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Policies for Sustainable Development

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Much of macroeconomic theory and policy is currently oriented towards promoting continuous economic growth. What kind of policies would be required to promote ecological sustainability? How can these policies be designed to also maintain well-being and promote human development, especially in developing countries?

Some ecologically-oriented economists view "sustainable growth" as a contradiction in terms. They point out that no system can grow without limit. However, some kinds of economic growth seem essential. For the large number of people in the world who cannot satisfy their basic needs, an increase in consumption of food, housing, and other goods is clearly required. For those who have achieved a high level of material consumption, there are possibilities for improved well-being through expanded educational and cultural services which do not necessarily have a large negative environmental impact. But there is nothing in standard macroe Editing Policies for Sustainable Development - Green Wikiconomics which guarantees that economic growth will be either equitable or environmentally benign. Specific policies for sustainable development are therefore needed.

Green taxes which make it more expensive to undertake activities that deplete important natural resources or contribute to degradation of the environment. They discourage energy- and material-intensive economic activities, while favoring the provision of services and labor-intensive industries. An example of a green tax would be a tax on fuels such as gasoline and diesel in proportion to the carbon emissions of the fuel. All countries have implemented environmentally-based taxes to some extent.

Green taxes are strongly supported by economic theory as a means to internalize negative externalities such as pollution. When there exists a negative externality like pollution, an unregulated market will result in an inefficient allocation. Two common objections arise to green taxes. First, green taxes would likely fall disproportionately on lower-income households. A rebate or cre Editing Policies for Sustainable Development - Green Wikidit to these households could be implemented to avoid making a green tax regressive. The other criticism is that green taxes are politically unpopular – no one particularly wants higher taxes. Increases in green taxes can be offset by decreases in other taxes, such as income taxes, so that the tax burden on a typical household remains unchanged. And unlike income-based taxes, households would have options to lower the amount of green taxes they pay by undertaking energy conservation measures and other environmentally-friendly practices.

Tradable permit systems that set an overall limit on pollution by offering a limited number of permits which allow permit holders to emit specific quantities and types of pollution. These plans are based on the principle that a process of pollution reduction may be most efficiently achieved by allowing businesses to choose between finding economical ways to reduce their emissions or paying to buy permits. Once the permits are distributed to firms, they can then buy or sell them from or to other firms. Pollution reduction will occur first where it can be done most economically. This efficiency characteristic makes tradable permit systems popular among economists. While environmentalists have sometimes objected, on principle, to the idea of government issuing “permits to pollute,” it is recognized that tradable permits have been used successfully in several instances, most notably to reduce sulfur dioxide emissions in the United States. Such permits can also be purchased by environmental groups or private citizens in order to retire them and thus reduce the overall level of pollution.

Debt-for-nature swaps where the debt of developing countries would be forgiven if they agree to protect nature reserves or pursue environmentally-friendly policies. For example, in 2002 the United States canceled $5.5 million of debt owed by Peru to the U.S. in return for Peru’s agreement to conserve 10 rainforest areas covering more than 27.5 million acres. This innovative international form of international fiscal policy was authorized by the Tropical Forest Conservation Act of 1998.

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