Rio+20: Momentum for Resource Economics

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Norden, Rio de Janeiro, Brazil

Growth. Even before the concept is defined, we know what’s on the agenda. It’s not about plant growth, hair growth or growth in quality of life, it’s about economic growth. And the kind that is measured in GDP. However, Rio+20 might mark a paradigm shift in the way we measure growth and wealth.

The summit in Rio de Janeiro marks the 20-year anniversary for the first Earth Summit on sustainable development. Back then the summit attracted unprecedented media coverage and generated a range of landmark conventions on sustainability, biodiversity and climate change. The latter laid the foundation for the institutional architecture of the COP-processes, which in 1997 led to the Kyoto-protocol that ends later this year.

The prospects for Rio+20 look somewhat different. But even though it is difficult to see light at the end of the tunnel, agreement on the importance of a transition towards a green economy is starting to come to light.

According to EU Commissioner on Climate Action, Connie Hedegaard, the current overconsumption of critical resources, and growing energy and food prices require that the current economic models. “The 21-century must have an intelligent growth model. We are in a period where resources are becoming more and more expensive. Oil prices are going up, food prices are going up, and many other commodities going up. We need to address this,” says Connie Hedegaard. She thinks, for this year’s meeting to have the same long-term consequences as its predecessor, world governments need to sign up for a declaration on new ways of measuring growth and economic wealth. 

Planning in uncertainty

Discussions on growth first really took of when Dennis Meadows and his colleagues at the Massachusetts Institute of Technology in 1972 published The Limits to Growth, essentially carrying the message that unlimited growth is impossible in a world with limited resources. The critics accused the authors for scare mongering and the actual economic growth did its part in disproving the book and ensured that the ideas never took footing among mainstream economists.

A polarised debate between economic growth vs. environment followed in the 1970s and 1980s, where the Bundtland-report, Our Common Future, in 1987 created common ground between the two positions and introduced the concept of sustainable growth defined as »a development that meets the needs of the present without compromising the ability of future generations to meet their own needs.«

The disagreement between the two positions in the growth-debate crystallised in 1980, where the American biologist, Paul Ehrlich, and the American economist, Julian Simon, made a bet. The bet concerned the price development of five different types of metals (copper, chromium, nickel, tin, and tungsten) between 1980-1990. Ehrlich argued that population growth and the pressure on resources would grow faster than the supply of commodities; meanwhile Simon thought that the free market would be able to solve the challenge. Even though population grew with approx. 800 mill. people that decade, Ehrlich lost the bet and the growth-economic thinking won. Had they expanded the time period till today, Ehrlich would have won.

The recent years of volatility in oil and coal prices partly underlines Ehrlich’s thesis. But other, less visible commodities, exemplify this trend. The price of neodymiumoxid, which is used for magnets in windmills for example, rose from $40 per kilo in 2004 to $1,200 in 2011. Today, the price is $160 but demand is expected to double within the next three years. The price chocks have hit a range of industries from producers of hard disks to electric cars, and earlier this year, the World Economic Forum warned that the limited supply of rare earth minerals could threaten the development of renewable energy technologies.

The enormous price volatility has led to new a trend within economics that focuses less on the economic equilibrium thinking. Last month, Copenhagen University chose to participate in the network surrounding the Institute of New Economic Thinking, and launched a Centre for Imperfect Knowledge Economics. The network currently has approximately 10,000 participating economists, which demonstrates the growing interest in new economic thinking.

“For decades, mainstream economists, especially from the US, have constructed models with mathematical precision that almost looks like science. However, the price for making the math understandable is that the models build on simplified assumptions. Economics is a social science in so far that it is influenced by human behaviour, and by integrating this aspect in the economic models, we will have a better understanding of the constant imbalances, which for example preceded the financial crisis. Instead, we are faced with an accelerating debt crisis and great difficulties getting the economy started again. At the same time, our consumption of the earth’s scarce resources will impose limits on the growth that is need to solved these problems,” says Professor of Economics, Katarina Juselius, Director of the new centre. Besides rethinking the economic assumptions and the concept of growth, she also emphasises the pressing need to account for environmental goods such as biodiversity, clean water and forests by developing long-term plans for sustainable growth.

The goal setting model

Connie Hedegaard, who also leads EU’s contentious battle to price CO2-emission in European airspace, actively works to gather support to the UN-led initiative on the development of so-called Sustainable Development Goals. The idea is based on the experiences from the UN’s Millennium Development Goals that world governments agreed on in 2000, and has shown that the world community actually can set goals and meet some of them. Among the proposed Sustainable Development Goals are goals within food safety, access to water, and sustainable production and consumption models. What this specifically will amount to is still uncertain, but according to Troels Dam Christensen, coordinator for the Danish 92-group and participant at Rio+20, the idea might gain momentum at Rio+20.

“Sustainable Development Goals are currently in the negotiation text, but the content is still unknown. The central point is that the goals doesn’t get a too narrow focus and that they actually lead to sustainable solutions,” he says, and stresses that a first step on the way will be to end the international subsidies on fossil fuels. And that’s not peanuts. According to The International Energy Agency, global subsidies to fossil fuels will amount to $630 billion in 2012. Since G20 leaders in 2009 called for the ending of subsidies, several other countries have follow suit and Rio+20 is likely to be the place where an international commitment on this can take its impetus.

“I think we can reach an agreement on ending the subsidies on fossil fuels, but of course, it is important that it does not conclude with empty promises. In the end, it’s about doing whatever works in the transition towards a green economy,” concludes Troels Dam Christensen.

At a UN-meeting on the state of the world economy in New York last week, UN General secretary, Ban Ki-moon, several times stressed the need for better ways to measure progress than GDP, and the apparent need for a paradigm shift in the current understanding of growth: “It is time to recognize that human capital and natural capital are every bit as important as financial capital,” said Ki-moon, and pointed out that an agreement on Sustainable Development Goals at Rio+20 would influence the growth-agenda for many years to come. “Rio+20 is our opportunity to establish a new paradigm for growth – building on what works, discarding what does not. We need nothing less than a revolution in our thinking about the foundations of dynamic growth and the well-being of future generations.”