‘Green growth’ is almost tautologically required for global welfare to rise in the long run. Economic growth is desirable, not least because over 1 billion people still live in conditions of poverty. Undermining the ecological basis for human civilization will damage human welfare and further undermine economic growth. There are large adverse environmental externalities from economic activity that affect human welfare directly and indirectly through lower measured output. Finding ways to tackle these externalities will enhance wellbeing and allow continued growth of GDP while preserving aggregate natural capital. However, achieving this goal presents societies with major challenges. The composition of GDP is likely to have to change significantly, with more emphasis on new ideas and less on increased material throughputs. The role of the state in a ‘green growth’ transition will have to go beyond internalizing externalities to ‘get prices right’. The necessary transformation will be large, system-wide, and structural, so the state must also provide, at the least, overall strategic direction. Innovation will be central to any successful strategy, as will be dealing with the distributional consequences of stronger environmental policies, particularly in developing countries. Organizing the appropriate collective action at the right levels in the face of inadequate information, while ensuring that the appropriate governance arrangements are in place, will not be easy. Policy experimentation is needed, with more rigorous ex post evaluation and, where successful, rapid dissemination of the results.

Alex Bowen and Cameron Hepburn. (2014). In: Oxf Rev Econ Policy. 30 (3): 407-422

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