Ecology and the Global Economy

Chaired by Miguel de la Madrid Hurtado
10-11 February 1990
Amsterdam, Netherlands

THE ECOLOGICAL CRISIS A CHALLENGE TO THE GLOBAL ECONOMY

1. Since the early 1970s, the world has increasingly become sensitized to environmental issues. Today, an ecological crisis of many dimensions is looming which affects all countries and could jeopardize the globe's life-support systems. It is characterized by a depletion of the ozone layer; a substantial accumulation of greenhouse gases inducing climate change; accelerating degradation of air, land and water quality; accumulation of industrial and household wastes; depletion of the earth's natural resource base and loss of biodiversity. High rates of population growth and poverty in developing countries and wasteful consumption and energy use patterns in industrialized countries are the root causes of these developments. Unless a markedly different mode of economic activity is introduced, the sustainability of the ecosystems on which the world economy depends may be endangered.

2. The effectiveness of ecological policies will greatly depend on the ability to curb and reduce world population growth and an improved distribution of the population within each country.

3. Environmental problems are multi-dimensional and can only be solved by multi-dimensional measures. The activities of any one country or individual have direct or indirect environmental repercussions on others. Policies must therefore be based on the recognition of global interdependence and be guided by the principle of joint responsibility: everybody must contribute, be it developed or developing countries, international organizations or the private sector, scientists, media or individual citizens. The ongoing dilution of ideological divides may facilitate the emergence of a one-world-conscience and improve prospects for effective environmental action at all levels towards a sustainable economy and development.

4. In ethical terms, policies should be pursued that will leave as much freedom as possible for subsequent generations (and lesser developed countries) to allow them to make their own choices. Yet, under conditions of global interdependence, the long chain of interactions obscures the consequences of individual actions and in the industrialized world the choices become ever more narrow.

5. To that end, a new morality and solidarity in international relations, especially between industrialized and developing countries, is called for. All nations must be enjoined to assume their responsibility for the promotion of a natural and social environment - shared by all - that is both peaceful and healthy. As Pope John Paul II stated: "The new industrialized States cannot, for example, be asked to apply restrictive environmental standards to their emerging industries unless the industrialized States first apply them within their own boundaries. At the same time, countries in the process of industrialization are not morally free to repeat the errors made in the past by others, and recklessly continue to damage the environment through industrial pollutants, radical deforestation or unlimited exploitation of non-renewable resources."

6. The challenge of the decade of the 1990s is to integrate environmental policies into economic policies and to make traditional social-economic policy objectives compatible with environment policy objectives. No real conflict exists between environmental protection and economic growth. There may be an analogy to the post-war period, when the objectives of equity and efficiency had to be reconciled in an effort to balance economic and social policy objectives. More than any other policy, environmental policy has to cope with an extremely divergent set of variables. Hence, environmental policy instruments have to meet the highest requirements with respect to effectiveness and efficiency in order not to thwart both traditional social-economic policy objectives and objectives of environmental policy. To make these objectives compatible, the formulation and implementation of appropriate instruments and their combination will be essential.

7. Current instruments are inadequately used to support the process of reconciling the competing environment and social-economic objectives. They provide policy makers, planners, and investors with insufficient, often wrong signals, incentives and definition of economic growth. This calls for a reconsideration of the present use of environmental policy instruments.

8. The concept of sustainable economic activity, development and use of resources should be the overall yardstick for future policies. Its application requires a drastic change of perspective in the prevailing economic system, the emergence of new models for the development of developing and developed countries alike, intensified research on operationalizing sustainable development, and the adoption of coherent policies. The political process has to set the dimensions and standards within which the economic processes can work.

9. Although environment and development issues are related, there is no exclusive relationship between environment and development. But it must be recognized that improvements in food supply, personal security, health, national debt, human rights and illiteracy - which are problems not directly associated with environmental protection - will be conducive for environmental protection indirectly. Especially in developing countries and in Eastern Europe, peoples' participation in the management and preservation of a country's resources will be decisive for the sustainability of development efforts. Projects without broad-based participation enhance inequity and render development funding ineffective.

10. The present appearance of environmental problems as externalities is a critical weakness of economic systems - be they market or centrally planned economies - as it does not induce environmentally benign behaviour and activities. Appropriate measures, mechanisms and incentives, such as charges, property rights and extended liabilities must be devised and made part of the pricing systems. No society can afford to have wrong relative pricing as this will jeopardize sustainability. Prices should not lie.

11. However, there are aspects of nature, such as biodiversity, that do not lend themselves or cannot appropriately be quantified and valued in the economic system. In such cases, public decision-making and not the market should decide about prices and values.

12. In market economies, the economic rationale has thus far concentrated on economic transactions without taking into consideration physical aspects. If the right instruments are applied, the market system can be made effective at environmental protection. By way of precedent, the market has mitigated the energy crises of the seventies by reducing demand and providing additional supplies. In centrally planned economies, attempts are being made to introduce market forces, but it will take some time for incentives to be made effective.

13. Large investments may be required, e.g. for abatement strategies to counter global warming trends, before gains can be realized. On the other hand, the "cost" of environmental conservation measures could be compensated by a boost to investment from the adoption of new conservation technologies; opportunities from extra revenues; and the avoided costs from lessening of pollution.

14. Public opinion and leaders must therefore be urgently educated and informed about the opportunities and consequences of integrating environmental policies in social-economic policies. The media will have an important role to play in this process. International organisations should regularly, and on a priority basis, address these issues.

TOWARDS A COMPLEMENTARITY OF ECOLOGY AND ECONOMICS

THE CONCEPTUAL APPROACH

15. Nature performs three basic functions for humanity:

- it provides natural resources (raw materials, consumption goods, oil, food);

- it provides publicly shared goods of consumption (such as air, the ozone layer, scenic beauty, biodiversity, habitats);

- it is a receptacle of wastes (emissions).

The first role relates to resource availability. The two other functions refer to the competing uses that exist between the environment as a public good and/or a receptacle of wastes. This establishes the scarcity of the environment as a good. The binding constraint is thus not only the resource availability and the limited assimilative capacity of the environment.

16. The setting of targets for environmental quality relate to the public good-aspect of the environment. They must be determined through the political process in the form of prices for emissions and for the use of scarce resources. Policy instruments to deal with the receptacle of wastes are private property rights (limits to discharge, permits etc.) as well as waste charges.

17. There need not be a direct relationship between economic growth and environmental degradation. In the energy area, a direct correspondence between GNP growth and primary energy demand became uncoupled in the wake of the price rises during the two oil crises. Similarly, feasible and appropriate economic incentives could uncouple a direct relation between economic growth and environmental degradation.

THE IMPORTANCE OF DECENTRALIZED APPROACHES

18. Environmental policy should be guided by the subsidiary principle, according to which the most efficient level should be chosen for policy implementation. Many environmental issues will involve global target-setting - i.e. uniform levels of international principles and standards of environmental safety and quality. Policy instruments should be decentralized to the national level where they may most effectively take account of the variety of political, ecological and social circumstances, including the different availability and capabilities of technology. Industry and economic activities do not necessarily require the same framework and conditions everywhere, since differences in environmental endowment should be seen like differences in the endowment with traditional factors of production.

THE CHOICE OF EFFECTIVE INSTRUMENTS

19. It is essential to develop a consistent package of incentives pointing in the same direction. Instruments of environment policy can be

- regulatory measures, information disclosure and communication; too many command-and-control measures may however negatively affect investment and economic growth;

- the inclusion of environmental costs in private decision-making; priority should be given to economic incentives (transferable permits, taxes, refund systems) to be placed on emissions and on resources that stand as proxies for later emissions. More generally, price incentives have a major impact on demand and supply.

20. Environmental taxes and their levels should be determined by value judgements emerging from the political process and should become part of the general budget.

21. Leasable - as opposed to tradable - permits might be an effective instrument to help stabilize and reduce emissions without a permanent abandonment of emission or pollution rights allocated to an individual, corporation or nation. This would require that permit levels are systematically reduced at regular periods. Such permits may be particularly important if they are applied as an international control mechanism. The leasability of permits would ensure that one party obtaining additional emission permits could not acquire a permanent right to pollute above a district, national or world level.

22. As a matter of principle, especially in the energy sector, all efforts should be made to avoid subsidies, whether direct or indirect as they lead to distortions and entail the waste of natural resources. At a minimum, prices should reflect full incremental supply costs, including the costs of adequate environmental controls. Care must be taken that the impact of price increases (resulting from the imposition of taxes or charges) on income distribution and international competitiveness be dealt with in a way that the money not be channelled back to the polluters in the form of subsidies or specific tax measures. It should be internationally accepted to eliminate all subsidy programmes and other artificial stimulus of energy use and other environmental goods.

23. Whenever possible, priority should be given to the inclusion of environmental costs in private decision-making through a system of economic incentive instruments, such as charges on emissions, refund systems and transferable permits. Only this approach is fully compatible with the polluter-pay-principle which establishes that - to the extent possible - environmental costs should be internalized and charged to the polluter instead of being compensated for by public subsidies. This principle avoids price and trade distortions and competitive injustice.

24. Market and non-market economies of industrialized countries and developing countries require different approaches:

- In market-oriented industrialized countries, the potential of economic instruments (prices, charges, taxes) and criteria must be extended beyond their current application. Policies should be guided by the principle that externalities should be internalized at the organizational level where pollution occurs, e.g. emissions at source. The marketable permit concept could be applied.

- In non-market economies, including the economies in transition, economic instruments have proved not to work effectively on the supply side because under a system of central planning, relying as it does on production targets, the price system cannot operate efficiently. Thus, it does not have the same allocational function as in market economies. Instead, a mechanism must be devised to hold individual production units liable for environmental costs so as to trigger appropriate reactions by firms and consumers. Otherwise, policy changes in Eastern Europe can at the present time primarily be brought about through an increase in public pressure and political pressure from the international community.

- In developing countries, the effectiveness of economic instruments must be examined in a context characterized by the dualism between the so-called modern sector and a vast informal sector. Maximum use should be made of general economic measures such as output prices and a re-examination and rationalization of existing structures of tariffs and subsidies (imposed in the course of industrialisation policies which proved to be very polluting).

25. As environmental problems are not of a short-term nature, they cannot be solved through "crash programmes" without enabling the market to function. Under certain circumstances, however, such programmes may be justified and inevitable, especially in enhancing institutional infrastructure in developing countries to perform tasks (such as sustainable forest management).

26. Special instruments must be devised to help preserve biodiversity, the protection of which cannot be properly ensured through the polluter-pay-principle and other economic instruments, such as taxes. Instead, measures could be developed taking into account three general economic considerations:

- most species have a traditional value for pharmaceutical and food industries (traditional products are genetically improved and yield new qualities);

- the loss of material of any species would be irreplaceable from the ecological and biotechnological point of view;

- the preservation of mammals is an economic value in terms of tourism.

Quality levels, once defined, may not lead to marketable purchases or the emergence of a price. Maybe the issue of green bonds, whereby the value of biodiversity would be expressed in economic terms, could be the beginning of a market-oriented approach. The central question will be how to arrive at a value and how to realize it. No drug companies have, however, yet come forward with cash preservation bids, maybe because biodiversity has been a "free" good for decades. Only the Worldwide Fund for Nature has recently pursued this idea. Aid donors should be encouraged to examine this concept.

IMPROVING THE MEASUREMENT OF ECONOMIC PROGRESS

27. An important operational step toward integrating ecology and economics and formulating appropriate policies is to measure economic progress properly through revisions in economic and social statistical and in corporate accounting systems. Current economic accounting systems, which evolved when natural resource limitations seemed less pressing, should urgently be revised. Two changes could be considered:

- natural resources for which economic values can be established should be treated as tangible capital in economic accounting frameworks; additions to stocks should be treated as capital formation, while depletion and degradation should be treated as capital consumption;

- pollution control and other identifiable "defensive expenditures" undertaken to prevent the loss of environmental services should be treated not as final expenditures but as intermediate costs, (i.e. the cost of generating a given level of goods and services) whether undertaken by government, households, or enterprises.

28. Environmental statistics produced by various countries should be examined to see whether they can be improved, harmonized or standardized for national and international policy purposes. To that end, the Statistical Commission of the United Nations should establish a work programme aimed at incorporating resource and environmental accounting revisions into the core system of national accounts within a 3 to 5 year period. Especially OECD countries should adopt such changes for their national accounts. International financing institutions should increase their assistance to developing countries initiating resource accounting.

29. All countries should examine the experience of countries using "satellite" national environmental accounts (such as France and Norway), highlighting the value and utility of such accounts to policy makers, with a view to introducing such accounts and determining the most useful form of presenting required data.

30. Future costs and benefits, if discounted in public investment decisions, should reflect a societal valuation of future welfare. Many governmental and inter-governmental agencies use private market interest rates for investment analysis. To reflect values more accurately, two other approaches have been suggested: the application of low discount rates and the use of option values. For different reasons, both are controversial among economists. Instead, a pragmatic approach might be appropriate whereby, to the extent possible, environmental effects should be given economic values. Where this is not possible, the principle should be to adhere to safe minimum standards, avoid risk, or place absolute constraints on what should be done.

THE NEED FOR INTERNATIONAL CO-OPERATION AND AGREEMENTS

31. All countries should strive towards an international agreement, taking the form of a global climate framework convention, to be concluded preferably by the time of the 1992 UN Conference on Environment and Development. A global agreement on carbon emissions and necessary price increases through charges may require entirely novel approaches (e.g. an international system of leasable emission permits) and it will have to be linked with the issue of technical assistance and transfer of resources to developing countries. In particular, it will require the creation of a strong institutional framework to make such a system politically realistic and credible. In a step-by-step approach, separate sectoral protocols should be negotiated, e.g. on CO2-efficient transport systems, technology transfer, tropical forest protection and debt relief for the sake of environmental protection.

The burden of such agreements must fall disproportionately on industrialized countries. If global inequalities are to diminish, developing countries must be allowed to experience faster rates of economic development and energy demand growth than the industrialized countries. It should be recognized that even if reduction targets of greenhouse gas emissions can be met, it will not be enough to reverse climate change. Therefore, adjustment strategies to climate change need to be developed and included in a global climate convention and its protocols.

32. In the present phase of detente, all countries - but especially the superpowers - should put emphasis on converting personnel, technological and capital resources from military to environmental protection. International task forces of mutual assistance should be formed to address the political problems of conversion. While resources might become available through conversion, such processes are costly, non-competitive and, in the case of armaments destruction, itself damaging to the environment.

33. To the extent possible, all countries should reduce arms expenditures and a certain percentage of the resources released ("peace dividend") should be reallocated to environmental protection, research and development into new technologies, and into a global environment fund.

34. The member countries of the Conference on Security and Co-operation in Europe (CSCE) could consider establishing an environment protection agency and related bank, both operating within the framework of the CSCE machinery. This proposal could be considered at the next CSCE summit.

35. The following annexes contain a number of specific economic proposals

- to tackle the problems of climate change;
- to deal with the problems of water, land and air; and
- to incorporate environmental dimensions in national and corporate decision-making.

ANNEX

I. MEASURES TO COMBAT CLIMATE CHANGE

1. The rate of warming of the earth, resulting from fossil fuel release, deforestation and decay of organic matter and the accumulation of heat-trapping gases in the atmosphere, cannot be predicted with certainty. There are strong indications, however, that the warming of the earth's climate may soon affect the major vegetation zones, agricultural productivity, sea level, the quantity of water in river systems, and cause loss of species, an irreparable decay of the world's cultural monuments, a contamination of the seas and many other aspects of human habitat. The risks of global warming are high enough to warrant urgent steps to stop the further accumulation of heat-trapping gases in order to stabilize the composition of the atmosphere. The magnitude of reduction required may be in the order of at least 3 billion tons of carbon stock per year. Emissions from burning fossil fuels alone total approximately 5.6 billion carbon tons per year while deforestation releases up to 3 billion carbon tons per year.

2. As a general step to address the complex problems of climate change, national capabilities must be developed for research, appropriate technology development, abatement and coping strategies, particularly in developing countries, and the mobilization of public opinion as to the implications of present trends and the risks of inaction.

3. Several abatement measures are possible to stabilize the atmosphere:

a) a reduction in the use of fossil fuels and shifts towards natural gas;
b) the vigorous promotion of energy efficiency;
c) limiting deforestation and launching extensive reforestation programmes;
d) an accelerated phase-out of CFCs;
e) a massive programme of research and application of renewable energies.

Taken alone, however, none will be adequate to bring about the necessary magnitude of reduction. In 1989, the InterAction Council had convened, under the chairmanship of Mr. Pierre Elliot Trudeau, a High-level Expert Group on Ecology and Energy Options which made specific recommendations on possible abatement strategies in the energy sector. In 1988, another High-level Expert Group, led by Mr. Ola Ullsten, had examined Global Deforestation Trends and also developed a series of concrete recommendations.

4. A reduction in the accumulation of greenhouse gases could be induced by a wide range of measures: technical systems for prevention or reduction, regulatory systems of command and control, and economic incentives (for improvement) and disincentives (of continued pollution).

5. The feasibility of a system of leasable carbon-use permits should be considered - internationally and, where feasible, also nationally - with an overall cap diminished year by year in order to achieve a gradual phase-out of fossil fuels as a major source of energy. Internationally, leasable emission permits should initially be allocated on the basis of adult population. Details of such a system and its side effects should be closely studied, especially the issues of national estimation, monitoring and verification, effects on income distribution and its international economic implications.

6. While a global agreement on carbon emissions, based on a system of internationally leasable emission permits, should be the ultimate aim, its conclusion may take several years. Until then, immediate unilateral/national and joint action (towards agreed reduction targets) even by a limited number of countries - a "Climate Protection Club" - would be desirable and economically rational. This Club should comprise countries large in terms of population and economy and include, at least, the United States, the USSR, China, Japan, Brazil, India and the countries of the European Community. They would also be in a position to capture - both individually and collectively - a substantial fraction of the benefits of their abatement actions, although benefits may also be reaped by smaller and other non-participating countries.

7. As part of rational policy, a tax on fossil (and eventually nuclear) energy could be introduced to discourage the use of such energy and to stimulate the development of alternative sources of energy. Each country - especially those with low average energy efficiencies - should begin by voluntarily imposing a broadly-based national energy tax in order to induce shifts in fuel mix and encourage energy conservation.

8. The revenues from an energy tax could be used

- to finance sustained R&D programmes into the energy supply and demand, including renewable sources of energy and the role of conservation;

- to provide additional financial resources for special lending facilities to expand energy-related investments by developing and Eastern European countries;

- to foster the development of alternative sources of energy, especially solar energy, and for energy-efficient investments.

9. Policies to promote energy efficiency must permit market forces to function effectively by ensuring that people have sufficient information to make wise choices on energy use, and by creating appropriate incentives.

10. Industrialized countries should agree to phase out ozone-depleting gases by the end of the century. To that end, charges on the use and production of such gases should be introduced and developing countries should receive financial and technical assistance to phase down ozone-depleting gases more rapidly.

11. Policy mechanisms should be developed and appropriate financial assistance provided for the most vulnerable countries and communities affected by the impact of global warming, e.g. sea level rise. OECD countries should assist developing and Eastern European countries in taking low-cost steps to reduce greenhouse gas emissions. In particular, international financing institutions should be encouraged to channel sharply increased financial and technical resources into energy efficiency, renewable energy systems, CFC substitutes, and forestry. The World Bank and regional development banks should be encouraged to develop special lending facilities to expand investments in these fields and donor governments should be prepared to channel resources through them.

12. Global knowledge and resources should be mobilized to bring about the fixation of CO2, including its conversion into other products, such as other hydrocarbons and methanol. Care should be taken in this context that the new products will not have any other undesirable effects.

II. MEASURES TO PROTECT WATER, AIR AND SOIL

1. Current air, soil, ground and surface water contamination calls for priority attention. Any measure must be embedded in a concept of integrated policy covering all environmental media. If the focus of environmental policy were only on one medium, a danger exists that the discharge of pollutants could be shifted from one to another medium.

2. The availability of water is a basic condition and requirement for human life. Yet water is increasingly becoming scarce and being poisoned. In virtually all countries, water is not treated as a scarce resource on the mistaken notion that as a basic good it should be made available virtually free. Although in most parts of the world water resources are sufficient (if unevenly distributed), problems arise from the inefficient use of water both in quantitative and qualitative terms. It is used recklessly as a receptacle for waste and for domestic industrial and agriculture uses (farmers are the principal users of water). A wise and efficient use of water could be achieved through a proper set of incentives.

3. Water is being underpriced or not priced at all. The approach to the pricing of water must be revised, especially in agriculture.All costs related to the provision of water (conveyance costs, capital investments and maintenance of irrigation, drainage and other public systems) must be included in the water price in order to satisfy the principle of accurate pricing. Even if these costs were incorporated, the water price would still not reflect its environmental and economic price (e.g. the cost of increasing salination and contamination of rivers). Charges should therefore be applied to ensure a proper relative price so that users become aware of the costs. This should be accomplished in a gradual, not a one step price increase. Proceeding from a floor price applicable to all users, a differentiated system of water prices may foster rational use, offering a premium on low volume use and progressive prices for large quantities used. Prices should also be high enough to discourage certain wasteful uses (watering of streets, car wash). In many countries, however, water is not even metered and thus the basis for applying and enforcing charges is lacking. Furthermore, as in the case of energy efficiency, water saving mechanisms should be developed and installed.

4. Water pricing policies may however conflict with social objectives and policies. In most countries, people at the poverty threshold would not have the means to pay for rationally priced water and other resources. Thus, the choice of appropriate mechanisms and instruments will be essential to make environmental and social objectives compatible. In policy terms, the fact that water is used by poor people should not be an argument to make water cheap. Prices should not be determined from the angle of income policies. No country can afford to have wrong relative pricing, as this would jeopardize sustainability. Instead, some or all of the income raised from the rational pricing of resources and other environmental goods should be used for income support of the poorest sections of the population to compensate for real income losses. It should be guaranteed, however, that the bulk of subsidies will not be captured by biggest users, which would result in counterproductive effects and reinforcement of inequities.

5. In general, the whole approach, network and infrastructure of providing and managing water in Europe and other continents will have to be re-examined. An appropriate water price policy and the criterion of water availability could also serve as an instrument to limit the growth of human settlements, especially in developing countries.

6. It must also be recognized that what appears to be in many cases a subsidy for water is actually a subsidy for food. An expansion of food production for a growing population requires a substantial increase in irrigated areas and yields of food. A rational pricing of water would create either a serious food supply problem or food price problem.

7. Transboundary pollution poses special problems. Acid rain and river pollution are the most obvious cases. At the international level there should be an agreement on international diffusion norms (defining the ambient quality of an environmental medium, such as a river, at a borderline when entering seas or other countries). Purification of the medium could be undertaken at such borderlines.

8. Competition over access, management and use of fresh water resources, e.g. international river systems or lakes, shared by several countries is a major source of potential conflict among nations. While in industrialized countries, a number of agreements on quantity and quality of water already exist (e.g. Rhine river, Lake Constance), comparable agreements are lacking in Africa and the Middle East limiting the possibility of pollution control and rational water resource management. Agreements of this type require special monitoring modalities both at the macro and the micro levels. Where feasible, bi- or multinational committees could be established to agree on quality levels, especially salinity, and other management issues.

9. The combat of desertification, prevalent in Africa, Central Asia and the Andes of Latin America, is another major challenge. Existing plans should be financed and speedily implemented to ensure the minimum availability of water resources in the countries concerned. Progress in this area will also have beneficial human and social effects, inasmuch as women in developing countries currently have to migrate excessive distances in search for clean water.

10. As regards hazardous waste, international efforts should be strengthened to design waste minimization technologies. Until such time and with the residual wastes, the principle should be that waste should be disposed at source, at the expense of either the polluter or of those who benefit from the products concerned. Where the transfer of waste across national boundaries is necessary, it should take place under the strictest regulation to avoid the illegal dumping of hazardous substances at sea or their storage under dangerous circumstances in developing countries. An international conference for geologists should be convened to identify international sites with the most stable geological structure for storage of radioactive and other hazardous waste.

III. MEASURES TO BE TAKEN AT THE INTERNATIONAL, NATIONAL AND CORPORATE LEVELS

1. New and additional resources should be provided to developing countries to help solve the principal environmental problems of a global nature, even if this were to imply a shift from other programmes. While automaticity of resource flows would be desirable, it might only be feasible if built into an institutionalized leasable permit system (e.g. green bonds for biodiversity).

2. Developed countries should be encouraged to provide specific resources to developing countries for the purpose of

a) information transfer concerning environmental protection, including monitoring;
b) encouragement of afforestation;
c) ssistance in the adjustment of energy price distortions;
d) the transfer of energy efficiency technological know-how;
e) manpower development and training;
f) national resource accounting and reporting.

3. If developing countries continue to use old technologies and lack access to new technologies, all action by industrialized countries to tackle environmental problems will be undermined. Thus, it must be in the interest of all countries to ensure the transfer of new environmentally benign, energy-saving technologies to developing countries. While such technologies may initially be more expensive, developing countries should not be asked to pay more than the marginal cost as otherwise the very corporations and countries that may have caused the global problems in the first place would be rewarded. Given the shared interest in solving the problem, a case can be made for sharing the costs, too. Thus, mechanisms should be devised to compensate - within an internationally agreed system - for intellectual property rights of private corporations so as not to stifle private research (e.g. investment and research subsidies). The damage costs of non-transfer of such technologies would likely be higher than the substitute costs of such a mechanism.

In this context, developing countries have advanced the concept of an "ecological debt" incurred by the developed countries over decades and centuries as a result of their consumption and production patterns, which could be offset through the transfer (at cost) of technologies now required. Also, the idea has been proposed to ensure technology through green bonds on biodiversity.

4. Developed and developing countries should co-operate in the design of new tropical products, using clean energy in their production, avoiding negative environmental effects during production and consumption and securing appropriate levels of revenue.

5. Capital-importing countries should create more favorable conditions for private capital flows to developing countries. For heavily-indebted countries, this means restoring credit-worthiness, in large part by formulating - with the assistance of the World Bank, the IMF and other international financial institutions - new elements for structural adjustment programmes that include policy modifications aimed at the elimination of wasteful and unsustainable exploitation of natural resources (e.g. through raising of resource prices and elimination of public subsidies and expenditures that exacerbate environmental damages). Governments should ensure that the multilateral development banks and the IMF take full account of such opportunities in their structural and sectoral adjustment lending.

6. The World Bank and regional development banks should be encouraged to continue with their fledgling efforts to channel additional resources to high priority natural resource management projects, especially to protect biological diversity, tropical forests, regional seas, and the global atmosphere. Given the limits on members' borrowing capacities and the fact that benefits from investments in these fields are not fully captured by the borrowing country, it is welcome that such loans have already been given on concessional terms. Member countries should support these initiatives and promote greater cooperation among development banks in that regard.

7. Governments should also require that multilateral development banks and international private banks apply the same level of environmental assessment for all large industrial and public sector loans.

8. An international congress should be convened to develop proposals for

a) generally accepted accounting principles for valuing natural resources and adverse impacts of environmental emissions;

b) generally accepted accounting principles for use by corporations to record environmental costs;

c) target levels of greenhouse gas emissions and allocations for participating nations (proceeding from existing baseline levels or the avoidance of increased levels);

d) major research and development programs to address:

- development and deployment of non-fossil-fuel energy sources;
- technical systems for controlling CO2, methane, NOx and CFC emissions;
- technical systems for restoring the balance between CO2 emissions and plant/ocean uptake of CO2;

e) the introduction of option values and a related increase in resource flows to developing countries.

9. Countries could consider an environmental tax reform in which - over a gradual period of 10, 20 or even 30 years - a major part of the tax burden would be taken away from labor and capital and shifted to resource and energy consumption and pollution.

10. Given the potential relationship between environmental policies and trade distortions, GATT should initiate discussions how - in line with article 20 - environmental criteria and health and safety standards could be adopted by countries without the presumption of creating non-tariff barriers to trade. Further, GATT should create a standing environmental working group to support national efforts to reduce the generation of greenhouse gases.

11. Feedback systems should be introduced to provide governments, industries and other institutions with evidence that progress towards environmental goals is being achieved or with early warning that mid-course corrections are needed. Such feedback systems could include publicly reported environmental audit information from industries.

12. Governments should prompt major changes in corporate accounting and reporting to require the segmentation of environmental expenditures and encourage constructive environmental practices by individual firms. To that end, an international panel should be established to formulate uniform annual corporate disclosure practices for transnational corporations and other large enterprises on the environmental impact of their activities, concentrating initially on monitoring standards for greenhouse gases, the generation of hazardous wastes and the contents of accident prevention plans and later on the quantity of national resources used, the volume and types of emissions generated and plans for increasing energy efficiency over the next five years. In that context, the concept of value pricing of raw materials should be applied in order to include the diminishing of capital wealth and the cost of dealing with environmental consequences.

13. In keeping with the subsidiary principle, corporations should set policy in a centralized way but implement it in a decentralized manner.

14. Recent trends in the US, Europe and elsewhere in regard to the legal liability of large and especially transnational companies should be examined with a view to increasing their responsibility for environmentally-safe sourcing, use and disposal of products.

15. Governments and private institutions should embark on a continuous programme of awareness training aimed at teaching about the risks of continued environmental deterioration.