A Sustainable Sustainable Development: Future Theory and Practice for a

Sustainable Future Andrew Steer and Will Wade-Gery

Environment Department, World Bunk, Washington DC, USA

Introduction The concept of sustainability has long-standing roots in the physical, biological, and engineering sciences. The question of whether the planet’s limited natural resources can continue to support human development indefinitely goes back at least as far as the late eighteenth century to the Reverend Thomas Malthus (see Dixon and Fallon, 1989). With the rise of the popular environmental movement in the 1960s, sustainability entered the cultural mainstream and has stayed there ever since. The idea of sustaining the earth has proved a powerful metaphor in raising public awareness and focusing on the need for better environmental stewardship.

The term “sustainable development” is of more recent origin. First widely publicized by the International Union for the Conservation of Nature in the World Conservation Strategy (1980)’ sustainable development achieved even greater prominence seven years later with the release of Our Common Future, the seminal report prepared by the World Commission on Environment and Development (better known, perhaps, as the Brundtland Commission).

Many people now believe that sustainable development must be humanity’s over-riding goal. There is also broad agreement on the term’s conceptual “basics”: economic development, to be sustainable, must be modified to take account of development’s ultimate dependence on our natural environment. Unfortunately, saying what sustainable development is not, namely “business as usual”, does not say what it is. The latter is an issue about which there is far less consensus. In fact, by some estimates there are now as many as 70 different definitions of sustainable development, offering a number of possible modifications to the development process and a number of different reasons for doing so (Holmberg, 1992).

Faced with this definitional melange, some commentators have concluded that the term has, or will soon, become meaningless (see, for example, O’Riordan, 1988). This view is too defeatist. There is a practical way forward.

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The Traditional Account The Brundtland Commission’s definition of sustainable development - “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” - usefully sets the stage for further inquiry. What kinds of development will meet the needs of the

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present without compromising the ability of future generations to meet their

In the past, economists have tended to emphasize the economic growth element of sustainable development. The traditional view of economics is that development involves higher income and consumption levels, especially for the poor, as well as accompanying benefits such as improved health and education services. Development is sustainable when income and consumption levels continue to rise indefinitely.

Incomes will continue to rise - so economists tell us - as long as investment in new capital is high enough and productive enough to generate the required increases in future consumption. What kind of capital: physical capital like plant and machinery, human capital like education or technology, or natural resources like forests or fish stocks? Given the abundance of natural capital, neo-classical economics assumes (reasonably enough) that the greatest returns will be generated by investment in physical capital, even at the cost of depreciating natural capital.

Buttressing the role of investment, in the traditional view, is the role of market prices a s an indicator of scarcity. Neo-classical economics accepts that consumption will run down stocks of resources, but they believe that as stocks are depleted, the market will signal growing resource scarcity through increased prices. As prices increase, consumers and producers will respond to the changed set of economic incentives - substitute resources will be found, or technological advances will increase the productivity of inputs to the production process. Resources will be reallocated in an efficient manner, and the consumption of goods and services can continue to rise.

Traditional economics - the so-called “dismal science” - therefore provides a less than dismal theory of sustainable development. To date, it is a theory which the empirical evidence has tended to support. Countries with high levels of investment have enjoyed sustained increases in incomes and in the consumption of goods and services. And there is little evidence of metals, minerals, oil or coal running out, as was once feared. Indeed, judged by real prices, levels of these commodities are on average more plentiful than at any time in the past.

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What is Wrong with It? The empirical record alone means that the traditional account is the correct starting point for analysis. But to take environmental considerations into account, it needs modification.

Externalities and Current Welfare First, the economic growth which enables consumption levels to rise continuously may have serious environmental side-effects which reduce human welfare, thus undermining the benefits derived from an increased consumption of goods and services. Indeed, in extreme cases, the benefits from rising incomes can be offset by the costs imposed on health and the quality of life.

If, for instance, we invest in industries which pollute rivers, the costs of our doing so - in terms of health, of lost productivity, of the lost opportunity to appreciate rivers in an unpolluted state, and the lost opportunity to pass that opportunity to future generations - may vastly outweigh the benefits we derive from an increased consumption of the goods and services produced by those dirty industries. Investment may lead to a direct and current reduction in welfare. This can hardly be called development.

So if development is to be sustainable, we have to’abandon the notion that consumption and income levels are adequate measures of either individual or collective levels of human welfare. Sustainable development requires economic actors to factor in all the welfare effects of increased consumption, positive and negative.

But does this really argue for modifying economic orthodoxy? After all, for more than a century, economics has recognized that many resources - in particular many environmental resources such as clean air and clean water, fertile soils, forests, oceans, the planet’s atmosphere, and ozone layer - are frequently used in ways external to any market mechanism. Neo-classicism recognizes that while industries polluting rivers and groundwater may not be obliged by market forces to pay a price for the environmental destruction they cause, a utility cost (or an “externality” in the lexicon of economics) will effectively be paid by those forced to rely on the contaminated water for drinking and washing.

But even though economic orthodoxy accepts the existence of environmental externalities, the fact remains that economists, most of whom are unfamiliar non-economic systems and interactions, have consistently underestimated their importance - in part because they are difficult to measure in economic terms. Non-economists know how high externality costs can be. Epidemiologists, for instance, know that water contamination increases the incidence of diseases which extract an almost unimaginable price in human suffering.

For development to be sustainable, environmental externalities must be factored into decision making at every level. We need a tool which can take account of the environmental costs, and sometimes benefits, of our decisions. One way to do this is to express such costs and benefits in monetary terms and then incorporate these values into the economic pros and cons weighed by more standard decision making. Cost-benefit analysis of this type - imputing values to environmental factors - is the task of environmental economics, a discipline which is middle-aged in terms of theory, but empirically immature.

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Externalities and Future Welfare In some circumstances, the full welfare effects of externality costs may not show up immediately. There are two main ways in which this can happen. First, by undermining the relationship between present levels of investment and future levels of consumption, environmental degradation and ecosystem destruction can cause substantial loss of welfare in the future.

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Take soils. Many farmers seek actively to promote the fertility of the land on which they farm. They make a variety of investments designed to raise that level of fertility - increased fallow periods, or a greater use of inputs such as pesticides or fertilizer. All these investments cost the farmer in terms of current consumption. Income spent on fertilizer for instance, is income not spent on present consumption of goods and services. But by investing in fertilizer, the farmer hopes to reap a higher level of consumption in the future.

Yet increasingly, ecologists and soils specialists are showing that many investments designed to raise crop yields only do so at the expense of long-run soil fertility. A farmer who invests in more chemical pesticides may increase output, income and consumption for one or two seasons, but over the longer term, the fertility of the soil becomes exhausted by the high rate of pesticide use, and output, income and consumption all decline. The link between present investment and future consumption is shattered by the draining of nutrients from the soil.

Second, some users of natural resources may be forced to increase consumption to a level at which investment in that resource is no longer sufficient to maintain its productivity. Soils are again a clear-cut example of this phenomenon. As population increases, farmers are sometimes obliged to respond to the increased demand for food in ways which threaten soil fertility. For instance, one way to increase crop yields, in the short term, is to reduce fallow times - the period during which land is left uncultivated in order to restore soil fertility. But as fallow-times shorten, soils become exhausted. Nutrients are mined from the soil and yields begin to decline; this has occurred already in many parts of rural Africa.

Of course, in both these cases, farmers may be aware of the eventual welfare costs of their actions. But faced with insurmountable pressure to meet consumption demands in the short term, they may have no choice but to ignore environmental factors and the inevitable costs which they will impose in the longer term.

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Externalities and Poverty The current and future welfare effects of environmental externalities are overwhelmingly concentrated on the poor. Poor farmers, obliged to struggle for survival on a daily basis, have too few resources to invest in protecting the productivity of the natural resource base on which their future welfare depends. Water-related diseases afflict the poor in disproportionately large numbers because they cannot afford to invest in measures which would prevent water contamination. Over a billion people lack access to clean water; more than 1.7 billion are without adequate sanitation. Conditions such as these contribute to three million deaths each year - most of them children under five. Nor can the poor afford to insulate themselves from the impact of widespread contamination. When cholera struck Peru in 1991, the government advised Peruvians to boil all drinking water, a course of action which would have cost the typical Peruvian slum-dweller about a third of hidher annual income, well

beyond the means of most poor families. Richer families, by contrast, could buy their way out of such situations.

The poor’s political marginalization further limits their ability to avoid the impact of externalities. More powerful groups, who can better control the public policy process, can obtain environmental goods denied to the poor - in-house water connections, sewerage services, subsidized energy, and so on. All too often in developing countries, the environmental agenda is dominated by air pollution and other forms of degradation which more powerful groups cannot easily avoid, while concerns such as water pollution receive less attention precisely because their health impacts, although serious, are concentrated on the poorest members of society.

The disproportionate impact of environmental externalities on the poor frequently goes unnoticed because people in both developing and developed countries suffer from an enduring prejudice that the environment is a luxury only the wealthy can afford to protect. The truth is that degraded environments kill and hurt people, and the people they kill and hurt the most are poor. No one has a greater stake in sustainable development than the planet’s poorest inhabitants.

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Ecological Thresholds and Uncertainties The second way in which environmental factors question the economist’s orthodox understanding of sustainable development is methodological. Economists tend to think in terms of smooth functions. Thus, to the extent that they have included in their calculations the potential impact of a deteriorating natural capital base, they have tended to assume that environmental impacts will be gradual and consequently susceptible of moderation by remedial policy. Lose a little more of the tropical forest and the forest ecosystem will function only a little worse. Deplete another 10 per cent of the ozone layer and the adverse health impacts will worsen -but only moderately.

Unfortunately, the smooth functions which underlie neo-classical economic theory may not always be accurate representations of the behaviour of real world ecosystems. The idea of thresholds at which environmental degradation may suddenly threaten ecological collapse is one which economics is not well equipped to address. Neo-classical economics, with its emphasis on the smooth, efficient operation of relative prices to signal emergent scarcities, does not fully mesh with the exponential nature of many environmental warnings, and the possibilities for non-linearity which may exist. We are beginning to realize that functional discontinuities could invalidate many economic projections - with uncertain, but potentially catastrophic consequences of an irreversible nature.

Current concerns about ozone depletion, for instance, are not related to the present effects of increased W exposure nor primarily to any gradual, minor environmental effects which such exposure may cause. Rather, the concern is that projections of ozone depletion or of its ecological effects could be wrong. Since the interactions of stratospheric ozone with the earth’s ecological and economic systems are largely unknown, it is possible that some ecological

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threshold may be crossed beyond which disastrous effects on economic and social life would irreversibly occur. If that were to happen, our development would patently have been unsustainable.

Although we tend to associate ecological thresholds with global environmental issues such as global warming or ozone depletion, they can be local as well. In Malaysia in the 1970s supplies of a popular fruit, the durian, mysteriously began to decline, threatening a $100 million a year fruit industry and the livelihoods of thousands. Durian trees, though they appeared healthy, bore less fruit than previously. Eventually, it was found that the trees were pollinated by a single species of bat, whose mangrove feeding grounds were being destroyed by shrimp farmers. Conservation of the mangrove swamps eventually restored the health of the durian industry.

Here is a clear case of economic activity destroying its own ecological underpinnings. Had the mangroves been completely destroyed, the bat would have become extinct and the durian industry would have collapsed. Again, though, this example points to the vital role which environmental economics can potentially play. In combination, good ecology and good economics would have indicated the senselessness of destroying the mangrove swamps.

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The Way Forward At the 1992 Earth Summit in Rio, the international community agreed that environmental damage has two main causes: first, unmanaged economic expansion; and second, a lack of economic development. As is recognized throughout Agenda-21, this causal duality implies that two different sets of policies are required: those which seek to break the negative links between economic growth and environmental degradation, and those which seek to exploit the positive links between economic growth and environmental improvement. If successfully implemented, this policy agenda holds great promise for ensuring the continued sustainability of development.

“Win- Win ” Policies Policies which exploit the extensive synergies between economic growth and environmental improvement, so-called “win-win” measures, are perhaps the clearest way forward. Even without the benefit of refined cost-benefit techniques at the policy level, it is clear that opportunities have been missed to combine sound development policies, particularly poverty reduction and efficiency-oriented reforms, with protection of the natural resource base. The clarification of property rights, for instance, can ensure that scarcity considerations are factored into decisions about the use of environmental resources. At the same time, established and enforced property rights are also one of the mainstays of a thriving, free-market economy.

There are many other policies with this “win-win” quality. Cutting subsidies to environmentally damaging activities such as logging or ranching in tropical forests, or increasing irrigation water prices which are below supply costs, improves the efficiency with which resources are allocated - thus stimulating

economic growth - and reduces environmental damage - thus improving the prospects for that growth being sustainable.

Moreover, many forms of environmental degradation - inadequate sanitation, shortages of clean water, indoor air pollution from burning firewood and dung, and many forms of land degradation - have their root cause in poverty. In all these cases, poverty alleviation and the protection of the environment reinforce each other. Investments in water and sanitation services can prevent disease and maintain productivity; the provision of agricultural training and extension services can improve farmers’ investments in soil conservation, and raise yields; and family planning services and expanded educational opportunities for women can lower fertility rates and reduce pressure on natural resources. In such cases, sound development policy is sound environmental policy. Development, in other words, is sustainable.

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Breaking the Negative Links To redirect the path of economic growth so as to avoid welfare-draining environmental damage or the threat of ecological collapse, will require successful implementation of a two-stage process. First, the welfare trade-offs between economic growth and environmental protection need to be accurately assessed through cost-benefit analysis. Once the true costs and benefits of alternative courses of action are exposed, policies can be put in place to influence behaviour in ways which preserve and enhance overall welfare, now and in the future.

EfJective Cost-benefit Assessment Beginning with analysis in the 1950s and 1960s of hydroelectric projects in the United States, good progress has been made in terms of incorporating environmental considerations into cost-benefit analysis at the project level. The World Bank, for instance, now has a comprehensive environmental assessment procedure in place for projects with possible adverse environmental consequences[l]. More significantly, it also has a proven record of altering project design and implementation as a result of this assessment procedure. Recent cases include port development and flood control in China, private sector energy development in Cote D’Ivoire, forestry and environment in Gabon, energy deregulation and privatization in Jamaica, sewage treatment in Korea, renewable energy development in India, natural resource management in Paraguay, geothermal power development in the Philippines, and the Yacyreta I1 Hydroelectric Project in Chile.

But project-level assessment of environmental impacts is only a first step towards the kind of cost-benefit analysis which can identify sustainable paths for development. In the 199Os, three new directions for cost-benefit analysis will have to be pursued.

First, most project-level analysis has been conducted by assessing physical environment impacts - far more emphasis is required on identifying the economic costs and benefits which flow from these physical impacts. This will

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require an active partnership between economists and other scientists. If bats can be a key element of sustainable development, then cost-benefit analysis cannot be left to economists alone. But economists will be essential to the actual process of valuation.

Unfortunately, however, empirical work on environmental valuation remains limited, especially in developing countries. Certain environmental “goods” resist simple valuation techniques. Sometimes a market proxy is available - preferences for peace and quiet, for example, can be assessed by noting the correlation between noise levels and property prices. When no market proxy is available, valuation techniques are still in their infancy.

Second, valuation will need to be extended to less local levels of decision- making - sectoral, national, regional, or international - where cost-benefit techniques are far less advanced. Some progress has been made in incorporating environmental degradation into national income accounts (see, for example, Bartelmus et al, 1989). The World Bank, together with the UN Statistical Office, has recently completed case studies in Mexico and Papua New Guinea to test the practicality of computing environmentally-adjusted Net Domestic Product (or EDP). In the Papua New Guinea study, for instance, which assessed environmental impacts for the agriculture, forestry, mining, and energy sectors, EDP was found to range from 90 to 97 per cent of conventionally-measured Net Domestic Product for the 1986-1990 period (Bartelmus, et al, 1992 and van Tongeren, et al., 1991).

Unfortunately, though, modified national income accounting provides little guidance to policymakers. It can clearly demonstrate the serious economic implications of environmental degradation. But because it is static, it cannot help them set priorities or assess policy trade-offs. For that, decision-makers need to know how to evaluate the environmental implications of different macro-economic and sectorai policies - structural adjustment programmes, stabilization measures, fiscal and monetary policies, and so on. Research in these areas is still very underdeveloped. The World Bank has several studies ongoing (Cruz and Munasinghe, 1992). Much more work will need to be done.

Third, the possibility of crossing thresholds can be reduced by adopting precautionary approaches in circumstances where ecological collapse could conceivably develop. In essence, cost-benefit analysis needs to be adapted so as to impute a high value to potentially large but uncertain environmental costs. The example of ozone depletion is informative - even while scientific uncertainty about the causes and effects of ozone depletion persisted, the international community reached agreement to limit the production of certain ozone-depleting substances. The Montreal Protocol embodies a principle of precautionary action which should guide us in all circumstances of possible ecological collapse.

How successful can cost-benefit ultimately be? The constraints appear huge: even with perfect ecological knowledge and foresight, environmental quality or degradation will still be difficult to quantify and value in an uncontentious fashion. But even poor cost-benefit analysis of environmental factors is likely to

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be better than no assessment at all. There is little point in resisting cost-benefit approaches until perfect criteria of quantification and valuation have been developed. It is, as one commentator has noted, “better to be roughly right than precisely wrong” (Holmberg, 1992).

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Cost-eflective Policies and Strong Enforcement The experience of developed countries shows clearly that once costs and benefits are clearly understood and assessed, the links between economic growth and environmental degradation can be broken or muted by carefully- targeted policies. In other words, we are not trying to achieve the impossible. Since 1970, countries within the Organization for Economic Co-operation and Development (OECD), for instance, have seen particulate emissions decline by 60 per cent, sulphur dioxides by 38 per cent, and lead emissions by between 50 and 85 per cent. Although these results involved spending around 0.8-1.5 per cent of GDP each year, OECD countries have seen their economies expand by 80 per cent over the same period.

A great deal of research, at the World Bank and elsewhere, is currently underway to identify policies which can realize welfare gains in the most cost- effective manner possible. The challenge is to translate cost-benefit results into policies which can change behaviour accordingly. One set of policy instruments gaining wider acceptance are market-based measures. These are efficient in numerous respects: they allow environmental problems to be addressed by those polluters able to do so at least cost; they encourage polluters to develop innovative and cost-effective pollution abatement technologies; and, above all, they have low enforcement and administrative costs - a vital consideration given the constraints on developing countries’ institutional capabilities.

But policy formulation and implementation for sustainable development is not unproblematic. Sophisticated valuation techniques now under development, may be able to demonstrate that conserving a particular rainforest area addresses peoples’ preferences far more efficiently than “developing” it in environmentally-destructive ways. But unless preferences for conservation can be captured, decision-makers on the ground are likely to oppose conservation because of the readily-identifiable monetary flows associated with development. The “capture” problem is made particularly acute by the concept of intrinsic value, which is the value people place on environmental assets per se, rather than for any identifiable functions they serve.

An analysis of the Korup National Park in Cameroon, for instance, found that in terms of national preferences only, it would be difficult to justify continued conservation of the area, since logging would have far greater returns. But when external preferences for conservation were included, the case against logging was convincing. The evidence suggested that many people in other countries placed a high economic value on conservation as an end in itself. But until those preferences can be captured, Cameroonians will have every reason to proceed with development. Effective policies for sustainable development will

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have to find ways to translate apparent preferences into an actual willingness to

It would be wrong to suggest that the above is a universally-accepted account of sustainable development and the steps required to achieve it. Many people would disagree with some of its central claims. Others would accept large parts, or even the entire account, but would argue that it leaves very large questions, both theoretical and empirical, unanswered. In closing, we briefly examine some of these issues.

Sustainable Yield and Sustainable Development The relationship between sustainable yield and sustainable development is the source of much confusion. To some, the two concepts are synonymous, at least for renewable resources. Certainly it is tempting to imagine that the surest way to guarantee sustained levels of societal or individual welfare is to limit harvest rates of renewable resources to natural rates of replenishment. If stocks of natural renewable resources - such a s fish or forests - are maintained at constant levels, then they can continue to generate welfare benefits indefinitely into the future. Sustainable development therefore means maintaining the natural resource base intact.

Though tempting, this view is wrong. With over 100 million people added to the planet’s population every year, it cannot be enough simply to “do no harm” to the natural resource base. Individual welfare levels would inevitably decline under demographic pressure. Positive steps must be taken to improve the levels and productivity of all kinds of capital - natural, man-made, and human - and to do so in the most cost-effective ways possible. Such steps may sometimes contravene sustainable yield rates.

The example of Bacuit Bay in the Philippines, shows the tension between the two concepts (Dixon and Fallon, 1989). Logging concessions in the area have generated a great deal of foreign exchange, but have triggered soil erosion and run-off which have hurt the local fishing and tourism industries. The latter are low-return activities which do not deplete the Bay’s natural capital stocks. Sustainable yield would therefore argue for a ban on logging. But sustainable development would not: the logging operations, while they damage part of the Bay’s natural capital, generate far more substantial returns which can be invested and used to generate welfare now and in the future.

Natural and Physical Capital The issue of sustainable yield versus sustainable development points to a broader debate over the relationship between natural and human capital. Advocates of sustainable yield argue that natural capital stocks should not be depleted below current levels. For renewable resources, that means extraction rates no higher than maximum yield; for non-renewables it means a depletion rate equal, or less than, the rate at which renewable substitutes are developed.

In this view, natural and physical capital are seen as complements. While the two types of capital can be substituted for each other on a short-run basis - enlarging a fishing fleet will increase its catch even as stocks are reduced -- ultimately, stocks will fall below natural renewal rates, and extra fishing boats will be unable to substitute for the inevitable declines in yield which will follow.

Sustainable development, by contrast, demands maximization of overall

assessment of environmental externalities and ecological thresholds. The precise relationship between the two types of capital is then a purely empirical question. If substituting one for the other can, as a matter of fact, increase rates of return without undermining the connection between investment and welfare, then they should be treated as substitutes.

In the context of sustainable development, capital stocks are valued for their capacity to generate welfare benefits. A priori there is no reason to privilege one kind of capital over another. Identifying the form of investment which has the highest rate of return is an empirical question which should be resolved by environmentally-aware but economically-rigorous cost-benefit analysis. It is true that, in the past, policymakers have tended to overstate the returns to physical capital, while failing to note the substantial returns generated by natural capital - returns which can easily be lost by incorrectly valuing environmental assets. But this is an error of implementation, and one which does not question the fundamental premiss of maximizing returns to capital. If net marginal returns were higher for investments in natural capital, then neo- classicism would advocate increasing the natural capital stock until net returns were equal for all types of capital. The core of the theory would remain the same.

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returns to the capital base as a whole. At the same time, it calls for careful 33

The Discount Rate Can the approach suggested here ensure that future generations will enjoy an equal or larger stream of net benefits than the current generation? It has been widely noted that the use of discount rates to assess the value of future benefit streams imputes a bias towards the realization of current rather than future preferences. This is obviously correct. To assess future preferences, we are reliant on present preferences. The latter are not likely to be disinterested.

However, for two principle reasons, the presence of such a bias is not a sufficient argument for altering discount rates for environmental projects. First, lowering discount rates can have perverse effects, including worsened environmental quality. If rates are lowered, ecologically-sound investments will pass the cost-benefit test more frequently, but so too will a larger total amount of investments. The latter can obviously cause environmental stress.

Second, meeting the needs of future generations will only be possible if investible resources are channeled to projects and programmes with the highest environmental, social, and economic rates of return. Lowering the discount rate for projects with environmental benefits would lead to investments which do not offer such returns. Financing sub-optimal investments means that the

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wealth we pass on to future generations - in the form of clean air and water, and productive soils and forests, as well as the stock of technological knowledge, educated workers, and physical infrastructure - will be less than it could be. If environmental benefits can be adequately valued in economic terms, there is simply no need to depart from standard discounting practice.

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34 Conclusion Sustainability considerations do not prohibit future economic development. Economic decision-making which takes into account environmental externalities and adopts a cautious stance towards possible ecological thresholds, can accelerate development and ensure that its welfare benefits are not undercut by environmental degradation. Sustainability does not imply that development should be stopped, but merely that it needs to be redirected away from certain unsustainable paths.

“Win-win” measures, strengthened cost-benefit assessment procedures, and carefully targeted environmental policies together provide a means to this redirection. These tools are universally applicable: no countries benefit from developing unsustainably, while all gain from achieving sustainability. But nowhere is the need for sustainable development more pressing than in the poorest countries.

In 1993, a billion people still subsist on less than $1 per day. To deny their need for further economic development is to condemn them to acute poverty and grossly inadequate access to the resources which provide the chance of a better life. The essential task of development is to give the very poor, and the millions little better off, the opportunity to realize their potential. Emphasizing that development must be sustainable in no way diminishes the primacy of that task. Instead, it alerts us to dangers which threaten development, and points the way to our avoiding them.

Note 1. Formal policy and procedures for environmental assessment (EA) were first issued as an

operational directive to Bank staff in October 1989. Supportive guidelines were provided in the Environmental Assessment Sourcebook, published in mid-1991. In October 1991, the 1989 statement was replaced by a revised directive which refined the project classification system and strengthened public consultation procedures.

All Bank-supported investment projects are now screened for their possible environmental results; their design and implementation are adjusted accordingly. Projects expected to have significant, sensitive, irreversible, or diverse impacts are classified as Category “A” and require a full environmental assessment. Those anticipated to have less significant and sensitive impacts are classified as Category “ B projects and require less extensive environmental analysis. Projects expected to have insignificant or no impacts are placed in Category “C”, for which no additional analysis is required.

While such mechanisms are primarily designed to ensure that Bank-financed projects “do no harm” to the environment or to local populations, over the longer term they also provide a positive and proactive means to improving projects. For example, through institution-strengthening and the development of borrower technical capacity, the Bank’s assessment procedures increasingly allow projects to realize environmental and social benefits, rather than simply react to potential costs. For further details of the Bank’s

environmental assessment procedures, guidelines and policies, see World Bank, The World Bank and the Environment: Fiscal 1993, Washington DC, 1993.

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