Economic Activities and Sustainability

Economic Activities and Sustainability

Economic Activities and Sustainability

Report submitted to the Sustainability Indicators – Malta Observatory

Michelle Borg

July 20001

1 Introduction

1.1 This is a report commissioned by the Sustainability Indicators - Malta Observatory within the Islands and Small States Institute, Valletta. The objective of the report is to focus on sustainability indicators applicable to economic activities in Malta.

The Meaning of Sustainability

1.2 The original definition of sustainable development is encapsulated in the Brundtland Report of 1987 by the World Commission on Environment and Development, which defines it as

‘development which meets the needs of the present without compromising the ability of future generations to meet their own needs.’

1.3 Several attempts have been made to redefine this term to the extent that it was wrongly being used interchangeably with terms such as ‘sustainable growth’ and ‘sustainable use’. The strategy for sustainable development proposed and published in partnership by the IUCN, UNEP and WWF (1991) gives clear definitions to explain and clearly distinguish the conceptual difference between these terms. This report adopts the same definitions, which are reproduced below.

1.4 The term ‘sustainable use’ is only applicable to renewable resources whereas ‘Sustainable growth’ is seen as a contradictory term since physical growth is finite.

Sustainable development / Improving the quality of life while living within the carrying capacity of supporting ecosystems
Sustainable economy / The product of sustainable development, it maintains the natural resource base and can continue to develop by adapting, and through improvement in knowledge, organisation, technical efficiency and wisdom.

Source: IUCN/UNEP/WWF 1991

Economic Activities and Sustainability

1.5 The improvement and maintenance of the quality of human life are intertwined with development as it provides the mechanism that transforms the natural resources into the basic infrastructure requirements ancillary to urban and rural development. Natural resources have been differentiated into renewable and non-renewable resources depending on their capacity to regenerate within a short period of time relative to a human lifespan. However even renewable resources may be degraded or depleted as a result of an activity or event that hinders its renewal cycle. Pollution is one primary source that affects resources. Pollution incorporates any physical, chemical or biological change that adversely affects the health, survival or activities of living organisms or that alters the environment in undesirable ways. Pollution arising from human activity is controllable, unlike that induced from natural phenomena such as volcanic eruptions. This implies that action is possible to reduce, control and mitigate its impacts if not totally eliminate them.

1.6 Pearce et al (1997) recognise this inter-relationship between development and the environment and see economic development is broader in concept than economic growth, which in itself relates to increases in a defined quantity, real GNP per capita. Broader values such as quality of life are incorporated with economic development.

It is within these concepts that the report tries to identify ways to measure the sustainability of economic activities within the Maltese Islands.

2 List of Indicators adopted by international organisations

2.1 A review of the current sustainability indicators that have been identified by the OECD, MAP/Blue Plan, EU and UN has been undertaken. Although each organisation has identified a number of indicators relating to economic activities, not all have been clearly developed. Each organisation worked on the same approach to establish indicators, mainly the State-Pressure-Response Model, which looks at establishing indicators that can highlight changes with respect to the environmental resource base, the sources of such changes and any actions that have been undertaken to overcome or mitigate impacts emanating from these changes. The Pressure Indicators are sometimes referred to as Driving Force indicators.

2.2 Most of the indicators identified by the separate institutions are very similar, with the OECD and the UN Commission for Sustainable Development being the lead organisations on this work. Consequently since the indicators identified by the EU and Blue Plan are somewhat based on the ground work made by the aforementioned organisations. Tables 1-3 list the indicators adopted by the OECD, UN and Blue Plan respectively and clearly illustrate the similarity in approach. Since the EU list is identical to that adopted by the UN, the indicators are presented by one set in Table 2.

2.3 Each organisation has identified particular themes related to economic activities. These include a set of indicators on the general economic performance of a country and then sets of indicators for particular economic activities. The UN CSD set is more of a global nature in that they address the general economy of a country focusing only energy and the manufacturing industry. The themes and indicators adopted by the EU are identical to the UNCSD. The OECD indicators identified three main sectors, namely Energy, Transport and Agriculture, whereas the Blue Plan set is more holistic and includes Fisheries, aquaculture, mining and Industry, Services and Commerce as well as Tourism.

2.3 The OECD has adopted the Pressure - State - Response (PSR) Model as the basis for identifying the set of environmental indicators. Indicators are based on their policy relevance, analytical soundness and measurability. With respect to economic activities, the OECD has modified the PSR model to identify a set of sectoral indicators. The main function of this set of sectoral indicators is to promote integration of environmental concerns into sectoral policy making: e.g. transport-environment indicators, energy-environment indicators and agricultural indicators.

2.4 Sectoral indicators have been organised into three types:

1. indicators to reflect sectoral trends and patterns of environmental significance and related driving forces;

1. indicators to reflect interactions between the sector and the environment, including positive and negative effects of sectoral activity on the environment (i.e. direct pressures, such as pollutant releases and resource use, and related effects and resulting environmental conditions, such as ambient concentrations of pollutants and population exposure), as well as effects of environmental changes on sectoral activity;

1. indicators to reflect economic linkages between the sector and the environment, as well as policy consideration. This category includes environmental damage and environmental expenditure, economic and fiscal issues and trade issues.

2.5 The United Nations Commission on Sustainable Development (UNCSD) approved a work programme on indicators of sustainable development in 1995. A set of approximately 130 indicators was identified, using the Driving Force - State - Response Framework. Driving Force indicators represent human activities, processes and patterns that impact on sustainable development. State indicators indicate the ‘state’ of sustainable development and Response indicators indicate policy options and other responses to changes in the state of sustainable development. A total of 24 economic indicators have been identified, which have been categorised into four sets.

2.6 The MAP/Blue Plan list of indicators is based on the UNCSD set and in effect has adopted 40 from that list. The Blue Plan list is based on a selection of social, economic and environmental data both on the global as well as the Mediterranean level. Therefore issues such as erosion and desertification, over fishing as well as tourism development, have all been addressed. The indicators aim to provide information on:

·  The State of the environment and social, economic and ecological components of development and changes observed;

·  Pressures, which affect the balance between development and development;

·  Economic, political and institutional responses that aim to reduce these pressures and improve the situation.

8

Economic Activities and Sustainability

Table 1 List of SIs identified by OECD

Sector / Theme /

Indicator

Gross Domestic Product / ·  GDP in total
·  GDP per capita
·  the change in GDP compared to the change in population over the same period
Consumption / Private Consumption by households and private non-profit institutions serving households as well as Government consumption of the following:
·  Private transport
·  Leisure and tourism
·  Energy
·  Use of package goods
·  Waste production
·  Demand for environmentally friendly goods / ·  consumption as a percentage of GDP
·  consumption per capita

Energy

/

Trends in energy intensities

/ ·  energy supply per unit of GDP and per capita
/

Energy mix

/ ·  primary energy supply as a percentage of total energy supply
/

Energy prices for industry and households

/ ·  changes in real energy end-use prices

Transport

/ Road traffic and vehicle intensities / ·  vehicle numbers per capita and per kilometre of road
·  length of road and motorway network per square kilometre of land area
·  the relative price and taxation levels of diesel fuel and leaded and unleaded petrol
·  the market share of unleaded petrol
Agriculture / intensity of use of nitrogen and phosphate fertilisers / ·  consumption in tonnes of active ingredients (N and P per sq km of agricultural land)
Livestock densities / ·  the number of head of cattle, pigs, sheep and goats per sq km of land
·  the amount of N and P generated by livestock manure per sq km of agricultural land
intensity of use of pesticides / ·  apparent consumption or sales in tonnes of active ingredients per sq km of agricultural land

Table 2 List of Sis identified by the United Nations Commission for Sustainable Development and also adopted by the EU

Indicator / Purpose
i.  International co-operation to accelerate sustainable development in countries and related policies
GDP per capita / This indicator is a basic economic growth indicator and measures the level and extent of total economic output. It reflects changes in total production of goods and services.
Net investment share in GDP (%) / The rate of investment measures the stimulus to economic development, reflecting the infusion of requisite capital to finance the development process. It is obtained by dividing gross production capital formation by GDP, both at purchasers’ prices.
Sum of exports and imports as a percent of GDP / The sum of exports and imports of goods and services as a ratio of GDP measures the openness of a country’s economy to international trade.
Environmentally adjusted Net Domestic Product (EDP) per capita / This indicator is obtained by deducting environmental costs from Net Domestic Product and dividing it by the total population
Share of manufactured goods in total merchandise exports / The percentage share of manufactured goods in total merchandise exports is meant to represent a country’s access to and participation in the global markets for manufactured goods.
ii.  Changing consumption patterns
Annual energy consumption per capita / The amount of energy consumed in a given year.
Share of natural-resources intensive industries in manufacturing value-added / Percentage share of the contribution to manufacturing value-added of those industries that are intensive in the use of non-renewable resources
Proven mineral reserves / Orebodies or deposits economically viable for extraction which have been sampled sufficiently enough to make reliable estimates of spatial extent, tonnage and average grade.
Proven fossil fuel energy reserves / The availability of fossil fuel energy resources that can be recovered with reasonable certainty in the future, under existing economic and technical conditions.
Lifetime of proven energy reserves / The ration of energy reserves remaining at the end of any year to the production of energy in that year
Intensity of material use / The consumption volume of primary and secondary materials per unit of real Gross Domestic Product; calculated for one commodity at the country level. Provides a measure of long-term trends in changing consumption patterns of the key non-fuel, non-renewable natural materials.
Share of manufacturing value-added GDP (%) / Measuring the contribution of the manufacturing sector in total production gives an indication on the state of the economy.
Share of consumption of renewable energy resources (%) / The proportion of energy mix between renewable and non-renewable energy resources.
iii.  Financial resources and mechanisms
Net resource transfer/GNP / The ratio of aggregate net resource transfers (long-term) to GNP helps to assess the availability of long-term external finance to a country.
Total Official Development Assistance (ODA) given or received as a percentage of GNP / It measures the size of flows that are both concessional and aimed mainly at promoting development and welfare of developing countries.
Debt/GNP / The ratio of total external debt to gross national product is a measure of the degree of indebtness, and the indicator helps to assess the external debt situation (and debt carrying capacity) of a country.
Debt service/export / The ratio of total debt service to exports of goods and services, including worker’s remittances helps to assess the external debt servicing capacity of a country.
Environmental protection expenditures as a percentage of GDP / Environmental protection expenditures are actual expenses incurred to prevent, reduce and eliminate pollution as well as any other degradation of the environment.
Amount of new or additional funding for sustainable development given/received since 1992 / This indicator signifies movement toward meeting the incremental costs of implementing Agenda 21.
iv.  Transfer of environmentally sound technologically, cooperation and capacity-building.
Capital goods imports / Total value of capital goods imports measures the transfer of embodied technology.
Foreign direct investments (FDI) / The value of net flows of foreign direct investment is meant to represent the technology transferred through the activities of foreign firms in an host country.
Share of environmentally sound capital goods imports in total capital goods imports / The contribution of environmentally sound technology in the transfer of embodied technology.
Technical cooperation grants / The value of technical cooperation grants is meant to represent the technology transferred through non-commercial sources.

Table 3 List of SI’s Identified by the Blue Plan (UNEP)

Thematic Framework / Indicator / Definition
Economic Activities and Sustainability
Distribution of GDP (Agriculture, Industry, Services) / Contribution by each business sector to the Gross Domestic Product as a %
Foreign direct investment (FDI) / Net investments made in a company operating in a country other that that where the investor comes from
Global Economy / External debt/GDP / The ratio of total external debt to GDP
Saving/investment / The ratio of gross national savings to gross national investment