1.1 Introduction
The world has witnessed the transformation of the major powers from agrarian societies to industrial giants and an emergence of a new international economic order which puts emphasis on the philosophy of development. The early and celebrated economic models are unable to forecast that the growth rates of output are not sustainable if the quality of environment declines. These economic models posit that production basically comes from different combinations of labour and capital that are embodied in technology. Capital has been the subject of the main focus in several forms such as physical capital (machinery), financial capital (savings) and human capital (investment in education and health). Thus, according to the conventional models, if the labour and capital are organized efficiently, growth will take place, ceteris paribus. Production will enter markets, the adjustment process in marketplace will clear all the imbalances and economies will continue to grow. The new growth theory adds a new impetus to growth modelling by emphasizing the role of new ideas, innovations, policies, governance and institutions in addition to the traditional factors of production. The proponents of new growth theory further explain that technology is not only exogenously available, but it can also evolve over time by ‘learning and doing’.
Interestingly, there is no mention of natural capital (environment) in this literature. In recent decades, however, the trajectory of CO2 (carbon dioxide) emissions over a long period of time portrays the limitations of such economic models for not capturing carbon growth or other ecological externalities of production. Such sustained neglect evidently carries the threat of destabilizing both economic growth and the essential ecological balance of the planet. The traditional version of the established dominant social paradigm laying more emphasis on growth and redistribution has been challenged by the new environmental paradigm. The latter acknowledges the interdependence of development and the environment and seeks to redress the adverse ecological externalities of production, by investment in protective, preventive and mitigating measures, which value natural resources and include them explicitly in the system of social national accounts. This is a major shift in the economic thinking.
Whilst growth of GDP (Gross Domestic Product) necessitates the use of environmental and natural resources along with other inputs, the concern here is what happens to the environment when economic growth takes place. As GDP is produced, the planet, as part of the eco-balance system, uses photosynthesis (the process for convert...