Modern Economies: What Is the Green Economy?

Since the Paris Climate Agreement, the words ‘climate change’ and ‘global warming’ have resurfaced repeatedly. The hope is that the world’s economies will wake up to the need to rapidly introduce ‘green technologies’ that can halt or reverse this warming through ‘decarbonisation’. The hope is that the ‘green economy’ will replace today’s economy. 

What does all this mean? Why the sudden sense of urgency? What exactly is a climate-resilient green economy, and is it possible? 

Let’s unpack everything, starting with the Paris Agreement, to today’s rush to develop the model green economy before all the Arctic’s ice melts and redraws the map. 

The Paris Agreement

On December 12, 2015, at the 21st Conference of the Paris, or ‘COP 21’, in Paris, France, the world’s leading economies ratified an agreement to limit global warming and establish a framework for holding every government accountable. As of today, 194 countries have joined the Paris Agreement

There are three elements to the Paris Agreement: 

Global Warming. The primary goal is to limit global warming to below 2 degrees Celsius above pre-industrial levels (before the 1800s), with a further effort to limit that increase to 1.5 degrees Celsius. The more conservative number is vital to avoid the catastrophic impacts of climate change, though a recent study backed by AI has predicted humanity crossing that threshold in less than 15 years. 

Nationally Determined Contributions (NDCs). Each participating country must submit their own NDC, outlining its commitments and targets for reducing greenhouse gas emissions or decarbonising. These contributions are determined by the respective countries.

Regular Review and Adaptation. All parties to the agreement are mandated to regularly report on their emission and progress towards their NDCs. Countries that are struggling or lagging will receive ‘encouragement’ and can receive additional funding, such as developing or yet-to-be green economies. 

The Paris Agreement represents a historic shift in redefining economic success in the twenty-first century. Pure growth without concern for environmental repercussions is no longer permitted nor acceptable. This shifts the onus to the green economy. 

Defining Today’s Green Economy

A green economy is an economic system prioritising environmental and social well-being in addition to traditional economic goals. It is the economy adequately responding to the dramatic consequences lying in wait with global warming and environmental degradation. 

The central priority is to transition away from fossil fuels and natural resources efficiently. A further title of a climate-resilient green economy refers to one which not only relies on renewable sources of energy but can withstand the effects of natural disasters. 

Ethiopia follows an exceptional climate-resilient green economy model, showcasing one of the world’s most ambitious long-term plans. First, however, there are four key pillars of any green economy which must be covered in depth. 

Environmental Sustainability

Within the first category lie three concerns: resource efficiency, renewable energy, and conservation. 

Resource efficiency refers to the effort of reducing waste and increasing the efficiency of any use of resources in any industry. For example, manufacturing companies use lean production methods such as automation, inventory management, and just-in-time production. Service companies stock products that meet certain environmental standards while avoiding wasteful inventory similar to single-use plastics. 

Renewable energy refers to the shift away from fossil fuels to sources like solar, wind, hydro, geothermal, and nuclear power to reduce greenhouse gas emissions. Historically, a green economy was thought to invest heavily in renewables. The long-term nature of approving, financing, and developing renewable projects leads renewables to be only part of a whole. 

Conservation refers to the ongoing effort to protect ecosystems and biodiversity. Measures include establishing protected areas, regulating fishing, and implementing sustainable forestry. The carbon credits industry serves to provide a profit incentive for global conservation efforts. 

Sustainable Growth

Growth through this lens means green jobs, the circular economy, sustainable agriculture, and innovation. 

Green jobs encompass a varied range of professions and industries, from renewable energy plant technicians to architects specialising in climate-friendly buildings. These jobs are seen as a pathway to economic growth while ensuring the private sector contributes to NDCs. 

The circular economy refers to the efforts for reusing, recycling, refurbishing, or remanufacturing. The overall premise is to reduce demand for raw materials and minimise waste generation at all stages of a product’s life cycle. 

Sustainable agriculture encourages practices such as organic farming, crop rotation, and agroforestry to reduce the traditional impact of agriculture. This aspect of the green economy also emphasises biodiversity conversation, not only for soil health, but bottom line profits as well.

Innovation retains its catch-all connotations by addressing all research and development projects designed to create cutting-edge technologies that will improve energy efficiency, reduce emissions, and advance the green economy. For example, Tesla’s effort to sell an affordable electric vehicle represents a significant step in innovation. 

Green Finance

Funding projects that propel the green economy refers to the specific subfield of green finance, carbon pricing, and public-private partnerships. 

Green finance arose out of the clear need for financial institutions to create and establish attractive financing vehicles for vital, green projects. These include popular green bonds, funding environmentally friendly projects, and sustainable investment funds picking companies with standout environmental and social records. 

Carbon pricing means the global effort to put a price on carbon emissions, either through taxes or cap-and-trade systems. The latter creates carbon credit economies, where companies polluting over allotted ‘caps’ must purchase additional credits to avoid heavy fines. This year’s COP 28 climate change conference may establish a global framework for trading credits. 

Green projects and the need for them place great pressure both on governments and any economy’s leading private employers. Governments recognise a duty to incentivise green initiatives, such as large-scale energy infrastructure projects, that will benefit both the greater population and the companies which hire them. 

Government Policies

In the same spirit of public-private partnerships, the final component of the green economy refers to regulations and subsidies. 

Environmental regulations mean the strengthening of all regulations related to emissions, pollution, and resource management–the foundational principle for any green economy. These regulations set standards and implement penalties, such as for cap-and-trade violations

Subsidies represent the other side of that coin. Owing to the Paris Agreement, ratifying members retain the responsibility of encouraging green technologies, such as electric vehicles, via tax credits or similar benefits. President Joe Biden’s ‘Green Deal’ marks a recent, significant piece of legislation promoting green production. 

Ethiopia’s Climate-Resilient Green Economy

Ethiopia’s Climate Resilient Green Economy (CRGE) is a comprehensive strategy first launched in 2011 to both address climate change and promote sustainable economic growth. It integrates climate resilience within Ethiopia’s long-term economic agenda of becoming a middle-income country by 2025 without adding to greenhouse gas emissions. 

The nation’s approach is one of the most aggressive and ambitious, seeking to leapfrog two races in tandem–technological development and climate change mitigation–through its National Adaptation Plan (NAP)

The plan identifies and reviews the most vulnerable sectors of their economy: agriculture, forestry, health, transport, power, industry, water, and urban. In other words, it reviews the entire economy with a ‘green’ lens. And within these sectors, no fewer than 18 adaptation, or improvement, options have been identified. 

Many Ways of Going Green

Recognising that their country is still developing, Ethiopia’s NAP outlines the 18 areas to improve within 15 years or less. The below list demonstrates not only how much goes into building a green economy, but its vital importance as well: 

  1. Safeguard landscapes and watersheds
  2. Improve access to potable water
  3. Improve soil and water harvesting, and water retention
  4. Improve health systems by integrating health and environmental surveillance
  5. Improve ecosystem resilience through biodiversity conservation
  6. Improve the livelihood of vulnerable people
  7. Improve early warning systems
  8. Enhance food security
  9. Enhance sustainable forest management 
  10. Enhance renewable and alternative power
  11. Increase the resilience of urban systems
  12. Build sustainable transport
  13. Develop climate-adaptive industry systems 
  14. Develop efficient value chains
  15. Strengthen drought, livestock, and crop insurance mechanisms
  16. Mainstream endogenous adaptation practices
  17. Generally develop and use adaptation technologies
  18. Further reinforce adaptation research and development

How well Ethiopia can meet its model of a thriving, green economy remains to be seen. An ambitious target such as the above may require further adjustments, but the nation consistently remains one of the fastest growing in Africa with a 2022 GDP growth rate of 5.3%. This sits well above the global 2022 average of 3.1%. 

However, two green economies that are leading the effort today with exemplary results are Denmark and Sweden.

Today’s Green Economy Leaders

Both Denmark and Sweden have made significant strides in adopting sustainable practices, reducing greenhouse gas emissions, and promoting renewable energy sources. They paint the picture of succeeding climate-resilient green economies. 

Denmark committed to reducing its emissions by 70% by 2030 compared to levels seen in 1990–a target much more aggressive than the EU’s goal of 55%. According to a report from think tank Ember, it consistently retains one of the highest shares of renewables, above 60%, in its electricity production mix compared to 77 other countries. 

The nation therefore leads climate rankings like the Climate Change Performance Index (4th, 2023) and Yale’s Environmental Performance Index (1st, 2022). Similarly, Sweden ranks 2nd and 5th respectively. 

Sweden retains a commitment to reducing emissions by at least 63% by 2030 relative to 1990, with a greater 85% desired by 2045. Thus its current share of renewable energy use within its electricity mix is 48%, but there is a reliance on nuclear energy given the influence of the local forestry sector.  

The ideal target for any green economy remains to not use any energy source that poses a risk to the environment or its population. Yet nuclear energy continues to be an accessible and reliable source that provides a bridge into that ideal, climate-resilient green economy, which is why nuclear now provides for approximately 10% of the world’s energy use today. 

Further, both Scandinavian nations understand that its not solely on the government. The government can only do so much in the light of the private sector’s power. Corporate Knights added six Danish companies and three Swedish companies to their list of the 100 most sustainable companies in the world. 

Closing Thoughts

There’s an inherent mistake and misnomer in relying on the word ‘green’ within the green economy. The overarching principle of the Paris Agreement calls for a global, accountable transition redefining a typical economy as a green economy. The second step of adding climate resilience becomes an additional goal as the world deals with the natural disasters inherent to breaching 1.5 degrees Celsius, likely in the 2030s. 

Today’s model green economies such as Denmark and Sweden understand the necessity and severity. They honour private sector leaders such as Ørsted, Vestas, and Essity. Public policies if left alone and ignored will ultimately fail to meet Paris’ demands enacted for the benefit of us all.

Next in this series of modern economies we’ll cover the rising ‘orange’ economy, also known as the creative economy, that has come to prominence following the Coronavirus pandemic. 

The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech, and entertainment. Mr. Chalopin is Chairman of Deltec International Group,

The co-author of this text, Conor Scott, CFA, has been active in the wealth management industry since 2011. Mr. Scott is a Writer for Deltec International Group,

The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees. This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service, or offering. It is not a recommendation to trade.