Towards sustainability – a long and winding road

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Government economists want policy and law making to cease conflicting with sustainable development. But, reports Nicholas Schoon, there is a long way to go

Felixstowe container port, by Clynt Garnham, Alamy
Felixstowe container port, by Clynt Garnham, Alamy

After two decades of debate, government still lacks the tools and processes to achieve sustainable development, a review by civil service economists has concluded.1

It argues that “there is a real potential for a combination of decisions that appear to be sustainable on an individual basis… to lead to depletion of the overall level of certain natural assets beyond critical thresholds and limits”.

The key issue for the Government Economic Service’s two-year-long review into the economics of sustainable development was how to make the range of government activities and interventions accord with sustainable development.

But as part of its work, the review team engaged – albeit tentatively and at the sidelines – with the biggest and most difficult environmental debate of all: whether long-term environmental protection is compatible with unending economic growth.

Publication of the review’s final report comes at an interesting time. The new coalition government has just decided to dispense with its main adviser on sustainable development, the Sustainable Development Commission (SDC) (ENDS Report 426, pp 5-6). Environment secretary Caroline Spelman said she wanted to lead on implementing sustainable development across government, and the environment department (DEFRA) would gain an “enhanced capability and presence” in this area.

Just over a year earlier, this commission had published a startling report which argued that continued economic growth in developed countries was incompatible with sustainable development (ENDS Report 411, pp 36-39).

Sustainable development has numerous definitions. A usefully brief one from DEFRA is “ensuring that today’s population is able to enjoy an improving quality of life, without compromising the quality of life of future generations”.

The review team, led by DEFRA economists, points to various things which have been done, are being done, or might be done, to help senior and middle-ranking civil servants in Whitehall and the devolved administrations move the UK towards sustainable development. There is no guarantee these will be acted on.

Irreversible damage

Nor has there been much engagement by the new coalition government’s ministers with the review team’s work. A disclaimer on the review’s title page says it is “not a statement of government policy”. The team’s final report was slipped onto DEFRA’s old, pre-election version website in July, without any announcement.

The review’s main aim was to work out how the need for sustainable development could be incorporated into the making of new government policies and projects, in particular into the formal process of developing and appraising new policies.

At present, project and policy appraisal is dominated by economics, particularly social cost-benefit analysis (SCBA). All the likely costs and benefits to society associated with a proposed new policy in each year following its implementation are assessed and estimated in monetary terms.

A discount is applied to future costs and benefits, to value them in ‘today’ terms. Then all of these annual values are summed up, giving a net present value (NPV).

If the NPV is negative, the policy’s costs over its lifetime will outweigh the benefits. It is therefore rejected. If several different policy options are put forward for solving a problem facing government, the one with the highest positive NPV is usually chosen.

Whitehall’s holy bible for this SCBA process is the Treasury’s Green Book, subtitled “appraisal and evaluation in central government”.2 The latest 114-page version, which dates back to 2003, never actually mentions the words ‘sustainable development’ although some supplementary guidance does.

The review team found significant flaws in SCBA’s ability to achieve sustainable development. It “could go a long way towards assessing sustainability at a micro-level” but “could not guarantee that overall well-being would be preserved for future generations”.

Putting a monetary value on the environmental damage or improvement likely to flow from any policy under appraisal is difficult and contentious.

Despite decades of theorising and research by economists, there is no hard and fast, universally accepted way of valuing damage to, say, biodiversity, natural beauty or the climate (ENDS Report 415, p 35).

SCBA also fails to deal with the problem of environmental limits or thresholds, the review finds.

Some kinds of environmental deterioration can eventually lead to irreversible, or extremely difficult and costly to reverse, damage. Examples might include extinction of individual species, the collapse of an ecosystem or breaching climate change ‘tipping points’.

Yet SCBA relies on estimates of marginal costs and benefits, and fails to properly take these non-marginal impacts into account.

The review team’s final report says: “SCBA combines all costs and benefits into a single metric based on the fundamental assumption that all assets [be they environmental, or man-made such as motorways, or social assets such as high levels of trust] can be traded off against each other… [but] this might not be the case for certain assets.”

The evidence it received, it says, was “very clear” that government’s existing guidance on assessing impacts “was not helpful in appraising the sustainability of policies”.

So what is to be done? Last autumn the review team came up with six ‘emerging’ recommendations in its interim report. Now the final document sets out how those recommendations have been, will be, or might be taken forward.

But it has nothing to say about the sixth of its emerging recommendations: that the UK’s current definition of sustainable development “could be refined to make it more operational” and “more could be done to set out the definition in a way which makes its implications for decision-making clearer”.

The current definition is explained in Securing the future, the previous government’s 2005 document setting out its sustainable development strategy.3 Richard Price, DEFRA’s chief economist and the review’s chief author, told ENDS: “It is proper that the coalition government forms its own view on the approach it wants to take to sustainability; we should not pre-empt that.”

Any proposal for a definition rewrite would require Caroline Spelman’s say-so, and probably the prime minister’s too.

The first of the emerging recommendations was that “assessment of social impacts of policy should be more systematic and consistent across government”. The final report says a cross-departmental “social impacts task force” had been set up to work on this and is due to report on its initial findings this autumn.

It remains to be seen if this survives the change of government and civil service cut-backs. But its work ought to be of interest to a government which believes the state has taken on too big a role, and that ‘big society’ should take over some of it.

The interim report’s second recommendation was that “more needs to be done to help policymakers to incorporate environment externalities properly in SCBA”. The final report says DEFRA has since revised some parts of its guidance to civil servants on assessing environmental impacts.4

These assessments are part of the wider, compulsory process of presenting impact assessments for all new government policies and regulations, similar to the appraisal process set out in the Treasury’s Green Book.

DEFRA civil servants are also drafting supplementary Green Book guidance on accounting for environmental impacts. And, says the final report, they are exploring the idea of ‘shadow prices’ for key environmental assets, similar to the shadow price of carbon (ENDS Report 415, pp 32-35). But “the goal of full environmental valuation still has a long way to go… this is an incredibly challenging area”, it says.

The review team’s third emerging recommendation was that “an ‘asset check’ should be investigated, allowing a rapid assessment of the potential impact [of any proposed policy] on the stock of specific environmental assets”.

This reflects one of the review’s most important themes: that UK sustainable development policy should shift more towards the so-called capitals approach. Here, the basic idea is that stocks of the different kinds of capital critical to current and future human wellbeing must be protected and maintained, including natural capital such as biodiversity and freshwater resources.

The government’s current indicators for sustainable development (see figures 1 and 2) give only a hazy idea of what these stocks are and what state they are in.

Sustainable development indicators
Sustainable development indicators

The review’s final report does not say when, if ever, such an asset check will be implemented. But it points out that the UK National Ecosystems Assessment (NEA) is working on a related idea (ENDS Report 412, p 25) and may be able to help develop such a test.

The NEA is carrying out a detailed study of the services marine, freshwater and terrestrial ecosystems provide in Britain. Talks are taking place between the different teams of civil servants.

DEFRA will also soon publish a summary of all statutory environmental limits, to “help decision-makers to identify when policy option proposals may contribute to the breach of a limit and highlight the need for mitigating or compensatory actions”.

The fourth emerging recommendation relates to the impact assessments for new policies and regulation demanded by the business department (BIS). The guidance on preparing impact assessments “should define more tightly what is required before ministers can be advised that it is consistent with sustainable development”.

Taking this forward, the final report says a revised “sustainable development specific impact test” has been developed for use in impact assessments, and has been placed on DEFRA’s old, pre-election website.5

According to this test, if a proposed policy is found to have “significant impacts which fall on future generations disproportionately”, ministers should be informed and mitigating or compensatory measures devised.

The interim report’s fifth emerging recommendation calls for “more transparency” in assessing the impacts of policies on future generations. It argued that the current system of discounting future costs and benefits “can be extremely opaque, both for policymakers and the public”.

It saw the asset check approach it advocated as one way of addressing this shortcoming, showing how much of each critical environmental asset was being passed on to future generations and how proposed policy options would affect these. But as yet there is no ministerial commitment to adopt this approach,  and to have any force it would require political endorsement.

Improving sustainable development indicators
Improving sustainable development indicators

The review team’s final report does point to one small thing which has been done to address this fifth recommendation. There has been a change to the BIS impact assessment form which has to be completed by civil servants before new policies and regulations go ahead. It now has a section in which undiscounted costs and benefits in each future year are totalled up.

Making a difference?

On its own, the review team’s work provides scant reason to hope that the process of developing and appraising new government policies and projects will take a major step towards genuinely sustainable development.

The changes which have been made in the light of its emerging recommendations are mainly rewrites of, or addenda to, existing guidance.

There is no guarantee that civil servants beyond DEFRA will heed this guidance, nor apply it carefully and properly. And there is no system for ensuring that the guidance is followed.

The interim report makes a telling comparison. “There is,” it says, “no single body responsible for ensuring that government policy appraisals consider everything under the umbrella of sustainable development in the way that [BIS’s] Better Regulation Executive is responsible for impact assessment (and has strong political backing).

“There is a risk that even with a clear conceptual framework and new guidance on sustainable development, policy and decision-making will not appreciably improve.”

And it confesses that the review has not begun to consider how compliance with sustainable development policy can be enforced. But the interim report does suggest that each critical environmental asset is assigned to a government department. This would be its “owner, responsible for monitoring its stock in much the same way that [energy and climate department] DECC is responsible towards meeting our greenhouse gas emission targets”.

But there is one clue that DEFRA ministers and top civil servants are taking the review team’s work seriously. It features in the department’s draft structural reform plan, the slimline document setting out DEFRA’s top priorities for five years of coalition government (see pp 5-7).

Under its priority to “support a strong and sustainable green economy” the draft plan says it will “revise guidance on impact assessments, the [Treasury] Green Book and other policy appraisal guidance to take account of sustainability and the value of nature”.

Is economic growth sustainable?

The review has one interesting sideshow. It shows British civil servants, but not ministers, engaging in the ‘economic growth versus the environment’ debate.

Most of the political and business establishment have long shunned this debate. For them, it is a received truth that economic growth provides the resources to give increasing protection to the environment.

It can do, and often does. But, to date, this process is happening nowhere near fast enough. Instead, critical natural resources are being depleted at wildly unsustainable rates at the global level, due to a combination of economic and population growth. As incomes rise, so too does over-consumption of natural resources and the overloading of natural sinks.

The debate has recently been re-energised. In April 2009, the UK government’s SDC published its Prosperity without growth? report, which argued that economic growth in developed nations should cease in order to secure global sustainable development.

Then in September that year, the Sarkozy commission published its report on “the measurement of economic performance and social progress”.6 The French president formed this commission of leading international social scientists, including the UK’s Lord Stern, because he was unhappy about current use of economic and social statistics. It covered environmental sustainability, supporting the capital’s approach, and criticised the use of gross domestic product per capita as a key indicator of human progress.

The review team’s contribution to these debates consists of two papers accompanying its own review, one on economic growth, wellbeing and sustainable development and the other on economic growth and the environment.7,8

Unsurprisingly, both papers argue strongly for continued economic growth, maintaining it has and can continue to increase overall wellbeing. But they concede there have been severe environmental downsides.

Both papers also argue that the UK has made major advances in decoupling economic growth from rising environmental damage. However, both go on to concede to one of the anti-growthists’ most compelling points, which goes as follows.

In reality, Britain has failed to decouple economic growth from environmental damage because it has changed the structure of its economy. A great deal of industrial production has left Britain, and we rely increasingly on imports of these products. Much of this manufacturing is done in emerging economies with lower environmental standards and higher carbon intensity than UK manufacturing.

The end result is that rising consumption in the UK causes rising environmental damage, but more and more of this damage is done overseas, while many types of pollution within these islands decline.

In sum, both papers rehearse the main elements of the debate on economic growth and environmental sustainability but fail to advance it. They conclude that by setting out a role for government in making environmental policy and regulations, which only the most ardent and environmentally ignorant free-marketeer would quarrel with.

Professor Tim Jackson of Surrey University, who wrote the SDC’s report, said: “It’s fantastic to see the government economists finally acknowledge the blindingly obvious fact that we must protect critical natural capital, but completely disingenuous to suggest that we can achieve this without questioning growth-based economics.”

DEFRA’s Richard Price told ENDS: “I’ve been very keen to move beyond the argument of whether economic growth is good or not. It’s one part of our work to make sure that we have a good understanding of the relationship between growth and the environment, both constraints and opportunities.”

This government review of the economics of sustainable development kept civil servants and academics busy for thousands of hours. Was it worth it?

That will depend on how much heed ministers within DEFRA and the rest of government pay to its cautious findings, and whether they take them forward. Particularly the Treasury and three other departments: BIS, transport and energy and climate.