There is no necessary conflict between economic growth and environmental protection, Ian Goldin told a London lunchtime meeting in a joint presentation with Partha Dasgupta (University of Cambridge) on 7 June. Indeed, exactly the opposite is true, he claimed: sustained economic growth is the key to improved environmental management. Goldin is Senior Economist at the European Bank for Reconstruction and Development and formerly Senior Economist at the World Bank and Principal Economist at the OECD. His presentation drew on The Economics of Sustainable Development, a volume he co-edited with Alan Winters (World Bank and CEPR), a joint project of the OECD Development Centre and CEPR, and published by Cambridge University Press.

The relationship between economic growth and indicators of air and water quality indicates that growth does not always contribute to environmental degradation. The connection is highly dependent on income levels: there seems to be a U-shaped relationship between income and environmental quality for most pollutants. Quality deteriorates in the early stages of growth but at higher levels of per capita income, it improves. The turning point varies according to the pollutant. For example, the levels of suspended solids and toxic metals in air and water increase rapidly as incomes approach middle income levels but then decrease. The link between income and pollution arises because the composition of output changes with growth in favour of newer, cleaner technologies. The political dimension is equally important: citizens in richer countries are more effective in articulating their demands for a cleaner environment. Democratization may assist countries in getting over the pollution hump: greater participation contributes to limiting local pollutants with a direct and immediate effect on health. By contrast, even the richest countries are only now acknowledging slower and more indirect threats, such as carbon dioxide emissions.

Degradation demands investment in environmental maintenance to ensure sustainability. Although the cost of maintenance is rising (due largely to increasing populations), it is small relative to global incomes. The key question is governments' willingness to cooperate to overcome externalities associated with private economic behaviour. Dealing with global environmental threats requires intergovernmental agreements, and these have remained elusive. The biggest and most severe threat to sustainable development is also the oldest: war. Pollution abatement by the OECD countries alone will not reduce emission levels over the next century to affect global warming materially. By 2050, China alone is forecast to account for more carbon dioxide emissions than the entire OECD.

Developing countries perceive pollution abatement as inimical to their development aspirations. An implausibly high level of technical progress in energy use would be needed if these were to result in the stabilization of emissions. Even if the proceeds of a $10 per barrel carbon tax in OECD countries were invested in new technologies in developing countries, they would only facilitate the clean-up of a small share of polluting industries, and would be partly offset by the growth effects of the transfers. Economic incentives will only succeed with a combination of global carbon taxes with additional revenue: this will allow countries to be compensated for losses incurred as a result of improving environmental management. Most developing countries are still well below the peaks of their pollution so that global environmental damage is likely to increase substantially before it declines. But cutting growth would exacerbate the problem, accelerating population growth, slowing the adoption of cleaner technologies and frustrating the development of democratic institutions. Pollution tends to be related to population, and population growth is inversely related to income growth. Higher average income and output levels are only good for the environment when associated with policies that lessen demographic pressures by reducing personal risk and the need for large families. Improvements in the security of employment, education and training, pension policies, social security and the employment of women are especially important.

Measurement of environmental costs and benefits is a key first step to the development of appropriate policies. The failure of current estimates of net national product to account for the depreciation of environmental resources amounts to imputing this depreciation to be zero, biasing investments and technological choices. If full account were taken of environmental depreciation, profits and national output would be lower. In Costa Rica, for example, it is estimated that the depreciation of forests amount to around 10 percent of GDP and over a third of gross capital accumulation. Biases like this have severe consequences everywhere, but are particularly pernicious in poor countries where small fluctuations in income or growth levels can spell the difference between famine or survival. Small changes in techniques of measurement, production and lifestyle are likely to prove sufficient to preserve the options for future generations. Investments in environmental maintenance are likely to lead to barely significant declines in income growth (under 1 per cent) in the short-term; longer term, they should facilitate more rapid and globally equitable development. Policies which facilitate growth and lead to the appropriate pricing of natural resources provide the basis for enhanced environmental management. The establishment of a pricing structure for natural resources which reflects their true value will also be invaluable. The failure to price natural resources, such as water, at their economic cost means that degradation of natural resources by present generations may undermine the basis for future economic growth.

Trade liberalization offers a particularly powerful impetus to growth and is entirely compatible with sustainable development. Indeed, trade distortions are a primary explanation for environmental degradation, as shown by the the high dependence on subsidised dirty fuels in China and Eastern Europe. To the extent that trade policies may have an adverse effect on the environment, it is up to governments to initiate policy changes. Improved minimum standards and global cooperation for environmental management are a vital step to ensuring that the benefits of economic growth may more quickly and effectively be reflected in an enhanced environment. Not only is growth sustainable, but it is a necessary condition for improved environmental management.