Editing IPCC:AR6/WGII/Chapter-18 (section)

==== 18.4.3.3 Economic and Financial Arenas ====

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The performance of local, national and global economies is a priority consideration shaping perceptions of climate risk and the costs and benefits of different policy responses to climate change. The most commonly used indicator of performance is GDP ( [[#Hoekstra--2017|Hoekstra et al., 2017]] ). Traditionally, national development efforts have sought to maximise the growth of GDP under the assumption that GDP growth equates not only to economic prosperity (including poverty reduction) but also to increased efficiency and reduced environmental externalities ( [[#Ota--2017|Ota, 2017]] ). Such assumptions often employ models such as the environmental Kuznets curve (EKC) that postulates that economic development initially increases environmental impacts, but these trends eventually reverse with continued economic growth. Wealthy nations of the Global North, including for example the USA, Great Britain, Iceland and Japan, have had success over the past decade in reducing their GHG emissions while growing their economies ( ''very high confidence'' ). However, attempts to empirically test EKC in different national contexts has yielded mixed results. Case studies in Myanmar, China and Singapore, for example, suggest that the impacts of GDP on environmental quality are contingent on the development context and the environmental impact under consideration ( [[#Aung--2017|Aung et al., 2017]] ; [[#Lee--2017|Lee and Thiel, 2017]] ; [[#Xu--2018|Xu, 2018]] ; [[#Chen--2020|Chen and Taylor, 2020]] ). In addition, an extensive literature now argues that current patterns of development, and the economic systems underpinning that development, are unsustainable (Washington and Twomey, 2016), and thus economic growth may not necessarily continue indefinitely in the absence of more concerted effort to pursue sustainable development, including reducing the impacts of climate change.

Given such criticisms of the link between development and economic growth, a growing number of researchers argue for the need for alternatives to GDP to guide development and evaluate the costs and benefits of different policy interventions ( [[#Hilmi--2015|Hilmi et al., 2015]] ). For example, while GDP growth can drive growth in income, it can also drive growth in inequality which can undermine poverty reduction efforts ( ''very high confidence'' ) (Fosu, 2017). Hence, recent years have seen significant interest in the concept of well-being as a more robust measure for linking policy and the economy with sustainable development for a healthy Anthropocene era ( [[#Fioramonti--2019|Fioramonti et al., 2019]] ).

Another mechanism for evaluating environmental performance is to include environmental data in the System of National Accounts (SNA) through the System of Environmental-Economic Accounting (SEEA) introduced by the UN. As the international statistical standard for environmental–economic accounting ( [[#Pirmana--2019|Pirmana et al., 2019]] ), SEEA includes natural capital resources in national accounting. A number of recent studies conclude that failure to account for natural capital in macroeconomic impact assessments results in overly optimistic outcomes ( [[#Pirmana--2019|Pirmana et al., 2019]] ; [[#Jendrzejewski--2020|Jendrzejewski, 2020]] ; [[#Naspolini--2020|Naspolini et al., 2020]] ); ( [[#Banerjee--2019|Banerjee et al., 2019]] ; [[#Kabir--2019|Kabir and Salim, 2019]] ; [[#Keith--2019|Keith et al., 2019]] ). For example, [[#Jendrzejewski--2020|Jendrzejewski (2020)]] inserted natural capital into a computable general equilibrium model of the 2017 European windstorm on state-owned forests in Poland. This resulted in more negative assessment of impacts, suggesting excluding natural capital could lead to erroneous investments, strategies or policies. Similarly, other studies rely on Quality of life (QOL) measurements as alternatives for GDP. [[#Estoque--2018|Estoque et al. (2018)]] suggested a ‘QOL-Climate’ assessment framework, designed to capture the social-ecological impacts of climate change and variability.

Another alternative to GDP is Green GDP which seeks to incorporate the environmental consequences of economic growth ( [[#Boyd--2007|Boyd, 2007]] ; Stjepanović et al., 2017; [[#Stjepanović--2019|Stjepanović et al., 2019]] ). Green GDP is difficult to measure, because it is difficult to evaluate the environmental depletion and ecological damages of growth ( [[#Stjepanović--2019|Stjepanović et al., 2019]] ). Although there is no consensus in measuring Green GDP, attempts have been made for select countries including the USA ( [[#Garcia--2017|Garcia and You, 2017]] ), Europe ( [[#Stjepanović--2019|Stjepanović et al., 2019]] ), China ( [[#Chi--2010|Chi and Rauch, 2010]] ; [[#Yu--2019|Yu et al., 2019]] ; [[#Wang--2020|Wang et al., 2020]] ), Ukraine and Thailand ( [[#Harnphatananusorn--2019|Harnphatananusorn et al., 2019]] ), and Malaysia ( [[#Vaghefi--2015|Vaghefi et al., 2015]] ). Le (2016) illustrated the potential negative impacts of climate change vulnerability on green growth. Some studies have suggested that focusing on green growth as the only strategy to address climate change would be risky. [[#Hickel--2020|Hickel and Kallis (2020)]] argue that green growth is likely to be a misguided goal due to the difficulties of separating economic growth from resource use and, therefore, carbon emissions (see also ( [[#Antal--2014|Antal and van den Bergh, 2014]] ). Therefore, alternative strategies are required ( [[#Hickel--2020|Hickel and Kallis, 2020]] ). In addition, green growth should also be able to justly respond to social movements involving contestation, internal debates and tensions ( [[#Mathai--2018|Mathai et al., 2018]] ).

The emphasis on Green GDP is mirrored by another concept, Blue Growth, that focuses on pursuing sustainable development through the ecosystem services derived from ocean conservation ( [[#Mustafa--2019|Mustafa et al., 2019]] ). Synthesis studies suggest that more intensive use of ocean resources, such as scaling up seaweed aquaculture, can be used to enhance CO 2 -eq sequestration, thereby contributing to GHG mitigation, while also achieving other economic goals ( [[#Lillebø--2017|Lillebø et al., 2017]] ; [[#Froehlich--2019|Froehlich et al., 2019]] ). Similarly, [[#Sarker--2018|Sarker et al. (2018)]] present a framework for linking Blue Growth and CRD in Bangladesh, with Blue Growth representing an opportunity for adapting to climate change. Bethel et al. (2021) also links Blue Growth to resilience, noting that a Blue economy can help facilitate recovery from the COVID-19 pandemic. Nevertheless, consistent with earlier assessment of enabling conditions for system transitions ( [[#18.4.2.1|Section 18.4.2.1]] ), implementation of Blue Growth initiatives is contingent upon the successful achievement of social innovation as well as creating an inclusive and cooperative governance structure ( ''very high confidence'' ) ( [[#Larik--2017|Larik et al., 2017]] ; [[#Soma--2018|Soma et al., 2018]] ).

A potential critique of the various alternative metrics and models for economic development is that they are all framed in the context of growth. Over the past decade, ecological economists and political scientists have proposed degrowth (e.g., [[#Kallis--2011|Kallis, 2011]] ; [[#Demaria--2013|Demaria et al., 2013]] ) and managing without growth (e.g., [[#Jackson--2009|Jackson, 2009]] ) as a solution for achieving environmental sustainability and socioeconomic progress. Such concepts are a deliberate response to concerns about ecological limits to growth and the compatibility between growth-oriented development and sustainability ( [[#Kallis--2009|Kallis et al., 2009]] ). Sustainable degrowth is not the same as negative GDP growth, which is typically referred to as a recession ( [[#Kallis--2011|Kallis, 2011]] ). Degrowth goes beyond criticising economic growth; it explores the intersection among environmental sustainability, social justice and well-being ( [[#Demaria--2013|Demaria et al., 2013]] ). Under current economic and fiscal policies (see Box 18.7), degrowth has been argued as an unstable development paradigm because declining consumer demand leads to rising unemployment, declining competitiveness and a spiral of recession ( [[#Jackson--2009|Jackson, 2009]] : 46). More comprehensive modelling of socioeconomic performance understands the segments of sufficient social transformation to guarantee maintenance and rises in well-being coupled with reduced ‘footprints’ ( [[#Raworth--2017|Raworth, 2017]] ; [[#Hickel--2019|Hickel, 2019]] ; [[#D’Alessandro--2020|D’Alessandro et al., 2020]] ).

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