lost credibility because of their role in20 years of civil conflict, the NSP organizeselections for community development coun-cils and the key leadership positions. Women’sparticipation in the elections and as candidatesis supported by program facilitators. Com-munities have used NSP resources to buildcommunity centers, health posts, and schools,to resurface roads, and to construct run-of-the-river hydropower projects. Communitymembers are learning important civic skills,and community cohesion is being rebuilt.32

Innovative blueprint programs such asthese, with the backing of government andWorld Bank resources, are not available to allcommunities. In addition, their focus hasbeen on providing block grants for small-scale infrastructure, which, combined withthe weak coordination within government,has placed limits on community choice.33

A biological approach appears mostpromising for stimulating solutions that




Governments can institute changes in laws, policies, and practices that reshapeinstitutions and remove obstacles to change.

evolve to fit a variety of local possibilitiesrather than being adjusted after the fact.According to Seed-Scale, the process ideallyunfolds simultaneously along three dimen-sions: community, regional, and national.The first dimension is reached when com-munities have mastered how to build upontheir local success. Initial interventions inone area such as community health havestimulated a wider scope of action in otherareas such as food security, environmentalprotection, education, and income genera-tion. Through partnerships with NGOs andgovernment officials, communities gain accessto the knowledge and resources necessary tosustain momentum.

The second dimension is pursued whensuccessful communities share their experi-ences formally and informally with othercommunities in the same region. As the farm-ers in Niger showed, this can happen whenNGOs facilitate farmer-to-farmer site visitsand when farmers meet and share knowl-edge in markets and social settings. Specifi-cally, the idea is to help transform clusters ofcommunities that have already mastered aseries of interventions into formal ActionLearning and Experimentation Centers,where experimentation takes place to adaptthese interventions to each local area. Visi-tors from other communities are welcomedto this group of villages to learn and take partin workshops and formal training. The con-trast between traditional development—where outside experts design thesolution—and truly home-grown approachescould not be stronger.

The third dimension happens at the levelof systemic enabling conditions over whichgovernments most often have the greatestinfluence. They can institute changes in laws,policies, and practices that reshape formal andinformal institutions and remove obstacles tochange, encouraging people and institutions

to respond to new incentives. In Niger, thechange in the forest code that gave farmerssecure rights to the trees on their land had thiseffect. It stimulated investments by farmersthroughout the country and further experi-ments that the forest service could support.Alternatively, structural change can happen atthe local level and be scaled up to other lev-els, as when the women of Arunachal broughtabout the end to child marriage.

Each of these dimensions is an entry pointto the other, and all are necessary to seechange operate on a regional or society-widelevel. Recent developments in Tibet are agood illustration of this. In the early 1980sTibet faced growing environmental pres-sures from population growth, increasingfuelwood consumption, and resource pres-sures from China’s economic expansion.One national policy response was the creationof the Qomolangma National Nature Pre-serve (QNNP), where local people wereencouraged to continue living in the preserveand attention was focused on promotingtheir economic and social development—action that, in the traditional view, wouldhave been seen as antithetical to environ-mental protection. The regional governmentprovided budgets and staffing for the con-servation area—not to police the region butto engage people through education andincentives. Outside partners brought inknowledge and partnered with communi-ties and townships to focus on improvinglivelihoods rather than expecting people onlyto protect nature. A participatory model ofconservation management emerged reflect-ing the Seed-Scale principles.34

Today the duality of development andconservation success can be seen in theQNNP. In the late 1980s the area had onlyone bank; by 2006 there were 10. Initiallynone of the 320 villages had protected watersupplies; now 64 villages have them. The




number of schools has grown from 5 to 38.The population of the area has swelled, partlyfrom immigration due to the growth of sev-eral towns but also because better healthmeans more children are surviving. The con-servation side of the ledger is just as impres-sive. Now 42 percent of the land area isprotected under conservation management.Wild animal population numbers are increas-ing for every species, including the endan-gered snow leopard, the Tibetan antelope, redghoral, and argali sheep. Deforestation rateshave decreased by over 80 percent, and large-scale tree plantations are being started infragile river drainages. The use of environ-mentally friendly solar, geothermal, andhydroelectric generated energy is expandingacross Tibet.35

Overcoming Obstacles When considering Earth’s potential to sustaingrowth, the case is often made that the richand affluent need to reduce their consump-tion of resources in order to make room forincreased consumption by the world’s pooras they climb out of poverty. (See Chapter 4.)This proposition stands on its own merits, butit also suggests international action is a zero-sum proposition. Yet poor countries neednot repeat the mistakes of the rich or emulatetheir overconsumptive lifestyles. Sustainableprogress on global poverty need not rest oneconomic growth and resource consumptionalone. Attacking poverty as it is conceived bythe poor themselves opens up a wider rangeof possibilities for action.

But for globalization to allow these possi-bilities to be pursued, the rules of the gameneed to change at all levels. Needed reformsof the global development architecture oftrade, aid, investment, migration, security,and rich-country environmental policies arewell documented. For example, international

trade rules are not designed to enhanceopportunities for the poorest countries. (SeeChapter 14.) In fact, many rich-country poli-cies do just the opposite. U.S. and EuropeanUnion agricultural barriers and subsidies denymarket opportunities to poor countries. Notonly do such impediments need to beremoved, but Paul Collier, former head ofresearch at the World Bank, argues that themost destitute nations actually require sometrade protection (from Asia) to get theireconomies started.36

International aid, held up as a symbol ofrich-country concern and generosity to theless fortunate, is hardly accountable to thosewho receive it. Many rich countries recycle alarge percentage of their aid back to influen-tial constituencies of NGOs, consulting firms,and universities. Current estimates are that asmuch as 57 percent of U.S. developmentassistance comes back to the United States topay for good and services. This “tying” of aidreduces its value by up to 25 percent andcloses off opportunities to support businessesin poor countries.37

A good deal of donor assistance bypassesgovernments in the name of avoiding cor-ruption and bureaucratic inefficiency, tar-geting beneficiaries, and supporting civilsociety. While these goals and concerns areworthy and often legitimate, it means thatdonors miss the opportunity to build statecapacity to deliver services effectively. In anage when the international community istrying to build democratic states that areaccountable to their people, the persistentchanneling of aid through scattered projectsof myriad donors breaks the link between cit-izen and government. Donors recognize this,and in countries that are reasonably wellgoverned they are attempting to channelmore of their aid into budget support ratherthan stand-alone projects.

If donor nations are to make this invest-




ment, developing countries need to makechanges too. In return for investments ingovernment capacities, there must be strongefforts toward decentralized and open gov-ernance. Deepa Narayan, lead author of theWorld Bank’s Voices of the Poor, highlightsfour priorities: enabling citizen access to pub-lic information, promoting policies of par-ticipation and inclusion, ensuring democraticand client accountability, and enhancing localorganizational capacity. These will help pro-vide the enabling environment.38

These and many other systemic changesare critical for unlocking the potential forhome-grown development. Developmenteconomist Bill Easterly describes it as theneed for more “searchers” and fewer “plan-ners.” Empowerment frameworks such asSeed-Scale argue for a change in mindset

from control held by experts and officials toone of learning and experimentation amongpartners. This is often antithetical to the“results-based” mindset that insists on get-ting things right the first time.39

Yet around the world there are many whowill be left behind because even the basic con-ditions for change are absent. Collier arguesthat the growth engine in many of the moreadvanced developing countries will eventuallypull the poor out of poverty, but it is the weak-est states—many caught in conflict and badgovernance, where growth is not happening—that need attention and support. The “bottombillion” of the world’s poor live in such coun-tries. Perhaps it is here where empowerment-based approaches hold the most promise.Why? Because little more is required to startthan a little capacity to aspire.40





At a United Nations summit on corporateresponsibility in July 2007, Goldman Sachsreleased a report that breathed yet more lifeinto the maturing body of sustainable invest-ing. The venerable investment bank had beennurturing growth in this field over the pastseveral years: in 2004 it released its first sus-tainable investing report, in 2005 it issued acompany-wide environmental policy, and in2006 it invested $1.5 billion in clean energy.At first glance, it may have disappointed sus-tainable investing advocates to see Goldmananalysts saying that it was too early to corre-late sustainability performance directly tofinancial performance.1

Of course, this coy assertion assumed thatsuch a link—considered the Holy Grail bysome advocates of sustainable investing—unquestionably exists. In the meantime, untilempirical evidence could prove a direct con-nection between sustainability and financial

performance, Goldman integrated sustain-ability factors into its traditional financialanalysis. The report found that sustainabilityleaders outperformed the general stock mar-ket by 25 percent over the previous two yearsand outperformed their same-sector peers byalmost 75 percent over the same period.2

Such numbers turn heads. And moreimportant, they draw ever more money intosustainable investing, as it has come to beknown—increasing the amount of capitalpegged to environmental, social, and gover-nance performance. (See Box 13–1 for a def-inition of sustainable investing.) Thesecommitments are increasingly of interest to abroad range of investors—from individualshareholders and businesses engaged in pro-ject finance to venture capitalists and non-profits promoting microfinance. (See Table13–1.) Together, these investors control sig-nificant assets that can steer societies toward

C H A P T E R 1 3

Bill Baue

Investing for Sustainability

Bill Baue writes on socially responsibility investing for SocialFunds.com and on corporate social respon-sibility for CSRwire.com. He co-hosts and co-produces the nationally syndicated Corporate WatchdogRadio show and podcast and teaches at the Marlboro Sustainability MBA program in Vermont.

sustainable development. Indeed, building sustainable economies

will necessarily have investment at its core.Currently, modern industrial economies relyon pillaging the past at the expense of thefuture, burning through solar energy thathas fermented for millennia forming fossilfuels that release eons worth of carbon diox-ide that turns the atmosphere into a veritablepressure cooker. Changing course requiresapplying strong leverage from many differentdirections—especially investment. The sci-entific consensus, for example, is that car-bon dioxide emissions need to be reduced50–80 percent by 2050 in order to avert cat-astrophic climate change—essentially requir-ing a complete overhaul of carbon-intensiveeconomies and lifestyles. (See Chapter 6.)Because investment decisions help shape aneconomy’s infrastructure decades into thefuture, investor engagement is essential inturning economies away from conventionalpaths and toward a sustainable one.3

Luckily, sustainability and investing sharea common horizon: both focus on the future.Sustainability considers how to meet peo-ple’s needs today as well as in the future.




“Investing for sustainability” is an umbrellaterm used in this chapter for all the variousforms of investment that promote sustainabil-ity in one way or another. The term “sustain-able investing” applies to the most prominentsubset of investment practices that promotesustainability: socially responsible investingand mainstream investing that integrates envi-ronmental, social, and governance factors intoinvestment decisions. The lion’s share of pro-ject finance for major infrastructure projectssuch as dams and mines now operatesaccording to the Equator Principles, whichintegrates sustainability factors.

Other investment practices that promotesustainability fall outside the definition of“sustainable investing” as it is currently devel-oping, however. “Green” investing, or supportfor environmentally beneficial companies andprojects, is all the rage in private equity andventure capital, though these investmentsrarely take the full range of sustainability con-siderations into account. And microfinance isgrowing rapidly, but it focuses primarily onsocial factors, with less emphasis on environ-mental sustainability.

Box 13–1. Definition and Scope of Investing for Sustainability

Sector Description Contribution to Sustainability

Socially responsible investment (SRI)

Project finance

Private equity and venture capital

Microfinance

Table 13–1. The World of Sustainability Investments

Values-based investment opportuni-ties, shareowner advocacy, and com-munity investing

Funding for major infrastructure orextractive projects such as dams ormines

Speculative financing for promisinginnovative startups

Very small loans, as little as $50, thathelp small-scale artisans and crafts-people develop markets for their wares

A large share of SRI focuses onenvironmental and social sustainability;some investments, however, focus on valuesunrelated to sustainability

More than 85 percent of project financecapacity globally falls under the EquatorPrinciples, which factor in social and envi-ronmental sustainability

Attention increasingly focused on greenenergy and other green products

Largely focused on income generation andpoverty alleviation

Investing is essentially a form of delayed con-sumption that uses current capital to gener-ate future financial support—particularly afterretiring from active income earning. Tradi-tional investment strategies in current usesupport business practices without regard tosocial or environmental impacts, arguablydefeating the purpose of saving, as they con-tribute to the destruction of the future. Sus-tainable investing necessitates deepconsideration of social and environmentalimplications, always assessing and measuringwhether business practices can sustain socialequity and ecological balance while main-taining profitability.4

Viewed through this lens, sustainabilityand investing can reinforce each other. Ashift in worldview toward sustainability invest-ments is already well under way, but its con-tinued growth cannot be taken for granted.The challenge is to structure investmentoptions so that outcomes promote both sus-tainability and strong returns.

Socially Responsible InvestingSome four decades ago, the foundations ofsustainable investing were established withthe advent of modern socially responsibleinvesting, or SRI, which broke new ground bymarrying social and environmental consider-ations with traditional financial considera-tions. SRI has since grown by encompassingthree elements—shareowner activism, screen-ing, and community investing—all of whichnow inform sustainable investing.

Modern shareowner activism—wherestockholders engage with companies on envi-ronmental, social, and governance issuesthrough direct dialogue, campaigns, andnonbinding shareowner resolutions thatappear on the corporate proxy and go tovote at annual meetings—dates back to thelate 1960s. Since then, shareowner activism

has evolved into a widespread practice, asdescribed in the next section.5

The 1971 launch of the Pax World Bal-anced Fund introduced the second SRI pil-lar—screening out companies in so-called sinsectors, such as weapons, tobacco, alcohol,and so on. Since the late 1990s, some strandsof SRI have been building on this ethical, val-ues-based foundation by adding financialvalue-seeking approaches typified by so-calledpositive screens that give priority to compa-nies with best practices in corporate socialresponsibility. Similarly, “best-in-class” screensreward the best social and environmental per-formers across all sectors—even those typicallyavoided by SRI, such as oil. According tothis strategy, it is best to encourage better sus-tainability practices in all companies. Morerecently, value-enhancing SRI has emerged,arguing that strong environmental, social,and governance management acts as a proxyfor strong business management.6

In 1973, Chicago-based ShoreBank pio-neered community investing, which acceptsbelow-market financial returns in exchangefor social returns by supporting communitydevelopment projects such as low-incomehousing, minority- and women-owned busi-nesses, and microfinance. However, it wasn’tuntil some two decades later that SRI mutualfunds began supporting community invest-ing, when the Calvert Social InvestmentFund integrated the practice into its portfo-lio in 1990.7

SRI has moved from a niche practice to themainstream, with about $1 of every $10invested in the United States using at least oneof the three pillars of social investing, accord-ing to the Social Investment Forum. In 2005,$2.29 trillion (9.4 percent) of the $24.4 tril-lion in total assets under management trackedin Nelson Information’s Directory of Invest-ment Managers was involved in SRI—upfrom $2.16 trillion in 2003.8




Although SRI growth has been rapid overthe past decade, national monitoring bodiesmeasure different attributes of this invest-ment, making growth rates difficult to com-pare. Still, in Australia SRI funds undermanagement grew 36-fold between 2000and 2006. In the United States, they grewmore than threefold between 1995 and 2005.Canadian SRI increased nearly eightfoldbetween 2004 and 2006. And in Europe,these funds went up by some 36 percentbetween 2003 and 2006.9

Globally, SRI assets stand at about $4 tril-lion (see Table 13–2), with U.S. growthplateauing somewhat while funds continue togrow more robustly elsewhere around theworld. To place this in context, however, theglobal management consulting firm McKin-sey & Company estimates global capital mar-kets at $136 trillion and projects this willreach $228 trillion by 2010. So formal SRIrepresents a mere 3 percent or so of globalcapital markets.10

Now SRI is shifting terminology, with someleaders in the field advocating for a semantic—and arguably a structural—change, to “sus-tainable investing.” The move seeks tosimultaneously broaden and narrow the scopeof the practice using this term. It encompasses

SRI or mainstream investments seeking socialand environmental sustainability, but itexcludes values-based investment strategiesthat simply involve ethical considerations (suchas Catholic screens of companies that pro-duce drugs that induce abortion) that tradi-tionally fall under the SRI umbrella but that donot promote progress toward sustainability.

Spearheading this movement is Pax WorldCEO Joe Keefe, who believes that sustain-able investing has the potential to be a trans-formative strategy that revolutionizesinvesting itself—“at a time when marketcapitalism must of necessity undergo a sus-tainability revolution equal in significance tothe industrial revolution that ushered in themodern period.”11

Keefe believes sustainability advances anew conception of wealth, with the potentialto offer a solution to the crisis in capitalismby aligning financial outcomes with environ-mental, social, and governance outcomes—“not with ‘values,’ mind you, but withoutcomes,” he notes. Achieving sustainabil-ity requires companies and markets to shifttheir behavior and necessitates that wealth-creation strategies live up to the term “sus-tainable” by eliminating the byproducts thattoo often flow from market capitalism cur-rently—poverty, injustice, and environmen-tal degradation.12

Adoption of the term “sustainable invest-ing” as defined by Keefe represents a main-streaming for SRI, as it blends the core SRIfocus on sustainability outcomes with themainstream focus on financial outcomes.What is interesting is that the mainstreaminvestment community is converging on thesame destination, but from the other direc-tion—integrating sustainability considera-tions into a traditional focus on financialfactors. It is a measure of SRI’s success thatits methods are now embraced by the verypeople who previously scoffed at it.




Socially Country Responsible Year ofor Region Investments Data

(billion dollars)United States 2,290.0 2005Europe 1,224.0 2005Canada 439.0 2006Australia and

New Zealand 7.0 2005Japan 2.6 2007


Table 13–2. Socially ResponsibleInvestments, by Region, Mid-2000s

Mainstream asset managers, such as Citiand Neuberger Berman, who buy stocks to fillmutual funds and other portfolios, startedpracticing SRI long ago to fill a niche demand.Now mainstream investment banks, whichsell stocks (a much more lucrative businessstream than managing funds) are embracingsustainability, with investment analysts inte-grating environmental, social, and gover-nance factors into their research.

This trend dates back to 2003, when theU.N. Environment Programme’s FinanceInitiative commissioned investment analystreports from mainstream financial institu-tions assessing the “materiality” of sustain-ability issues—in other words, whether theyaffect stock prices significantly enough totrigger a fiduciary responsibility for investorsto take them into account. The result was 11reports by such venerable firms as DeutscheBank, Goldman Sachs, HSBC, and UBS—essentially creating a glut of research on theintersection between financial and sustain-ability issues to fill the dearth that had existeduntil then. The reports also covered a widespectrum of sustainability issues, from cor-porate governance to emissions trading.13

In October 2004 this movement receivedanother boost from the Enhanced AnalyticsInitiative, a global consortium of institutionalinvestors set up by the Universities Superan-nuation Scheme (one of the largest U.K.pension funds), Generation Investment Man-agement (chaired by Al Gore, the first firm tointegrate sustainability analysis directly intofinancial analysis), and others. Members of theinitiative offer 5-percent brokerage commis-

sions to the best research on so-called extra-financial (environmental, social, and gover-nance) factors. The chance to earn real moneymotivated some financial analysts to becomequick studies of environmentalism andhumanitarianism.14

Now it is standard for mainstream analystsfrom such firms as Citi, Lehman Brothers,UBS, Piper Jaffrey, and Merrill Lynch toincorporate sustainability factors into theirresearch. JPMorgan has even established adedicated Web page for its climate change-related research. The Goldman Sachs reportreleased at the July 2007 U.N. corporateresponsibility summit exemplifies the strat-egy of assessing sustainability performancenot in isolation but in conjunction withfinancial metrics.15

Many in the SRI community—includingMichael Kramer, managing partner and direc-tor of social research at Natural InvestmentServices—consider the mainstream embraceof sustainability a mixed blessing. WhileKramer acknowledges that the GoldmanSachs report and others like it are part of thesolution due to their influence over the main-stream corporate community, he laments thatthey advance “such broad interpretations ofsustainability now that it renders the con-cept nearly meaningless.” When a major oilcompany invests modestly in renewableenergy while its business model still hinges onfossil fuels, is this really sustainable?16

Yet modest support by a giant may domore to advance sustainability than a smallrenewable energy company with a deepercommitment to sustainability. In practice, inany case, this is not necessarily an either/orequation, as both dynamics are happeningsimultaneously. In the end, the achievementof true sustainability will require a conver-gence of both bottom-up and top-downtransformations, with investment playing asignificant role in both.




Now it is standard for mainstreamanalysts from such firms as Citi, UBS,and Merrill Lynch to incorporate sustainability factors into their research.

One innovative way of moving towardtruly sustainable investing from the bottomup is called “regenerative investing,” a notionpioneered in 2003 by Michael Kramer. Hecalls the new investment style “regenerative”because it channels financial resources intoprojects that mimic the way nature operateswithin closed-loop systems that recycle mat-ter and energy. Regenerative investing givespriority to far-sighted investments in areassuch as clean energy, sustainable agricultureand forestry, recycling, and green real estatedevelopment. The strategy also looks for localinvestment that supports formal barter net-works and currency systems, small businessincubators, property leasing systems, and landtrusts. At this early stage, regenerative invest-ing strategies carry significant risk and so areonly open to “qualified” investors withenough assets to buffer the risk.17

Shareowner ActivismShareowner activism, a core strategy of SRIand sustainable investing, is as old as share-ownership. The Dutch East India Companywas the first enterprise ever to be listed on astock exchange, in 1602. On January 24,1609, it received history’s first shareownerpetition from Isaac Le Maire, the largestminority investor, who railed against the man-agement as “absurd and impertinent” and“a kind of tyranny,” according to StephenDavis, Jon Lukomnik, and David Pitt-Watsonin The New Capitalists: How Citizen Investorsare Reshaping the Corporate Agenda. Dutchreligious pacifists followed suit, buying sharesin order to protest the company’s “generousapplication of warfare, blockade, piracy, assas-sination, imprisonment, plunder, terror, slav-ery, bribery.” So began civil society’s use ofstock ownership as leverage for advancingsocial justice.18

It took almost three-and-a-half centuries

for social activists to start using shareowner-ship again as a tool for promoting progressivechange. In a 1947 court case, the Securitiesand Exchange Commission (SEC) confirmedthe right of the infamous corporate gover-nance gadflies John and Lewis Gilbert (andall shareowners) to file resolutions with com-panies, which the brothers had been doingsince the 1920s without any legal standing.These rights languished largely unused untilsocial and environmental activists adoptedthem in the late 1960s. Activist shareownersfiled the first social and environmental reso-lutions in 1967 at Eastman Kodak, address-ing racial discrimination against AfricanAmerican employees; in 1969 at Dow,addressing Agent Orange; and in 1971 atGM, addressing apartheid in South Africa.19

The year 1971 also saw the founding of theInterfaith Center on Corporate Responsibil-ity (ICCR), which pioneered the modernpractice of shareowner activism in the UnitedStates—namely, direct engagement with com-panies through dialogue or the filing of res-olutions to advocate for improvements inenvironmental, social, and governance per-formance. Since then, ICCR has grown intoa coalition of 275 faith-based institutionalinvestors and SRI firms with over $110 bil-lion in assets under management, and thepractice it pioneered has brought about sig-nificant corporate change.20

It is difficult to substantiate the degree ofinfluence shareowners have, however, for tworeasons. First, they often work in concertwith other activists, such as nongovernmen-tal organizations (NGOs) and campaigners,as well as other intermediaries, making itimpossible to attribute success solely to share-owner activists. And second, dialogue mostoften occurs outside the public eye.

Statistically speaking, the 2007 proxy sea-son (when annual meetings take place, whereshareowners present resolutions for all




investors in a company to vote on) demon-strated this clearly. According to InstitutionalShareholder Services (ISS), which issues vot-ing recommendations on resolutions forinvestor clients, shareowners filed a recordnumber of proposals: 1,150. And in an indi-cation that companies were making sufficientprogress on issues to satisfy resolution filers,a record number were also withdrawn: morethan 270. In other words, almost a quarter ofall resolution filings prompted acceptableresponses to the shareowners’ concerns. Andthis does not even account for shareowner dia-logues with companies that progress suffi-ciently for shareowners to refrain from filingin the first place.21

The previous proxy season (the mostrecent one with complete results) saw recordlevels of support for shareowner resolutionsaddressing social and environmental issues. Ofthe nearly 180 such resolutions that came toa vote through mid-2006, some 27 percentreceived over 15 percent support from vot-ing shareowners, according to ISS. Thisalmost doubles the percentage of resolutionssurpassing the 15-percent threshold in the2004 and 2005 proxy seasons, and it repre-sents a record high in support since 1973,when this information first began to betracked by ISS’s Social Issues Service.22

Perhaps the best indication of the powerand success of shareowner activism comesfrom companies themselves, many of whichreadily acknowledge the positive thoughchallenging role that shareowners play inpromoting the adoption and promotion ofcorporate sustainability. Indeed, a corporatesustainability executive who wished to remainanonymous has been quietly sending wordout to shareowner activists urging them tofile a resolution asking her company to pro-duce a sustainability report, as this wouldprovide the kind of pressure she cannotmuster internally to get her CEO to approve

such an effort.23

But shareowner activism as traditionallypracticed in the United States is in great peril,as the Securities and Exchange Commissionhas issued two separate rulemaking propos-als addressing shareowners’ access to theproxy to file resolutions. Both float sugges-tions that could seriously curtail shareowners’rights. This is an instance where regulationcould stifle the growth of sustainable invest-ing. In response, the Social Investment Forumand ICCR launched a Web site encouraginginvestors to use the public comment periodto oppose any rules that would shrink share-owner rights. The site generated almost 1,700comments, which contributed to the morethan 22,500 comments submitted, a recordaccording to the SEC—all but a handful ofwhich opposed both SEC proposals curtail-ing investor rights.24

Project Finance and the Equator Principles

Project finance—the funding of major infra-structure projects such as dams, oil wells andpipelines, and mines—is one of the most sig-nificant investment strategies driving a top-down integration of sustainability principles.Because these projects have such high-profileenvironmental and social impacts, they exposecompanies to community and NGO opposi-tion—which has in turn driven corporationsto pay more attention to social and environ-mental management in project finance.

For example, the Rainforest Action Net-work hounded Citi beginning in late 1999over its financing of projects consideredsocially and environmentally destructive, suchas the Three Gorges Dam in China. In Jan-uary 2003, more than 100 NGOs signed theCollevecchio Declaration on Financial Insti-tutions and Sustainability (named after thetown in Italy where it was signed), which




called on banks to make six commitments,including “doing no harm,” sustainability,accountability, and transparency.25

A half-year later, 10 financial institutions(including Citi) from seven countries launchedtheir own series of commitments, the EquatorPrinciples (EPs), a voluntary set of guidelinespromoting social and environmental respon-sibility in project finance, particularly in emerg-ing markets. The initiative exemplified a trendin corporate social responsibility toward vol-untary action to supplant government regu-lation, and it showed great promise.26

NGOs pragmatically gave their stamp ofapproval to the principles while maintaininghealthy skepticism of the degree of substan-tive progress that companies can make out-side binding mandates. For example, sociallyand environmentally destructive projects cando an end-run around the Equator Principlesby seeking funding from more lax financialinstitutions—notoriously, banks in China.(See Box 13–2.) By 2007, NGOs were start-ing to lose patience waiting for companies todeliver on their promises of comprehensive(instead of selective) sustainability. Yet com-panies defend the EPs, claiming they do havereal bite.27

The member banks’ external commit-ment to the Equator Principles on a volun-tary basis makes them mandatory toimplement internally, according to PamelaFlaherty, head of global community affairs atCiti. And when banks incorporate EP guide-lines into contracts with clients, the volun-tary nature disappears altogether, replaced bylegal obligation.28

Ironically, financial institutions claim thatclient confidentiality precludes them fromdisclosing details on compliance to EP socialand environmental covenants, frustratingNGOs who consider this an end-run aroundtransparency and accountability. However,some commentators maintain that NGO

scrutiny of the EPs, coordinated by the Bank-Track consortium in Amsterdam, functions asde facto accountability, given the absence ofenforceable mechanisms.29

The EPs—now with 54 signatory banks,representing over 85 percent of global privateproject finance capacity—were revised in July2006 in conjunction with the updating ofthe social and environmental performancestandards of the International Finance Cor-poration (IFC—the private finance arm ofthe World Bank) that provided the basis of theEPs. NGOs welcomed some of the revisionsas improvements—for example, the lower-ing of thresholds of projects covered from $50million to $10 million. But they lambasted therevised guidelines and the underlying IFCstandards for retaining significant loopholes.30

Take, for example, the issue of the role ofcommunities in approving projects that sig-nificantly affect them. NGOs support theright of affected communities to give or with-hold their free, prior, informed consent, aconcept enshrined in Article Six of the Inter-national Labour Organization’s Convention169 concerning indigenous and tribal peoples’rights. The World Bank infamously shifted thisconcept to free, prior, informed consultationin 2004, and both the IFC and the revisedEquator Principles followed suit. Consentand consult may sound very similar, but thereis a profound difference in meaning betweenthe two words—a difference with significanthuman rights implications.31

The Greening of PrivateEquity,Venture Capital,

and Hedge Funds

The year 2006 will likely be remembered forthe “greening” of the high-stakes upper endof the investment chain—private equity, ven-ture capital, and hedge funds. (See Box 13–3.)




The effective death of climate change denialhelped drive green investment, as the frenzyto find solutions focused on development of“clean” energy—namely, renewable powersources such as solar, wind, and biofuels. Thebonanza extended to clean technology (orcleantech), newly recognized as a distinct

investment category encompassing a broadrange of eco-friendly products and services—from alternative energy generation to waste-water treatment and more resource-efficientindustrial processes.32

Market and regulatory forces are alsoamplifying environmentalists’ concerns over




Although China has huge negative social andenvironmental impacts through exporting, it hasthe opportunity to integrate sustainability into itsburgeoning finance sector. But the task is as bigas everything else about the country, and thebanks are at least a decade behind their counter-parts throughout the rest of the world in thisendeavor. The first steps have been taken, how-ever: in May 2006, Bank of China InternationalInvestment Managers launched the SustainableGrowth Equity Fund, the first SRI fund in thecountry.

Even more significant, Chinese banking regula-tory authorities have issued notices to all banksin the country that their lending activity mustassess borrowers’ compliance with environmen-tal laws. How comprehensively is this mandatebeing followed? The lack of transparency makes it difficult to tell. Only two banks—China Devel-opment Bank and the Export-Import Bank ofChina—have publicly disclosed theirenvironmental financing standards. In addition,the China Construction Bank has issued a corpo-rate social responsibility report.

The Peoples’ Bank of China also recentlydeveloped a new credit database that includesborrowers’ environmental compliance data, allow-ing Chinese banks to evaluate how well compa-nies have followed environmental laws beforeoffering loans. And finally, in February 2007 theShanghai Division of the China Banking RegulatoryCommission floated a guidance draft documenton corporate social responsibility that addressesbanks’ “shareholders, employees, financial con-sumers, communities, and other stakeholders,and social development, and environmental pro-tection,” according to the Xinhua news agency.Such guidance would be a first in China.

“By adopting world-class environmentalfinancing standards, Chinese banks can play animportant role in advancing sustainability on aglobal level,” said Johan Frijns, coordinator ofBankTrack, an NGO consortium. “Otherwise,they threaten to drag down whatever progressthat has been made in developing such standardsfor the international banking sector.”

Unfortunately, market forces push down onthe environmental and social performance ofChina’s banks. The improving sustainability per-formance of the rest of the world’s banks is leaving the socially and environmentally riskierprojects to these newer entrants. China’s banksare “bottom feeding on those things internationalbanks are not touching,” explains Jules Peck,global policy advisor at the World Wide Fund forNature–UK, in Ethical Corporation. For example, aEuropean firm seeking to build a dam in Ecuadorthat is denied funding due to environmental andsocial risks can seek (and often receive) capitalfrom a Chinese bank.

International banks are not exactly innocent,however. “International banks have complainedthat the lack of environmental financingstandards at Chinese peers is putting them at acompetitive disadvantage,” said Michelle Chan-Fishel of Friends of the Earth–US. “But banks likeHSBC, RBS, Citigroup, Goldman Sachs, and Bankof America all own large shares in Chinese banks.They must take responsibility for ensuring thathigh environmental standards, which they allclaim to have, are also adopted by their strategicbusiness partners.”

The issue of international investment supportfor Chinese companies operating irresponsiblyextends beyond China’s banks. The oil companyPetroChina has come under intense fire from

Box 13–2. Importing Sustainability to China

the viability of traditional energy investmentssuch as coal, according to a July 2007 reportfrom Citi. The report downgraded coal stocksfrom “buy” to “hold” recommendations dueprimarily to concerns over impending coalregulations seeking to curb the dirty fuel’scontributions to global warming. “Prophesies

of a new wave of coal-fired generation [in theUnited States] have vaporized,” writes reportauthor John Hill. “We expect anti-coal pol-itics to intensify, with carbon constraintsalmost certain to pinch.” So carbon regula-tion is driving investors toward sustainableinvesting strategies. (See Box 13–4.)33

When it comes to green venture capital andprivate equity investment—namely, largeinvestments to seed startup or early-stagecompanies—the statistical picture thatemerges depends on who is coming up withthe numbers. There is a clear consensus on




human rights activists as its parent, the ChinaNational Petroleum Corporation, providessignificant oil revenues to the Khartoumregime in Sudan that supports the Janjaweedmilitia who are committing genocide, torture,and rape in Darfur. As with Chinese banks,PetroChina holds hefty investments frominternational investors.

Activists with the Save Darfur Coalitionand Sudan Divestment Task Force targetedmutual fund giant Fidelity Investments andWarren Buffett’s Berkshire Hathaway in high-profile campaigns urging them to divest theirPetroChina holdings. In May 2007, Fidelitydivested 91 percent of its U.S. depositaryreceipt holdings in PetroChina. It was unclearat the time, however, whether the companyalso divested its shares on the Hong Kongexchange—if not, it would have divested only38 percent of its overall PetroChina holdings.

Berkshire Hathaway shareowners filed aresolution for vote at the May 2007 annualmeeting calling on the company to divest fromPetroChina. The “Oracle of Omaha” (as Buf-fett is known) contended that using his voiceas an investor to promote change at Petro-China through divestment or moral suasionwas “fruitless” (despite the fact that Berkshireheld the largest stake of PetroChina), andmore than 97 percent of shareowners votedagainst the resolution. However, Buffett laterquietly divested more than a quarter of Berk-shire’s holdings in PetroChina—dumping 445million shares worth over $1 billion betweenJuly and September 2007, according toInvestors Against Genocide.


Box 13–2. continued

Hedge funds—unregulated portfolios openonly to accredited investors that use “sophis-ticated” strategies such as shorting (profitingfrom falling stock prices)—have caught thegreen bug, with the number of hedge funds inthis category proliferating. According to PeterFusaro, founder of Global Change Associates,there are over 600 environmental and energyhedge funds, 50 hedge funds trading emissionsin the United States and Europe, and 13 puregreen hedge funds.

In other words, there are enough greenhedge funds to launch several “funds offunds”—as the name implies, hedge funds thathold a number of hedge funds. The first suchmeta-fund, the Kenmar Global ECO Fund,which seeks to marry ecology with econom-ics, was launched in July 2007.

There is also enough interest in greenhedge funds to get the attention of the world’slargest hedge fund management firm. In Sep-tember 2007, the Man Group announced ithad raised almost $400 million in a climatechange–related hedge fund. The China Meth-ane Recovery fund will set up subsidiaries toextract methane, a potent greenhouse gas,from Chinese coal mines to generate electric-ity and also to trade for carbon credits.


Box 13–3. Hedge Funds MarryEcology with Economics

one count, however: money is pouring intoclean energy and cleantech.

According to a June 2007 U.N. report,global venture capital and private equityinvestment in sustainable energy totaled $8.6billion in 2006, increasing 69 percent over$5.1 billion in 2005, with the number ofdeals increasing by 12 percent. (See Figure13–1.) The three most active sectors were bio-fuels ($2.3 billion), solar ($1.4 billion), andwind ($1.3 billion).34

While these investments primarily addressthe environmental part of the sustainabilityequation, they sometimes attend to socialissues as well. For example, while the major-ity of the money went into increasing man-ufacturing capacity (particularly in wind),some went to develop new technologies—such as 20 percent of biofuel investment,some of which supported research for second-generation biofuels, including cellulosicethanol, that reduce the diversion of cropland




The greening of private equity/venture capitaltook a surreal turn in February 2007. The majorprivate equity firms Kohlberg Kravis Roberts &Co. and Texas Pacific Group had teamed withGoldman Sachs to buy out TXU. The companyhad been under intense fire from environmental-ists for fast-tracking plans (presumably to getthem in place before potential federal carbonlegislation kicked in) to build 11 coal plants thatwould annually dump 78 million tons of carbondioxide into the atmosphere. SRI activists hadfiled three separate shareowner resolutions call-ing the plan into question.

The buyers called in two of the main NGOscampaigning against TXU, Environmental Defenseand the Natural Resources Defense Council,to broker agreeable terms over two weeks ofintense negotiation. “This will not only be thebiggest leveraged buyout ever, it is the only buy-out in history made contingent on the approvalof environmental groups,” said Jim Marston,director of the Energy Program in the TexasOffice of Environmental Defense, who led thecampaign against TXU and lobbied the buyers.

The $45-billion TXU deal, which also includedLehman Brothers, Citi, and Morgan Stanley asequity investors, committed the company todrop applications for 8 of the 11 coal plants,avoiding 56 million tons of annual carbon emis-sions.The plan also committed the company to:• terminate its previous plans to expand coal

operations in other states;• endorse the United States Climate Action Part-

nership platform, including the call for a manda-tory federal cap on carbon emissions;

• reduce the company’s carbon emissions to 1990levels by 2020;

• promote demand-side management programsto reduce energy consumption;

• double the company’s expenditures on energyefficiency measures;

• double the company’s purchases of windpower;

• honor TXU’s agreement to reduce criteria pollutants in Texas by 20 percent (the pledgehad been contingent upon approval of all 11plants); and

• establish a Sustainable Energy Advisory Boardon which Marston of Environmental Defensewill serve.

Making good on its wind pledge,TXUannounced in late July 2007 a partnership between its Luminant subsidiary and ShellWindEnergy to develop the world’s largest windfarm—a 3,000-megawatt wind project in theTexas Panhandle—as well as other renewableenergy projects. In April 2007, however, the WallStreet Journal reported that the company is alsopursuing plans to build the biggest nuclear plantin the United States to make up for the eightcanceled coal plants. Some environmentalistsnow view nuclear power as a climate solution,while others cite continuing concerns about thisenergy source.


Box 13–4.TXU Buyout Is History’s Biggest—and Greenest

from food to fuel.35

Looking through the lens of cleantech,global venture capital investment increased by78 percent in 2006 to $2.9 billion, catapult-ing cleantech into the spotlight as the thirdlargest venture investment category, aheadof telecommunications and medical devices.High demand for global warming solutionssuch as renewable energy is driving a bullmarket for clean technology, according toBob Epstein, co-founder of EnvironmentalEntrepreneurs, who coauthored a study withCleantech Network on the state of venturecapital in cleantech. The report projects thatventure capital investments in this sector willexceed $19 billion by 2010—a more than six-fold increase in just four years.36

Microfinance Goes Global

Thirty years after Muhammad Yunus lent 43women from the village of Jobra, Bangladesh,the capital they needed to start small busi-nesses that banks would not lend them—a

mere $27, from his ownpocket—he won theNobel Peace Prize forpioneering microfi-nance. Yunus, a Chit-tagong Universityeconomics professorwhen he helped thosewomen, recognized hissmall loan and thefinance institution it ledto as both a marketopportunity to servethe unserved and anopportunity to alleviatepoverty, promote socialjustice, and foster com-munity. The NobelCommittee made anunprecedented move in

linking finance to peace, validating anunder-lying rationale of sustainability investments.37

“The one message that we are trying topromote all the time, is that poverty in theworld is an artificial creation,” ProfessorYunus told the Nobel Committee upon learn-ing he had won the Prize. “It doesn’t belongto human civilization, and we can changethat, we can make people come out of povertyand have the real state of affairs.…The onlything we have to do is to redesign our insti-tutions and policies, and there will be nopeople who will be suffering from poverty. SoI would hope that this award will make thismessage heard many times, and in a kind offorceful way, so that people start believing thatwe can create a poverty-free world.”38

Microfinance broke ground on a numberof levels—by empowering women in a patri-archal society, by creating communityaccountability through lending groups that“collateralized” loans, and by lending suchtiny sums. To underwrite the increased tech-nical support necessitated by microfinance




2001 2002 2003 2004 2005 2006

Billi

on D

olla

rs

Source: SEFI/New Energy Finance

Figure 13–1. Venture Capital and PrivateEquity Investment, 2000–06

0

2

4

6

8

10

while keeping loans as affordable as possi-ble, Grameen Bank (the microfinance insti-tution Yunus founded) split the differencebetween the lower interest rates of standardcommercial loans and the exorbitant rates oflocal loan sharks.

The success of microfinance opened it upto greater scrutiny and criticism, such as a2001 Wall Street Journal article questioningclaims of 95-percent repayment rates. Abra-ham George of the George Foundation hostsa Web site critical of microfinance, maintain-ing that it does not reach the poorest of thepoor since it primarily focuses on those alreadyrunning businesses.39

Nimal Fernando, lead rural finance spe-cialist for the Asian Development Bank,divided attitudes toward microfinance reach-ing the poorest of the poor into three camps.The first camp simply rejects the notion thatmicrofinance can reach this group on a sus-tainable basis. The second camp optimisticallyadvocates that such individuals can bereached not only on a sustainable basis butalso on a large scale. The third camp recog-nizes that the potential for reaching thisgroup on a sustainable, large-scale basis is lim-ited but also advocates for the continuedsearch for innovative approaches to expandoutreach to the poorest.40

Fonkoze, the largest microfinance institu-tion in Haiti, has aspired toward the secondsolution since recognizing that standardmicrofinance does not suffice for many of itsclients who fall into the poorest of the poorcategory. It convened a summit on the issuein 2004, including representatives of theBangladesh Rural Advancement Committee

(BRAC). The summit resulted in Fonkozeadopting the BRAC model for providingmicrofinance to the extreme poor—theBRAC-Bangladesh program for the Ultra-Poor—by coupling close case supervision withfive basic sets of services: enterprise develop-ment training, social development, healthcare, short-term living allowances, and thetransfer of assets needed to start businesses.41

The success of microfinance has alsoattracted the richest of the rich. The monthbefore Yunus won the Nobel Prize, Citi andTIAA-CREF (an academic pension giant)each committed $100 million to microfi-nance. Some people question whether thiscorrupts the microfinance field, while othersheralded the infusion of big money. However,the flood of mainstream investment in micro-finance has created a bottleneck straining thecapacity of existing microfinance institutionsto process the flows.42

It also raises the question of whether hav-ing industrial countries sink money intomicrofinance actually acts to siphon moneyfrom developing economies, as the interestultimately ends up in the hands of the already-haves. Is this an acceptable price of makingcapital available to the poor? Or does it sim-ply create a poverty trap in a world of finiteresources and hence finite economics? Micro-finance operates on the same principle as theexisting capitalist economic structure of profitand debt. Can wealth disparity be solvedusing the very system that many would arguehas created huge wealth disparity?

From a more practical perspective, micro-finance seems a better alternative than the cur-rent options of entrenched poverty—at leastit is a step in the right direction, and thehope is that it can help transform the econ-omy into a more humane system.

Supporting microfinance has even openedup to everyday people. The Web site Kiva.orguses the Internet to connect individual lenders




To what degree does sustainable investing actually contribute to theachievement of true sustainability?

who invest modest sums directly with bor-rowers, who can receive loans from a numberof different lenders. While the loan may becybernetic, its disbursement still requiresinfrastructure in the form of local microfi-nance institutions around the world.43

Finally, the social and environmental tenetsof sustainability are starting to converge onmicrofinance, as evidenced by the success ofGreen Microfinance, whose mission is to pro-mote environmentally sustainable microen-terprise and microfinance. In March 2007, forexample, Green Microfinance partnered withFonkoze to study the feasibility of launchinga solar energy initiative with Fonkoze clients.The greening of microfinance “represents acompetitive advantage at the heart of socialenterprise,” according to David Satterth-waite, CEO of Prisma MicroFinance and edi-tor of MicroCapital.org, a leading Web site onthe subject.44

Current Obstacles toInvesting in Sustainability

The astonishing maturation of sustainabilityinvestments in recent years raises a number ofkey questions. First, to what degree does sus-tainable investing actually contribute to theachievement of true sustainability? Take theexamples of carbon offsetting and biofuels,which on first blush seem like positive invest-ments for sustainability but which have led tosignificant debate over whether they actuallyundermine sustainable development.

Companies and individuals flocked to car-bon offsetting, which allocates investment inrenewable energy projects or tree planting inproportion to carbon emissions calculations.(See Chapter 7.) Supporters acknowledgethe importance of radically reducing emis-sions first and only then injecting capital intocarbon-offsetting projects that would nototherwise receive such infusions—a concept

known as additionality. Critics liken offsets tomedieval “indulgences,” whereby consumerpayments assuage people’s guilt, therebyreducing their incentive to actually shift fromcarbon-generating habits. Instead of focusingon additionality, the focus should be on “sub-tractionality”—in other words, deducting car-bon emission from personal, organizational,and broader economic equations.45

The biofuel debate injects social consid-erations into the mix. Biofuel supporterspoint to the carbon neutrality of the process—renewable biomass absorbs carbon duringgrowth that is then emitted during burning.Opponents point out that the atmospheredoes not care where the carbon comes from:a ton of carbon emitted from biofuel warmsthe planet just as much as a ton of carbonemitted from petroleum. Furthermore, divert-ing land from food to fuel crops will raise foodprices and exacerbate world hunger, oppo-nents argue. Debates such as these push anyinvestments in sustainability to adopt sufficientdegrees of sophistication to increase the like-lihood of bringing about positive progressinstead of fueling regression.46

A second key question is raised by theupward trajectory of sustainable investing:What obstacles stand in the way of maxi-mizing the momentum? Unfortunately, sig-nificant structural impediments stand in theway. For example, in December 2005 U.K.Chancellor of the Exchequer Gordon Brownsuddenly and unexpectedly killed the Oper-ating and Financial Review, a March 2005regulation requiring companies to discloseenvironmental, social, and governance infor-mation. Brown inexplicably cited “gold-plat-ing” (blindly adopting European Unionregulations), confounding members of theU.K. Department of Trade and Industry whohad worked for years developing the regula-tion in-country through transparent consul-tation with business and the public.47




In the United States, the Corporate Sun-shine Working Group (consisting of socialinvestors, environmental organizations,unions, and public interest groups) has since1998 been urging the SEC to enforce regu-lations requiring companies to disclose dataon potentially material financial impacts fromenvironmental and social risks, such as theestimated $10-billion liability Chevron facesif it loses a lawsuit in Ecuadorian courts overits subsidiary Texaco’s dumping of toxicwastes into the Amazonian rainforest overtwo decades. The SEC’s response: silence.48

Fed up, a coalition of state treasurers, pen-sion funds, institutional investors, and envi-ronmental organizations confronted the SECin September 2007 by filing a petitiondemanding that companies be required todisclose the financial risks associated with cli-mate change. The coalition cited the scientificconsensus and extensive business commu-nity action recognizing that the risks andopportunities associated with climate changeare material to investment decisions and mustbe disclosed under existing law. They alsonoted that Exxon-Mobil, one of the mostprofitable and largest companies in the worldoperating in a sector intimately connectedto climate change, mentioned the phenom-enon only once in its 2006 filings.49

This petition followed closely on the heelsof New York State Attorney General AndrewCuomo’s issuance of subpoenas to five energycompanies to question whether they withheldinformation on the financial risks associatedwith plans to build coal-fired power plants.In short, investors, activists, and govern-

ment watchdogs alike served notice to theSEC and the business community that dis-closure of environmental and social risks wasnot optional but mandatory, as markets thriveonly in the presence of complete and accu-rate information.50

Such regulatory and corporate hostility tomere disclosure on sustainability makes it dif-ficult to maintain optimism that regulationwill help foster sustainable investing. Thoseinterested in this new approach to invest-ment long ago abandoned hope that regula-tion would be a primary driver of progress,and instead have created their own mecha-nisms for fostering corporate disclosure ofsustainability information—trusting that trans-parency will inspire companies to improvesustainability performance.

In late 2006, the Global Reporting Ini-tiative (GRI) released G3, its third generationof sustainability reporting guidelines, whichare evolving by default into the generallyaccepted accounting principles for disclos-ing environmental, social, and governanceinformation. (See Chapter 2.) Currently,almost 2,500 of the nearly 15,000 sustain-ability reports logged on CorporateRegis-ter.com comply with GRI guidelines, whichwere conceived in 1997 by Ceres, a coalitionof environmental organizations and activistinvestors, and drafted with significant inputfrom social investors.51

Similarly, more than 300 institutionalinvestors representing over $41 trillion—almost a third of McKinsey’s estimated $136trillion in total global capital markets—havesigned onto the fifth iteration of the CarbonDisclosure Project, which asks 2,400 of theworld’s largest companies to voluntarily reporttheir carbon emissions and managementprocesses. A majority of firms now recognizethe financial and reputational benefits ofimproving their carbon performance—inother words, lowering their carbon emis-




Investors, activists, and government watchdogs alike served notice to the SECthat disclosure of environmental and socialrisks was not optional but mandatory.

sions. Four fifths of respondents recognizethat climate change poses commercial risks oropportunities, and just over three quartersreported implementing greenhouse gas emis-sions reduction initiatives—compared with48 percent in 2006.52

Of course, actual performance in reducingcarbon emission trumps the importance ofdisclosure, both in sustainability and in finan-cial terms. According to Innovest CEOMatthew Kiernan, leaders in carbon disclo-sure outperform their same-sector peersfinancially, but leaders in actual carbon emis-sions reductions perform even better. How-ever, it is safe to say that the CarbonDisclosure Project plays a significant role indriving both disclosure and emissions reduc-tions—and, presumably, corporate financialperformance and hence the performance ofsustainability investments.53

Complementing the Global Reporting Ini-tiative and the Carbon Disclosure Project arethe Principles for Responsible Investment

sponsored by the United Nations. Launchedin April 2006, some 20 mainstream institu-tional investors managing $2 trillion in assetsannounced their commitment to address envi-ronmental, social, and governance factors intheir investment decisions. By April 2007,membership grew ninefold, to 183 signato-ries, and the assets under managementquadrupled to $8 trillion.54

These initiatives demonstrate the signifi-cant muscle behind sustainable investing,marching forward in spite of regulatory road-blocks. The sea change in momentumswelling behind this over the past few yearsgives rise to optimism that the world isapproaching a tipping point whereby allinvesting addresses sustainability factors, as amatter of course. However, the challenge ofactually achieving sustainability—of gettingthe economy to respect ecological limits andhuman rights—remains well beyond the hori-zon. Time alone will tell how much sustain-able investing contributes to saving the future.





At an international conference in Paris inJuly 2007, former Mexican trade ministerLuis Ernesto Derbez remarked that the envi-ronment would determine the future of themultilateral trading system. This was a sur-prising assertion from someone once knownas a mainstream supporter of free trade andthe international system of rules that governit. One interpretation of his remark is thathumanity is facing a series of grave chal-lenges—including climate change, loss ofbiological diversity, threats to water sources—that go well beyond the partisan interests ofindividual states. Addressing these challengeswill call on all the institutional ingenuity thatsociety can muster and will require harness-ing these institutions to the broader task thatthese challenges represent. This includes theinstitutions of international trade—just when,more than ever, they are under scrutiny andattack from many quarters.1

This chapter will explore how in the last

decade the debate on trade and the tradingsystem has moved from a narrow focus ontrade policy and mechanisms to a broaderfocus on how the system might best con-tribute to the search for sustainable develop-ment. It focuses on the governance of tradeand explores what might be done to this gov-ernance to bring about the shift that theMexican minister suggested is needed.

International Trade:Help or Hindrance?

Ever since David Ricardo explained the Lawof Comparative Advantage in 1817, it hasbeen an article of faith that internationaltrade is a good thing. Trade contributes toprosperity not only by rewarding the suc-cessful trader but by expanding the size of theoverall economic pie so that, with good gov-ernance, there should be adequate slices foreveryone. (See Box 14–1.) Trade contributes

C H A P T E R 1 4

Mark Halle

New Approaches to Trade Governance

Mark Halle is Director, Trade and Investment, at the Geneva Office of the International Institute forSustainable Development.

to peace by building both mutual depen-dence and a better understanding of the trad-ing partner’s character, culture, andmotivations. Conflict among partners thatshare commercial interests would disrupttrade and hurt their shared economic inter-ests, so they also share a strong incentive tokeep the peace.2

Before looking at some of the small printthat suggests a more sober view of trade lib-eralization and its track record, it is appro-priate to acknowledge how much of tradetheory actually translates into real benefitsin practice. International trade has expandedmassively since World War II and hasaccounted for a significant share of the eco-nomic expansion that the world has experi-enced. The gradual lowering of trade barriersin the second half of the last century accel-erated both economic growth and the pro-portion of that growth attributable to trade.

With the expansion of trade, pressure grewto enshrine the rules that would facilitateopen trade and prevent backsliding into pro-

tectionism. In a very real sense, it can beargued that the codification of trade rulesand the creation of institutions to governinternational trade were a response to tradeexpansion, not the cause of it. The rules andinstitutions were put in place to ensure thatthe trading system is as free of conflict aspossible. As the perception grows that grossinequalities—or collateral damage to otherareas of public policy, such as the environ-ment—can also lead to conflict, the multi-lateral system is under increasing pressure toaddress these through the codification ofpractice and the creation of new ways to pre-vent such conflict.

Much of the trade expansion since WorldWar II can be attributed to successive roundsof multilateral trade negotiations in the Gen-eral Agreement on Tariffs and Trade (GATT)and its successor, the World Trade Organi-zation (WTO). These trade negotiations havegradually, round after round, reduced and“locked in” successively lower tariffs and quo-tas, making them today a small fraction of




Governance can be understood as the mechan-isms used to ensure that a system or regimeadvances smoothly and effectively toward thegoal it has set for itself and can deal efficientlyand justly with the issues that arise along theway. The basic characteristics of good govern-ance include:

• Transparency: People affected by decisions havetimely access to accurate and up-to-date infor-mation on the issue, as well as information onthe positions and proposals of the different parties.

• Participation: The right to take part in thedebate or decisionmaking process links to theextent a stakeholder has interests at play orwill be affected by the decisions.

• Accountability: Decisionmakers and the regime

itself are answerable for their actions, decisions,and compromises in terms of the stated goalsand objectives as well as any statements anddeclarations they make about their actions anddecisions. Accountability includes access to jus-tice for those with a legitimate grievance. In thecase of the trading system, accountability seeksan accommodation with the claims of justicemade by those who believe the trading systemshould support sustainable development.

Where the vision for society is well articu-lated in goals, objectives, and priorities and isbroadly known and supported, the exercise ofgood governance is comparatively easier.Wherethe goals and objectives are vague, good gover-nance can be near impossible.


Box 14–1. Good Governance

what they once were. Further, true to tradetheory, a good deal of the growth in tradestems from unilateral decisions by countriesto eliminate obstacles without seeking con-cessions from their trade partners in return orfrom the disappearance of trade barriersthrough regional integration arrangements.3

Trade’s contribution to peace is also welldocumented. Violent conflict is significantlyless frequent between countries that enjoyrobust trade and operate open economies. Inregion after region around the world, theremoval of trade barriers has been matched bythe evaporation of armed conflict.4

So why does every successive step in tradeliberalization appear to be a long, agonizingprocess in which microscopic advances are fol-lowed by long periods of deadlock, wherehopes are continually dashed as endless lastchances are missed? Why is it that, after sixyears of negotiation, the current Doha Roundof WTO negotiations is stalled, with anincreasingly large proportion of experts andobservers wondering if it can be revived andconcluded at all in the next few years? Whydoes the WTO—an institution built on theunimpeachable principles of non-discrimina-tion, transparency of the conditions applyingto trade, and peaceful settlement of disputes—face so much hostility?

The remainder of this chapter exploresthis basic paradox: Why does such a benefi-cial thing as trade excite such disapproval?

The Goals of the MultilateralTrading System

Ask a WTO delegate what the goal of tradeliberalization is and the likely answer willhave a good deal to do with stimulating eco-nomic growth. If trade stimulates growth,then liberalizing trade increases the volume oftrade and therefore stimulates more growththan would occur otherwise. Economic

growth, however—like trade liberalization—is a means to an end and not an end in itself.(See Chapter 1.) What goal, then, is the traderegime dedicated to reach, against which itmust inevitably be judged?

At its origins in 1947, GATT had a highlyutilitarian purpose, based on the need to raisestandards of living and to ensure full employ-ment by “developing the full use of theresources of the world” and expanding trade.The WTO, established on 1 January 1995, isan altogether different animal. Its agreementsfocus less on what happens to manufacturedgoods at the border than on the trade impactsof domestic policy. Further, the key agree-ments that make up the WTO package—including a revamped GATT—are part of a“single undertaking.” GATT member coun-tries that became the initial WTO membersand the countries that joined the organizationsince then are all bound by these rules (withminor exceptions). Countries are either inor out of the multilateral regime, and it isincreasingly impossible to remain out of it.Being part of the system requires acceptingthe decisions of the WTO’s dispute settlementsystem, which are not only binding butenforceable in the most extreme cases througheconomic sanctions.5

No doubt thanks to the high politicalprofile of the environment at the 1992 EarthSummit in Rio, the Marrakesh Agreementsthat established the WTO articulated anambitious and both socially and environ-mentally responsible goal for the trading sys-tem. The governments who signed on agreedin the Preamble “that their relations in thefield of trade and economic endeavour shouldbe conducted with a view to raising stan-dards of living, ensuring full employmentand a large and steadily growing volume ofreal income and effective demand, andexpanding the production of and trade ingoods and services, while allowing for the




optimal use of the world’s resources in accor-dance with the objective of sustainable devel-opment, seeking both to protect and preservethe environment and to enhance the meansfor doing so.”6

They further recognized the particularneed for a trading system that boosts thedevelopment efforts of the poorer countriesby noting “that there is need for positiveefforts designed to ensure that developingcountries, and especially the least developedamong them, secure a share in the growth ininternational trade commensurate with theneeds of their economic development.”7

So the goal of the multilateral, rules-basedtrading system managed by the WTO is toharness trade to the task of achieving sus-tainable development, ensuring that tradeopenness provides a boost to development inthe less-advanced countries, and recogniz-ing the distinct needs of countries at differ-ent stages of development.

Unfortunately, while the trade disciplinescontained in the WTO texts are binding,enforceable, and set out in precise language,the legal status of the Preamble agreed to inMarrakesh was at first unclear. One leadingnegotiator of the agreement has remarkedthat the Preamble was used to “park”notions held to be important by one gov-ernment or a group of countries but aroundwhich no consensus could be built. Mosttrade lawyers would argue that the Pream-ble sets tone and context and has exhorta-tory value but is unenforceable. This view isnot shared by the WTO’s own dispute set-tlement system, however. The AppellateBody, for one, has made clear in a few land-mark cases that the Preamble is to beregarded as part and parcel of the legalagreements that bind members.8

It is important to note here that the envi-ronmental community has been among thosemost suspicious of the multilateral trading

system and has often been in the front linesof protests against the North American FreeTrade Agreement (NAFTA), the WTO, theFree Trade Area of the Americas, and others.There are several reasons for this.

Extension of free trade reinforces the rel-ative strength of the corporate sector andespecially the multinational corporations.This leads to the perception that the tradingsystem is an ally of the corporate sector,which the environmental community con-tinues to distrust.

The trade rules embodied in the WTOappear stronger—and the compliance mech-anisms much stronger—than the equivalentenvironmental rules, whether at the nationalor international level. When there is overlapand contradiction between the two sets ofrules, it is not unreasonable to expect that thetrade rules will prevail, especially given thateconomic policy generally has stronger polit-ical support than environmental policy does.

Attempts to extend trade policy to coverservices (such as water supply, forestry, pro-tected area management, and so on) smack ofan attempt to privatize what the environ-mental community regards as public goods.As WTO rules on nondiscrimination appearto question domestic policy decisions such asthe setting of environmental standards or theadoption of environmental labels, they appearto threaten hard-won environmental progressand to question the ability of the state to actin accordance with the public good.

Finally, early trade dispute cases decided byGATT appeared to attack the ability of statesto harness the power of the market to advanceenvironmental goals. One famous case sug-gested that the trade rules did not allow theUnited States to distinguish between tunacaught with massive associated dolphin deathsand “dolphin-safe” tuna, because the twowere “like” products under the trade rules andno discrimination between them was allowed.9




Foundations of the WTOGovernance Crisis

Governance crises can arise when the gapbetween what is declared and what is deliv-ered grows too big. This is the case with theWTO if the text of the Preamble is taken torepresent a legitimate articulation of the orga-nization’s overriding goal. The results of theUruguay Round of trade negotiations, whichran from 1986 to 1994 and led to the estab-lishment of the WTO, were sold hard todeveloping countries. While it was recog-nized that some countries would benefit morethan others, the promoters insisted that allcountries would be winners. And in recog-nition of the adaptation challenges they mightface, developing countries were given addi-tional time to implement the new agree-ments. That, it was felt, should be enough.No one accurately assessed the difficultiesdeveloping countries would face.10

It soon became evident that not only weremany countries having a hard time adaptingto the new requirements, some clearly feltthey were losing out. It began to emergethat although trade openness could bringbenefits, it tended to do so only where cer-tain basic conditions—institutions, capacity,an efficient customs service, an independentjudiciary, a solid banking system, and so on—were in place. Developing countries receivedscant sympathy when they sought to useWTO mechanisms to obtain help in theseareas. The gap between rhetoric and realitywas proving hard to bridge.

Despite this, many major trading powersfelt they were on a roll and should push fur-ther. Less than two years after the WTOopened for business, the Singapore ministe-rial meeting in December 1996 adopted anew agreement on information technologyand agreed to “study” four new topics—investment, competition policy, trade facili-

tation, and transparency in government pro-curement—with a view to including them ina later round of negotiations. An attempt tolaunch that new round collapsed in Seattle inlate 1999, but two years later and with noneof the developing-country concerns addressedadequately, WTO members agreed in Doha,Qatar, in November 2001 to launch a com-prehensive new round of trade negotiations.11

Most developing countries went along inlarge part because the new round was pre-sented as a “Development Round,” with thegoal of delivering a result genuinely positivefor poorer countries and correcting someproblems inherited from the Uruguay Round.By implication, at least, this suggested recog-nition of the fact that the promise of theUruguay Round had proved hollow for manycountries. As WTO Director-General PascalLamy told the U.N. Economic and SocialCouncil in July 2007: “Trade opening andrule-making are indeed major goals of theWTO. But today a number of the currentsubstantive rules of the WTO do perpetuatesome bias against developing countries.” Hecited the rules on subsidies in agriculture,for example, which tend to favor industrialcountries, along with high tariffs that manyof those countries apply to agricultural andindustrial imports, in particular from devel-oping nations. “A fundamental aspect of theDoha Development Agenda,” Lamy noted,“is therefore to redress the remaining imbal-ances in the multilateral trading system andto provide developing countries withimproved market opportunities.”12

More than six years after it was launched,the Doha Round has come to a standstill, andprospects for an early conclusion appear dim.While few participants question either therobust foundation of trade theory or the ben-efits of open, rules-based trade, several prob-lems are increasingly evident.

Trade openness does not, on its own, bring




the benefits that trade theory suggests, asthey depend on the right conditions being inplace. The trading powers have until recentlyshowed little interest in helping poor coun-tries achieve these conditions.

Concerns for equity, environment, anddevelopment are largely incompatible with thehard-ball, mercantilist approach to tradenegotiations and the culture that thisapproach consolidates.

Since trade policy and the trade rulesshifted their principal focus from border mea-sures to domestic policy and expanded theirreach beyond trade in goods, the relationshipbetween trade policy and public policy inter-ests in these areas can no longer be ignored.

Developing countries are increasingly awareof their power and authority and will no longeraccept promises of future benefits. They wanttangible results, if not down payments in theform of up-front concessions from richer trad-ing powers as a proof of good faith.

So where does this leave the WTO? Andis the present impasse a governance crisis? Interms of transparency and access to informa-tion—two of the basic criteria of good gov-ernance—the WTO rates well, at least as faras its members are concerned. The creationof the WTO led to a massive increase in pub-lic interest in the trading system, and both for-mal and informal access to accurate,up-to-date information on virtually everyaspect of the system’s operations is now avail-able to anyone who wishes to receive it.

Participation presents greater challenges.There is widespread agreement that the mas-sive expansion not only of the WTO mem-bership (over 150 countries, twice the size ofGATT when the Uruguay Round waslaunched) but of the number and complex-ity of the agreements and negotiations haspresented poorer countries—especially thesmaller ones—with considerable difficulties.In the normal course of events, some 25 for-

mal meetings take place each week at WTOheadquarters. But as many as 19 developingcountries, for financial reasons, have no rep-resentation in Geneva at all; others have justone or two staff covering all U.N.-relatedevents in Geneva.13

This is especially difficult for negotiations,since the interests of developing countriesdo not divide easily along North-South orregional lines or even according to any par-ticular pattern of interests. And yet it is impos-sible to envisage delicate negotiation ofbinding and enforceable economic agree-ments with 150 players in the room. Someform of representational presence must beused, but it is far from clear how that mightbe organized. The Doha Round has seenconsiderable experimentation with interestgroupings, with some positive impacts ontransparency and inclusiveness but so far with-out appearing to find the magic solution. Tosome extent, then, the crisis of the WTO isrelated to the governance challenge of ensur-ing adequate participation of stakeholders.

This is particularly true beyond the WTO’sprimary constituency in the trade policy com-munity—in the wider group of stakeholdersin civil society, among consumers and othergroups whose interests are centrally affectedby the shape and nature of the trading sys-tem. While some civil society organizationsare having a clear impact on the policydebate, the level of participation and themechanism to make constructive participa-tion possible are far less than optimal forwell-governed trade policy.




There is widespread agreement that the massive expansion of the number and complexity of the agreements andnegotiations has presented poorercountries with considerable difficulties.

The real challenge, however, relates tothe third pillar of good governance: account-ability. At one level, of course, the WTOboasts of its fine record with accountability.It is very much a member-driven organiza-tion, and each member is accountable tolegislative bodies back home. The crisisrelates to the WTO’s track record in advanc-ing the goals that the founders establishedfor the system, as set out in the Preamble.There is a very real sense in the WTO com-munity—not to mention the wider tradepolicy community—that the formal struc-tures available do not guarantee account-ability in terms of the objectives set for thesystem. And it is precisely this failure that hasled governments and interested observersto question how the WTO works and howcommitted its most powerful members areto finding solutions compatible with theoverall goal. Indeed, the WTO has no mech-anism to assess fidelity to and progresstoward its stated goal. (Although the WTOCommittees on Environment and Develop-ment were invited to monitor the impact ofDoha Round proposals on sustainable devel-opment, they have not done so.)14

An interesting and important exceptionis the Appellate Body, the WTO’s highest“court,” which rules on appeals against thefindings of Dispute Settlement Panels. Asnoted earlier, it has invoked the WTO Pre-amble as evidence that the founders intendedthe system to support sustainable develop-ment, even if the commitment is cast inimprecise terms. It is clear that the AppellateBody has adopted a central position in rulingon the character, purpose, and direction of thesystem. Beyond that, however, there is littlesign that WTO members collectively feel anyobligation to correct past decisions that havedamaged the prospects for development orthe environment.15

Civil society has also played an important

role in insisting that the WTO be held toaccount for the impact of its rules and deci-sions on wider public policy objectives.Although civil society has been notable forcriticizing the WTO for its shortcomings andin part for opposing any progress toward fur-ther trade liberalization, it is clear that the netimpact of civil society input has been to placethe multilateral trading system squarely infront of its responsibility to deliver resultsthat support sustainable development.16

The Challenge of RespectingWTO Goals

How might the governance challenge best beaddressed? It is by now a platitude to decrythe negotiated tradeoffs that characterize theWTO culture. It is a culture that saturates theorganization, that pervades its operations,and that has done a great deal of damage tothe cause of open trade. At its root, the notionis defensible. Whereas lowering trade barriersis by and large favorable over the medium andlong term and for most players, there is oftena price to be paid by some countries in theshort term. This often involves selling par-ticular economic interests short in favor of asolution that is overall better for others (suchas consumers) in the short term and for all ormost in the longer term. Lowering subsidiesfor French farmers may cause them adjust-ment problems, for instance, but it may alsolower food prices for the consumer or boostthe French service industry. Yet the immedi-ate interests are often politically influential, sothe tradeoffs that go on at the WTO serve asa political currency whereby trading partnersmake concessions in order to provide thepolitical justification for the penalty imposedon the interests that lose out.

If negotiating tradeoffs is an effective wayof convincing countries to make politicallyunpopular but economically necessary con-




cessions, it is not generally a good way toserve wider goals such as equity, poverty alle-viation, or environmental responsibility. In anycommercial negotiation, commercial powerconfers negotiating advantage, so the pow-erful trading countries and blocs have greaternegotiating power. This suggests that they willalways—or almost always—prevail in a stand-off with weaker parties. Further, in any nego-tiation involving commercial tradeoffs, theresult may be more open trade, a larger eco-nomic pie, and a greater range of opportu-nities for traders; it will not automatically doanything to correct the inequities built intothe trading system. If both sides make equalconcessions, their relative position on thetrading totem pole will remain the same. If theEuropean Union is negotiating with thecountries of the Southern Africa CustomsUnion, a successful outcome is unlikely toinclude a shift in the balance of commercialadvantage in favor of the latter.

A second reason that wider goals areignored relates to how trade policy is devel-oped at the national level. Interest in main-taining a particular tariff or subsidy will beconcentrated in a relatively small group ofplayers (truckers, for instance, or dairy farm-ers) who will usually be well organized todefend an interest they deem crucial to theircommercial success. An equally valid inter-est—for example, closing the gap betweenrich and poor countries, protecting the envi-ronment, or even lowering prices for the con-sumer—is likely to be far more dispersed andless well organized, at least in terms of affect-ing trade policy. Thus when national traderepresentatives set their negotiating prioritiesand parameters, the weight of immediatecommercial interests will always trump lessimmediate or well organized concerns. Soeven if rapid, trade-led economic developmentin Central America is an essential compo-nent of any sensible strategy to limit immi-

gration pressure in the United States, forinstance, and even if that development mightbest be served by giving Central Americaunfettered access to U.S. markets for theirgoods and services, in reality the partisaninterests of U.S. textile workers and fruit pro-ducers will tend to prevail.

Finding the right balance among com-peting interests in formulating trade policyand negotiating positions is hard enoughwithin the confines of trade concerns alone.But ensuring that trade and sustainable devel-opment are mutually supportive is consider-ably more difficult, since it involves thetraditionally complex question of policycoherence. It is an inescapable fact that pub-lic policy is a hierarchy. Macroeconomic pol-icy, including trade policy, travels first class,whereas the policies that relate to the envi-ronment and development travel coach—andoften stand-by. The current crisis suggeststhat there may not be much progress ontrade liberalization unless governments beginto demonstrate that they take the environ-ment seriously.

Taking the EnvironmentSeriously in the WTO

It is now abundantly clear that developingcountries will not accept an outcome frommultilateral trade negotiations that does notconfer on them—or at least the more vocal ofthem—tangible trade benefits and that doesnot go some way toward correcting existinginequities and imbalances. Although it is hardto imagine an outcome in which all countrieswill benefit, any acceptable outcome will haveto offer clear benefits to developing countriesin some form, even if not directly due totrade openness. Development has nowbecome a genuine trade imperative.

If the environment has not achieved thissame position, it is nevertheless remarkable




how this concern has progressed towardacceptability in the trading system. The earlyfear that the powerful new WTO would chal-lenge and roll back decades of environmen-tal achievement at the international level hassubsided, replaced in both the trade and envi-ronmental communities with the far health-ier view that each concern relates to andaffects the other and that both need to findways to be mutually supportive. This includesthe need to ensure that environmental stan-dards do not become an unwarranted obsta-cle to market access by developing countries,but also that they are not unnecessarily chal-lenged over their effect on trade. There isgrowing respect in the trade community formultilateral environmental agreements andeven for their need to use trade measures toensure compliance. The trade communityasks only that the distortions to trade be nogreater than necessary to achieve the pur-pose for which they are used.17

There remains, however, the problem thatthe trading system serves an outdated andfailed economic paradigm, that it favors thecorporate sector at the expense of publicpolicy goals, and that its rules have shifted thebalance of benefit further toward the pri-vate sector.

Responding to the Crisis at the WTO

Although the WTO agreements have boostedworld trade and benefited some countries,they have fallen well short of the promise toreduce the gaps between the rich and poor,between the powerful and the weak, andbetween those who pursue immediate gainand those who fight for a fairer world. Indeed,the WTO—and trade liberalization morebroadly—has come to be regarded as thevanguard of an economic paradigm aboutwhich there are increasing doubts. The orga-

nization is perceived by an important andhighly vocal segment of society as a centralpart of the effort to impose the “WashingtonConsensus” on the rest of the world—aneconomic system based on a blind belief in themarket and predicated on eliminating as manyconstraints on corporate opportunity as pos-sible. Whereas WTO agreements are by andlarge unfairly accused of advancing an unpop-ular economic paradigm, that has not pre-vented the public perception of the WTO asthe vanguard of this paradigm.18

The crisis at the WTO reflects both grow-ing doubts about staying on a path that hasfailed to deliver on its promise and the grow-ing insistence of the developing world thattrade liberalization must not aggravate thedevelopment problems of poorer countries.The system is responding to this crisis with abroad debate on how to achieve better coher-ence among different policy areas and activeanalysis of how the system can deliver genuinedevelopment benefits, including the correctionof past inequities. There is a clear sense thattrade liberalization must not undermineprogress toward broadly supported public pol-icy goals such as poverty alleviation, a healthyenvironment, social justice, or human rights.

Since it has become clear that countries donot automatically benefit from trade openness,a major effort is under way to put in place theconditions that would make such openness amore positive experience. Since 1997 sixintergovernmental agencies, including theWTO, have operated the Integrated Frame-work (IF) for Trade-Related Technical Assis-tance for Least Developed Countries,demonstrating growing cooperation amonginternational institutions sharing an interestin a common theme. To date, the IF is activein 33 of the world’s poorest countries, help-ing to integrate trade with national develop-ment plans and poverty reduction strategies,setting priorities for trade-related technical




assistance, and advising on governance reformto enhance participation in the world econ-omy. This approach directly addresses oneof the development-oriented goals in theWTO Preamble.19

More recently, the WTO has developed awork program on Aid for Trade. Targetingdeveloping countries, particularly the leastdeveloped ones, this aims to help govern-ments put in place the capacity and institu-tions needed to benefit from more opentrade. Aid for Trade is seen by many devel-oping countries as very much part of the“down payment” they expect if they are tosign up to any package emerging from theDoha Round.20

Efforts are also being made in the Dohanegotiations to link a country’s obligations torespect certain disciplines with its actual abil-ity to do so. In the ongoing discussions abouttrade facilitation (the removal of administra-tive barriers to trade), countries will agreeto take on the full set of obligations only if andwhen they have the necessary institutionsand human capacity in place. Where they donot, they will receive technical assistance—perhaps through Aid for Trade programs.

The issue of how trade rules link with andaffect other public policy goals is also debatedin the WTO’s Trade Policy Review Mecha-nism. This unit undertakes regular, indepen-dent studies of member countries’ tradepolicies and the extent to which they respectthe requirements of WTO membership.

This may not be enough. The world mayneed to develop a set of screens and tests onsustainable development, along with a mech-anism to settle areas of apparent or real incom-patibility. All new trade rules, and to someextent also existing ones, would be subjectedto these to ensure that their impact on sus-tainable development was positive. A forum toseek positive resolution in the case of incom-patibility would also be needed, probably sep-

arate from the formal dispute settlementmechanism. The Council for EnvironmentalCooperation set up under NAFTA wasintended to do something like this, althoughit has never lived up to expectations.

Beyond the interagency level of coopera-tion on the Integrated Framework, there is agreat deal of experimentation going on withforms of collaborative governance that gobeyond strict government-to-governmentinteraction. These involve public-private part-nerships or public policy partnerships thatgather concerned stakeholders in “account-ability compacts.” The Extractive IndustriesTransparency Initiative, the World Commis-sion on Dams, and the Forest StewardshipCouncil are good examples of these.21

Despite the encouraging developmentsand proposals just described, some of theproblems that have become evident go wellbeyond the multilateral trading system itself.The crisis of the WTO also reflects the grow-ing malaise caused by the perception thatglobal change—and particularly economicliberalization—has outrun the world’s abilityto govern for the general good of humanity.As it becomes increasingly clear that the dom-inant economic paradigm is making poverty,social injustice, and environmental degrada-tion worse, the institutions that serve that par-adigm come to be mistrusted.

Thus a cloud of uncertainty hovers over allattempts to push on further down that sameroad. The multilateral rounds of WTO nego-tiations and the additional concessions beyondWTO rules that powerful trading powerswrest from their partners through regionaland bilateral free trade agreements or sec-toral agreements of one kind or another allbegin to look like “more of a bad thing.”Progress is not progress if the world is head-ing in the wrong direction.

Yet correcting this, or finding an alterna-tive, is made doubly difficult by the lack of an




agreement on the paradigm that might offera broadly preferable alternative. Critics of thecurrent system know that they want a reliableand functioning economy whose quantita-tive and qualitative growth offers steadilyincreasing opportunity. They want to correctthe inequities that characterize today’s world,reducing the gap between rich and poor coun-tries and between rich and poor within coun-tries and building respect for human rights andsocial justice. And they want to live within thelimits imposed by Earth’s ecosystems andnatural resources. In short, they want to movetoward sustainable development and wouldlike the WTO and the other elements of themultilateral trading system to be a force in thatdirection. They want the WTO to considerthe goal set out in its Preamble not as a state-ment of broad intention but an imperative, abenchmark against which it is judged andagainst which all proposals to expand its dis-ciplines are evaluated.22

In terms of both the collapsing paradigmand the need for the trading system to servea wider goal, the notion of sustainable devel-opment may well mark the way forward.Indeed, it may be the only acceptable wayforward. The goal is there in the Preamble.The need to meet it is reinforced in the Dohamandate, and a space has been created inwhich itineraries toward the goal might bereviewed. All that is missing is the politicalwill to occupy this space and the tools tomake the sustainable development paradigmoperational.

Accepting That the World Has Changed

One reason for the lack of resolute decisionsis that the world is in a state of deep confu-sion triggered by the deep and fast-pacedchanges in the balance of power—undoubt-edly the most profound power shift since the

emergence of a world order based on sover-eign nation states almost four centuries ago.Even if the impact on the WTO and other ele-ments of the international system may not yetbe fully clear, the rise of China and India hassent out shock waves that have not yet beenadequately absorbed. And several other coun-tries are flexing their muscles as well—Argentina, Brazil, Mexico, South Africa, andViet Nam. In all likelihood the entry of Rus-sia and most of the remaining former Sovietrepublics into the WTO will trigger furtherseismic changes, and it is far from clear howthese changes can be handled, much less har-nessed to sustainable development. The dom-inant position of the United States and theEuropean Union, which have been substan-tially able to dictate trade rules, is fading andwill never again be recovered.

The apparent redistribution of poweramong nation-states is happening in parallelwith the emergence of a global public domainthat demands governance for which organi-zations based on nation-states are provinginadequate. Indeed, the intergovernmentalorganizations of the United Nations, theWorld Bank Group, and others are organizedaround a postwar order that no longer ade-quately represents reality. This must give wayto a new order focused on optimal steward-ship of global public goods. Designing theright institutions for global economic gover-nance will mean rethinking the role and pri-macy of the nation-state as traditionallyunderstood. It will require reaching a geopo-litical settlement no less significant than theorder that emerged from the chaos of WorldWar II, but one built on the central recogni-tion of interdependence. And it will involveunderstanding and finding the right role fora series of new actors in global governance,most prominently corporations and civil soci-ety organizations and networks.

The challenge of global economic gover-




nance is that of managing multidimensional-ity. Climate change policy cannot be left toenvironment ministers, because getting itright involves energy policy, investment pol-icy, foreign policy, and many other sectors.Similarly, trade policy cannot be left solely totrade ministers.

Perhaps the model in this respect is theEuropean Union (EU). For all its faults, theEU has proved adept at advancing a model ofgovernance capable of addressing multidi-mensional problems—at least those that areof central concern to its member states. It hasyet to demonstrate that it can take a multi-dimensional approach to emerging tradingpowers or to the challenges of global eco-nomic governance. But it also represents amodel in another important respect: theacceptance of devolved authority. One prob-lem with the present paradigm is the ambi-guity of most states in terms of the authoritythey have devolved. This is certainly true ofthe WTO, still stuck in the outdated nationalsovereignty model that characterized theworld of GATT.

This is not only an issue with richer trad-ing countries. The much-vaunted G-20 groupof developing countries in the WTO, whichhas proved a powerful force in countering thetraditional dominance of the rich nations, isalso torn by issues relating to national sover-eignty and domestic politics. And its membershave yet to demonstrate that they can leaddeveloping countries to overcome a tendencytoward “Third Worldism”—an automaticresistance to change because the proposalscome from richer countries. It will be criticallyimportant that the emerging powers demon-strate, along with a growing sense of confi-dence, a positive capacity to take the initiative,to be creative, and to help shape the neworder. They have already demonstrated aninterest in a system characterized by greaterfairness. The question is whether they can take

this further.23

Can they contribute to a system designedfor citizens, not consumers? Can they helpdesign a system that can mediate effectivelyamong unequal powers or in a situation ofenormous complexity and diversity? Can theyhelp craft a system dedicated to the joint goalsof promoting political stability and advancingjustice? A great deal depends on how theissues are framed. The goal is to move froman economics framed in terms of efficiency toone framed in terms of justice—both proce-dural justice and outcome justice. Futureprogress in extending the trading system willdepend on the ability to demonstrate thattrade liberalization does indeed advance thesewider objectives—social justice, human rights,equity, and a healthy environment.

In a very real way, a sustainable futuredepends not only on dealing with such emi-nently global issues as climate change (see Box14–2) or the collapse of biodiversity. Itdepends on creating a society where nobodyis excluded. The challenge is to design a trad-ing system that will harness the power oftrade to do good to a system that is charac-terized by a search for fairness, stability, medi-ation, the promotion of environmental values,and the imperative of inclusiveness. Thisrequires a trading system that is accountableto the goals set for it and that is genuinelymonitored to ensure it is proceeding optimallytoward those goals. It requires a system thatcontributes as solidly as it can to the promo-tion of the public good, not simply to privateinterests, and that balances the power of themarket with the need for a solid framework




Designing the right institutions for globaleconomic governance will mean rethinkingthe role and primacy of the nation-state as traditionally understood.

of public policy. In short, the world’s tradingsystem needs to go back to the goal set outin the Preamble to the WTO Agreements—the optimal use of the world’s resources inaccordance with the objective of sustainabledevelopment. Only this time it needs to betaken seriously.24

What Is at Stake?Today’s world is characterized by unfairness,but in any unfair system there are those whobenefit. Nothing prevents countries fromhunkering down behind their trade barriersand hanging on to what they have. Nothingprevents governments digging in their heelsso that the only advances made in trade lib-eralization are those imposed on weaker coun-tries by the more powerful. Nothing preventsthe world from moving back to a period ofgreater protection, greater conflict, andgreater suspicion of other countries. Thingsneed not necessarily get better. They couldwell grow worse. Indeed, that would normallybe the default result in an environment wherereaching international agreements is increas-ingly difficult.

Were it not for the fundamental shift inpower, the genuine threats to the future ofhumanity, and the growing disillusionment ofvoting publics with their political leaders, thispath might well be the one followed. Itappears, though, not to be a realistic optionbeyond the short term, because the world isalso moving toward a situation where it is nolonger susceptible to domination by one ortwo powers and must therefore search inearnest for compromise.

A good deal of the efforts of the emergingpowers in the trading system are aimed ateliminating trade distortions that benefit richcountries rather than simply protecting theirvulnerable economic sectors from foreign com-petition. Along with global economic rules,there is developing what might be termed the“global public domain,” a recognized space inwhich notions of shared value in protectingglobal public goods are balanced with thenotion of commercial advantage.

This approach is not a statement of “noconfidence” in markets. It is simply a recog-nition that markets function optimally in lightof the goals to be reached when they operatewithin a framework of agreed public policy.




There is no magic, single solution to the chal-lenge of controlling greenhouse gases. It is a challenge of energy policy and of managing thetransition to sustainable energy sources. This inturn has a great deal to do with the technologicaltransition, access to invention, and intellectualproperty. It has to do with investment policy andthe nature of investment agreements and the set-tlement of investment disputes. And it has to dowith trade policy—the trade rules and how thetrading system deals with issues at the frontierbetween trade policy and related policy areas. Inshort, the issue cannot be dealt with by treatingeach of the pieces separately from the overall

picture of which they are but a part.The same is true of what Paul Collier calls “the

bottom billion”—those who are not benefitingfrom global growth, from trade liberalization, oreven from much development assistance and whocontinue to survive on less than a dollar a day.Thepresent economic approach offers them very little,and the new economic elites in the emerging coun-tries often appear not to pay them much atten-tion either. Yet a sustainable future depends onincluding them in national economies and societiesand on lifting them out of their present misery.


Box 14–2. Multidimensional Problems

The role of states is no longer to direct theeconomy but to put in place a favorable pol-icy framework and adequate checks and bal-ances. Within this context, the notion ofcompetition for personal or national advan-tage is replaced by a “competition for thegood,” where the rules of the global economyare not allowed to undermine the ability ofstates to act for the public good

When comparing the WTO and the rest ofthe multilateral system to this vision, it is clearthat they fall short. But the system has increas-ing difficulty in moving forward preciselybecause the global community insists on some-thing closer to that vision and has dwindlingpatience with the WTO’s shortcomings.

Who, then, will lead us to the “promisedland” hinted at in the WTO’s own statementof purpose? Interestingly, it is not in the for-mal trade policy community that the newmovement is evident. It is not the WTO del-egates in their representational capacity whoare acting in an innovative way. The labora-tories for new thinking on trade governanceare in spaces created outside traditional insti-tutions, in which new proposals are articu-lated, reviewed, and debated. Some of themost creative thinking is taking place in orga-nizations like the Evian Group—a forum thatgathers a mix of WTO delegates and staff, aca-

demics, and civil society representatives. It isfound in dialogues organized on these issuesby the International Centre for Trade andSustainable Development in Geneva, whichoffers senior trade officials a safe space inwhich to experiment. It is in events orga-nized by the Royal Institute for InternationalAffairs in London or its equivalent in SouthAfrica, Brazil, India, and China, where newideas are incubated, tested, and refined.25

The ideas, approaches, and proposals thatemerge in such forums and meetings maketheir way into the political processes, build alevel of trust, and begin to filter into thereform ideas that sooner or later design andinstall the institutional structures that willallow the world to address new challenges asglobal change accelerates. It is no different fortrade than it is for climate change or biodi-versity conservation. In each of these areas, weare building toward what we hope will be atipping point, a massive collection of politicalwill that will tip the balance in favor of posi-tive action. Each contribution may appearinsufficient, but the accumulation can make abig difference. It has done so before in onefield after another. There is no reason why itcannot happen when addressing the challengeof governing trade for the good of humanity.





State of the World:A Year in Review

October 2006. European Space Agency, “RecordOzone Loss During 2006 Over South Pole” (Paris:2 October 2006); World Health Organization,“WHO Challenges World to Improve Air Quality,”press release (Geneva: 5 October 2006); WorldBank, “Natural Disasters on the Rise, 2005 TheZenith Year,” press release (Washington, DC: 11October 2006); U.N. Environment Programme(UNEP), “Further Rise in Number of Marine‘Dead Zones,’” press release (Nairobi: 29 Octo-ber 2006); “Amazon Deforestation Slows,” Envi-ronment News Service, 27 October 2006; HerMajesty’s Treasury, “Publication of the SternReview on the Economics of Climate Change,”press release, 20 October 2006.

November 2006. Boris Worm et al., “Impacts ofBiodiversity Loss on Ocean Ecosystem Services,”Science, 3 November 2006, pp. 787–90; WorldWide Fund for Nature, “Climate Change HasBirds Out on a Limb,” press release (Gland,Switzerland: 14 November 2006); Common-wealth Scientific and Industrial Research Organi-sation, “Increase in Carbon Dioxide EmissionsAccelerating,” press release (Hobart, Tasmania,Australia: 27 November 2006).

December 2006. “Rainforest Gets Protected Sta-tus,” BBC News, 4 December 2006; Baiji.orgFoundation, “Yangtze Freshwater Dolphin Expe-dition 2006,” press release (Wuhan, China: 13December 2006); Tansa Musa, “Two-thirds ofCongo Basin Forests Could Disappear,” Reuters,15 December 2006; National Oceanic and Atmos-pheric Administration, “In Record Wildfire Season,

NOAA Satellites Aid U.S. Fire Managers,” newsstory (Washington, DC: 4 January 2007).

January 2007. “Board Statement,” The Bulletinof the Atomic Scientists Online, 17 January 2007;U.S. Climate Action Partnership, “Major Busi-nesses and Environmental Leaders Unite to Callfor Swift Action on Global Climate Change,”press release (Washington, DC: 22 January 2007).

February 2007. “Summary for Policymakers,”in Intergovernmental Panel on Climate Change,Climate Change 2007: The Physical Basis (Geneva:February 2007); UNEP, “Globalization & GreatApes: Illegal Logging Destroying Last Strong-holds of Orangutans in National Parks,” pressrelease (Nairobi: 6 February 2007); Global WindEnergy Council, “Global Wind Energy MarketsContinue to Boom—2006 Another Record Year,”press release (Brussels: 15 February 2007); Uni-versity of Missouri-Columbia, “Programmed forObesity,” press release (Columbia, MO: 16 Feb-ruary 2007); The Hon Malcolm Turnbull MP,Minister for the Environment and WaterResources, “World First! Australia Slashes Green-house Gases from Inefficient Lighting,” pressrelease (Bondi Junction, NSW, Australia: 20 Feb-ruary 2007).

March 2007. Samuel K. Wasser et al., “UsingDNA to Track the Origin of the Largest IvorySeizure Since the 1989 Trade Ban,” Proceedingsof the National Academy of Sciences, 6 March2007, pp. 4228–33; Council of the EuropeanUnion, “Brussels European Council, 8/9 March2007: Presidency Conclusions” (Brussels: 2 May2007), p. 12; U.S. Department of Energy,“Energy Praises the Nuclear Regulatory Com-

Notes

mission Approval of the First United StatesNuclear Plant Site in Over 30 Years,” press release(Washington, DC: 8 March 2007); Office of thePress Secretary, The White House, “PresidentBush and President Lula of Brazil Discuss BiofuelTechnology,” press release (Washington, DC: 9March 2007); U.S. Food and Drug Administra-tion, “Pet Food Recall/Tainted Animal Feed,” atwww.fda.gov, updated 31 May 2007; WorldWildlife Fund–US, “WWF’s Top 10 Rivers atRisk, Rio Grande Makes List,” press release (Wash-ington, DC: 19 March 2007).

April 2007. World Bank, “Poverty Drops Below1 Billion, Says World Bank,” press release (Wash-ington, DC: 15 April 2007); Government ofChina, “Report: Yangtze Water EnvironmentDeteriorating,” press release (Beijing: 16 April2007); United Nations Security Council, “Secu-rity Council Holds First-Ever Debate on Impactof Climate Change on Peace, Security, HearingOver 50 Speakers,” press release (New York: 17April 2007); “Double Hulled Tankers for HeavyOil Now Law in Europe,” Environment News Ser-vice, 28 April 2007.

May 2007. “S Pacific to Stop Bottom-Trawling,”BBC News Online, 5 May 2007; Indiana Univer-sity School of Medicine, “Premature Births MayBe Linked to Seasonal Levels of Pesticides andNitrates in Surface Water,” press release (Bloom-ington, IN: 7 May 2007); Transatlantic21, “sun21Makes Historic Arrival into New York Harbor,”press release (New York: 8 May 2007); The WhiteHouse, Office of the Press Secretary, “ExecutiveOrder: Cooperation Among Agencies in Protect-ing the Environment with Respect to GreenhouseGas Emissions from Motor Vehicles, NonroadVehicles, and Nonroad Engines,” press release(Washington, DC: 14 May 2007).

June 2007. Michael A. Fletcher, “G-8 LeadersBack ‘Substantial’ Cuts In Gas Emissions,” Wash-ington Post, 8 June 2007; UNEP, “Investors Flockto Renewable Energy and Efficiency Technolo-gies,” press release (Nairobi: 20 June 2007);UNESCO, “Galapagos and Niokolo-KobaNational Park Inscribed on UNESCO’s List ofWorld Heritage in Danger,” press release (Paris: 26June 2007); U.S. Fish and Wildlife Service, “Bald

Eagle Soars Off Endangered Species List,” pressrelease (Washington, DC: 28 June 2007).

July 2007. UN Global Compact, “Business Lead-ers Call for Climate Action,” press release (Geneva:6 July 2007); University of Michigan at AnnArbor, “Organic Farming Can Feed the World, U-M Study Shows,” press release (Ann Arbor: 10July 2007); Suvendrini Kakuchi, “Japan’s NuclearPlans in Disarray,” Asia Times, 20 July 2007; Uni-versity of Colorado at Boulder, “Glaciers and IceCaps to Dominate Sea-Level Rise Through 21stCentury, CU-Boulder Study Says,” press release(Boulder: 19 July 2007); “‘Once-in-a-Century’Rains Displace Millions in China,” EnvironmentNews Service, 23 July 2007; Flora and Fauna Inter-national, “IGCP Responds to Mountain GorillaDeaths,” news release (Cambridge: 24 July 2007).

August 2007. “Spanish Company Chooses KansasTown for Cellulosic Ethanol Plant,” AssociatedPress, 4 August 2007; New York City Departmentof Health and Mental Hygiene, “Survey FindsElevated Rates of New Asthma Among WTC Res-cue and Recovery Workers,” press release (NewYork: 27 August 2007).

September 2007. Mattel, Inc., “MattelAnnounces Recall of 11 Toys as a Result of Exten-sive Ongoing Investigation and Product Testing,”press release (El Segundo, CA: 4 September 2007);The Coca-Cola Company, “Coca-Cola Sets Goalto Recycle or Reuse 100 Percent of Its PlasticBottles in the U.S.,” press release (Atlanta: 5 Sep-tember 2007); U.S. Geological Survey, “FutureRetreat of Arctic Sea Ice Will Lower Polar BearPopulations and Limit Their Distribution,” pressrelease (Reston, VA: 7 September 2007);IUCN–World Conservation Union, “ExtinctionCrisis Escalates: Red List Shows Apes, Corals,Vultures, Dolphins All in Danger,” press release(Gland, Switzerland: 12 September 2007); Alfred-Wegener-Institute for Polar and Marine Research,“The Sea-Ice is Getting Thinner—A Closer Lookat the Climate and Ecosystem of the ArcticOcean,” press release (Bremerhaven, Germany:13 September 2007).



Notes

Chapter 1.Seeding the Sustainable Economy

1. Economic growth from Angus Maddison,University of Groningen, “World Population,GDP, and Per Capita GDP, 1–2003 AD” atwww.ggdc.net/maddison, viewed 28 September2007; global output in 2006 from Central Intel-ligence Agency, The World Factbook 2007 (Wash-ington, DC: 2007); life expectancy and diseasesfrom “Life Expectancy at Birth, at 65 Years ofAge, and at 75 Years of Age, by Race and Sex:United States, Selected Years 1900-2004,” inNational Center for Health Statistics, Health,United States, 2006 (Hyattsville, MD: 2006), p. 176.

2. Quote on temperature from American Asso-ciation for the Advancement of Science, “AAASBoard Releases New Statement on ClimateChange,” press release (Washington, DC: 9December 2006); World Glacier Monitoring Ser-vice, “Worldwide Glacier Melting Underlined inNewly Released Data,” press release (Zurich: 30January 2007); National Aeronautics and SpaceAdministration, “Greenland Ice Sheet on a Down-ward Slide,” press release (Greenbelt, MD: 19October 2006); University of Colorado at Boul-der, “Glaciers and Ice Caps to Dominate Sea-Level Rise Through 21st Century, CU-BoulderStudy Says,” press release (Boulder: 19 July 2007);Julienne Stroeve et al., “Arctic Sea Ice Decline:Faster Than Forecast,” Geophysical Research Let-ters, 1 May 2007; European Commission, “NatureConservation: One in Six European MammalsThreatened with Extinction Shows Assessment bythe World Conservation Union (IUCN),” pressrelease (Brussels: 22 May 2007); U.N. Environ-ment Programme (UNEP), “Further Rise in Num-ber of Marine ‘Dead Zones,’” press release(Nairobi: 29 October 2006); World Health Orga-nization, “WHO Challenges World to Improve AirQuality,” press release (Geneva: 5 October 2006);The National Academies, “Some Pollinator Pop-ulations Declining; Improved Monitoring andMore Biological Knowledge Needed to BetterAssess Their Status,” press release (Washington,DC: 18 October 2006); World Energy Council,2007 Survey of Energy Resources (London: 2007),p. 44.

3. Impoverished population from “News &Broadcast: Poverty,” World Bank, at web.worldbank.org, as of March 2007; Tim Ledwith,“‘Progress for Children’ Reports Mixed Results onAccess to Water and Sanitation Worldwide,”UNICEF, 28 September 2006; World HealthOrganization, “Obesity and Overweight,” FactSheet No. 311 (Geneva: September 2006).

4. Global Risk Network, Global Risks 2007: AGlobal Risk Network Report (Davos: World Eco-nomic Forum, January 2007).

5. Maddison, op. cit. note 1; one seventh is aWorldwatch calculation based on U.S. Bureau ofthe Census, International Data Base, electronicdatabase, Suitland, MD.

6. “Daniel Bernoulli,” at Encyclopedia Britan-nica online, viewed 16 October 2007.

7. Robert Solow, “Is the End of the World atHand?” in Andrew Weintraub et al., eds., TheEconomic Growth Controversy (White Plains, NY:International Arts and Science Press, 1973), p. 51.

8. Population and gross world product fromMaddison, op. cit. note 1; Global Footprint Net-work, “Humanity’s Footprint, 1961–2003,” atwww.footprintnetwork.org, viewed 28 Septem-ber 2007.

9. Boris Worm et al., “Impacts of BiodiversityLoss on Ocean Ecosystem Services,” Science, 3November 2006, pp. 787–90.

10. Maddison, op. cit. note 1.

11. Neva Goodwin, Tufts University, e-mail toauthors, 20 September 2007.

12. UNEP, “IPCC Confirms That Cost-effectivePolicies and Technologies Could Greatly ReduceGlobal Warming,” press release (Nairobi: 4 May2007); Nicholas Stern, The Economics of ClimateChange: The Stern Review (Cambridge, U.K.:Cambridge University Press, 2007); $650 billionis a Worldwatch estimate based on global economyfrom International Monetary Fund, World Eco-nomic Outlook Database (Washington, DC: Sep-



Notes

tember 2006); Viet Nam from Lori Montgomery,“The Cost of War, Unnoticed,” Washington Post,8 May 2007.

13. Stern, op. cit. note 12; low and high estimatesfrom Frank Ackerman, “Debating Climate Eco-nomics: The Stern Review vs. Its Critics,” reportto Friends of the Earth–UK (Medford, MA: GlobalDevelopment and Environment Institute (GDAE)at Tufts University, July 2007), p. 2.

14. Frank Ackerman and Elizabeth Stanton, Cli-mate Change: The Costs of Inaction (Medford,MA: GDAE, October 2006); Frank Ackerman,GDAE, e-mail to Gary Gardner, 21 September2007; Stern, op. cit. note 12.

15. Millennium Ecosystem Assessment (MA),Ecosystems and Human Well-Being: Synthesis (Wash-ington, DC: Island Press, 2005), pp. 2–3.

16. Ibid., p. 55.

17. Robert Costanza, “The Value of the World’sEcosystem Services and Natural Capital,” Nature,15 May 1997, p. 253; Andrew Balmford et al.,“Economic Reasons for Conserving Wild Nature,”Science, 9 August 2002, pp. 950–53; MarianneKettunen and Patrick ten Brink, Value of Biodi-versity: Documenting EU Examples Where Biodi-versity Loss Has Led to Loss of Ecosystem Services(London and Brussels: Institute for EuropeanEnvironmental Policy, June 2006), Annex 6, p. 11.

18. Balmford et al., op. cit. note 17; MA, op. cit.note 15.

19. Maddison, op. cit. note 1; poverty and dataon clean water and sanitation from U.N. Devel-opment Programme (UNDP), Human Develop-ment Report 2006 (New York: Palgrave Macmillan,2006), pp. 2, 269; hunger from U.N. Food andAgriculture Organization (FAO), The State ofFood Insecurity in the World, 2006 (Rome: 2006),p. 32.

20. UNDP, op. cit. note 19, p. 269; South Amer-ica population of 380 million from Census Bureau,op. cit. note 5; income inequality lessening from“Overview,” in World Bank, World Development

Report 2006 (Washington, DC: 2006), p. 7.

21. Table 1–1 from James B. Davies et al., TheWorld Distribution of Household Wealth (Helsinki:UNU-WIDER, December 2006), p. 3.

22. World Bank, op. cit. note 20, pp. 2–3.

23. Herman E. Daly, Beyond Growth: The Eco-nomics of Sustainable Development (Boston: Bea-con Press, 1996), pp. 33–35.

24. Global Roundtable on Climate Change, “ThePath to Climate Sustainability: A Joint Statementby the Global Roundtable on Climate Change,”Earth Institute at Columbia University, New York,20 February 2007; “Kyoto Protocol,” U.N.Framework Convention on Climate Change, atunfccc.int, viewed 3 October 2007.

25. Interface, Inc., Sustainability Report, atwww.interfacesustainability.com, viewed 13 Octo-ber 2007.

26. Zero Waste New Zealand Trust, atwww.zerowaste.co.nz, viewed 11 October 2007;Jo Knight, Is Zero-waste Conceivable? (Auckland:Zero Waste New Zealand, October 2007).

27. “Global Military Spending Hits $1.2 Tril-lion—Study,” Reuters, 11 June 2007.

28. Millennium Development Goals, atwww.un.org/millenniumgoals; Global Call toAction Against Poverty, at www.whiteband.org;The Microcredit Summit Campaign, at www.microcreditsummit.org, viewed 31 July 2007.

29. Daniel Kahneman and Alan B. Krueger,“Developments in the Measurement of SubjectiveWell-Being,” Journal of Economic Perspectives,winter 2006, pp. 15–16; “Gallup: Chinese FarWealthier than a Decade Ago—But Are TheyHappier?” New Occidental Research, at web.cenet.org.cn/web/Occidental, viewed 30 Sep-tember 2007.

30. International Association of Public Trans-port, Mobility in Cities Database (Brussels: 2005),p. 3; “Aussie State Commits Big Bucks to



Notes

Cycling,” Bicycle Retailer and Industry News, 1June 2006, p. 35; “French Create National CyclingCzar Position,” Bicycle Retailer and Industry News,15 May 2006, p. 27; “Taiwan Builds Bike Paths,Promotes Cycling,” Bicycle Retailer and IndustryNews, 15 July 2006, p. 27; “Brits Take to Bikes,Infrastructure a Big Help,” Bicycle Retailer andIndustry News, 1 July 2006, p. 30; Rachel Gordon,“Cycling Supporters on a Roll,” San FranciscoChronicle, 21 August 2006; Amsterdam andUnited States from John Pucher and Lewis Dijk-stra, “Promoting Safe Walking and Cycling toImprove Public Health: Lessons from the Nether-lands and Germany,” American Journal of PublicHealth, September 2003, p. 1509.

31. Kate Zernike, “Fight Against Fat Shifts to theWorkplace,” New York Times, 12 October 2003.

32. Andrew Revkin, “A New Measure of Well-being from a Happy Little Kingdom,” New YorkTimes, 4 October 2005.

33. “More Information on EnvironmentallyRelated Taxes, Fees, and Charges,” atwww2.oecd.org, viewed 11 October 2007; MarkusNigge and Benjamin Gorlach, Effects of Germany’sEcological Tax Reforms on the Environment,Employment and Technological Innovation (Sum-mary) (Berlin: Ecologic, August 2005), p. 14;nitrogen oxide from International Institute forSustainable Development, “The Nitrogen OxideCharge on Energy Production in Sweden,” atwww.iisd.org, viewed 11 October 2007; 34 per-cent from Gary Wolff, When Will Business WantEnvironmental Taxes? (San Francisco: RedefiningProgress, 2000), p. 5.

34,. Congestion Charge Secretariat, Facts andResults from the Stockholm Trials (Stockholm:December 2006).

35. Gretchen C. Daily et al., “Ecosystem Services:Benefits Supplied to Human Societies by NaturalEcosystems,” Issues in Ecology, spring 1997, p. 2.

36. Renée Johnson, Recent Honey Bee ColonyDeclines (Washington, DC: U.S. CongressionalResearch Service, 20 June 2007), p. 2; Dr. DavidPimentel, Cornell University, discussion with

Thomas Prugh, 27 July 2007.

37. Cameron Walker, “Taking Stock: AssessingEcosystem Services Conservation in Costa Rica,”Ecosystem Marketplace, 21 May 2007; RicardoBayon, “Case Study: The Mexico Forest Fund”Ecosystem Marketplace, 2004; Jessica Wilkinson,Ecosystem Marketplace, discussions with RicardoBayon, 2007.

38. Jared Blumenfeld, “New Approaches to Safe-guarding the Earth,” San Francisco Chronicle, 4August 2003.

39. Ibid.

40. Maastricht from European EnvironmentalAgency, Late Lessons from Early Warnings: ThePrecautionary Principle, 1896–2000, Environ-mental Issue Report No. 22 (Copenhagen: Janu-ary 2002), p. 14; Danish Environmental ProtectionAgency, “The Precautionary Principle: Extractsand Summary from the Danish EnvironmentalProtection Agency’s Conference on the Precau-tionary Principle,” Environment News No. 35(Copenhagen: 1998); Los Angeles from “Prefer-ring the Least Harmful Way,” Rachel’s Environ-ment and Health News, 26 January 2000; “SanFrancisco Adopts the Precautionary Principle,March 20, 2003,” Rachel’s Democracy and HealthNews, 18 June 2003.

41. Robert Costanza et al., Introduction to Eco-logical Economics (Boca Raton, FL: St. Lucie Press,1997), p. 211.

42. Elinor Ostrom et al., “Revisiting the Com-mons: Local Lessons, Global Challenges,” Sci-ence, 9 April 1999, p. 278.

43. Ibid.

44. Elinor Ostrom, Governing the Commons: TheEvolution of Institutions for Collective Action (NewYork: Cambridge University Press, 1990), pp. 61ff.

45. Peter Barnes, Capitalism 3.0 (San Francisco:Berrett Koehler, 2006).



Notes

46. Tomales Bay Institute, The Commons Ris-ing: A Report to Owners (Minneapolis, MN: 2006),pp. 6, 15.

47. African Centre for Women, “Report of theAd Hoc Expert Group Meeting to ConsiderModalities of Setting Up an African Bank forWomen,” at www.uneca.org.

48. U.N. Statistics Division, “Women’s WagesRelative to Men’s,” in “Statistics and Indicators onMen and Women,” database at unstats.un.org/unsd, viewed 29 July 2007; Equal Pay Actfrom Equal Employment Opportunity Commis-sion, www.eeoc.gov/policy/epa.html, viewed 1August 2007; 77¢ from Representative MikeHonda, ”Statement on Equal Pay Day,” Wash-ington, DC, 24 April 2007.

49. Food production from FAO, “Gender andFood Security: Agriculture,” at www.fao.org/GEnder/en/agri-e.htm; UNDP, Human DevelopmentReports 2001 and 2002 (New York: Oxford Uni-versity Press, 2002, 2002); Aditi Thorat, “Grameenand the Question of Replicability,” Global Envi-sion, 28 October 2005.

50. Evelyn Dresher, “Valuing Unpaid Work,”presented at Counting Women’s Work Sympo-sium, UN Platform for Action Committee Man-itoba, Brandon, MB, May 1999; ErnaHooghiemstra, Ans Oudejans, and SaskiaKeuzenkamp, On the Trail of Unpaid Work: AMethod of Integrating Information about UnpaidWork into Socioeconomic Policy (The Hague: Socialand Cultural Planning Office of the Netherlands,January 2002).

51. Paul Hawken, Amory Lovins, and L. HunterLovins, Natural Capitalism: Creating the NextIndustrial Revolution (New York: Little, Brownand Company, 1999).

52. “Toyota Worldwide Hybrid Sales Top 1 Mil-lion,” Associated Press, 7 June 2007; CFL sales andshare of total from Charles Fishman, “How ManyLightbulbs Does it Take to Change the World?One. And You’re Looking at It,” Fast Company,September 2006, p. 74; organic sales and areafrom Helga Willer and Minou Yuseffi, The World

of Organic Agriculture: Statistics and EmergingTrends 2007 (Bonn: International Federation ofOrganic Agriculture Movements, 2007), pp. 9, 11;consumption share from Bureau of EconomicAnalysis, U.S. Department of Commerce,“National Income and Product Accounts Table,Gross Domestic Product,” at www.bea.gov, viewed2 October 2007.

53. Wal-Mart from Fishman, op. cit. note 52; BPAlternative Energy investment from Vivienne Cox,chief executive, Gas, Power & Renewables BP,plc, “The Business Case for Low-Carbon Power:An International Perspective,” speech to the IndianInstitute of Energy, 19 March 2007; 5 percent isa Worldwatch calculation based on $8 billion overa decade, or an average of $800 million per year,compared with an average $16 billion in annualcapital investments for the years 2004, 2005, and2006, from British Petroleum, Annual Report2006 (London: 2006), p. 27.

54. James Stack et al., Cleantech Venture Capi-tal: How Public Policy Has Stimulated PrivateInvestment (CleanTech Venture Network andEnvironmental Entrepreneurs, May 2007), pp. 8,10; Cleantech Group, LLC, China Cleantech Ven-ture Capital Investment Report (Cleantech VentureNetwork, 2007), p. v.

55. Commission on Oil Independence, MakingSweden an Oil-Free Society (Stockholm: June2006).

56. Walter Hook, “Bus Rapid Transit: TheUnfolding Story,” in Worldwatch Institute, Stateof the World 2007 (New York: W. W. Norton &Company, 2007), pp. 80–81.

Chapter 2.A New Bottom Line for Progress

1. Ronald Wright, A Short History of Progress(New York: Carroll and Graff, 2005), p. 5.

2. Rondo Cameron and Larry Neal, A ConciseEconomic History of the World from PaleolithicTimes to the Present (Oxford: Oxford UniversityPress, 2003), p. 387.



Notes

3. In Figure 2–1, gross world product datafrom International Monetary Fund, World Eco-nomic Outlook Database, electronic database, Wash-ington, DC, updated September 2005; humandevelopment index from U.N. Development Pro-gramme, Human Development Report 2006 (NewYork: Palgrave Macmillan, 2006), p. 288; all otherfigures from World Bank Group, World IndicatorsOnline, electronic database, updated May 2007.

4. Fischer cited in Philip Lawn, “SustainableDevelopment: Concepts and Indicators,” in PhilipLawn, ed., Sustainable Development Indicators inEcological Economics (Cheltenham, U.K.: EdwardElgar, 2006), p. 18.

5. Box 2–1 from the following: Sudan fromUnited Nations, Under-Secretary for Humanitar-ian Affairs, “600,000 at Immediate Risk of Star-vation,” press release (Geneva: 23 February 2001),and from Alfred de Montesquiou, “African UnionForce Ineffective, Complain Refugees in Darfur,”Washington Post, 16 October 2006; Sri Lankafrom T. J. Helgest, “Tsunami Disaster in SriLanka,” at academic.evergreen.edu/g/grossmanz/HelgestJ, viewed 20 June 2007, fromAmantha Perera, “Sri Lanka: War RefugeesStressed by Mass Resettlement,” IPS News, 28May 2007, and from Amantha Perera, “Sri LankaCivilians – Real Losers in the Civil War,” IPSNews, 22 March 2007; U.S. war spending fromBureau of Economic Analysis, National EconomicAccounts, Table 1.1.5, electronic database, Wash-ington, D.C., updated 28 June 2007; U.S. incomeinequality from David Clay Johnston, “U.S.Income Gap is Widening Significantly, DataShows,” New York Times, 29 March 2007.

6. Johnston, op. cit. note 5.

7. Daniel Kahneman, Ed Diener, and NorbertSchwartz, eds., Well-being: The Foundation ofHedonic Psychology (New York: Russell Sage Foun-dation Publications, 2003), cited in Bill McK-ibben, Deep Economy (New York: New York TimesBooks, 2007), pp. 32–33; Ed Diener and MartinSeligman, “Beyond Money: Toward an Economyof Well-Being,” Psychological Science in the PublicInterest, July 2004, p. 5.

8. World Bank, World Development Indicators2007 (Washington, DC: 2007), p. 185.

9. World Commission on Environment andDevelopment, Our Common Future (New York:Oxford University Press, 1987), p. 43; AndresEdwards, The Sustainability Revolution: Portraitof a Paradigm Shift (Gabriola Island, BC: NewSociety Publishers, 2005), pp. 128–30.

10. Characterization of GPI from Philip Lawn,“Introduction,” in Lawn, op. cit. note 4, p. 11.

11. Table 2–2 data from John Talberth, Clif-ford Cobb, and Noah Slattery, Sustainable Devel-opment and the Genuine Progress Indicator: AnUpdated Methodology and Application in PolicySettings (Oakland, CA: Redefining Progress,2007).

12. Threshold effect from Manford Max-Neef,“Economic Growth and Quality of Life: A Thresh-old Hypothesis,” Ecological Economics, November1995, pp. 115–18.

13. Joseph Kahn and Jim Yardley, “As ChinaRoars, Pollution Reaches Deadly Extremes,” NewYork Times, 26 August 2007.

14. U.N. Statistical Division, Global Assessmentof Environment Statistics and Environmental-Eco-nomic Accounting (New York: 2007), p. 2; forPembina Institute’s economic, environmental, andsocial policy series, see www.fiscallygreen.ca/gpi/indicators.php.

15. Nic Marks et al., The Happy Planet Index: AnIndex of Human Well-Being and EnvironmentalImpact (London: New Economics Foundationand Friends of the Earth, 2006).

16. Ibid.

17. Details of Bhutan program and quote fromGopilal Acharya, “Literature on Gross NationalHappiness,” at travelbhutan.tripod.com/druk.html, viewed 23 June 2007.

18. Emissions reduction scenario summarizedby Bill Chameides, chief scientist, Environmental



Notes

Defense, “Action Needed to Stop Global Warm-ing: Worldwide Emissions,” at environmentaldefenseblogs.org/climate411/2007/03/14/worldwide_emissions, posted 14 March 2007; grossworld product data from “Chapter 2: An Overviewof the Scenario Literature,” in Nebojsa Nakicen-ovic and Robert Swart, eds., Special Report onEmissions Scenarios (New York: Cambridge Uni-versity Press, for Intergovernmental Panel on Cli-mate Change, 2000).

19. Index of representational equity fromRedefining Progress, “Scenarios for Sustainability,”fact sheet (Oakland, CA: 2007); GINI coefficientfrom World Bank, op. cit. note 8, p. 69.

20. Wright, op. cit. note 1, p. 129; MillenniumEcosystem Assessment, Ecosystems and HumanWell-being (Washington, DC: Island Press, 2003).

21. World Wide Fund for Nature (WWF), Liv-ing Planet Report 2006 (Gland, Switzerland: WWF,Global Footprint Network, and the ZoologicalSociety of London, 2006), p. 1; Convention onBiological Diversity, Indicators for Assessing ProgressTowards the 2010 Target: Ecological Footprint andRelated Concepts (Nairobi: U.N. EnvironmentProgramme, 2004), p. 5.

22. Localization definition from RedefiningProgress et al., Building a Resilient and Equi-table Bay Area: Towards a Coordinated Strategy forEconomic Localization (Oakland, CA: 2006), p. 2;World Bank, “World Bank Sees ‘Localization’ AsMajor New Trend in 21st Century,” press release(Washington, DC: 15 September 1999).

23. Associated Press, “Are Consumer Concernsover Food Miles Driving Natural Food Super-markets to Begin Buying Local?” 30 April 2007.

24. Andrew Savitz and Karl Weber, The TripleBottom Line (San Francisco: John Wiley and Sons,2006), p. 209.

25. Marine Stewardship Council Web site, atwww.msc.org.

26. Global Reporting Initiative, GRI Perfor-mance Indicators, at www.globalreporting.org/

ReportingFramework/G3Online/PerformanceIndicators.

27. 3M information from Daniel C. Esty andAndrew S. Winston, Green to Gold (New Haven,CT: Yale University Press, 2006), p. 107.

28. Green Mountain Coffee Roasters, Inc., SocialResponsibility Report (Waterbury, VT: 2007), pp.89–90, 116–19.

29. Green Electronics Council, “Electronic Prod-uct Environmental Assessment Tool: The Criteria,”at www.epeat.net/Criteria.aspx.

30. ST Microelectronics from Savitz and Weber,op. cit. note 24, p. 35; DuPont from Esty and Win-ston, op. cit. note 27, p. 105; Advanced MicroDevices, Inc., Global Climate Protection Plan 2006(Sunnyvale, CA: AMD, Inc., 2006), p. 17.

31. WHO Collaborating Centres in Occupa-tional Health, “Global Strategy on OccupationalHealth for All: Recommendation of the SecondMeeting of the WHO Collaborating Centres inOccupational Health, 11–14 October 1994, Bei-jing, China,” at www.ccohs.ca/who/contents.htm;Turk Polytechnic, Corporate Sustainability Report(Turku, Finland: 2005), p. 31.

32. Mountain Equipment Co-op, Making OurRoute: 2005 Corporate Sustainability Report (Van-couver, BC: 2005), pp. 31–34.

33. Overseas Development Institute, Tips andTools for South African Tourism Companies onLocal Procurement, Products and Partnerships(London: 2005).

34. Novartis, Inc., Implementing a Living WageGlobally, The Novartis Approach (Basel, Switzer-land: 2006).

35. European Commission, “Beyond GDP: Mea-suring Progress, True Wealth, and the Well Beingof Nations,” conference announcement, atwww.beyond-gdp.eu, viewed 22 June 2007.

36. World Bank Institute, Overview of Use ofBenefit-Cost and Cost Effectiveness Analysis for



Notes

Environmental Management (Washington, DC:2002), p. 5.

37. Esty and Winston, op. cit. note 27, pp.24–27.

38. Savitz and Weber, op. cit. note 24, p. 210.

Chapter 3. Rethinking Production

1. Reduced energy use from Marc Gunther,“The Green Machine.” Fortune Magazine, 27July 2006; Cynthia Henry, “A Model of Corpo-rate Action,” Philadelphia Inquirer, 15 February2007.

2. Paul Hawken, Amory Lovins, and L. HunterLovins, Natural Capitalism: Creating the NextIndustrial Revolution (New York: Little, Brownand Company, 1999), p. 52; Annan quoted in“The State of the World? It Is on the Brink of Dis-aster?” The Independent (London), 30 March2005.

3. Hawken, Lovins, and Lovins, op. cit. note 2,p. 111.

4. For more information on Natural Capitalismand how to implement these principles, seewww.natcapsolutions.org. The entire text of thebook Natural Capitalism and many other refer-ence works can be downloaded for free from thissite.

5. William McDonough and Michael Braun-gart, Cradle to Cradle: Remaking the Way WeMake Things (New York: North Point Press, 2002).

6. Ernst von Weizsäcker, Amory B. Lovins, andL. Hunter Lovins. Factor Four: Doubling Wealth,Halving Resource Use (London: Earthscan, 1997);adoption of Factor Four philosophy in EuropeanUnion environmental policy also described inEster van der Voet et al., Policy Review on Decou-pling, Commissioned by European Commission(Leiden, Netherlands: Institute of EnvironmentalSciences, 2005); Australian Ministry of the Envi-ronment and Heritage, Visions, Management Toolsand Emerging Issues Towards an Eco-Efficient and

Sustainable Enterprise, Second EnvironmentalEconomics Round Table Proceedings (Canberra:2000); Factor Ten Club members available atwww.factor10-institute.org; Friedrich Schmidt-Bleck, The Factor 10/MIPS-Concept: Bridging Eco-logical, Economic, and Social Dimensions withSustainability Indicators (Tokyo: Zero EmissionsForum, United Nations University, 1999), p. 6.

7. Stephan Schmidheiny with the BusinessCouncil for Sustainable Development, ChangingCourse (Cambridge, MA: The MIT Press, 1992);definition from World Business Council for Sus-tainable Development Web site, at www.wbcsd.org.

8. Programs and executive committee from“About the WBCSD,” at www.wbcsd.org.

9. National Business Initiative, “Case Study—Anglo American/Mondi: Improved Energy &Efficiency,” 3 January 2007, at www.wbcsd.org.

10. STMicroelectronics, Sustainable Develop-ment Report (Geneva: 2003). Perfluorocarbon isa powerful greenhouse gas emitted during theproduction of aluminum (a fluorocarbon is a halo-carbon in which some hydrogen atoms have beenreplaced by fluorine); it is used in refrigeratorsand aerosols. Sulfur hexafluoride is another potentgreenhouse gas. It one of the most popular insu-lating gases.

11. STMicroelectronics, Environmental Report(Geneva: 2001); correlation of year’s payback toreal after-tax rate of return from Hawken, Lovins,and Lovins, op. cit. note 2, p. 267.

12. STMicroelectronics, op. cit. note 10; MurrayDuffin,Center for Energy and Climate Solutions,discussion with author.

13. “Sustainability 360: Doing Good, Better,Together,” Remarks of H. Lee Scott, Jr., CEO andPresident of Wal-Mart Stores, Inc., Lecture tothe Prince of Wales’s Business & the Environ-ment Programme, 1 February 2007.

14. Ibid.

15. Gunther, op. cit. note 1.



Notes

16. “Sustainability 360,” op. cit. note 13.

17. Gunther, op. cit. note 1.

18. Lee Scott, discussion with author, BusinessMilestone meeting, March 2007.

19. James P. Womack and Daniel T. Jones, LeanThinking (New York: Simon & Schuster, 1996);“The History of Six Sigma,” at www.isixsigma.com.

20. Box 3–1 from Norihiko Shirouzu, “HowDoes Toyota Maintain Quality? Mr. Oba’s HairDryer Offers a Clue,” Wall Street Journal, 15March 2001.

21. Chicago Manufacturing Center (CMC),“Green Plants Sustainable Leadership Program,”at www.cmcusa.org.

22. For more information, see PortionPac, atwww.portionpaccorp.com.

23. Marvin Kline, founder, PortionPac, discus-sion with author.

24. Walters cited in CMC, “PortionPac: At aGlance,” at www.cmcusa.org.

25. Walter Stahel with G. Reday, Jobs for Tomor-row: The Potential for Substituting Manpower forEnergy (New York: Vantage Press, 1981).

26. Walter Stahel, “Pillars of Sustainability,”Product-Life Institute, Geneva.

27. Ibid.

28. Ibid.

29. Hawken, Lovins, and Lovins, op. cit. note 2,pp. 157–58, 170.

30. Ibid., Chapter 3.

31. William Lazonick, “Corporate Restructur-ing,” in Stephen Ackroyd et al., eds., The OxfordHandbook of Work & Organization (Oxford:Oxford University Press, 2005), pp. 577–601.

32. Stahel, op. cit. note 26.

33. Interface Dream Team meeting, Nether-lands, discussion with author, 2001.

34. Janine Benyus, Biomimicry (New York:William Morrow, 1997); Fuller quote fromcoolquotes.wordpress.com/2006/09/26/r-buckminster-fuller-quote-on-beauty.

35. Biomimicry Institute, “Biomimicry in a Nut-shell,” at www.biomimicry.net/biomimicryintroduction.htm. Box 3–2 from Ray Anderson, atWingspread Conference, discussion with author,1 October 2007.

36. Biomimicry Institute, “Biomimicry DesignProcess,” at www.biomimicry.net/designmethodologyA.htm.

37. “EcoCover: Redesigning Waste for a Tangi-ble Benefit,”at www.ecocover.com.

38. Ibid.

39. Biomimicry Institute, “Mother-of-PearlInspires Lightweight Building Materials,” atwww.biomimicry.net/casestudyabalone.htm.

40. Ibid.

41. “Toyota Announces ‘Sustainable Plant’ Activ-ities,” Industry Week, 27 July 2007.

42. Ibid.

43. Biomimicry Institute, op. cit. note 35.

44. Ibid.

45. This concept was first presented in “Catch theWave,” The Economist, 18 February 1999; Figurecourtesy of The Natural Edge Project, Australia,30 October 2006.

46. For a detailed synthesis of this thesis, see K.Hargroves and M. Smith, The Natural Advantageof Nations: Business Opportunities, Innovation andGovernance in the 21st Century (London: Earth-scan, 2005), developed by The Natural Edge Pro-



Notes

ject, at www.naturaledgeproject.net, 30 October2006.

47. General Electric, at www.ge.com/ecomagi-nation; Gunther, op. cit. note 1.

48. Kevin Voigt, “Business Sees Green in GoingGreen,” CNN Report, 21 December 2006.

49. David Reilly, “Profit as We Know It Could BeLost With New Accounting Statements,” WallStreet Journal, 12 May 2007.

50. John Elkinton, Cannibals With Forks: TheTriple Bottom Line of 21st Century Business(Oxford: Capstone Publishing Ltd., 1997).

51. Margo Alderton, “Green Is Gold, Accordingto Goldman Sachs Study,” The CRO (CorporateResponsibility Officer), at www.thecro.com, 11July 2007.

Chapter 4.The Challenge of Sustainable Lifestyles

1. “Ethical Man,” BBC Newsnight, 22 May2007.

2. Data on income, household structure andsize, and energy consumption supplied by BBCteam.

3. Historical data and forecasts from J. Ablettet al., The “Bird of Gold”: The Rise of India’s Con-sumer Market (London: McKinsey Global Insti-tute, 2007); population projections from U.S.Bureau of the Census, International Data Base,Suitland, MD, updated 16 July 2007.

4. HSBC Holdings plc, HSBC Climate Confi-dence Index 2007 (London: 2007).

5. U.N. Population Division, World Popula-tion Prospects: The 2004 Revision (New York: 2006).

6. See Gary Gardner, Erik Assadourian, andRadhika Sarin, “The State of ConsumptionToday,” in Worldwatch Institute, State of the World

2004 (New York: W. W. Norton & Company,2004).

7. Carbon footprints based on data suppliedby the BBC Newsnight team and only includethe carbon dioxide (CO2) emissions from theburning of fossil fuels; they include the directhousehold emissions from electricity, cooking,and transport and an estimate of indirect emissionsbased on the household income. Table 4–1 basedon data in International Energy Agency (IEA)CO2 Emissions from Fuel Combustion 1971–2004(Paris: Organisation for Economic Co-operationand Development (OECD), 2006).

8. Cumulative CO2 emissions in different coun-tries from World Resources Institute, EarthTrends:Environmental Information, online database,Washington, DC, 2007.

9. Figure 4–1 from IEA, op. cit. note 7; Nether-lands Environmental Assessment Agency, “ChinaNow No. 1 in CO2 Emissions: USA in SecondPosition,” Climate Change Dossier, 19 June 2007;“Summary for Policymakers,” in Intergovern-mental Panel on Climate Change (IPCC), ClimateChange 2007: Mitigation of Climate Change (NewYork: Cambridge University Press, 2007).

10. IPCC, Climate Change 2001: Third Assess-ment Report (New York: Cambridge UniversityPress, 2001).

11. D. Farrell et al., From ‘Made in China’ to‘Sold in China’: The Rise of the Chinese UrbanConsumer (London: McKinsey Global Institute,2006).

12. For examples of utilitarian model, see AndreuMas-Colell, Michael D. Whinston, and Jerry R.Green, Microeconomic Theory (Oxford: OxfordUniversity Press, 1995), and David Fischer, Stan-ley Dornbusch, and Rudiger Begg, Economics,7th ed. (Maidenhead, U.K.: McGraw-Hill, 2003);for the theory of “revealed preference,” see PaulSamuelson, “A Note on the Pure Theory of Con-sumers’ Behaviour,” Economica, February 1938,pp. 61–71.

13. “Science of desire” from Ernest Dichter, A



Notes

Handbook of Consumer Motivations (New York:McGraw Hill, 1964).

14. For the social role of goods, see Mary Dou-glas and Baron Isherwood, The World of Goods(New York: Basic Books, 1996); quote from Yian-nis Gabriel and Tim Lang, The UnmanageableConsumer (London: Sage Publications Ltd., 2006),p. 81.

15. For symbolic role of consumer goods, seeHelga Dittmar, The Social Psychology of MaterialPossessions—To Have Is to Be (New York: St Mar-tin’s Press, 1992); for “evocative power,” seeGrant McCracken, Culture and Consumption(Bloomington and Indianapolis: Indiana Univer-sity Press, 1990); Mihály Csíkszentmihályi andEugene Rochberg-Halton, The Meaning ofThings—Domestic Symbols and the Self (New York:Cambridge University Press, 1981).

16. On self-esteem striving, see Jamie Arndt et al.,“The Urge to Splurge: A Terror ManagementAccount of Materialism and Consumer Behav-ior,” Journal of Consumer Psychology, vol. 14, no.3 (2004), pp. 198–212.

17. Opinion Leader Research, 2006 ShiftingOpinions and Changing Behaviour, Commissionedby Sustainable Consumption Roundtable (Lon-don: 2006).

18. “Ethical Man,” op. cit. note 1.

19. “Islands of prosperity” from Madhav Gadjiland Ramachandra Guha, Ecology and Equity—The Use and Abuse of Nature in ContemporaryIndia (New York: Routledge, 1995), p. 34.

20. On the correlates of subjective well-being(or reported life-satisfaction), see, for example,John F. Helliwell, “How’s Life? Combining Indi-vidual and National Variables to Explain Subjec-tive Wellbeing,” Economic Modelling, March 2003,pp. 331–60.

21. Figure 4– 2 from Ronald Inglehart and Hans-Dieter Klingemann, “Genes, Culture, Democ-racy, and Happiness,” in Ed Diener and EunkookSuh, Culture and Subjective Well-being (Cam-

bridge, MA: The MIT Press, 2000). Income fig-ures are World Bank purchasing power parity esti-mates in 1995 dollars.

22. Ruut Veenhoven, World Database of Happi-ness, Erasmus University, Rotterdam, Netherlands.

23. Richard Layard, Happiness—Lessons from aNew Science (London: Penguin, 2005); The WHOWorld Mental Health Survey Consortium, “Preva-lence, Severity and Unmet Need for Treatment ofMental Disorders in the World Health Organiza-tion World Mental Health Surveys,” Journal of theAmerican Medical Association, 2 June 2004, pp.2581–89.

24. Alain de Boton, Status Anxiety (London:Penguin Books, 2005); Tim Kasser, The HighPrice of Materialism (Cambridge, Mass: The MITPress, 2002); Tim Jackson, Wander Jager, andSigrid Stagl, “Beyond Insatiability—Needs Theoryand Sustainable Consumption,” in Lucia A. Reischand Inge Røpke, eds., The Ecological Economics ofConsumption (Cheltenham, U.K.: Edward ElgarPublishing, 2004).

25. Data on “moral lives” and happiness fromLayard, op. cit. note 23, pp. 29, 81; see alsoRobert D. Putnam, Bowling Alone (New York:Simon and Schuster, 2000); family breakdowndata from Population Trends (London, Office forNational Statistics, various years), cited in TimJackson, Chasing Progress? Beyond Measuring Eco-nomic Growth (London: New Economics Foun-dation, 2004), p. 3.

26. Layard, op. cit. note 23, p. 34.

27. Richard Gregg (Gandhi’s student) originallypublished his paper on voluntary simplicity in theIndian Journal Visva Bharati Quarterly; DuaneElgin, Voluntary Simplicity (New York: WilliamMorrow, reprinted 1993); Mihály Csíkszentmi-hályi, “The Costs and Benefits of Consuming,”Journal of Consumer Research, September 2000,pp. 262–72.

28. Amitai Etzioni, “Voluntary Simplicity: Char-acterisation, Select Psychological Implications andSocietal Consequences,” Journal of Economic Psy-



Notes

chology, October 1998, pp. 619–43.

29. Findhorn Foundation, Annual Report2005/6 (Forres, Scotland: 2006); Plum Village, atwww.plumvillage.org/.

30. Simplicity Forum, at www.simplicityforum.org/index.html; Downshifting Downunder, atdownshifting.naturalinnovation.org/index.html.

31. Clive Hamilton and Elizabeth Mail, Down-shifting in Australia: A Sea-change in the Pursuitof Happiness, Discussion Paper No. 50 (Canberra:The Australia Institute, January 2003); U.S. datafrom Merck Family Fund, Yearning for Balance:Views of Americans on Consumption, Material-ism, and the Environment (Takoma Park, MD:1995).

32. Kasser, op. cit. note 24; Kirk Warren Brownand Tim Kasser, “Are Psychological and Ecolog-ical Well-being Compatible? The Role of Values,Mindfulness, and Lifestyle,” Social IndicatorsResearch, November 2005, pp. 349–68.

33. Buy Nothing Day, at adbusters.org/metas/eco/bnd/index.php.

34. Transition Towns, at transitiontowns.org;“U.S. Mayors Climate Protection Agreement,”endorsed by the U.S. Conference of Mayors Meet-ing, Chicago, June 2005.

35. Limits of voluntary simplicity from Etzioni,op. cit. note 28, and from Seonaidh McDonald etal., 2006, “Toward Sustainable Consumption:Researching Voluntary Simplifiers,” Psychologyand Marketing, June 2006, pp. 515–35; invol-untary downshifting from Inglehart and Klinge-man, op. cit. note 21.

36. Robert Wright, The Moral Animal—WhyWe Are the Way We Are: The New Science of Evo-lutionary Psychology (London: Abacus, 1994).

37. The quotation is from a review of Matt Rid-ley, The Red Queen: Sex and the Evolution ofHuman Nature (London: Penguin Books, 1994),cited on book cover.

38. Ridley, op. cit. note 37; Leigh van Valen,“A New Evolutionary Law,” Evolutionary The-ory, vol. 1 (1973), pp. 1–30.

39. Russell W. Belk, Güliz Ger, and SørenAskegaard, “The Fire of Desire: A MultisitedInquiry into Consumer Passion,” Journal of Con-sumer Research 30, December 2003, pp. 325–51.

40. S. Venkatesan, “Pathology of Power: Casteand Capabilities,” OneWorld South Asia, 24 Octo-ber 2006; life expectancy in India from RegistrarGeneral of India, “SRS Based Abridged LifeTables,” SRS Analytical Studies, Report No. 3(New Delhi: 2003).

41. Richard G. Wilkinson, The Impact of Inequal-ity: How to Make Sick Societies Healthier (Lon-don: Routledge, 2005). Figure 4–3 from Office forNational Statistics, Sustainable Development Indi-cators in Your Pocket 2007 (London: Departmentfor Environment, Food and Rural Affairs (Defra),2007).

42. Distress in unequal societies from OliverJames, Affluenza (London: Vermillion, 2007),Appendix 1 and 2.

43. See, for example, W. Hamilton, “The Evo-lution of Altruistic Behavior,” American Natu-ralist, vol. 97 (1963), pp. 354–56; a moreaccessible description can be found in Wright, op.cit. note 36; quote from Richard Dawkins, “Sus-tainability Does Not Come Naturally: A Darwin-ian Perspective on Values,” The Values Platform forSustainability Inaugural Lecture at the Royal Insti-tution, 14 November 2001 (Fishguard, U.K.: TheEnvironment Foundation).

44. Robert M. Axelrod, The Evolution of Coop-eration (New York: Basic Books, 1984).

45. For infrastructure of consumption, seeOECD, Towards Sustainable Consumption: AnEconomic Conceptual Framework (Paris: 2002),p. 41.

46. Wage disparities from Stephen Bradley, InGreed We Trust: Capitalism Gone Astray (Victoria,BC: Trafford Publishing, 2006); discounted long-



Notes

term costs from Nicholas Stern, The Economics ofClimate Change: The Stern Review (Cambridge:Cambridge University Press, 2007); materials sig-naling status from Juliet B. Schor, The OverspentAmerican (New York: Basic Books, 1998);National Consumer Council, Shopping Genera-tion (London: 2006).

47. Avner Offer, The Challenge of Affluence(Oxford: Oxford University Press, 2006).

48. Parenthood from ibid., Chapter 14; savingsrates from Norman Loayza et al., Saving in theWorld: The Stylized Facts (Washington DC: WorldBank, 1998); consumer debt from Ben Woolsey,“Credit Card Industry Facts and Personal DebtStatistics (2006–2007),” at Creditcards.com, andfrom William Branigin, “Consumer Debt Growsat Alarming Pace, at msnbc.msn.com, 12 January2004.

49. Quote from Rio Rivas and David H. Gobeli,“Accelerating the Rate of Innovation at HewlettPackard,” Industrial Research Institute, undated.

50. “Iron cage” was first applied to capitalism byMax Weber, The Protestant Ethic and the Spirit ofCapitalism, tr. Talcott Parsons (New York: CharlesScribner’s Sons, 1958); application to consumerismin George Ritzer, The McDonaldization of Society(New York: Pine Forge Press, 2004).

51. U.N. Population Division, op. cit. note 5.

52. Sustainable Consumption Roundtable, I WillIf You Will: Towards Sustainable Consumption(London: Sustainable Development Commission,2006).

53. Role of policy from ibid.; Tim Jackson,“Challenges for Sustainable Consumption Pol-icy,” in Tim Jackson, Earthscan Reader in Sus-tainable Consumption (London: Earthscan/Jamesand James, 2006); sustainable consumption pol-icy from Defra, Securing the Future: ImplementingUK Sustainable Development Strategy (London:Her Majesty’s Stationery Office, 2005), Chapters2 and 3.

54. Stern, op. cit. note 46.

55. Darren Murph, “Australia to Phase OutIncandescent Bulbs by 2010,” Engadget.com, 20February 2007; Conrad Quilty-Harper, “All ofEU to Switch Off Energy Inefficient Lights WithinThree Years,” Engadget.com, 10 March 2007;Sustainable Development Commission, LookingBack, Looking Forward (London: 2006).

56. Defra, “Wellbeing and Sustainable Develop-ment,” at www.sustainable-development.gov.uk ,updated 6 June 2007; Canada from Andrew C.Revkin, “A New Measure of Wellbeing from aHappy Little Kingdom,” New York Times, 4 Octo-ber 2005; State Environmental Protection Agency,China Green National Accounting Study Report2004 (Beijing: 2006).

57. “Global Ad Spending Expected to Grow6%,” Brandweek, 6 December 2005; “InternetAdvertising Nears £1 Billion for First Six Monthsof 2006,” Internet Advertising Bureau, 4 October2006.

58. Proceedings and publications from the WHOconference available at www.euro.who.int/obesity/conference2006; Ministry of Children andEquality, “The Norwegian Action Plan to ReduceCommercial Pressure on Children and YoungPeople,” at www.regjeringen.no/en; ban on adver-tising green cars reported in Edmonton Journal, 7September 2007; David Evan Harris, “São Paulo:A City Without Ads,” Adbusters, September-Octo-ber 2007.

59. Local Development Institute, A Model ofLocal Economy in 200 Districts Based on Suffi-ciency Economy: An Action Research Project(Bangkok, Office of Village Fund National Com-mittee, 2002–03); Yuwanan Santitaweeroek,“Thailand’s Silk Microenterprises and the Suffi-ciency Economy,” PhD Dissertation (Guildford,U.K.: University of Surrey, forthcoming); Bhutanfrom Revkin, op. cit. note 56.

Chapter 5. Meat and Seafood:The Global Diet’s Most Costly Ingredients

1. Meat and seafood production, Figure 5–1,and Table 5–1 from U.N. Food and Agriculture



Notes

Organization (FAO), FAOSTAT Statistical Data-base, at faostat.fao.org, updated 30 June 2007, andfrom FAO, Yearbook of Fishery Statistics (Rome:2006). The United Nations recently revised theway it totals seafood, so data in this chapter do notmatch earlier Worldwatch publications. Sinceseafood is generally consumed fresh or within a fewmonths of being caught, statistics on consumptionand production are nearly identical.

2. Nanna Roos et al., “Fish and Health,” inCorinna Hawkes and Marie T. Ruel, eds., Under-standing the Links Between Agriculture and Healthfor Food, Agriculture, and the Environment, 2020Focus No. 13 (Washington, DC: InternationalFood Policy Research Institute (IFPRI), May2006); seafood data from FAO, FAOSTAT, op. cit.note 1; supply of protein from Meryl Williams,“The Transition in the Contribution of LivingAquatic Resources to Food Security,” Food, Agri-culture, and the Environment Discussion Paper 13(Washington, DC: IFPRI, 1996).

3. For more on factory farming, see DanielleNierenberg, Happier Meals: Rethinking the GlobalMeat Industry (Washington, DC: WorldwatchInstitute, September 2005), and Michael Pollan,The Omnivore’s Dilemma: A Natural History ofFour Meals (New York: Penquin Press, 2006).

4. Humane Society of the United States, “AnHSUS Report: Welfare Issues with Selective Breed-ing for Rapid Growth in Broiler Chickens andTurkeys,” Washington, DC, February 2006.

5. For the history of fishing technology, seeDietrich Sahrhage and Johannes Lundbeck, AHistory of Fishing (Berlin: Springer-Verlag, 1992);70 million tons from FAO, FAOSTAT, op. cit.note 1; 90 percent from Ransom A. Myers andBoris Worm, “Rapid Worldwide Depletion ofPredatory Fish Communities,” Nature, 15 May2003, pp. 280–83.

6. National Science and Technology Council,Committee on Environment and NaturalResources, Integrated Assessment of Hypoxia inthe Northern Gulf of Mexico (Washington, DC:National Oceanic and Atmospheric Administration(NOAA), May 2000); Amy Wold, “‘Dead Zone’

Threatens Fisheries,” The Advocate, 10 September2007; National Marine Fisheries Service, NOAA,Fisheries of the United States 2006 (Silver Spring,MD: July 2007).

7. Symbiotic role of fish farms from B. A. Costa-Pierce, ed., Ecological Aquaculture: The Evolutionof the Blue Revolution (Oxford, U.K.: Blackwell,2002); symbiotic role of livestock from Pollan, op.cit. note 3, p. 210.

8. Danielle Nierenberg, “Factory Farming in theDeveloping World,” World Watch, May/June2003; “Meet Niman Ranch Family Farmer TimRoseland,” Niman Ranch Web site, at www.niman-ranch.com, viewed August 2007.

9. FAO, Mixed Crop-Livestock Farming: AReview of Traditional Technologies Based on Lit-erature and Field Experience (Rome: 2001);Michael Greger, Bird Flu: A Virus of Our OwnHatching (New York: Lantern Books, 2006).

10. Iowa State University, “Alternatives to Ges-tation Stalls Reviewed at Iowa State,” press release(Ames, IA: 19 April 2007).

11. Dr. William Weida, Executive Director ofthe GRACE Factory Farm Project, discussion withDanielle Nierenberg, July 2007.

12. Henning Steinfeld et al., Livestock’s LongShadow: Environmental Issues and Options (Rome:FAO, 2006); Daniele Finelli, “Meat is Murderon the Environment,” New Scientist, 18 July 2007;C. Cederberg and M. Stadig, “System Expansionand Allocation in Life Cycle Assessment of Milkand Beef Production,” International Journal ofLife Cycle Assessment, vol. 8, no. 6 (2003), pp.350–56.

13. Farmed fish from FAO, FAOSTAT, op. cit.note 1; growth from Christopher L. Delgado et al.,Outlook for Fish to 2020: Meeting Global Demand(Washington, DC, and Penang, Malaysia: IFPRIand WorldFish Center, October 2003).

14. Rosamond Naylor and Marshall Burke,“Aquaculture and Ocean Resources: Raising Tigersof the Sea,” Annual Reviews in Environmental



Notes

Resources, vol. 30 (2005), pp. 185–218; JackieAlder and Daniel Pauly, On the Multiple Uses of For-age Fish: From Ecosystems to Markets, FisheriesCentre Research Report (Vancouver, BC: SeaAround Us Project, Fisheries Centre, University ofBritish Columbia, 2006), pp. vii, 3.

15. Naylor and Burke, op. cit. note 14.

16. Ibid.

17. Campaign from Don Staniford, Pure SalmonCampaign, discussion with Brian Halweil, 16 July2007; world’s largest salmon farming companyfrom Marine Harvest, “Pan Fish Aquires MarineHarvest to Form the World’s Largest Fish Farm-ing Company,” press release (Oslo, Norway: 6March 2006).

18. Costa-Pierce, op. cit. note 7; Maeve Kelly etal., “Nutrient Re-cycling or Utilising ‘Waste’ inOpen Water Aquaculture,” Scottish Association forMarine Science, presentation at Soil Associationconference, Stirling, U.K., March 2006; syner-gies and 50 percent from Shawn Robinson,research scientist, Fisheries and Oceans Canada,Aquaculture Division, St Andrews Biological Sta-tion, St Andrews, NB, discussion with Brian Hal-weil, 19 September 2007.

19. Cleaner fish from Per Gunnar Kvenseth, VillaSalmon, Vikebukt, Norway, discussion with BrianHalweil, 31 August 2007; “Lice from Fish FarmsCalled Threat,” Associated Press, 20 September2007; benefits of integrated system from Costa-Pierce, op. cit. note 7.

20. Cost of removing nitrogen from the waterfrom Bob Rheault, Moonstone Oysters and EastCoast Shellfish Growers Association, discussionwith Brian Halweil; Rowan Jacobsen, A Geogra-phy of Oysters (New York: Bloomsbury USA, 2007);M. A. Rice, “Environmental Impacts of ShellfishAquaculture: Filter Feeding to Control Eutroph-ication,” in M. Tlusty et al., eds., Marine Aqua-culture and the Environment: A Meeting forStakeholders in the Northeast (Falmouth, MA: CapeCod Press), pp. 77–84.

21. Rowan Jacobsen, “Restoration on the Half

Shell,” New York Times, 9 April 2007; dead zonesfrom J. Michael Beman, Kevin R. Arrigo, andPamela A. Matson, “Agricultural Runoff FuelsLarge Phytoplankton Blooms in Vulnerable Areasof the Ocean,” Nature, 10 March 2005, pp.211–14.

22. WorldFish Center, “Rice-Fish Culture: ARecipe for Higher Production,” at www.worldfishcenter.org, viewed 4 September 2006; projec-tions are Worldwatch estimates based on ibid.

23. Randall E. Brummett et al., “Targeting Aqua-culture Development in Africa: A Case Study fromCameroon,” Humid Forest Ecoregional Center,Yaoundé, Cameroon, unpublished report; RandallE. Brummett, WorldFish, Humid Forest Ecore-gional Center, Yaoundé, Cameroon, e-mail toBrian Halweil, 17 September 2007.

24. Environmental Working Group (EWG),Corn Subsidies in the United States 1995–2005and Soybean Subsidies in the United States1995–2005, Farm Subsidy Database, atfarm.ewg.org/farm, 12 June 2007; Organisationfor Economic Co-operation and Development(OECD), Agricultural Policies in OECD, Moni-toring and Evaluation 2006 (Paris: 2006).

25. EWG, op. cit. note 24; EWG, Livestock Sub-sidies in the United States 1995–2005, Farm Sub-sidy Database, at farm.ewg.org/farm, 12 June2007.

26. Ussif Rashid Sumaila and Daniel Pauly,Catching More Bait: A Bottom-up Re-estimation ofGlobal Fisheries Subsidies, Fisheries Centre ResearchReport (Vancouver, BC: Sea Around Us Project,Fisheries Centre, University of British Columbia,2006).

27. Daniel Pauly and Jay Maclean, In a PerfectOcean (Washington, DC: Island Press, 2006), p.68; OECD, op. cit. note 24.

28. Fleet fuel use from Cornelia Dean, “FishingIndustry’s Fuel Efficiency Gets Worse as OceanStocks Get Thinner,” New York Times, 20 Decem-ber 2005; energy provided by fish from Peter H.Tyedmers et al., “Fueling Global Fishing Fleets,”



Notes

Ambio, December 2005, pp. 635–38.

29. Ussif Rashid Sumaila, “Running on Empty,”from “10 Solutions to Save the Ocean,” Conser-vation, July-September 2007; University of BritishColumbia, “Gov’t Subsidies Make Ocean ‘Strip-mining’ Economically Viable: UBC Researchers,”press release (Vancouver, BC: 17 November 2006).

30. FAO, “Loss of Biodiversity in Livestock—Policy Options,” at virtualcentre.org.

31. Pauly and Maclean, op. cit. note 27, p. 72.

32. Wayne Arnold, “Surviving Without Subsi-dies,” New York Times, 2 August 2007.

33. Ibid.

34. Tundi Agardy, “A Separate Peace,” from “10Solutions to Save the Ocean,” Conservation, July-September 2007.

35. James A. Bohnsack, Southeast Fisheries Sci-ence Center, University of Miami, FL, discussionwith Brian Halweil, 15 May 2006; James A. Bohn-sack, “Marine Reserves: They Enhance Fisheries,Reduce Conflicts, and Protect Resources,”Oceanus, vol. 36, no. 3 (1993).

36. Andrew Balmford et al., “The WorldwideCosts of Marine Protected Areas,” Proceedings ofthe National Academy of Sciences, 29 June 2004,pp. 9694–97; D. Zeller, “From Mare Liberum toMare Reservarum: Canada’s Opportunity forGlobal Leadership in Ocean Resource Gover-nance,” in A. Chircop and M. McConnell, eds.,Ocean Yearbook (Chicago: University of ChicagoPress, 2005), pp. 1–18.

37. Marine Stewardship Council (MSC), “History of MSC” and “About MSC,” atwww.msc.org, updated 14 September 2006.

38. MSC membership from www.msc.org andfrom Jessica Wenban-Smith, communications man-ager, MSC, London, e-mail to Brian Halweil, 12January 2005.

39. Kate Moser, “Sustainable Seafood Casts a

Wider Net,” Christian Science Monitor, 3 April2006; Henry Lovejoy, president and founder,EcoFish, Dover, NH, discussion with Brian Hal-weil, 21 August 2006; Tim O’Shea, chairman andCEO, CleanFish, San Francisco, discussion withBrian Halweil, 4 September 2006.

40. Lovejoy, op. cit. note 39.

41. Jerry Hirsch, “Animal Welfare Issue Boil-ing,” Los Angeles Times, 2 July 2007.

42. “Buyers Navigate Sustainable Seafood,”SeaFood Business, October 2004, pp. 22–23;Moser, op. cit. note 39; Wal-Mart Stores, Inc.,“Wal-Mart Stores, Inc. Introduces New Label toDistinguish Sustainable Seafood,” press release(Bentonville, AR: 31 August 2006); Carol Ness,“Wal-Mart to Push Sustainable Shrimp,” SanFrancisco Chronicle, 23 May 2007.

43. Hirsch, op. cit. note 41; Whole Foods, “FarmAnimal and Meat Quality Standard,” at www.wholefoodsmarket.com, viewed August2007.

44. Eat Wild, Directory of Pasture-raised Farm-ers, at www.eatwild.com, viewed August 2007.

45. Cape Code Commercial Hook Fishermen’sAssociation, at www.ccchfa.org; Eric Hesse, CapeBluefin and Cape Code Commercial Hook Fish-ermen’s Association, discussion with Brian Halweil,30 January 2006.

46. Doug Woodby et al., Commercial Fisheries ofAlaska, Special Publication No. 05–09 (Anchor-age, AK: Alaska Department of Fish and Game,June 2005); Nick Joy, managing director, LochDuart Ltd., Scotland, presentation at SeafoodSummit 2006: Sustainability and the Future ofSeafood, Seattle, WA, 29–31 January 2006; shiftin fishers’ mindset from Rod Fujita, scientist,Environmental Defense, Oakland, CA, discus-sion with Brian Halweil, 24 July 2006; Hesse, op.cit. note 45.

47. Harry Aiking, Joop de Boer, and JohanVereijken, eds., Sustainable Protein Productionand Consumption: Pigs or Peas? (Berlin: Springer,



Notes

2006); C. T. Hoogland et al., “Spoiling theAppetite? Changing Patterns of Meat and FishConsumption and the Role of Knowledge aboutProduction—A Qualitative Investigation,” pre-sentation at the 6th Biennial Conference on Envi-ronmental Psychology, Bochum, 19–21 September2005; Carolien T. Hoogland, Joop de Boer, andJan J. Boersema, “Transparency of the Meat Chainin the Light of Food Culture and History,”Appetite, August 2005, pp. 15–23.

48. Slow Food International, at www.slowfood.com; Slow Fish, “The Return of Slow Fish:Sustainable Seafood Salone Back in Genoa,” pressrelease (Bra, Italy: Slow Food International, 2005);see also Slow Fish Web site, at www.slowfish.it.

49. Sarah Weiner, “Slow Food and Fishing,” inThe Slow Food Companion (Bra, Italy: 2005), p. 33.

50. Daniel Pauly, “Babette’s Feast in Lima,” SeaAround Us Project Newsletter, November/Decem-ber 2006; Patricia Majluf, Center for Environ-mental Sustainability, Cayetano Heredia University,Lima, Peru, e-mail to Brian Halweil, 20 August2007.

51. Pauly, op. cit. note 50; Majluf, op. cit. note50.

52. Martin Hall, “Eat More Anchovies,” from“10 Solutions to Save the Ocean,” Conservation,July-September 2007.

53. Martin Fackler, “Waiter, There’s Deer in MySushi,” New York Times, 25 June 2007.

54. Marion Burros, “The Hunt for a Truly GrandTurkey, One that Nature Built,” New York Times,21 November 2001; “Poultry,” Heritage FoodsUSA, at www.heritagefoodsusa.com, viewedAugust 2007; Heritage Foods customer servicerepresentative, discussion with Danielle Nieren-berg.

55. Patrick Mulvany and Susanne Gura,“Reclaiming Livestock Keepers’ Rights,” Seedling,January 2007.

56. Increased demand from Hank Pellissier,

“Shark Fin Soup: An Eco-Catastrophe?” San Fran-cisco Chronicle, 20 January 2003; $200 a bowl,$700 per kilogram, and Ecuador from Juan Foreroand Alyssa Lau, “Hidden Cost of Shark Fin Soup:Its Source May Vanish,” New York Times, 5 Jan-uary 2006; roughly 100 million shark deaths fromIUCN–World Conservation Union, “ThreatenedShark Species Receive International Focus,” pressrelease (Queensland, Australia: 6 March 2003).

57. Active Conservation Awareness Program,WildAid, at wildaid.org; Thai Airways Interna-tional Public Company Limited, “THAI CancelsShark Fin Soup Service on Board,” press release(Bangkok: 2000); Maria Cheng, “More Than WeCan Chew: Environment Groups Are Trying toChange Hong Kong’s Destructive Eating Habits.Can They Pull It Off?” Asiaweek, 27 October2000; The Walt Disney Company, Enviroport2005 (Burbank, CA: 2005); Doug Crets and MimiLau, “HKU Bans Shark Fin Dishes,” The Standard(Hong Kong), 3 November 2005.

58. Ayrshire Farm Veal Flyer, at www.ayrshirefarm.com, viewed August 2007.

Chapter 6.Building a Low-Carbon Economy

1. “Summary for Policymakers,” in Intergov-ernmental Panel on Climate Change (IPCC), Cli-mate Change 2007: The Physical Science Basis (NewYork: Cambridge University Press, 2007), p. 2.

2. Figure 6–1 from the following: K. W. Thon-ing et al., Atmospheric Carbon Dioxide Dry AirMole Fractions from quasi-continuous measure-ments at Barrow, Alaska; Mauna Loa, Hawaii;American Samoa; and South Pole, 1973–2006(Boulder, CO: Earth System Research Labora-tory, National Oceanic and Atmospheric Admin-istration, October 2007); C. D. Keeling and T. P.Whorf, “Atmospheric CO2 Records from Sites inthe SIO Air Sampling Network,” and A. Neftel etal., “Historical CO2 Record from the Siple StationIce Core,” both in Carbon Dioxide InformationAnalysis Center (CDIAC), Trends: A Compendiumof Data on Global Change (Oak Ridge, TN: Oak



Notes

Ridge National Laboratory, U.S. Department ofEnergy, 2007).

3. E. Jansen et al., “Palaeoclimate,” in IPCC,op. cit. note 1, p. 449.

4. IPCC, op. cit. note 1, pp. 342, 350, 537,543; M. Serreze et al., “Perspectives on the Arc-tic’s Shrinking Sea-Ice Cover,” Science, 16 March2007, pp. 1533–36.

5. Alan Greenspan, The Age of Turbulence:Adventures in a New World (New York: PenguinPress, 2007); Nicholas Stern, The Economics ofClimate Change: The Stern Review (Cambridge,U.K.: Cambridge University Press, 2007).

6. “Summary for Policymakers,” op. cit. note 1;International Energy Agency, Key World EnergyStatistics, (Paris: 2007), p. 6; recent carbon emis-sions by Worldwatch based on G. Marland et al.,“Global, Regional, and National Fossil Fuel CO2Emissions,” in CDIAC, op. cit. note 2; BP, Sta-tistical Review of World Energy (London: 2007).

7. J. Hansen et al., “Dangerous Human-madeInterference with Climate: A GISS ModelE Study,”Atmospheric Chemistry and Physics, vol. 7, no. 9(2007), pp. 2287–312; 0.8 degrees Celsius is themidpoint of estimates of warming, as reported inIPCC, op. cit. note 1, p. 5.

8. T. Barker et al., “Technical Summary,” inIPCC, Climate Change 2007: Mitigation (NewYork: Cambridge University Press, 2007), p. 39.

9. In Table 6–1, business-as-usual case describedin International Energy Agency, Energy Technol-ogy Perspectives—Scenarios and Strategies to 2050(Paris: 2006), pp. 44–46, 451–52, and “stabi-lization” scenario based on Category II emissionmitigation scenarios described in Barker et al., op.cit. note 8, on G. A. Meehl, “Global Climate Pro-jections,” in IPCC, op. cit. note 1, and on annualenergy growth of 0.7 percent for 2006 to 2030,described in F. Bressand et al., Curbing GlobalEnergy Demand Growth: The Energy ProductivityOpportunity (McKinsey Global Institute, May2007), p. 13, declining in proportion to gross

domestic product growth to 0.6 percent for 2030to 2050; U.S. Department of Energy, Interna-tional Energy Outlook 2007 (Washington, DC:2007), pp. 5, 73; Barker et al., op. cit. note 8, pp.39, 42.

10. Recent and historical carbon emissionsderived from BP, op. cit. note 6, and from Mar-land et al., op. cit. note 6; Table 6–2 calculated byWorldwatch with data from BP, op. cit. note 6,from Marland et al., op. cit. note 6, from Popu-lation Reference Bureau, 2006 World PopulationData Sheet (Washington, DC: 2006), from U.S.Bureau of the Census, “Population, PopulationChange and Estimated Components of PopulationChange: April 1, 2000 to July 1, 2006,” Wash-ington, DC, December 2006, and from Interna-tional Monetary Fund (IMF), World EconomicOutlook (Washington, DC: April 2007); energydemand growth estimated in Bressand et al., op.cit. note 9, p. 11.

11. “Growth and Responsibility in the WorldEconomy,” G–8 Summit Declaration, Heiligen-damm, Germany, June 2007, p. 15; approximateshare of emissions by source provided in Barker etal., op. cit. note 8, p. 28.

12. Worldwatch Institute estimate of requiredindustrial-country emissions reductions.

13. S. Pacala and R. Socolow, “StabilizationWedges: Solving the Climate Problem for theNext 50 Years with Current Technologies,” Sci-ence, 13 August 2004, pp. 968–72.

14. National Petroleum Council, Hard Truths:Facing the Hard Truths about Energy (WashingtonDC: July 2007), pp. 127, 135.

15. IPCC Working Group III, IPCC SpecialReport on Carbon Dioxide Capture and Storage(New York: Cambridge University Press, 2005),pp. 201–04; MIT Energy Initiative, The Future ofCoal: Options for a Carbon-Constrained World(Cambridge, MA: Massachusetts Institute of Tech-nology, 2007), p. 52.

16. MIT Energy Initiative, op. cit. note 15, pp.



Notes

xi–xii; International Energy Agency, op. cit. note9, p. 24.

17. Remarks by U.S. Vice President Cheney atthe Annual Meeting of the Associated Press,Toronto, Canada, April 2001; World EnergyCouncil, Energy and Climate Change ExecutiveSummary (London: May 2007), p. 5.

18. U.S. Department of Energy, Monthly EnergyReview (Washington, DC: September 2007), p. 16;energy productivity based on data from IMF, op.cit. note 10; International Energy Agency, op.cit. note 9, pp. 48–57; U.S. Department of Energy,International Energy Annual 2004 (Washington,DC.: 2006), Table E.1; BP, op. cit. note 6; esti-mate of useful energy from G. Kaiper, US EnergyFlow Trends—2002 (Livermore, CA: LawrenceLivermore National Laboratory, 2004).

19. Bressand et al., op. cit. note 9, p. 9.

20. B. Griffith et al., Assessment of the TechnicalPotential for Achieving Zero-Energy CommercialBuildings (Golden, CO: National RenewableEnergy Laboratory, 2006); Bressand et al., op.cit. note 9, p. 13.

21. S. Mufson, “U.S. Nuclear Power RevivalGrows,” Washington Post, September 2007. Box6–1 from the following: Worldwatch Institutenuclear energy database compiled from statisticsfrom the International Atomic Energy Agency,press reports, and Web sites; “Nuclear Dawn,”The Economist, 6 September 2007; “AtomicRenaissance,” The Economist, 6 September 2007;Satu Hassi, European Parliament member, e-mailto Christopher Flavin, 19 February 2007; TheKeystone Center, Nuclear Power Joint Fact-Find-ing (Keystone, CO: 2007), p. 30; MIT Energy Ini-tiative, The Future of Nuclear Power (Cambridge,MA: Massachusetts Institute of Technology, 2003),p. 25.

22. Figure 6–2 based on data from UnitedNations Development Programme, World EnergyAssessment: Energy and the Challenge of Sustain-ability (New York: 2000), and from T. B. Johans-son et al., “The Potentials of Renewable Energy;Thematic Background Paper,” International Con-

ference for Renewable Energies, Bonn, Germany,January 2004. Table 6–3 from Mark S. Mehos andBrandon Owens, An Analysis of Siting Opportu-nities for Concentrating Solar Power Plants in theSouthwestern United States (Golden, CO, andBoulder, CO: National Renewable Energy Labo-ratory and Platts Research and Consulting, 2004);International Energy Agency, Photovoltaic PowerSystems Programme, Potential for Building Inte-grated Photovoltaics, 2002 Summary (Paris: 2002),p. 8; Richard Perez, Atmospheric SciencesResearch Center, State University of New York atAlbany, e-mail to Janet Sawin, Worldwatch Insti-tute, 11 July 2006; Battelle/Pacific NorthwestLaboratory, An Assessment of Available WindyLand Area and Wind Energy Potential in the Con-tiguous United States (Richland, WA: August1991), based on 2004 U.S. end-use demand fromU.S. Energy Information Administration, “AnnualElectric Power Industry Report,” Table 7.2, inElectric Power Annual 2005 (Washington, DC:2005); Robert Perlack et al., Biomass as Feedstockfor a Bioenergy and Bioproducts Industry: The Tech-nical Feasibility of a Billion Ton Annual Supply(Oak Ridge, TN: Oak Ridge National Labora-tory, April 2005); Massachusetts Institute of Tech-nology, The Future of Geothermal Energy(Cambridge, MA: 2006), p. 1-1; John D. Isaacsand Walter R. Schmitt, “Ocean Energy: Forms andProspects,” Science, 18 January 1980, pp. 265–73.

23. B. Parsons et al., Grid Impacts of Wind PowerVariability: Recent Assessments from a Variety ofUtilities in the United States (Golden, CO:National Renewable Energy Laboratory, 2006); P. B. Eriksen et al., “System Operation with HighWind Penetration,” IEEE Power & Energy Mag-azine, November/December 2005, pp. 65–74; C. Archer and M. Jacobson, “Supplying BaseloadPower and Reducing Transmission Requirementsby Interconnecting Wind Farms,” Stanford Uni-versity, February 2007.

24. K. Yeager, “Facilitating the Transition to aSmart Electric Grid,” testimony to the Subcom-mittee on Energy and Air Quality, Committee onEnergy and Commerce, Washington, DC, May2007.

25. D. Marcus, “Moving Wind to the Main-



Notes

stream: Leveraging Compressed Air Energy Stor-age,” Renewable Energy Access, October 2007;TXU, “TXU Halts Efforts to Obtain Permits forEight Coal-Fueled Units,” press release (Dallas,TX: 1 March 2007); TXU, “Luminant and ShellJoin Forces to Develop a Texas-Sized Wind Farm,”press release (Dallas, TX: 27 July 2007).

26. Willett Kempton and Jasna Tomiç “Vehicle-to-Grid Power Implementation: From Stabiliz-ing the Grid to Supporting Large-scale RenewableEnergy,” Journal of Power Sources, 1 June 2005, pp.280–94.

27. U.S. Department of Energy, “Brazil,” inCountry Analysis Briefs (Washington, DC: Sep-tember 2007); Martin Bensmann, “Green Gas onTap,” New Energy, April 2007, pp. 66–69; Inter-national Energy Agency, IEA—PVPS AnnualReport 2005 (Paris: 2005), p. 66.

28. Environmental and Energy Study Institute(EESI), “FY 08 Appropriations for RenewableEnergy and Energy Efficiency: Full House andSenate Committee Vote for Increase in EE/REFunding,” Issue Update (Washington, DC, 18July 2007).

29. Worldwatch Institute calculation of 2004–06renewable energy growth rates based on data fromAmerican Wind Energy Association, “Wind PowerCapacity in U.S. Increased 27% in 2006 and IsExpected to Grow an Additional 26% in 2007,”press release (Washington DC: 23 January 2007),from Birger Madsen, BTM Consult, e-mail toJanet Sawin, 8 March 2007, from European WindEnergy Association, “European Market for WindTurbines Grows 23% in 2006,” press release,(Brussels: 1 February 2007), from Christoph Berg,F.O. Licht, e-mails to Rodrigo G. Pinto, World-watch Institute, 20–22 March 2007, from GlobalWind Energy Council, “Global Wind Energy Mar-kets Continue to Boom—2006 Another RecordYear,” press release (Brussels: 2 February 2007),and from Prometheus Institute, PV News, April2007, p. 8. Figure 6–3 from REN21, RenewablesGlobal Status Report 2007 (draft) (Paris: May2007).

30. New Energy Finance, Global Trends in Sus-

tainable Energy Investment (London: 2007); Ves-tas WindSystems, AS, Vestas Annual Report 2006(Randers, Denmark: 2007); EESI, op. cit. note 28.

31. Sasha Rentzing, “Sun Aplenty,” New Energy,June 2007.

32. Boston Consulting Group, The ExperienceCurve Reviewed (Boston: reprint, 1972).

33. European Climate Exchange, “HistoricalData—ECX CFI Futures Contract,” at www.europeanclimateexchange.com, viewed 11 October2007; photovoltaic cost forecast based on TravisBradford, Prometheus Institute, e-mails to JanetSawin, 5–8 April 2007.

34. Equivalent carbon price calculated usingcrude oil price for September 2007 and Septem-ber 2002 from U.S. Department of Energy,“World Crude Oil Prices,” Washington DC,updated 11 October 2007, and approximate crudeoil carbon content from U.S. Department ofEnergy, Emissions of Greenhouse Gases in the UnitedStates 1998 (Washington DC: November 1999),Table B4; Senator Jeff Bingaman, “Low CarbonEconomy Act of 2007,” proposed legislation,Washington DC, July 2007.

35. Douglass C. North, Institutions, Institu-tional Change, and Economic Performance (Cam-bridge, U.K.: Cambridge University Press, 1990).

36. Feng An et al., Passenger Vehicle GreenhouseGas and Fuel Economy Standards: A Global Update(Washington, DC: International Council for CleanTransportation, 2007), pp.18, 24, 32; AssemblyMember L. Levine, Assembly Bill 722, Sacra-mento, California, introduced February 2007;“World First! Australia Slashes Greenhouse Gasesfrom Inefficient Lighting,” press release (Can-berra, Australia: Department of the Environmentand Water Resources, 20 February 2007). “Chi-nese Agree to Nix Incandescents,” Greenbiz.com,3 October 2007.

37. North Carolina Solar Center and the Inter-state Renewable Energy Council, Database ofState Incentives for Renewables & Efficiency, atwww.dsireusa.org, 14 October 2007; Environ-



Notes

mental Technologies Action Plan, Spain’s NewBuilding Energy Standards Place the CountryAmong the Leaders in Solar Energy in Europe (Brus-sels: European Commission, September 2006);“First Heating Law for Renewable Energy in Ger-many,” Energy Server (Newsletter for RenewableEnergy and Energy Efficiency), 2 August 2007.

38. Figure 6–4 is a Worldwatch calculation basedon California Energy Commission, CaliforniaElectricity Consumption by Sector (Sacramento:California Energy Commission, 2006), on U.S.Department of Energy, State Energy Consump-tion, Price, and Expenditure Estimates (SEDS)(Washington, DC: 2007), on U.S. Department ofEnergy, Annual Energy Review 2006 (Washington,DC: 2007), on A. Gough, California Energy Com-mission, e-mail to James Russell, WorldwatchInstitute, 31 August 2007, and on Census Bureauestimates.

39. John S. Hoffman, “Limiting Global Warm-ing: Making it Easy by Creating Social Infra-structure that Supports Demand ReductionsThrough More-Effective Markets,” unpublishedpaper, 2007.

40. J. Sawin, “The Role of Government in theDevelopment and Diffusion of Renewable EnergyTechnologies: Wind Power in the United States,California, Denmark and Germany, 1970–2000,”Doctoral Thesis, The Fletcher School of Law andDiplomacy, September 2001.

41. M. Ragwitz and C. Huber, Feed-In Systemsin Germany and Spain and a Comparison (Karl-sruhe, Germany: Fraunhofer Institut fr Sys-temtechnik und Innovationsforschung, 2005);ranking based on Bradford, op. cit. note 33.

42. Stern, op. cit. note 5, pp. 233–34.

43. E. Shuster, Tracking New Coal-Fired PowerPlants (Washington, DC: National Energy Tech-nology Laboratory, U.S. Department of Energy,October 2007).

44. “Germany to Close its Coal Mines,” SpiegelOnline, 30 January 2007; United States ClimateAction Partnership, “U.S. Climate Action Part-

nership Announces its Fourth Membership Expan-sion,” press release (Washington, DC: Septem-ber 2007); European Council, “The SpringEuropean Council: Integrated Climate Protec-tion and Energy Policy, Progress on the LisbonStrategy,” press release (Brussels: 12 March 2007);National Development and Reform Commission,China’s National Climate Change Programme(Beijing: June 2007); Pew Center on Global Cli-mate Change, “Climate Change Initiatives andPrograms in the States,” press release (Arlington,VA: 11 September 2006); “Statement of H. E.Luiz Incio Lula da Silva, President of the Feder-ative Republic of Brazil, at the general debate ofthe 62nd Session of the United Nations Gen-eral,” press release (New York: Ministry of Exter-nal Relations, 25 September 2007).

Chapter 7. Improving Carbon Markets

1. The Kyoto Protocol covers six greenhousegases that affect the climate with differingstrengths: carbon dioxide, methane, nitrous oxide,hydrofluorocarbons, perfluorocarbons, and sul-fur hexafluoride.

2. Carbon to become the world’s biggest com-modity market from James Kanter, “In London’sFinancial World, Carbon Trading Is the New BigThing,” New York Times, 6 July 2007.

3. U.N. Framework Convention on ClimateChange (UNFCCC), “Kyoto Protocol,” atunfccc.int; UNFCCC, “Status of Ratification,” atunfccc.int, viewed 1 October 2007.

4. Emissions scenarios linked with warmingprojections from “Summary for Policymakers,”in Intergovernmental Panel on Climate Change,Climate Change 2007: Mitigation of ClimateChange (New York: Cambridge University Press,2007), p. 15.

5. Chad Damro and Pilar Luaces-Méndez, “TheKyoto Protocol’s Emissions Trading System: AnEU-US Environmental Flip-Flop,” Working PaperNo. 5 (Pittsburgh, PA: University of PittsburghEuropean Union Center and Center for WestEuropean Studies, August 2003).



Notes

6. UNFCCC, at unfccc.int, viewed 1 October2007.

7. UNFCCC Secretariat, “Kyoto Protocol Par-ties Move Closer to Trading Emission Allowances,”press release (Vienna: 30 August 2007).

8. Table 7–1 from World Bank, State and Trendsof the Carbon Market 2007 (Washington, DC:May 2007), p. 3, and from Katherine Hamilton etal., State of the Voluntary Carbon Markets 2007:Picking Up Steam (San Francisco: Ecosystem Mar-ketplace, July 2007), p. 5.

9. World Bank, op. cit. note 8, p. 3.

10. European Communities, “EU Action AgainstClimate Change,” brochure, September 2005;European Union reduction target from UNFCCC,cited in International Financial Services London(IFSL) Research, Carbon Markets & EmissionsTrading (London: June 2007), p. 1.

11. World Bank, op. cit. note 8, p. 3; IFSLResearch, op. cit. note 10, p. 3; European Com-munities, op. cit. note 10, pp. 5–6; numbers andregistry from European Union, “ETS: CommunityIndependent Transaction Log,” at ec.europa.eu,viewed 9 August 2007.

12. European Communities, op. cit. note 10, p.7; European Commission, “Climate Change:Commission Proposes Bringing Air Transport intoEU Emissions Trading Scheme,” press release(Brussels: 20 December 2006).

13. Ricardo Bayon, Amanda Hawn, and Kather-ine Hamilton, Voluntary Carbon Markets (London:Earthscan, 2007), pp. 9–10; Hamilton et al., op.cit. note 8, p. 14; World Bank, op. cit. note 8, pp.3, 17.

14. Chicago Climate Exchange, “Auditing andCompliance,” at www.chicagoclimatex.com,viewed 20 July 2007; Chicago Climate Exchange,“Chicago Climate Exchange Surpasses 2006 Vol-ume in First Half of 2007,” press release (Chicago:2 July 2007).

15. Chicago Climate Exchange, “Emissions

Reduction Commitment,” at www.chicagoclimatex.com, viewed 20 July 2007. All CCX membersmust commit to reduce greenhouse gas emissionsto 6 percent below their baseline—the average oftheir annual emissions between 1998 and 2001;Chicago Climate Exchange, “Membership Cate-gories,” at www.chicagoclimatex.com, viewed 1October 2007.

16. United States Climate Action Partnership(USCAP), “Major Businesses and EnvironmentalLeaders United to Call for Swift Action on GlobalClimate Change,” press release (Washington, DC:22 January 2007); USCAP, “About Our Mem-bers,” at www.us-cap.org, viewed 19 September2007; Alex Dewar et al., Natural ResourcesDefense Council (NRDC), Cap and Trade Policyin the United States (draft) (Washington, DC:August 2007), p. 3.

17. Steven Mufson, “Europe’s Problems ColorU.S. Plans to Curb Carbon Gases,” WashingtonPost, 9 April 2007; “Australia PM Pledges ClimatePlan,” BBC News, 3 June 2007. Box 7–1 based onthe following: Regional Greenhouse Gas Initiative,“About RGGI,” viewed 20 July 2007, atwww.rggi.org; 10 states from Hannah Fairfield,“When Carbon is Currency,” New York Times, 6May 2007; Dewar et al., op. cit. note 16, pp. 4,6; Felicity Barringer, “Officials Reach CaliforniaDeal to Cut Emissions,” New York Times, 31August 2006; Point Carbon, “Carbon MarketNorth America,” 1 August 2007, at www.pointcarbon.com; Ricardo Bayon, “A Green Thumb forthe Invisible Hand,” Milken Institute Review,February 2007, p. 24; Ontario Ministry of theEnvironment, “Ontario to Explore Joining Forceswith U.S. States on Climate Change Initiative,March 30,” press release (Ottawa: 30 March2007).

18. Dewar et al., op. cit. note 16, p. 12. Figure7–1 from European Climate Exchange, at europeanclimateexchange.com, viewed 11 October2007, converted to dollars using historical exhangerates at oanda.com.

19. IFSL Research, op. cit. note 10, p. 3; Dewaret al., op. cit. note 16, pp. 11–12; British andGerman windfall profits from Jörg Haas and Peter



Notes

Barnes, “Who Gets the Windfall from CarbonTrading?” unpublished, at www.boell.de/downloads/oeko/EU_Sky_trust_final.pdf, p. 1. Dollaramount converted from euros using exchange rateon 1 October 2007. Box 7–2 from Cameron Hep-burn et al., “Auctioning of EU ETS Phase IIAllowances: How and Why?” Climate Policy, no.6 (2006), pp. 137–60; Lehman Brothers, TheBusiness of Climate Change II (London: Septem-ber 2007), pp. 50–54.

20. Haas and Barnes, op. cit. note 19, p. 3.

21. World Wide Fund for Nature–UK(WWF–UK), Emission Impossible: Access toJI/CDM Credits in Phase II of the EU EmissionsTrading Scheme (Godalming, Surrey, U.K.: June2007), pp. 3–4; Philippe Ambrosi, World Bank, e-mail to Zoë Chafe, 3 October 2007.

22. IFSL Research, op. cit. note 10, p. 3; Decem-ber 2008 carbon price from Point Carbon, updated28 September 2007.

23. Dewar et al., op. cit. note 16, p. 11; 100 per-cent auctions from Melanie Nakagawa, NRDC,and Tomas Wyns, Climate Action NetworkEurope, e-mail to Zoë Chafe.

24. Fairfield, op. cit. note 17; Point Carbon,“Maine Governor Signs RGGI Legislation,” Car-bon Market North America (Washington, DC: 20June 2007), p. 2; Dewar et al., op. cit. note 16, p.3; Haas and Barnes, op. cit. note 19, p. 1; PeterBarnes, Who Owns the Sky? (Washington, DC:Island Press, 2001); “The Lieberman-WarnerAmerica’s Climate Security Act of 2007: AnnotatedTable of Contents,” 2 August 2007.

25. UNFCCC Secretariat, “Annual Green Invest-ment Flow of Some 100 Billion Dollars Possibleas Part of Fight against Global Warming,” pressrelease (Vienna: 19 September 2006); developmentaid from Organisation for Economic Co-operationand Development (OECD), at www.oecd.org.

26. Katia Karousakis, Joint Implementation Cur-rent Issues and Emerging Challenges (Paris: OECD,October 2006), pp. 7–8; World Bank, op. cit.note 8, pp. 3–4.

27. CDM statistics and Figure 7–2 from JørgenFenhann, “CDM Pipeline,” U.N. EnvironmentProgramme (UNEP) Risø Centre, database,updated 1 October 2007.

28. Ibid.

29. IFSL Research, op. cit. note 10, p. 5; “TheNairobi Framework—Catalyzing the CDM inAfrica,” at cdm.unfccc.int/Nairobi_Framework/index.html, viewed 3 August 2007.

30. IFSL Research, op. cit. note 10, p. 5; 50percent of credits is a Worldwatch calculationbased on Fenhann, op. cit. note 27.

31. Perverse incentive problem from “Kudos fora Working Eco-treaty,” Christian Science Monitor,17 September 2007; Michael Wara, “Is the GlobalCarbon Market Working?” Nature, February2007, pp. 595–96. Euros converted to dollarsusing exchange rate of 1 October 2007.

32. IFSL Research, op. cit. note 10, p. 5. World-watch analysis of HFC-23 project trends based onFenhann, op. cit. note 27. Figure 7–3 from ibid.Table 7–2 includes only registered CDM projectactivities and is based on cdm.unfccc.int/Projectsand on ji.unfccc.int/JI_Projects unless otherwisenoted: Pearl River Basin from Unasylva, “Worldof Forestry,” vol 57, no 225 (2006); BRT Bogotáfrom “TransMilenio Integrates Kyoto ProtocolClean Development Mechanism,” Transport Inno-vator, September-October 2006; Lawley fuelswitch from “Statkraft Signs CDM Deal in SouthAfrica,” Statkraft, press release (Oslo: 21 April2005); Osorio from Elecnor, “Elecnor GroupRecords Consolidated Net Profits of 32.8 MillionEuros for the First 9 Months of 2006,” pressrelease (Madrid: 13 November 2006); DonetskDistrict Heating from Foundation Joint Imple-mentation Network, “District Heating SystemRehabilitation in Donetsk, Ukraine,” atwww.jiqweb.org/rehabilitation.htm; PodilskyCement from TÜV SÜV Group, “First JointImplementation Project Worldwide Registered,”press release (Ukraine: Kamyanets-Podilsky, May2007).

33. UNFCCC, “Land Use, Land Use Change,



Notes

and Forestry: Background,” at unfccc.int;UNFCCC, “LULUCF—Developments at PastCOP and SB Sessions: Marrakesh Accords andCOP 7,” at unfccc.int.

34. U.S. Environmental Protection Agency,Greenhouse Gas Mitigation Potential in US Forestryand Agriculture (Washington, DC: November2005); Robert T. Watson et al., Land Use, LandUse Change, and Forestry: Special Report of theIntergovernmental Panel on Climate Change (Cam-bridge, U.K.: Cambridge University Press, 2000);World Bank, op. cit. note 8, p. 30; BiocarbonFund and Forest Carbon Partnership Facility fromWorld Bank, “Carbon Finance at the World Bank:List of Funds,” at www.carbonfinance.org.

35. Climate, Community, and BiodiversityAlliance, at www.climate-standards.org.

36. World Bank, op. cit. note 8, pp. 24, 29.

37. Ibid., p. 4.

38. Michael Wara, Measuring the Clean Devel-opment Mechanism’s Performance and Potential,Working Paper No. 56 (Stanford, CA: Program onEnergy and Sustainable Development, StanfordUniversity, July 2006); Mark Trexler, EcoSecuri-ties Global Consulting Services, e-mail to ZoëChafe, August 2007.

39. Bayon, Hawn, and Hamilton, op. cit. note13, p. 12; small projects from UNFCCC, “WayCleared for Kyoto Mechanisms to Boost GreenInvestment in Developing Countries–CDM Exec-utive Board,” press release (Vienna: 27 June 2007),and from Sebastian Mallaby, “Carbon Policy ThatWorks,” Washington Post, 23 July 2007; bundlingfrom “Greenhouse Gas Emission Reduction andIndustry,” World Bank, powerpoint, February2007.

40. WWF–UK, op. cit. note 21, pp. 7–9; “U.N.Rejects Big Kyoto Project in Equatorial Guinea,”Reuters, 31 July 2007.

41. IFSL Research, op. cit. note 10; Hamilton etal., op. cit. note 8, p. 5.

42. Adam Stein, “Terrapass Launches Partnershipwith Expedia to Bring Carbon Balanced Flightto All Travelers,” 28 August 2006, at www.terrapass.com; Terrapass, “Projects,” at www.terrapass.com, viewed 2 August 2007; “Carbon Off-setting,” Jiva Dental, at www.jivadental.co.uk,viewed 2 August 2007. Box 7–3 based on thefollowing: “Carbon Neutral: Oxford Word of theYear,” Oxford University Press, at blog.oup.com/2006/11/carbon_neutral_; Kevin Smith, TheCarbon Neutral Myth (Amsterdam: TransnationalInstitute, February 2007); GHG Protocol Initia-tive, at www.ghgprotocol.org.

43. Michael Gillenwater, Redefining RECs:Untangling Attributes and Offsets, DiscussionPaper (Princeton, NJ: Woodrow Wilson School ofPublic and International Affairs, Princeton Uni-versity, August 2007).

44. Smith, op. cit. note 42.

45. Ibid.

46. See Clean Air–Cool Planet, A Consumers’Guide to Retail Carbon Offset Providers(Portsmouth, NH: 2006).

47. Dan Milmo, “EasyJet Slams ‘Snake Oil Sell-ers’ in Offset Market and Goes it Alone,”Guardian (London), 30 April 2007.

48. Hamilton et al., op. cit. note 8, p. 39; Trexler,op. cit. note 38.

49. Hamilton et al., op. cit. note 8, p. 43.

50. Ibid., pp. 40–41; 40 organizations from“Gold Standard: Rationale” and “Gold Standard:How Does it Work?” at www.cdmgoldstandard.org. viewed 3 August 2007.

51. World Business Council on SustainableDevelopment, “Completion of the Voluntary Car-bon Standard Framework,” press release (Geneva:31 July 2007).

52. “UN Climate Debate Tries to Kick-StartNew Treaty,” Reuters, 6 August 2007; NicholasStern, The Economics of Climate Change: The Stern



Notes

Review (Cambridge, U.K.: Cambridge Univer-sity Press, 2007), p. 325.

53. UNFCCC Secretariat, “Vienna UN Confer-ence Shows Consensus on Key Building Blocks forEffective International Response to ClimateChange,” press release (Vienna: 31 August 2007);U.S. carbon dioxide emissions from fossil fuelburning is a Worldwatch estimate based on BritishPetroleum, BP Statistical Review of World Energy(London: 2007), and on G. Marland et al.,“Global, Regional, and National Fossil Fuel CO2Emissions,” Trends: A Compendium of Data onGlobal Change (Oak Ridge, TN: Oak RidgeNational Laboratory, 2007); “UN Climate DebateTries to Kick-Start New Treaty,” op. cit. note 52.

54. Environmental Defense, CDM and the Post-2012 Framework, Discussion Paper (New York:August 2007), p. 2; Joanna Lewis and ElliotDiringer, Policy-based Commitments in a Post-2012 Climate Framework, Working Paper (Arling-ton, VA: Pew Center on Global Climate Change,May 2007), pp. 13–14; UNFCCC, op. cit. note39; Trexler, op. cit. note 38.

55. WWF-UK, op. cit. note 21, p. 10; Environ-mental Defense, op. cit. note 54, p. 3; Stern, op.cit. note 52, p. ix; Paul Kelly, “Carbon the Cur-rency of a New World Order,” The Australian, 21March 2007.

56. Daniel Bodansky, International SectoralAgreements in a Post-2012 Climate Framework,Working Paper (Arlington, VA: Pew Center onGlobal Climate Change, May 2007).

57. Bayon, op. cit. note 17.

Chapter 8.Water in a Sustainable Economy

1. L. Emerton et al., The Present Economic Valueof Nakivubo Urban Wetland, Uganda (Nairobi:Eastern Africa Regional Office, IUCN–The WorldConservation Union, September 1999); J. Turpieet al., Economic Valuation of the Zambezi BasinWetlands (Harare: Regional Office for Southern

Africa, IUCN, 1999); Randall A. Kramer et al.,“Ecological and Economic Analysis of WatershedProtection in Eastern Madagascar,” Journal ofEnvironmental Management, March 1997, pp.277–95.

2. World Water Assessment Programme, TheUnited Nations World Water Development Report2: Water, A Shared Responsibility (Paris: UNESCO,2006); forecast from International Water Man-agement Institute (IWMI), World Water Supplyand Demand 1995–2025 (Colombo, Sri Lanka:2000); current status and river systems from DavidMolden, ed., Water for Food, Water for Life: AComprehensive Assessment of Water Management inAgriculture (London and Colombo, Sri Lanka:Earthscan and IWMI, 2007), chapter 2 and p.551; implications of scarcity in the value of waterfrom W. M. Hanemann, “The Economic Con-ception of Water” in Peter P. Rogers, M. RamonLlamas, and Luis Martinez-Cortina, eds., WaterCrisis: Myth or Reality (London; New York: Tay-lor & Francis, 2006), pp. 61–92.

3. Figure 8–1 from Molden, op. cit. note 2, p. 11.

4. Table 8–1 from World Resources Institute(WRI), EarthTrends: Environmental Information,online database, 2007; reliance of the poor onagriculture from Molden, op. cit. note 2, p. 551.

5. With regard to beef production, it is impor-tant to note that in some contexts livestock can befed crop residues or graze in rangeland unsuitablefor more profitable uses, making them efficientusers of otherwise uneconomic water. See Molden,op. cit. note 2, p. 487; comprehensive assessmentresults in Molden, op. cit. note 2.

6. See Molden, op. cit. note 2, Chapter 2.

7. Sectoral water use data from WRI, op. cit.note 4.

8. Water access data from U.N. DevelopmentProgramme (UNDP), Human DevelopmentReport 2006 (New York: Palgrave Macmillan,2006), p. 7; Annette Prüss-Üstün et al., “UnsafeWater, Sanitation and Hygiene,” in M. Ezzati etal., eds., Comparative Quantification of Health



Notes

Risks: Global and Regional Burden of DiseaseAttributable to Selected Major Risk Factors (Geneva:World Health Organization, 2004), pp. 1321–51.

9. Millennium Development Goals, at www.un.org/millenniumgoals; costs of meeting goals fromJames Winpenny, Financing Water for All: Reportof the World Panel on Financing Water Infra-structure, Third World Water Forum, World WaterCouncil and Global Water Partnership, 2003;U.N. Population Division, World PopulationProspects: The 2004 Revision (New York: 2006);United Nations, MDG Goals Report 2006 (NewYork: Department of Economic and Social Affairs,2006); cost of infrastructure maintenance from theWorld Business Council on Sustainable Develop-ment, Water Facts and Trends, at www.wbcsd.org,August 2005.

10. Millennium Ecosystem Assessment (MA),Ecosystems and Human Well-being: Synthesis (Wash-ington, DC: Island Press, 2005); Megan Dyson,Ger Bergkamp, and John Scanlon, eds., FLOW—The Essentials of Environmental Flows (Gland,Switzerland: IUCN, 2003).

11. Technical Advisory Committee, IntegratedWater Resources Management, TAC Paper 4(Stockholm: Global Water Partnership, 2000).

12. Meredith A. Giordano and Aaron T. Wolf,“The World’s Freshwater Agreements: HistoricalDevelopments and Future Opportunities,” inU.N. Environment Programme, InternationalFreshwater Treaties Atlas (Nairobi: 2002); ClaudiaW. Sadoff and David Grey, “Beyond the River: theBenefits of Cooperation on International Rivers,”Water Policy, vol. 4, no. 5 (2002), pp. 389–403;Jerome Delli Priscoli and Aaron T. Wolf, Man-aging and Transforming Water Conflicts (NewYork: Cambridge University Press and UNESCO,forthcoming).

13. J. A. Allan, “Virtual Water—The Water,Food, and Trade Nexus: Useful Concept or Mis-leading Metaphor?” Water International, March2003, pp. 4–11.

14. UNDP, op. cit. note 8.

15. Important examples of work on reformingeconomic decisionmaking include David W.Pearce, Blueprint 3: Measuring Sustainable Devel-opment (London: Earthscan, 1993); Herman Dalyand J. B. Cobb, For the Common Good (Boston:Beacon Press, 1989); John Dixon and M. M.Hufschmidt, eds. Economic Valuation Techniquesfor the Environment (Baltimore, MD: Johns Hop-kins University Press, 1986); and Kirk Hamilton,Where Is the Wealth of Nations? (Washington, DC:World Bank 2006). Groundwater abstractionsfrom Molden, op. cit. note 2, p. 395.

16. Box 8–2 from Mark Smith, Dolf de Groot,and Ger Bergkamp, eds., PAY—Establishing Pay-ments for Watershed Services (Gland, Switzerland:IUCN, 2006).

17. Box 8–3 from Dublin Statement on Waterand Sustainable Development, adopted at theInternational Conference on Water and the Envi-ronment: Development Issues for the 21st Cen-tury, Dublin, Ireland, 26–31 January 1992.

18. To follow the rapid innovations in industry,see Water Environment Federation Web site, atwww.wef.org; potential in rainfed agriculture fromMolden, op. cit. note 2, pp. 315–17.

19. See PUB Singapore, at www.pub.gov.sg/home/index.aspx.

20. See Lucy Emerton and Elroy Bos, VALUE—Counting Ecosystems as Water Infrastructure(Gland, Switzerland: IUCN, 2004); Lucy Emer-ton, Counting Coastal Ecosystems as an EconomicPart of Development Infrastructure (Colombo, SriLanka: IUCN, 2006); Jenny Jarvie, “Coastal Buy-out Talk Roils Lives in Mississippi Striving for aComeback,” Los Angeles Times, 2 October 2007.

21. For current developments see the Newslet-ter of the Global Environmental Flows Network,at www.iucn.org/themes/wani.

22. World Commission on Dams, Dams andDevelopment: A New Framework for Decision-Mak-ing (London: Earthscan, 2000); Robin Gregory,Tim McDaniels, and Daryl Fields, “Decision Aid-ing, Not Dispute Resolution: Creating Insights



Notes

Through Structured Environmental Decisions,”Journal of Policy Analysis and Management, sum-mer 2001, pp. 415–32.

23. Sustainable Agriculture Initiative, at www.saiplatform.org.

24. For better-targeted pricing schemes, see, forexample, John J. Boland and Dale Whittington,“The Political Economy of Water Tariff Design inDeveloping Countries: Increasing Block TariffsVersus Uniform Price with Rebate,” in Ariel Dinar,ed., The Political Economy of Water Pricing Reforms(New York: Oxford University Press, 2000), pp.215–35. For Box 8–4, for a thorough expositionon water subsidies see Kristin Komives et al.,Water, Electricity, and the Poor: Who Benefits fromUtility Subsidies? (Washington, DC: World Bank,2005).

25. United Nations, Handbook of NationalAccounting: Integrated Environmental and Eco-nomic Accounting 2003 (New York: 2003); U.N.Statistics Division, “Handbook on IntegratedEnvironmental and Economic Accounting forWater Resources,” draft (New York: UnitedNations, May 2006).

26. See Hamilton, op. cit. note 15, and KirkHamilton and Michael Clemens, “Genuine SavingsRates in Developing Countries,” World Bank Eco-nomic Review, vol. 13, no. 2 (1999), pp. 333–56.

27. A. K. Chapagain, A. Y. Hoekstra, and H. H. G. Savenije, “Water Saving Through Inter-national Trade of Agricultural Products,” Hydrol-ogy and Earth System Sciences, vol. 10, no. 3(2006), pp. 455–68.

28. Table 8–2 and payment for environmentalservices categorization from Smith, de Groot, andBergkamp, op. cit. note 16.

29. Molden, op. cit. note 2; MA, op. cit. note 10;Organisation for Economic Co-operation andDevelopment, Water Management: Performanceand Challenges in OECD Countries (Paris: 1998).

30. Molden, op. cit. note 2; MA, op. cit. note 10.

Chapter 9.Banking on Biodiversity

1. Box 9–1 from the following: data and Figurefrom Millennium Ecosystem Assessment, Ecosys-tems and Human Well-being: Biodiversity Synthe-sis (Washington, DC: World Resources Institute,2005), pp. 2–4, 47; E. O. Wilson, “TED PrizeWish: Help Build the Encyclopedia of Life,” TEDConference, March 2007; population forecastfrom U.N. Population Division, World PopulationProspects: The 2004 Revision (New York: 2006).

2. Eileen Campbell, “The Case of the $150,000Fly,” Ecosystem Marketplace, 26 April 2006.

3. Ibid.

4. Edward O. Wilson, The Diversity of Life (NewYork: W. W. Norton & Company, 1992); Camp-bell, op. cit. note 2.

5. Jessica Wilkinson, Ecosystem Marketplace,discussions with author, 2007.

6. Clean Water Act, 33 U.S.C. § 1251.

7. K. ten Kate, J. Bishop, and R. Bayon, Bio-diversity Offsets: Views, Experience, and the BusinessCase (Gland, Switzerland, and London:IUCN–World Conservation Union and InsightInvestment, 2004).

8. For more on the CWA and its Section 404,see www.epa.gov/watertrain/cwa.

9. Box 9–2 from Alice Kenny, “Parthenon Cap-ital Fuels Wildlands, Inc. Rapid Growth,” Ecosys-tem Marketplace, 23 April 2007.

10. Wilkinson, op. cit. note 5.

11. Deborah Fleischer, “Wetland MitigationBanking: Environmentalists Express Concerns,”Ecosystem Marketplace, 25 April 2005.

12. Alice Kenny, “Ohio Study Shows MitigationBanks Not Living Up to Potential,” EcosystemMarketplace, 24 August 2006.



Notes

13. Ibid.

14. Deborah L. Mead, “History and Theory—The Origin and Evolution of Conservation Bank-ing,” in Ricardo Bayon, Jessica Fox, and NathanielCaroll, eds., Conservation & Biodiversity Banking(London: Earthscan, in press).

15. Various government officials, discussions withauthor.

16. Box 9–3 from Ronald Bailey, “Who Pays forthe Delhi Sands Fly?” Reasononline, 27 July 2005.

17. Ricardo Bayon, “A Bull Market in Wood-peckers,” Milken Institute Review, 2005.

18. Ecosystem Marketplace figures provided byWilkinson, op. cit. note 5. A comprehensive data-base of species banks will soon be available fromthe Ecosystem Marketplace. See also J. Fox et al.,“Conservation Banking,” in J. M. Scott, D. D.Goble, and F. W. Davis, eds., The EndangeredSpecies Act at Thirty: Conserving Biodiversity inHuman-dominated Landscapes (Washington, DC:Island Press, forthcoming).

19. Campbell, op. cit. note 2.

20. Ibid.

21. Ibid.

22. Jessica Fox, “Conservation Banking: MovingBeyond California,” Ecosystem Marketplace, 2004;Robert Bonnie, “Guest Feature: Bankng onEndangered Specieds Conservation,” EcosystemMarketplace, 16 November 2004; Wilkinson, op.cit. note 5.

23. Table 9–1 from K. ten Kate and M. Inbar, inBayon, Fox, and Caroll, op. cit. note 14, from tenKate, Bishop, and Bayon, op. cit. note 7, andfrom Bruce McKenney, “Environmental OffsetPolicies, Principles, and Methods: A Review ofSelected Legislative Frameworks” BiodiversityNeutral Initiative, 30 March 2005. Australia exam-ples from Louisa Mamouney, discussion withauthor, from Jane Scanlon, “Australians Revving

Up to Bank on the Bush,” Ecosystem Marketplace,13 September 2006, from Gary Stoneham, dis-cussion with author, and from Department ofSustainability and Environment, State of Victoria,“Bush Broker: Native Vegetation Credit Regis-tration and Trading, An Information Paper,” 2006.

24. Wilkinson, op. cit. note 5.

25. Erik Ness, “The Big Red Barn in the GreatGreen Field: Green Payments and American Agri-culture,” Ecosystem Marketplace, 21 March 2006.

26. Ten Kate, Bishop, and Bayon, op. cit. note7; Joshua Bishop et al., Building Biodiversity Busi-ness: Report of a Scoping Study (Gland, Switzerland,and London: IUCN and Shell International Lim-ited, October 2006).

27. Careesa Gee, “Grain for Green,” EcosystemMarketplace, 24 February 2006.

28. Ricardo Bayon, “Case Study: The MexicoForest Fund,” Ecosystem Marketplace, 2004.

29. Ibid.

30. Cameron Walker, “Taking Stock: AssessingEcosystem Services Conservation in Costa Rica,”Ecosystem Marketplace, 21 May 2007.

31. Mark Eigenraam, “EcoTender: Paying forEcosystem Services, not Lemons,” Ecosystem Mar-ketplace, 12 October 2005.

32. Ibid.

33. For information on the Business and Biodi-versity Offset Program, see www.forest-trends.org/biodiversityoffsetprogram. Note that ForestTrends is the parent organization of EcosystemMarketplace.

34. Ten Kate, Bishop, and Bayon, op. cit. note7; list of benefits to companies adapted from tenKate and Inbar, op. cit. note 23.

35. BBOP, op. cit. note 33.



Notes

Chapter 10.The Parallel Economy of the Commons

1. J. Stephen Lansing, Perfect Order: Recog-nizing Complexity in Bali (Princeton, NJ: Prince-ton University Press, 2006).

2. Ibid.

3. Ibid.

4. Ibid.

5. “Knowledge to the People” (interview withJimmy Wales), New Scientist, 3 February 2007, pp.44–45; Yochai Benkler, The Wealth of Networks(New Haven, CT: Yale University Press, 2006), pp.70–74; “About Wikipedia,” at en.wikipedia.org/wiki/Wikipedia:About.

6. Quote from Benkler, op. cit. note 5, p. 71.

7. “Knowledge to the People,” op. cit. note 5.

8. “About Wikipedia,” op. cit. note 5; Naturecited in Benkler, op. cit. note 5, p. 73.

9. Elinor Ostrom, Governing the Commons(New York: Cambridge University Press, 1990).

10. Herbert Gintis et al., eds., Moral Sentimentsand Material Interests (Cambridge, MA: The MITPress, 2005).

11. Box 10–1 from the following: E. P. Thomp-son, Customs in Common (New York: The NewPress, 1993); Eric Kerridge, The Common Fields ofEngland (New York: Manchester University Press,1992); Liam Clare, Enclosing the Commons(Dublin: Four Courts Press, 2004); William B.Weeden, Economic and Social History of New Eng-land, 1620–1789 (Williamstown, MA: CornerHouse Publishers, 1978; orig published 1890);Steven Hahn, The Roots of Southern Populism (NewYork: Oxford University Press, 1983), pp. 239–68;Mark Dowie, “The Fate of the Commons: Priva-tization v. the Public Trust,” Orion, July/August2003.

12. Garrett Hardin, “The Tragedy of the Com-

mons,” Science, 13 December 1968, pp. 1243–48.

13. Thompson, op. cit. note 11, p. 107.

14. Ostrom, op. cit. note 9, pp. 69–82.

15. Ibid., pp. 82–88; James Kho and EuniceAgsaoay-Saño, Country Study on Customary WaterLaws and Practices: Philippines (Rome: U.N. Foodand Agriculture Organization, undated), pp. 7–9.

16. Ostrom, op. cit. note 9.

17. Ibid., pp. 61–65.

18. Ibid.

19. Robert Higgs, “How the Western Cattle-men Created Property Rights,” The Freeman,March 2005, pp. 36–37.

20. Garrett Hardin, “The Tragedy of the Com-mons,” in David R. Henderson, ed., The ConciseEncyclopedia of Economics (Indianapolis, IN: Lib-erty Fund, Inc., 2002); Joanna Berger, “TheTragedy of the Commons,” Environment, Decem-ber 1998.

21. Hardin, op. cit. note 20; compare LawrenceR. Heaney, The Causes and Effects of Deforestation(Chicago: The Field Museum, 2007).

22. M. Scott Taylor, Buffalo Hunt: Interna-tional Trade and the Virtual Extinction of theNorth American Bison, Working Paper No. 12969(Washington, DC: National Bureau of EconomicResearch, March 2007); Rebecca Clarren andWilliam deBuys, articles in “Taking on Goliath,”Orion, November/December 2006; “CoalbedMethane BOOM,” High Country News, SpecialReport, undated; Charlie Leduff, “Last Days of theBaymen,” New York Times, 29 April 1997.

23. Adam Smith, Theory of Moral Sentiments(Indianapolis, IN: Liberty Fund Press, 1982), pp.116–17.

24. Geoffrey Gray, “Mogul Dick Parsons LikesCigars, Believes in Terror,” New York Magazine,17 September 2007, p. 12.



Notes

25. David Harris interview, Living on Earth,National Public Radio, 29 March 1996.

26. Ibid.

27. Ibid.

28. Adam Smith, The Wealth of Nations (NewYork: Bantam Classic Edition, 2003), p. 941.

29. Bureau of Labor Statistics, “Union Mem-bers Summary,” 26 January 2007.

30. See, for example, Thomas D. Peacock andDonald R. Day, “Nations Within a Nation: TheDakota and Ojibwe of Minnesota,” Daedalus,June 2000, p. 137; David A. Kaplan, “Born Free,Sold Dear,” Newsweek, 6 May 1991, p. 52; ChrisClarke, “The Battered Border: Immigration Pol-icy Sacrifices Arizona’s Wilderness,” Earth IslandJournal, autumn 2006, p. 21.

31. Marian Burros, “Plan Would Expand OceanFish Farming,” New York Times, 6 June 2005;“Congressman Proposes Ads on NASA Assets,”Wall Street Journal, 11 April 2007.

32. Sarah Alexander, American Community Gar-dening Association, discussion with author, 22June 2007; Rhoda Amon, “A Stop-and-GrowLifestyle: Older Residents Plant the Seeds ofFriendship by Tending a Community Garden,”Newsday, 16 September 2007; Lauren E. Baker,“Tending Cultural Landscapes and Food Citi-zenship in Toronto’s Community Gardens,” TheGeographical Review, July 2004; Diane Wang, AStudy of Community Gardens as Catalysts for Pos-itive Social Change (Chicago: Environmental Stud-ies Program, University of Chicago, 19 May 2006);Bill Lohman, “Community Gardens Grow MoreThan Plants: Improvements Include Economicand Social Issues,” Richmond Times-Dispatch, 12August 2001.

33. Project for Public Spaces Web site, atwww.pps.org.

34. Ibid.

35. Agricultural Marketing Service, U.S. Depart-

ment of Agriculture, “USDA Releases New Farm-ers Market Statistics,” press release (Washington,DC: 5 December 2006).

36. Mark Lakeman, cofounder, City Repair Pro-ject, discussion with author, 5 April 2007; Com-munity Greens Web site, at www.communitygreens.org/ExistingGreens/existinggreens.htm.

37. Colin Woodard, The Lobster Coast (New York:Penguin Books, 2004), p. 269. See also JamesM. Acheson, The Lobster Gangs of Maine (Hanover,NH: University of New England Press, 1988).

38. Woodard, op. cit. note 36, pp. 240–41.

39. For pressures at local level, see, for example,Gary Washburn, “If Price Is Right City SightsWill Carry New Name Tags,” Chicago Tribune, 29April 2006, and Stuart Elliot, “Town Square asBillboard: Short on Cash, Municipalities Are Rent-ing Out Public Spaces to Marketers,” New YorkTimes, 23 June 2003.

40. See generally Peter Barnes, Who Owns theSky? (Washington, DC: Island Press, 2001), andPeter Barnes, Capitalism 3.0 (San Francisco,Berrett-Koehler, 2006). Box 10–2 from the fol-lowing: Pacific Forest Trust Web site, at www.pacificforest.org; Marin Agricultural Land Trust Website, at www.malt.org; “Cooperative Solutions,Healthy Streams,” Oregon Water Trust, atowt.org; Robin Finn, “A Serious Obsession withPlaygrounds,” New York Times, 27 July 2007;Robert Fox Elder, “Protecting New York City’sCommunity Gardens,” New York University Envi-ronmental Law Journal, vol. 13, issue 3 (2006),pp. 769–800.

41. Barnes, Who Owns the Sky?, op. cit. note 39.

42. Ibid., pp. 50–53.

43. Stephen Castle with James Kanter, “EuropeMoves to Make Big Polluters Pay for Emissions,”New York Times, 5 June 2007; Testimony of Dal-las Burtraw, senior fellow, Resources For theFuture, before the Subcommittee on Global Cli-mate Change, House Committee on Energy andCommerce, 29 March 2007; “Tories Plan to Fight



Notes

Climate Change with Taxes and Green Tape,”Guardian (London), 14 September 2007; Han-nah Fairfield, “When Carbon Is Currency,” NewYork Times, 6 May 2007; Scott Allen and BethDaley, “Patrick to OK Fees for Power Plants,”Boston Globe, 18 January 2007.

44. Churchill quote from Willis Mason West,The Story of World Progress (Boston: Allyn andBacon, 1922), p. 530.

45. Robert V. Andelson, ed., Land Value Taxa-tion Around the World (Malden, MA: BlackwellPublishing, 2001); Tom Condon, “Filling in theBlanks to Aid Comeback,” Hartford Courant, 3September 2006; Walter Rybeck, “Transit-InducedLand Values: Development and Revenue Impli-cations,” Commentary (Council on Urban Eco-nomic Development}, 24 October 1981.

46. Alan Thein Durning and Yoram Bauman,Tax Shift: How to Help the Economy, Improve theEnvironment, and Get the Tax Man off Our Backs(Seattle, WA: Northwest Environment Watch,1998), pp. 62–63.

Chapter 11. Engaging Communities for a Sustainable World

1. Visit to Los Angeles Ecovillage, 16–18 May2007; Lois Arkin, co-founder of Los AngelesEcovillage, discussion with author, 17 May 2007;Los Angeles Eco-Village Overview (Los Angeles:CRSP Institute for Urban Ecovillages, 2003).

2. Arkin, op. cit. note 1; Los Angeles Eco-VillageOverview, op. cit. note 1.

3. Visit to Los Angeles Ecovillage, op. cit. note1; Arkin, op. cit. note 1; Los Angeles Eco-VillageOverview, op. cit. note 1.

4. Box 11–1 from Graham Meltzer, SustainableCommunities: Learning from the Cohousing Model(Victoria, BC: Trafford, 2005), pp.1–3.

5. Community Renewables Initiative, LydneyLocal Power: A Market Town Energy Project Gen-erating Benefits for the Whole Community (Glouces-

tershire, U.K.: Severn Wye Energy Agency(SWEA): June 2006); Kierson Wise, project man-ager, SWEA, e-mail to Joy Chen, WorldwatchInstitute, 12 September 2007; nine tons fromDepartment for Environment, Food, and RuralAffairs, Experimental Statistics on Carbon DioxideEmissions at Local Authority and Regional Level(London: October 2005).

6. “The Findhorn Ecovillage: RenewableEnergy Systems,” at www.ecovillagefindhorn.com,viewed 3 October 2007; 40 percent from JonathanDawson, president of the Global Ecovillage Net-work and resident of Findhorn Ecovillage, e-mailto author, 27 September 2007.

7. Table 11–1 from the following: Inverie fromAngela Williams, Development Manager, KnoydartFoundation, e-mail to Joy Chen, WorldwatchInstitute, 6 August 2007, and from “KnoydartRenewables,” at www.knoydart-foundation.com,viewed 3 October 2007; ZEGG (Center for Exper-imental Culture Design) at www.zegg.de, viewed3 October 2007; Hammarby Sjöstad from Timo-thy Beatley, “Circular Urban Metabolism in Stock-holm,” in Worldwatch Institute, State of the World2007 (New York: W. W. Norton & Company,2007), p. 19; Kibbutz Lotan from www.kibbut-zlotan.com, viewed 3 October 2007; ChristieWalk from Douglas Farr, Sustainable Urbanism:Urban Design With Nature (Hoboken, NJ: JohnWiley & Sons, in press); Berea College Ecovillagefrom visit, 29 January 2007, from Richard Olson,director of Berea College Sustainable and Envi-ronmental Studies, discussion with author, 29January 2007, and from Meghan Bihn, “BereaCollege’s Ecovillage Provides Educational Oppor-tunities and Green Housing for Students,” Spire,February 2006; Ecoovila from Jonathan Dawson,Ecovillages: New Frontiers for Sustainability (Bris-tol, U.K.: The Schumacher Society, 2006), pp.32–33; The Solaire from Edward A. Clerico, “TheSolaire—A Case Study in Urban Water Reuse,” inBusiness Sustainability: Planning for a ResponsibleFuture, Conference Proceedings (Philadelphia,PA: Temple University, February 2007), p. 6;BedZED from Jonathan Dawson, “BedZED andFindhorn: How Do They Compare?” Permacul-ture Magazine, No. 49, pp. 48–52; Farr, op. cit.this note.



Notes

8. Quote from Robert and Diane Gilman, Ecov-illages and Sustainable Communities (Holte, Den-mark: Gaia Trust, 1990); Stephen Tinsley andHeather George, Ecological Footprint of the Find-horn Foundation and Community (Forres, U.K.:Sustainable Development Research Centre, August2006); Dawson, Ecovillages, op. cit. note 7, p.29.

9. Meltzer, op. cit. note 4.

10. Number of ecovillages from Global Ecovil-lage Network, at gen.ecovillage.org/index.html,viewed 11 October 2007; number of co-housingcommunities from The Cohousing Association ofthe United States, “US Cohousing Communi-ties,” at directory.cohousing.org, viewed 4 April2007, from Canadian Cohousing Network, “Com-munity Summary,” at cohousing.ca/summary.htm,viewed 4 April 2007, from Greg Bamford, “‘Liv-ing Together on One’s Own’: Cohousing forOlder People, A New Housing Type in Denmarkand the Netherlands,” conference paper, 2004,from UK Co-housing Network, at www.cohous-ing.org.uk, viewed 4 April 2007, and from DickUrban Vestbro, Chair of National Association ofCollective Housing Units, Kollektivhus NU, Swe-den, e-mail to author, 9 March 2007 (note: thenumber of co-housing communities includes thosethat are still under construction or being planned).

11. Phinney Ecovillage from Alex Fryer, “Neigh-borhoods Battle Global Warming on a SmallScale,” Seattle Times, 15 May 2007, and fromWeb site, at www.phinneyecovillage.net, viewed 3October 2007.

12. Robert D. Putnam, Bowling Alone: The Col-lapse and Revival of American Community (NewYork: Simon & Schuster, 2000), p. 19.

13. Ibid.; Miller McPherson, Lynn Smith-Lovin,and Matthew E. Brashears, “Social Isolation inAmerica: Changes in Core Discussion Networksover Two Decades,” American Sociological Review,June 2006, pp. 353–75.

14. Putnam, op. cit. note 12, pp. 327–32.

15. Meltzer, op. cit. note 4, pp. 137–45.

16. Kenneth Mulder, Robert Costanza, and JonErickson, “The Contribution of Built, Human,Social and Natural Capital to Quality of Life inIntentional and Unintentional Communities,”Ecological Economics, August 2006, pp. 13–23.

17. Olson, op. cit. note 7; “Green Steps: BereaCollege’s Movement Toward Sustainability,” infor-mational flyer (Berea, KY: Berea College, 21 Octo-ber 2004).

18. Ray Oldenburg, The Great Good Place (NewYork: Marlowe & Company, 1999), pp. xvii–xix.

19. Judy Wicks, “In Business For Life,” Yes!winter 2007, pp. 46–49; Justin Martin, “JudyWicks, Owner: White Dog Cafe, Philadelphia,”Fortune Small Business, June 2003, p. 87; AnnKarlen, White Dog Community Enterprises, dis-cussion with author, 8 February 2007; White DogCommunity Enterprises, at www.whitedogcafe-foundation.org, viewed 4 October 2007.

20. History from William H. Ukers, All aboutCoffee (New York: The Tea and Coffee TradeJournal Company, 1922), pp. 18, 102, 110–11;millions from National Coffee Association ofU.S.A. Inc., National Coffee Drinking Trends2007 (New York: 2007), p. 33, and “Coffee: TheStandard Breakfast Drink Grows Up,” Nation’sRestaurant News, 19 August 2002; Green CaféNetwork, at www.greencafenetwork.org, viewed 3October 2007; Kirstin Henninger, founding direc-tor, Green Café Network, discussion with author,7 September 2007.

21. Edie Farwell, resident at Cobb Hill, discus-sion with author, 1 October 2007; Cobb HillCheese Web site, at cobbhill.org/cheese, viewed1 October 2007; visit to Lakabe, 17–18 Septem-ber 2007; Mabel Cañada, co-founder of Lakabe,discussion with author, 17 September 2007; visitto Earthaven Ecovillage, March 2007; Diana LeafeChristian, Earthaven Ecovillage, discussion withauthor, 15 March 2007; Earthaven Web site, atwww.earthaven.org/agriculture/Red_Moon_Herbs.php, viewed 1 October 2007; localization bene-fits from Michael H. Shuman, The Small-MartRevolution: How Local Businesses Are Beating theGlobal Competition (San Francisco: Berrett-Koehler



Notes

Publishers, Inc., 2006).

22. Matthew Hora and Judy Tick, From Farm toTable: Making the Connection in the Mid-AtlanticFood System (Washington, DC: Capital Area FoodBank, 2001); Rich Pirog et al., Food, Fuel and Free-ways: An Iowa Perspective on How Far Food Trav-els, Fuel Usage, and Greenhouse Gas Emissions(Ames, IA: Leopold Center for Sustainable Agri-culture, June 2001); David S. Reay, “Costing Cli-mate Change,” Philosophical Transactions:Mathematical, Physical and Engineering Sciences,15 December 2002, pp. 2947–61.

23. Dorothy Blair, Carol C. Giesecke, and San-dra Sherman, “A Dietary, Social and EconomicEvaluation of the Philadelphia Urban GardeningProject,” Journal of Nutrition Education, vol. 23,no. 4 (1991), pp. 161–67; Donna Armstrong,“A Survey of Community Gardens in UpstateNew York: Implications for Health Promotionand Community Development,” Health and Place,December 2000, pp. 319–27.

24. Farmers’ markets from Agricultural Market-ing Service, “USDA Releases New Farmers Mar-ket Statistics,” press release (Washington, DC:U.S. Department of Agriculture, 5 December2006); community-supported agriculture fromRobyn Van En Center, online database, at www.wilson.edu/wilson/asp/content.asp?id=1645,viewed 4 October 2007; Brian Halweil andDanielle Nierenberg, “Farming the Cities,” inWorldwatch Institute, op. cit. note 7, p. 53.

25. Growing Power, at www.growingpower.org,viewed 5 October 2007; Erika Allen (GrowingPower) and Anthony Flaccavento, “Funding YourCommunity Food Projects with Social Enter-prises,” presented at Southern Sustainable Agri-culture Working Group: Practical Tools andSolutions for Sustaining Family Farms Confer-ence, 27 January 2007.

26. Rooted in Community, at www.rootedincommunity.org, viewed 5 October 2007.

27. Peter Rosset and Medea Benjamin, Two StepsBackward, One Step Forward: Cuba’s NationwideExperiment with Organic Agriculture (San Fran-

cisco: Global Exchange, 1993); The CommunitySolution, The Power of Community: How CubaSurvived Peak Oil (Yellow Springs, OH: 2006);Mario Gonzalez Novo and Catherine Murphy,“Urban Agriculture in the City of Havana: A Pop-ular Response to a Crisis,” Growing Cities Grow-ing Food: Urban Agriculture on the Policy Agenda:A Reader on Urban Agriculture (Resource Cen-tres on Urban Agriculture & Food Security, 2001)pp. 329–47.

28. Erik Assadourian, “Cultivating the ButterflyEffect,” World Watch Magazine, January/Febru-ary 2003, pp. 28–35. Box 11–2 from the follow-ing: visit to Can Masdeu, 15 September 2007;Luke Cordingley, “Can Masdeu: Rise of the Rur-bano Revolution,” in Brett Bloom and AvaBromberg, eds., Making Their Own Plan(Chicago, IL: White Walls, Inc. 2004); JamesHoward Kunstler, The Long Emergency: Survivingthe Converging Catastrophes of the Twenty-FirstCentury (New York: Atlantic Monthly Press,2005).

29. Relocalization Network, 2006 Relocaliza-tion Network Report (Sebastopol, CA: Post CarbonInstitute, 2007); Relocalization Network, “Alpha-betical List of Groups,” at www.relocalize.net,viewed 5 October 2007.

30. Business Alliance for Living Local Economies,at www.livingeconomies.org, viewed 9 October2007.

31. Willits Economic LocaLization, “WELLOverview,” at www.willitseconomiclocalization.org,viewed 9 October 2007; Transition Towns wiki,at transitiontowns.org, viewed 9 October 2007.

32. Stuart Gillespie, “Scaling Up CommunityDriven Development: A Synthesis of Experience,”Food Consumption and Nutrition Division Dis-cussion Paper No. 181 (Washington, DC: Interna-tional Food Policy Research Institute, June 2004);The Goldman Environmental Prize, “Hammer-skjoeld Simwinga: Transforming Communitiesthrough Sustainable Development,” at www.goldmanprize.org, viewed 9 October 2007.

33. Hilary French, “Sacred Mountain,” World



Notes

Watch Magazine, May/June 2004, pp. 18–25;Nancy Chege, Kenyan National Coordinator ofCOMPACT, discussion with author, March 2006.

34. Social Investment Forum (SIF), 2005 Reporton Socially Responsible Investing Trends in theUnited States (Washington, DC: January 2006); p. 28; CDP Publication Committee, ProvidingCapital, Building Communities, Creating Impact(San Francisco: National Community Capital Asso-ciation, undated), p. 4.

35. SIF, op. cit. note 34; Dawson, Ecovillages, op.cit. note 7, p. 48.

36. ShoreBank Pacific, at www.eco-bank.com/services/commercial/lending.html, viewed 9October 2007; David C. E. Williams, CEO ofShoreBank Pacific, Letter to Stakeholders of Shore-Bank Pacific, 30 June 2006.

37. Scott Malone, “New Age Town in U.S.Embraces Dollar Alternative,” Reuters, 19 June2007; 4,000 from Ravi Dykema, “ComplementaryCurrencies for $ocial Change: An Interview withBernard Lietaer,” Nexus, July/August 2003.

38. Colin C. Williams et al., “Local Exchange andTrading Schemes (LETS): A Tool for CommunityRenewal?” Community, Work & Family, Decem-ber 2001, pp. 355–61; fureai kippu from Dykema,op. cit. note 37.

39. “Greyston Bakery: Let ‘Em Eat Cake,” 60Minutes, CBS, broadcast 11 January 2004;Greyston Bakery, at www.greystonbakery.com,viewed 9 October 2007; Population and Com-munity Development Association, www.pda.or.th/eng, viewed 9 October 2007; Birds & Bees Resort,at www.cabbagesandcondoms.co.th, viewed 9October 2007; Kit Snedaker, “A Restaurant witha Mission: Cabbages and Condoms, Bangkok,”GoNOMAD.com, 2007, at www.gonomad.com/features/0011/snedaker_cabbages.html, viewed 9October 2007.

40. Visit to Los Angeles Ecovillage, op. cit. note1; Arkin, op. cit. note 1.

41. Richard E. White and Gloria Eugenia

González Mariño, “Las Gaviotas: Sustainabilityin the Tropics,” World Watch Magazine, May/June2007, pp. 18–23.

42. The Ecovillage Training Center, at www.thefarm.org, viewed 5 October 2007; Gaia Univer-sity at www.gaiauniversity.org, viewed 5 October2007.

43. Homeowners associations from Caitlin Car-penter, “As an Energy-saver, the Clothesline Makesa Comeback,” Christian Science Monitor, 24August 2007; carbon dioxide (CO2) emissionsare a Worldwatch calculation based on EnergyInformation Administration, End-Use Consump-tion of Electricity, 2001 (Washington, DC: U.S.Department of Energy, May 2005) (assuming500-megawatt coal-fired power plants running at90 percent capacity and 0.703 kilograms of CO2emissions per kilowatt-hour generated); Right toDry Campaign from Project Laundry List, atwww.laundrylist.org, viewed 5 October 2007.

44. Box 11–3 from the following: price of orig-inal purchase from Chris Ling, Katherine Thomas,and Jim Hamilton, “Triple Bottom Line in Prac-tice: From Dockside to Dockside Green,” Com-munity Research Connections, undated;contamination history from Hans Tammemagi,“Victoria Project Goes from Brown to Green,”Seattle Daily Journal of Commerce, 26 October2006; timeline for completion from ThomasinaBarnes, “Green Credentials Take Center Stage,”(Toronto) Globe and Mail, 13 July 2007; numberof units, excess energy, and green technology sum-mary from Dockside Green, Annual SustainableReport 2006 (Vancouver, BC: 2006), pp. 4, 7,30–31; penalty pledge and harbor industry heritagefrom Dockside Green, at www.docksidegreen.com,viewed 2 August 2007; sewage treatment savingsfrom Chris Wood, “Global Warming’s Threat toBC: Seeking Solutions,” The Tyee, 31 August2006.

45. LEED for Neighborhood Development, atwww.usgbc.org, viewed 5 October 2007; JenniferHenry, program manager, LEED for Neighbor-hood Development, U. S.Green Building Coun-cil, discussion with author, 21 June 2007.



Notes

46. Database of LEED projects available atwww.usgbc.org, viewed 5 October 2007; LEEDfor Neighborhood Development, op. cit. note45; Henry, op. cit. note 45.

47. Sarah James and Torbjorn Lahti, The Nat-ural Step for Communities: How Cities and TownsCan Change to Sustainable Practices (GabriolaIsland, BC: New Society Publishers, 2004); Sus-tain Dane, “Eco-municipalities,” at www.sustaindane.org, viewed 5 October 2007.

48. Local Works, “Campaign for the SustainableCommunities Bill,” at www.localworks.org, viewed9 October 2007; “The Sustainable CommunitiesBill,” at www.neweconomics.org/gen, viewed 9October 2007.

49. Bill McKibben, Deep Economy: The Wealth ofCommunities and the Durable Future (New York:Times Books, 2007), p. 149; Bernhard Poetter,“People Power, Danish-style,” OnEarth, summer2007, p. 20.

50. “Million Solar Roofs Bill (SB 1) Signed intoLaw,” press release (Los Angeles: EnvironmentCalifornia, 21 August 2006).

Chapter 12. Mobilizing Human Energy

1. U.S. Agency for International Developmentand Comité Inter-Etate pour la Lutte contre laSécheresse au Sahel, Investing in Tomorrow’sForests: Toward an Action Agenda for RevitalizingForests in West Africa (Washington, DC: 2002);Lydia Polgreen, “In Niger, Trees and Crops TurnBack the Desert,” New York Times, 11 February2007.

2. Figure 12–1 from Institut GéographiqueNational du Niger (1975) and Center for EROS,U.S. Geological Survey (2003); Mike McGahuey,Chris Reij, Tony Rinaudo, George Taylor, andBob Winterbottom, e-mails to author, 9 Septem-ber to 1 October 2007.

3. Polgreen, op. cit. note 1; McGahuey et al.,op. cit. note 2; data on estimated tree coveragefrom G. Gray Tappan, geographer, SAIC, Center

for EROS, U.S. Geological Survey, e-mail toauthor, 11 October 2007.

4. McGahuey et al., op. cit. note 2.

5. Yamba Boubacar et al., Sahel Study: NigerPilot Study Report (Washington, DC: Interna-tional Resource Group, 2005); Chris Reij, “MoreSuccess Stories in Africa’s Drylands Than OftenAssumed,” in Forum sur la Souveraineté Alimen-taire (Niamey, Niger: Resau des OrganisationsPaysannes et de Producteurs Agricoles de L’Afriquede L’Ouest, 2006).

6. Deepa Narayan et al., eds., Voices of the Poor:Crying Out for Change (New York: Oxford Uni-versity Press, 2000).

7. Polarized positions from Jeffrey D. Sachs,The End of Poverty: Economic Possibilities for OurTime (New York: Penguin Press, 2005), and fromWilliam Easterly, White Man’s Burden: Why theWest’s Efforts to Aid the Rest Have Done So MuchIll and So Little Good (London: Penguin Books,2006).

8. Poor record of western-inspired develop-ment plans from William Easterly, The ElusiveQuest for Growth (Cambridge, MA: The MITPress, 2002); quote from World Bank, EconomicGrowth in the 1990s: Learning from a Decade ofReform (Washington, DC: 2005). Box 12–1 fromthe following: donors becoming selective fromDollar and Levin (2004), as cited in Carol Lan-caster, Foreign Aid: Diplomacy, Development,Domestic Politics (Chicago: University of ChicagoPress, 2007), p. 53; on reform of developmentassistance, see, for example, The Carter Center,Development Cooperation Forum: Achieving MoreEquitable Globalization (Atlanta, GA: 2007), DavidGouldsbrough, Does the IMF Constrain HealthSpending in Poor Countries? (Washington, DC:Center for Global Development, 2007), andOxfam International, Oxfam International Sub-mission to the World Bank/IMF 2005 PRS Review(Oxford, U.K.: June 2005); data on decline inabsolute poverty from World Bank, World Devel-opment Indicators 2004 (Washington, DC: 2004);varying progress of nations from Dani Rodrik,ed., In Search of Prosperity: Analytic Narratives on



Notes

Economic Growth (Princeton, NJ: Princeton Uni-versity Press, 2003).

9. Dani Rodrik, “Goodbye Washington Con-sensus, Hello Washington Confusion? A Review ofthe World Bank’s Economic Growth in the 1990s:Learning from a Decade of Reform,” Journal ofEconomic Literature, December 2006, pp. 973–87.

10. Amartya Sen, Development as Freedom (NewYork: Alfred A. Knopf, 2000); Michael Woolcockand Deepa Narayan, “Social Capital: Implicationsfor Development Theory, Research, and Policy,”World Bank Research Observer, August 2000, pp.225–49; World Bank, World Development Report2000/2001 (New York: Oxford University Press,2001).

11. Paolo Freire, Pedagogy of the Oppressed (NewYork: Seabury Press, 1970); Ghazala Mansuri andVijayendra Rao, Community-Based and -DrivenDevelopment: A Critical Review, Working Paper3209 (Washington, DC: World Bank, 2004);Robert Chambers, Whose Reality Counts: Puttingthe First Last (Warwickshire, U.K.: ITDG Pub-lishing, 1997).

12. Limited impact of community-basedapproaches from Jason Clay, Borrowed from theFuture: Challenges and Guidelines for Commu-nity-Based Natural Resource Management (NewYork: Ford Foundation, 2004). Box 12–2 from thefollowing: lessons of integrated rural developmentprograms from John Farrington et al., Do AreaDevelopment Projects Have a Future, NaturalResource Perspectives No. 82 (London: OverseasDevelopment Institute, December 2002); struc-tural change from Bill Cooke and Uma Kothari,eds., Participation: The New Tyranny? (New York:Zed Books, 2001).

13. Cooke and Kothari, op. cit. note 12.

14. For complexity of communities, see, forexample, Irene Gujit and Meera Kaul Shah, TheMyth of Community: Gender Issues in ParticipatoryDevelopment (London: Intermediate TechnologyPublications, 1998).

15. Narayan et al., op. cit. note 6.

16. Deepa Narayan, Empowerment and PovertyReduction: A Sourcebook, 1st ed. (Washington,DC: World Bank, 2002), pp. 13–29.

17. Jobless growth in India from Bhattacharyaand Sakthivel (2004), as cited in Deepa Narayanand Elena Glinskaya, eds., Ending Poverty in SouthAsia: Ideas That Work (Washington, DC: WorldBank, 2007).

18. John Blaxall, “Collective Action by WomenWorkers,” in Narayan and Glinskaya, op. cit. note17, p. 68–103.

19. Ibid.

20. Bhatt quoted in ibid., p. 70.

21. Daniel Taylor-Ide and Carl Taylor, Just andLasting Change: When Communities Own TheirFutures (Baltimore, MD: Johns Hopkins Univer-sity Press, 2002); Daniel Taylor, Carl Taylor, andJessie Oak Taylor-Ide, A Future of Hope: From Seedsof Human Energy to the Scale of Social Change(New York: Columbia University, in press).

22. Taylor-Ide and Taylor, op. cit. note 21; Box12–3 from ibid.

23. Arjun Appadurai, “The Capacity to Aspire:Culture and the Terms of Recognition,” inVijayendra Rao and Michael Walton, eds., Cultureand Public Action (Stanford, CA: Stanford Uni-versity Press, 2004), pp. 59–84.

24. “Beginning Social Change: The Principles ofSeed-Scale as Shown in Arunachal Pradesh, India,”in Taylor, Taylor, and Taylor-Ide, op. cit. note21.

25. Ibid.

26. Ibid.

27. Daniel Taylor, president, Future Genera-tions, discussion with author, 1 August 2007;Tage Kanno, program director, Future GenerationsArunachal, e-mail to author, 12 October 2007.

28. Box 12–4 is adapted from Taylor-Ide and



Notes

Taylor, op. cit. note 21, pp. 47–61.

29. Negative impacts of explosion approach fromLaurie Garrett, “Do No Harm: The Global HealthChallenge,” Foreign Affairs, January/February2007, and from Celia W. Dugger, “CARE TurnsDown Federal Funds for Food Aid,” New YorkTimes, 16 August 2007; Taylor-Ide and Taylor, op.cit. note 21; Hassan Zaman, “Microfinance inBangladesh: Growth, Achievements, Lessons,” inNarayan and Glinskaya, op. cit. note 17; LídiaCabral, John Farrington, and Eva Ludi, The Mil-lennium Village Project—A New Approach to End-ing Rural Poverty in Africa? Natural ResourcePerspectives 101 (London: Overseas Develop-ment Institute, August 2006).

30. Scott Guggenheim, World Bank, “Crises andContradictions: Understanding the Origins of aCommunity Development Project in Indonesia,”2003, at siteresources.worldbank.org/INTINDONESIA.

31. Patrick Barron, Rachael Diprose, and MichaelWoolcock, Local Conflict and Community Devel-opment in Indonesia: Assessing the Impact of theKecamatan Development Program (Jakarta: WorldBank, 2006).

32. World Bank, “Afghanistan’s National Soli-darity Program: Overview & Challenges,” 2007,at web.worldbank.org, viewed 31 July 2007.

33. Samiullah Naseri, former National SolidarityProgram community facilitator, discussion withauthor, 11 June 2007.

34. “Going to Scale: Nature Conservation inTibet—Empowerment, Not Enforcement,” inTaylor, Taylor, and Taylor-Ide, op. cit. note 21.

35. Ibid.; recovery of fauna populations in RobertJ. Fleming, Dorji Tsering, and Liu Wulin, Acrossthe Tibetan Plateau: Ecosystems, Wildlife, and Con-servation (New York: W. W. Norton & Company,2007)

36. For more on the global development archi-tecture, see The Carter Center, Development Coop-eration Forum: Human Security and the Future of

Development Cooperation (Atlanta, GA: 2002);for trade policy, see Joseph E. Stiglitz, Globaliza-tion and Its Discontents (New York: W. W. Norton& Company, 2002); Kevin Watkins and PennyFowler, Rigged Rules and Double Standards: Trade,Globalization, and the Fight Against Poverty (Lon-don: Oxfam International, 2002); Paul Collier, TheBottom Billion (New York: Oxford UniversityPress, 2007).

37. For U.S. tied aid percentage, see data in theCenter for Global Development, 2007 Commit-ment to Development Index (Washington, DC:2007); for reduction in value of tied aid, seeDepartment for International Development, Back-ground Briefing: Untying Aid (London: Septem-ber 2001).

38. Deepa Narayan, Measuring Empowerment:Cross Disciplinary Perspectives (Washington, DC:World Bank, 2005).

39. Easterly, op. cit. note 7.

40. Collier, op. cit. note 36.

Chapter 13. Investing for Sustainability

1. Anthony Ling et al., Introducing GS SUS-TAIN (New York: Goldman Sachs Global Invest-ment Research, 22 June 2007); Anthony Ling etal., Introducing the Goldman Sachs Energy Envi-ronmental and Social Index (New York: GoldmanSachs Global Investment Research, 24 February2004); Goldman Sachs, Environmental Policy(New York: November 2005); Goldman Sachs,Goldman Sachs Environmental Policy: 2006 Year-End Report (New York).

2. Ling et al., Introducing GS SUSTAIN, op. cit.note 1; Marjorie Kelly, “Holy Grail Found,” Busi-ness Ethics, winter 2004.

3. Intergovernmental Panel on Climate Change,Climate Change 2007: Mitigation of ClimateChange (New York: Cambridge University Press,2007).

4. Thanks to David Myers of Lehigh University



Notes

for the definition of investing as delayed con-sumption; discussion with author, Green Moun-tain Summit on Investor Responsibility, Newport,RI, 19 July 2007.

5. Stacy A. Teicher, “A Quick History of Values-based Investing,” Christian Science Monitor, 9February 2004.

6. Peter Kinder, “Socially Responsible Invest-ing”: An Evolving Concept in a Changing World(Boston: KLD Research & Analytics, September2005).

7. “Pax History,” Pax World Web site, at paxworld.com, viewed 24 September 2007; “OurStory—History,” Shorebank Web site, atwww.shorebankcorp.com, viewed 24 September2007; Calvert Social Investment Foundation,Calvert Community Investment Note Prospectus(Bethesda, MD: 30 April 2007).

8. Social Investment Forum, 2005 Report onSocially Responsible Investing Trends in the UnitedStates (Washington, DC: January 2006); NelsonInformation, Directory of Investment Managers(Port Chester, NY: 2005).

9. Corporatemonitor, Sustainable ResponsibleInvestment in Australia–2006 (Evans Head, Aus-tralia: September 2006), p. 4; Social InvestmentForum, 2005 Report on Socially Responsible Invest-ing Trends in the United States: 10-Year Review(Washington, DC: January 2006), p. v; SocialInvestment Organization, Canadian Social Invest-ment Review 2007 (Toronto, ON: March 2007),p. 5; Eurosif, European SRI Study 2006 (Paris:2006), p. 11.

10. McKinsey Global Institute, Mapping theGlobal Capital Market 2006: Second AnnualReport, January 2006. Table 13–2 drawn fromWeb sites and annual reports of Social InvestmentForum, Eurosif, Social Investment Organization,Corporatemonitor, and Cangen Biotechnologies.

11. Joe Keefe, “From Socially Responsible Invest-ing to Sustainable Investing,” Green Money Jour-nal, summer 2007.

12. Ibid.

13. U.N. Environment Programme (UNEP)Finance Initiative, The Materiality of Social, Envi-ronmental and Corporate Governance Issues toEquity Pricing: 11 Sector Studies by Brokerage HouseAnalysts at the Request of the UNEP Finance Ini-tiative Asset Management Working Group (Geneva:June 2004).

14. William Baue, “Enhanced Analytics InitiativeOffers Sell-Side Analysts Cash to Cover Intangi-bles,” SocialFunds.com, 23 November 2004.

15. Bill Baue, “Citigroup, Lehman Brothers,and UBS Report on Climate Risks and Opportu-nities for Investing,” SocialFunds.com, 27 Febru-ary 2007; “Climate Change Investment Research,”JPMorgan Web site, at www.jpmorgan.com/pages/jpmorgan; Ling et al., Introducing GS SUS-TAIN, op. cit. note 1.

16. Michael Kramer, Natural Investment Ser-vices, e-mails to author, 12 and 13 July 2007.

17. Natural Investment Services, Natural Invest-ment News, spring 2004; Michael Kramer, NaturalInvestment Services, e-mail to author, 14 July2007.

18. Stephen Davis, Jon Lukomnik, and DavidPitt-Watson, The New Capitalists: How CitizenInvestors are Reshaping the Corporate Agenda(Boston: Harvard Business School Publishing,2006), pp. 3, 175.

19. Stacy A. Teicher, “A Quick History of Values-based Investing,” Christian Science Monitor, 9February 2004.

20. Martine Costello, “One Stockholder’s Mis-sion,” CNN/Money, 19 December 1997.

21. Anne Moore Odell, “Executives and theEnvironment: Looking Back at Proxy Season2007,” SocialFunds.com, 27 July 2007.

22. Edward Iwata, “Boardrooms Open Up toInvestors’ Input; More Companies Listening to



Notes

Their Concerns, Taking Action,” USA Today, 7September 2007.

23. Discussion with author.

24. Social Investment Forum, “SaveSharehold-erRights.org Reveals Investor Backlash AgainstPotential Curbing of Shareholder Rights,” 19September 2007, at www.socialinvest.org; SocialInvestment Forum, “Record 22,500 InvestorsSpeak Out Against Potential SEC Curbs on Share-holder Resolutions, Role in Board Nominations,”press release (Washington, DC: 10 October 2007).

25. Rainforest Action Network, Dirty Money:Citi, at ran.org; Collevecchio Declaration on Finan-cial Institutions and Sustainability, January 2003,available at www.foe.org.

26. “FAQ,” The Equator Principles, at www.equator-principles.com, viewed 24 September2007.

27. William Baue, “The Equator Principles: CanThey Deliver Social and Environmental Respon-sibility from Banks?” Green@Work, July/August2003; Arvind Ganesan, Is 2007 the End for Vol-untary Standards? (New York: Human RightsWatch and Business for Social Responsibility,December 2006); Cary Coglianese and JenniferNash, Beyond Compliance: Business Decision Mak-ing and the US EPA’s Performance Track Program(Cambridge, MA: Regulatory Policy Program,Mossavar-Rhamani Center for Business and Gov-ernment, Kennedy School of Government, Har-vard University, 2006). Box 13–2 from thefollowing: Bill Baue, “Bank of China Interna-tional Investment Managers Launches First SRIFund in China,” SocialFunds.com, 6 June 2006;Michelle Chan-Fishel, Time to Go Green: Envi-ronmental Responsibility in the Chinese BankingSector (Washington, DC: BankTrack and Friendsof the Earth–US, May 2007); Michelle Chan-Fishel, discussion with author; Andrew Newton,“How the Other Half Lends,” Special Report onFinancial Sector Responsibility, Ethical Corpora-tion, November 2006; Bill Baue, “Fidelity DivestsLarge Chunk of Sudan-Related Holdings,” Social-Funds.com, 22 May 2007; Charles Piller, “BuffettRebuffs Efforts to Rate Corporate Conduct,” Los

Angeles Times, 7 May 2007; Berkshire Hathaway,“Shareholder Proposal Regarding Berkshire’sInvestment in PetroChina,” May 2007; InvestorsAgainst Genocide, “Berkshire Hathaway Sells Over$1 Billion of PetroChina Since July 11; SteadySeries of Sales a Clear Indicator that Buffett is onDivestment Path,” 20 September 2007.

28. Flaherty cited in Toby Webb and John Rus-sell, “A Point of Principle,” Special Report onFinancial Sector Responsibility, Ethical Corpora-tion, November 2006.

29. Andrew Newton, “A Convenient Truce,”Special Report on Financial Sector Responsibility,Ethical Corporation, November 2006.

30. Number of banks from Equator PrinciplesWeb site, at www.equator-principles.com, viewed24 September 2007; share of finance capacityfrom International Finance Corporation, “IFCWelcomes Adoption of Equator Principles byBanco Galicia,” press release (Washington, DC: 29March 2007); Bill Baue, “Revised Equator Prin-ciples Fall Short of International Best Practice forProject Finance,” SocialFunds.com, 12 July 2006.

31. World Bank, Striking a Better Balance—TheWorld Bank Group and Extractive Industries: TheFinal Report of the Extractive Industries Review.World Bank Group Management Response (Wash-ington, DC: September 2004); Bill Baue, “Com-munities, Corporations, and the DifferenceBetween Consent and Consult,” The CRO, July2007.

32. Box 13–3 from the following: Jim Kharouf,“Commentary,” Environmental Markets Newslet-ter, 13 June 2007; Thomas Kostigen, “The Greenin Hedge Funds Isn’t All about Money,” Mar-ketWatch, 29 June 2007; William Hutchings,“Man Group Raises Green Hedge Fund, eFinan-cialNews.com, 3 September 2007.

33. John Hill and Graham Wark, Coal: Missingthe Window (Citigroup Global Markets, 18 July2007); Francesca Rheannon, “Jitters About Reg-ulatory Outlook Rile Confidence in Coal MiningStocks,” SocialFunds.com, 12 August 2007. Box13–4 from the following: Bill Baue, “TXU Share-



Notes

owners File Three Resolutions Questioning Wis-dom of Pulverized Coal Plants,” SocialFunds.com,19 December 2006; Felicity Barringer and AndrewRoss Sorkin with Matthew L. Wald, “In Big Buy-out, Utility to Limit New Coal Plants,” New YorkTimes, 25 February 2007; Jim Marston, “TXUBuyout Tied to Environmental Agreement,” Cli-mate 411, 27 February 2007; “TXU to Set NewDirection As Private Company; Public BenefitsInclude Price Cuts, Price Protection, Investmentsin Alternative Energy and Stronger Environmen-tal Policies,” press release (Dallas: TXU, 26 Feb-ruary 2007); “TXU Plans to Build Biggest NuclearPlants in US-WSJ,” Reuters, 9 April 2007.

34. Data and Figure 13–1 from Chris Green-wood et al., Global Trends in Sustainable EnergyInvestment 2007 (Nairobi: UNEP SustainableEnergy Finance Initiative and New Energy Finance,June 2007); Bill Baue and Sanford Lewis, “WillNuclear Power Save Us from Global Warming?”Corporate Watchdog Radio, 6 September 2006;William Baue, “Nuclear Power: Still an Environ-mental Scourge or Now a Climate Change Miti-gator?” SocialFunds.com, 9 June 2005.

35. Greenwood et al., op. cit. note 34.

36. James Stack et al., Cleantech Venture Capi-tal: How Public Policy Has Stimulated PrivateInvestment (San Francisco: CleanTech VentureNetwork and Environmental Entrepreneurs, May2007).

37. Bill Baue, “Nobel Prize Links Microfinanceto Peace,” SocialFunds.com, 17 October 2006.

38. Adam Smith, Nobelprize.org, “Poverty inthe World is an Artificial Creation,” interview withProfessor Muhammad Yunus, 13 October 2006.

39. Daniel Pearl and Michael M. Phillips,“Grameen Bank, Which Pioneered Loans for thePoor, Has Hit a Repayment Snag,” Wall StreetJournal, 27 November 2001; Vivek George,“Uncovering the Truth Behind Poverty—Is Mico-finance the Answer to Poverty?” at www.abrahamgeorge.blogspot.com.

40. Nimal Fernando, “Microfinance Outreach

to the Poorest: A Realistic Objective?” Focal Pointfor Microfinance (Asian Development Bank),March 2004.

41. William Baue, “Fonkoze Helps TransformMicrofinance to Reach the Poorest of the Poor inHaiti,” SocialFunds.com, 18 November 2005.

42. Bill Baue, “Microfinance Crosses Continen-tal Divide with $100 Million Commitment fromTIAA-CREF,” 9 October 2006.

43. Nicholas Kristof, “You, Too, Can Be a Bankerto the Poor,” New York Times, 27 March 2007.

44. Satterthwaite quoted in “Quotes from the Field,” Green Microfinance Web site, atwww.greenmicrofinance.org, viewed 25 Septem-ber 2007.

45. George Monbiot, “Selling Indulgences,” TheGuardian (London), 19 October 2006; Bill Baue,“Carbon Offsets: Modern-Day Indulgences toAssuage Carbon Guilt or Market Mechanism forSupporting Clean Energy,” Socialfunds.com, 4April 2007.

46. Bill Baue and Francesca Rheannon, “Biofu-els—Pros and Cons,” Corporate Watchdog Radio,5 July 2007; Lester Brown, “Distillery Demand forGrain to Fuel Cars Vastly Understated; WorldMay Be Facing Highest Grain Prices in History”(Washington, DC: Earth Policy Institute, January2007); George Monbiot, “A Lethal Solution,”The Guardian (London), 27 March 2007.

47. Cynthia A. Williams and John M. Conley,“Triumph or Tragedy? The Curious Path of Cor-porate Disclosure Reform in the U.K.,” Williamand Mary Environmental Law and Policy Review,winter 2007, pp. 317–62.

48. William Baue, “Film Depicts Environmentaland Social Reporting Disappearing in SEC BlackHole,” SocialFunds.com, 7 January 2004; Frentede Defensa de la Amazonia, “Chevron UsingUnethical Tactics to Avoid Judgment in $10 Bil-lion Rainforest Trial; Series of Legal Setbacks inEcuador Haunt Company; Charges of FabricatingEvidence,” 8 August 2007; “FAQ,” Corporate



Notes

Sunshine Working Group Web site, at www.corporatesunshine.org/faq.html, viewed 25 Septem-ber 2007.

49. Ceres, “Major Investors, State Officials, Envi-ronmental Groups Petition SEC to Require FullCorporate Climate Risk Disclosure,” press release(Washington, DC: 18 September 2007).

50. Felicity Barringer and Danny Hakim, “NewYork Subpoenas 5 Energy Companies,” New YorkTimes, 16 September 2007.

51. William Baue, “Lighthouse G3: Third Gen-eration GRI Guidelines Shine a Beacon for Sus-tainability Reporters,” SocialFunds.com, 30September 2005; “2500 Comply with GRI Searchof 15,008 CSR Reports for ‘GRI Adherence’Yields 2,492 Reports,” CorporateRegister.com,viewed 25 September 2007; Halina SzejnwaldBrown, Martin de Jong, and Teodorina Lessi-drenska, The Rise of the Global Reporting Initia-tive (GRI) as a Case of Institutional Entrepren-eurship, Working Paper No. 36 (Cambridge, MA:Corporate Social Responsibility Initiative, KennedySchool of Government, Harvard University, May2007).

52. “Carbon Disclosure Project and Wal-MartLaunch Climate Change Partnership; PresidentClinton to Speak at CDP Fifth Global AnnualForum Today; Latest Findings on Corporate Cli-mate Data to be Announced,” Carbon Disclo-sure Project, 24 September 2007; McKinseyGlobal Institute, op. cit. note 10.

53. Matthew Kiernan, Innovest, discussion withauthor, 30 August 2007.

54. Anne Moore Odell, “Principles for Respon-sible Investment Quadruples Assets in First Year,”SocialFunds.com, 1 June 2007.

Chapter 14.New Approaches to Trade Governance

1. Luis Eduardo Derbez, Keynote Address,Emerging Powers in Global Governance Confer-ence, Institut du Développement Durable et des

Relations Internationales and International Insti-tute for Sustainable Development (IISD), Paris, 5July 2007.

2. Jagdish Bhagwati, Arvind Panagariya, andT. N. Srinivasan, Lectures on International Trade,2nd ed. (Cambridge, MA: The MIT Press, 1998);Edward D. Mansfield and Brian M. Pollins, eds.,Economic Interdependence and International Con-flict: New Perspectives on an Enduring Debate (AnnArbor: University of Michigan Press, 2003); OliBrown et al., eds., Trade, Aid, and Security : AnAgenda for Peace and Development (Sterling, VA:Earthscan, 2007); Robert O. Keohane and JosephS. Nye, Power and Interdependence, 2nd ed. (Glen-view, IL: Scott Foresman and Company, 1989).Box 14–1 draws on U.N. Economic and SocialCommission for Asia and the Pacific, “What IsGood Governance?” at www.unescap.org, undated;see also Philippe Sands, Lawless World (London:Penguin Books, 2006), Chapter 1.

3. Sylvia Ostry, The Post–Cold War Trading Sys-tem: Who’s on First? A Century Foundation Book(Chicago: University of Chicago Press, 1997);Jagdish Bhagwati, Free Trade Today (Princeton, NJ:Princeton University Press, 2002).

4. Bhagwati, Panagariya, and Srinivasan, op.cit. note 2; Mansfield and Pollins, op. cit. note 2;Brown et al., op. cit. note 2; Keohane and Nye, op.cit. note 2.

5. Preamble to the General Agreement on Tariffs and Trade 1947 agreement, atwww.wto.org/english; Gary P. Sampson, TheWTO and Sustainable Development (Tokyo: UnitedNations University Press, 2005).

6. Quote cited in World Trade Organization(WTO), “Relevant WTO Provisions: Text of 1994Decision,” at www.wto.org.

7. WTO, The Legal Texts: The Results of theUruguay Round of Multilateral Trade Negotiations(Cambridge, U.K.: Cambridge University Press,1994).

8. Ambassador Nobutoshi Akao, Japanese nego-tiator in the Uruguay Round, discussion with



Notes

author; see also Howard Mann and StephenPorter, The State of Trade and Environment Law:Implications for Doha and Beyond (Winnipeg, MB:IISD, 2003), and Sands, op. cit. 2.

9. Mann and Porter, op. cit. note 8.

10. See Sylvia Ostry, “The Uruguay RoundNorth-South Grand Bargain: Implications forFuture Negotiations,” in Daniel L. M. Kennedyand James D. Southwick, eds., The Political Econ-omy of International Trade Law (Cambridge, U.K.:Cambridge University Press, 2002), pp. 285–300.

11. Robert Wolfe, “Crossing the River by Feel-ing the Stones: Where the WTO is Going afterSeattle, Doha and Cancun,” Review of Interna-tional Political Economy, August 2004, pp.574–96.

12. Statement by Pascal Lamy, Director Generalof the WTO to the High-level Segment,Substantive Session of U.N. Economic and SocialCouncil, Geneva, Switzerland, 5 July 2007; see alsoFaizel Ismail, “A Development Perspective on theWTO July 2004 General Council Decision,” Jour-nal of International Economic Law, June 2005, pp.377–404.

13. For membership information, see www.wto.org.

14. For invitation to committees, see WTO Min-isterial Declaration, WT/MIN(01)/DEC/1, 20November 2001, WTO, paragraph 51.

15. See Mark Halle, “The WTO and Sustain-able Development,” in Yasuhei Taniguchi, AlanYanovich, and Jan Bohanes, eds., The WTO inthe Twenty-first Century—Dispute Settlement, Nego-tiations, and Regionalism in Asia (Cambridge,U.K.: Cambridge University Press, 2007).

16. See Susan Ariel Aaronson, Taking Trade to theStreets: The Lost History of Public Efforts to ShapeGlobalization (Ann Arbor: University of MichiganPress, 2001)

17. Sampson, op. cit. note 5; Halle, op. cit. note15.

18. Dani Rodrik, Harvard University, “Good-bye Washington Consensus, Hello WashingtonConfusion?” prepared for Journal of EconomicLiterature, January 2006; William Finnegan, “TheEconomics of Empire—Notes on the WashingtonConsensus,” Harper’s Magazine, May 2003.

19. For details of the Integrated Framework, seewww.integratedframework.org.

20. World Trade Organization, Recommenda-tions of the Task Force on Aid for Trade, Geneva,27 July 2006.

21. For information on these partnerships, seewww.eitransparency.org, www.dams.org, andwww.fsc.org/en.

22. See Robert Wolfe, “Decision-Making andTransparency in the ‘Medieval’ WTO: Does theSutherland Report Have the Right Prescription?”Journal of International Economic Law, Septem-ber 2005, pp. 631–45, and Robert Wolfe, Can theTrading System Be Governed? Institutional Impli-cations of the WTO’s Suspended Animation, Work-ing Paper No. 30 (Waterloo, ON: Centre forInternational Governance Innovation, September2007); Oxfam, “WTO: Open Letter on Institu-tional Reforms in the World Trade Organization,”Oxford, U.K., October 2005; Dani Rodrik, Har-vard University, “The Global Governance of TradeAs If Development Really Mattered,” preparedfor the U.N. Development Programme, October2001; Philip I. Levy, “Do We Need an Undertakerfor the Single Undertaking? Considering theAngles of Variable Geometry,” October 2004.

23. See Robert Wolfe, “Comment: Adventures inWTO Clubland,” Bridges, June-July 2007, pp.21–22.

24. In Box 14–2, “bottom billion” from PaulCollier, The Bottom Billion (New York: OxfordUniversity Press, 2007).

25. For information on these organizations, see www.eviangroup.org, www.ictsd.org, andwww.chathamhouse.org.uk/research/eedp.



Notes

state of the world

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