OECD Observer
Growing local

Managing local ecosystems can help create jobs and spur sustainable economic growth.

Nature can be viewed as a trust fund. It can be spent immediately, drawn down over time, invested to create more value, used at the rate of regeneration, or some combination of these strategies. However, when nature’s trust fund is spent, there is no amount of hard work, reorganisation or innovation that will replace it. There is no “natural reserve bank” or “natural treasury” to bail the world out of the environmental debt crisis. As Sir Nicholas Stern has shown with respect to climate change, and The Economics of Ecosystems and Biodiversity (TEEB) report demonstrates far more broadly, every year that serious action is postponed results in more unavoidable damage and increased costs of adaptation.

The UN Environmental Programme (UNEP) argues that biological products and processes comprise up to 40% of the global economy. In its Green Jobs report, UNEP argues that these green-collar jobs are emblematic of the emergence of a sustainable economy. These jobs are found in six economic sectors worldwide: energy supply, particularly renewable energy, building and construction, transportation, basic industry and recycling, agriculture and forestry. Years of experience on the ground have shown us the need to root conservation at the local level. We know that poverty is bad for the environment. Poverty causes people to make perfectly rational short-run decisions that result in catastrophic longer-term environmental and economic consequences. Although there are no silver bullets, we contend that ecosystem-based adaptation and nature-based solutions can reduce poverty, create more resilient and robust resource-management systems, and improve human welfare. Influencing governance arrangements from the local to global level and facilitating appropriate private sector engagement are key to effecting wider change toward a green economy.

Economics is strongly based upon the notion that people respond to incentives. When local people have adequate incentives to provide environmental stewardship, they will do so. Local incentives for environmental stewardship can be bolstered by increasing productive efficiency and reducing waste, but also by strengthening environmental responsibility/ liability and exploring new market opportunities. Where market incentives are insufficient, public policy can bridge the gap between local stewardship and non-local beneficiaries of the production of ecosystem services. This is known as the “beneficiary pays” principle, the modern incarnation of the “polluter pays” principle, reflecting the recent change in focus from pollution control to broader ecosystem management.

In the era of globalisation, attention to supply chain management is essential to understanding incentives for people closest to the land. Intellectual property rights, contract terms, reinvestment of profits and local content in the supply chain can have a great deal to do with whether it is in the best interests of local people and communities to engage in biodiversityfriendly land management practices. Imported substitutes for local products, non-local ownership and decision-making, all-inclusive resorts and package purchases are likely to reduce the multipliers of local expenditures due to leakage outside of the economy. Leakage reduces local incentives for environmental stewardship.

Green economic growth will benefit from a bottom-up approach as part of a comprehensive green development strategy. Examples of green growth opportunities might include biomimicry, eco-agriculture, sustainable forestry, non-timber forestry products, sustainable fisheries and aquaculture, bio-carbon offsets, payments for watershed protection, bioprospecting for genetic resources, biodiversity offsets and habitat banking, biodiversity management services, sport hunting and fishing, and ecotourism as a part of a broader economic development strategy.

Markets for organic agriculture and sustainablyharvested timber are growing at double-digit rates and yet are an example of underexplored economic opportunity. Most producers only focus on selling the certified product. A broader view of ecosystem services might reveal that the practices required to obtain the certification result in the production of many other valuable, potentially marketable ecosystem services. Optimisation across ecosystem services may increase profitability relative to a single focal certified product.

“Local food” projects have been touted not only as a means to provide better access to fresh and nutritional foods, but to reduce the environmental footprint of agricultural production. “Buy local” programmes should reduce the transportation footprint of agriculture and have larger local multiplier effects, due to greater local content. However, these gains need to be considered in view of any efficiency losses in production and the reduction in development effects to agricultural exporting countries or communities.

 UNEP’s Green Jobs report projects tremendous potential for job growth in renewable energy by 2030, including 12 million jobs in biofuels, 6 million in solar power, and 2 million in wind power. Biodiversity supports much of the energy systems, especially in developing countries, where firewood and charcoal are by far the most important sources of energy used for cooking and heating. Biodiversity also provides an effective way to store the carbon produced by burning fossil fuels. Millions of tonnes of carbon are absorbed every year by plankton, soils and forests. Biofuels are becoming increasingly important in providing energy security, potentially helping to address the problems of climate change and providing new sources of income to poor farmers. But any initiative to encourage land-based biofuel production must also address the unintended and indirect environmental and food security consequences of private land-use decisions.

When markets work well, private incentives and social objectives are well aligned. Effective economic policy realigns, or corrects for, incomplete, misguided or otherwise misaligned private market incentives. In close co-ordination with an appropriate legal institutional framework, including property rights and land tenure, the full policy tool kit available to economists, including taxes, subsidies, quotas, standards, regulations, fiscal, monetary and trade policies, and investment and training, can be put to work to align incentives and guide decisions toward a green economy.

Green economic policies include a number of efforts that broadly fit under the (International) Payment for Ecosystem Services (IPES) umbrella that facilitate the bilateral flow of financial resources from developed to developing countries in remuneration for the stewardship or enhancement of the flow of ecosystem services. For example, REDD (Reducing Emissions from Deforestation and forest Degradation) and other carbon-offset mechanisms are environmentally sound and recognise their codependence with effective and equitable forest governance. REDD+ mechanisms could incorporate ecosystem service-based adaptation to climate change with specific consideration to the linkages with development, gender, and poverty reduction.

 “Offset” programmes increasingly go beyond forest carbon and extend to carbon in other ecosystems, potentially including coastal systems, such as mangroves and sea grasses, peatlands, wetlands, soils, agricultural lands, drylands and non-tropical forests, and/or to other valuable ecosystem services, including endangered species or habitats, and broader notions of biodiverse landscapes.

 Following the evolution from reducing the production footprint, often pollution/ waste, to rewarding ecosystem stewardship, proposals for a Green Development Mechanism (GDM) build on recent experiences with the Clean Development Mechanism (CDM). A potential GDM would help facilitate and validate the transfer of financial resources from developed country beneficiaries to biodiversity-rich developing countries. These tools could include tradable conservation obligations, offsets with international support, biodiversity footprint taxation with structured supply, and/or “greening” of commodity imports.

Energy policies and practices can make a difference by addressing the implications for ecosystems and livelihoods of energy technologies that are expected to sustainably and significantly reduce carbon emissions. A supportive policy environment is needed to influence how the private sector adapts to rigorous sustainability standards, such as “no net negative impact” or “net positive impact” on biodiversity, in their daily work. Such an environment will both support corporate aims and the conservation of biodiversity.

Innovative financial lending policies could allow natural wealth in ecosystem services to serve as collateral against a loan and could provide a bridge between business-asusual production practices and sustainable ecosystem management. Policies to harmonise sustainability standards and performance indicators among regions and countries are also needed.

Progress towards a green economy can be attained through public and private investment in the principles of sustainable ecosystem management that contribute to a more robust and lasting economic recovery, job creation and poverty reduction than reinvestment in business-as-usual strategies that created these challenges in the first place. Aligning incentives at the ground level provides a strong basis from which to drive green economic growth globally.

The environmental community is like a family doctor who has been telling us for years to moderate our unhealthy habits. Now, the world has had a minor to moderate economic heart attack. The situation is critical, yet provides a unique opportunity to change course toward a healthier future.


European Communities (2008), The Economics of Ecosystems and Biodiversity: An interim report, Cambridge, UK. Available at www.teebweb.org

UNEP(2008), Green Jobs: Towards decent work in a sustainable, low-carbon world, Nairobi, Kenya. Available at www.unep.org

©OECD Observer No. 279, May 2010