On Measurements of Green Economy: Sustainable Economic

Growth, Steady State and Social Discount Rate

Nazira T. Azizova

, Abdulaziz Erkaboev

, Mashkura Kh. Kamilova

Mashkura Kh. Kamilova

and

Marat Z. Gibadullin

Tashkent State University of Oriental Studies, Tashkent, Uzbekistan

Institute of Philology and Intercultural Communication, Kazan Federal University, Kazan, Russia

Keywords: Green Growth, Social Welfare, Eco-Investing, Eco-Friendly Goods, Steady State, Social Discount Rate,

Opportunity Cost, Antigrowth, Human Capital.

Abstract: This article analyses green economics as an alternative doctrine to the concept of economic growth in the

theory of traditional economics. The article will bring basic existing theoretical views on both directions and

consider how consistent or divergent they are. As a measure of population well-being and economic growth,

it is indicated that the results differ depending on what exact units are selected. The social discount method

was used as the main methodology. To measure the green economy quantitatively and qualitatively, a

conclusion is made according to the results that are characteristic through the analysis of statistical indicators,

which are directly and indirectly related.

1 INTRODUCTION

Beginning from the 20th century the whole world

observed a high rate of economic growth due to the

industrialization process. In this period the living

standard of the world population rises, inducing

higher aggregate demand on consumption by the

multiplicator effect. This in turn motivated global

industries to produce even more.

At the beginning of this process, even though

there were concerns about the scarcity of natural

resources, the problem of climate change didn’t seem

to be crucial. Synthetic materials began to

compensate for the lack of natural resources.

However, a sharp increase in population, the

separation of the business world from residential

areas into separate industrial zones, in general, the

level of urbanization began to affect the Earth's

ecosystem. Industrial waste and its environmental

damage have reached the agenda.

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This trend brought the views on economic growth,

and the optimality of the market economy into

question by activists of various eco-movements, who

put forward the fact that market failure might arise

affecting the natural climate. The degree of these

different orientations varies from neutrality to

absolute antigrowth view. The concept of a "green

economy" thus arises, which in many cases is

presented as an alternative doctrine to traditional

industrial economics. And our task is to give a

theoretical and practical assessment of these views.

Steady state is such a level of the economy in

which the accumulation of capital is slower than its

depreciation, and ultimately the economic growth

stops. In such economies, wages are high and

investments will pay off only after being focused on

some new directions. For instance, the transition to a

green economy can also be achieved by increasing

human capital.

A social discount rate is a way of adjusting

nominal units to real values. It can represent different

Azizova, N., Erkaboev, A., Kamilova, M. and Gibadullin, M.

On Measurements of Green Economy: Sustainable Economic Growth, Steady State and Social Discount Rate.

DOI: 10.5220/0012637000003882

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd Pamir Transboundary Conference for Sustainable Societies (PAMIR-2 2023), pages 10-16

ISBN: 978-989-758-723-8

values such as utility, consumption, interest rates, and

goodwill. Hence, the social discount can also be

applied appropriately in the green economy

measurements. In this article, we aim to bring as

many abstract concepts as possible to an alternative

real value through a social discount rate.

2 THE MAIN RESULTS AND

FINDINGS

In the study of the measures of green economy, we

use the concepts of steady-state and social discount,

the main concepts of economic growth, with the aim

of clarifying its view as sustainable economic growth

and simultaneously as an antigrowth direction.

To begin with, we consider a modification of the

Neoclassical model, in which other than two main

factors of production such as Human capital and

Natural resources, its transition to the steady state and

the possibility of transformation to a green economy

in the steady state. We assumed that the process of

transition to a green economy would be through a

change in the relative efficiency of production

factors.

We also apply a social discount rate to adjust the

value of the traditional economic indicator that

ensures the well-being of the population. We have

tried to use continuous functions such as those used

in modern works on the subject of economic growth

and the representation of social discount rates.

Continuity is becoming a more convenient method

than discrete timing, not only in theoretical accuracy

but also in empirics.

We tried to select variables that represent the

constructive and destructive effect on the green

economy to estimate those put in identities: they are

the Global Green Economic Index and greenhouse

emissions. In the regression analysis, we used cross-

sectional data. We found it necessary to express them

temporarily implicitly, referring to the possibility of

being biased in the coefficients because of few

samples and the fact that their quantitative and

qualitative increase is a matter of time, as well as the

fact that both regressions are one-factor.

The works of Molly Scott Cato (Cato, 2012),

Nicholas Stern and William Nordhaus are known

directly on the green economy (Stern, 2006).

Economic growth and at the same time research on

the green economy can be found in the works of

Daron Acemoglu (Acemoglu, 2009), Barro (Barro,

1995) and Christian Groth (Groth, 2014). They have

modified the models introduced by Robert Solow

(Solow, 2011), Malthus and Kremer (Kremer, 1993).

Also, the approach to Social Discount, presented in

the Arrow (Arrow, 2009) and Sterner (Sterner, 2008)

studies, can be used as a methodology for measuring

the green economy.

While green economics is a relatively new

economic concept, it relies in many cases on existing

traditional economics theory.

At a microeconomic level, the green economy

questions the dichotomy that the market is optimal

and its participants are rational. The "invisible hand"

can bring the manufacturer and consumer into

balance, who are seeking to maximize profits and

utility in a particular market of goods and services.

However, no one guarantees that both parties, which

are in the concern of maximizing their own interests,

will be concerned about the environment. The

manufacturer, although not eco-friendly, uses

production factors as cheaply as possible, and the

consumer also seeks only marginal utility. This is

where externalities come from.

Social compensation of externalities, on the other

hand, in this case, by levying environmental taxes,

reduces the incentives of manufacturers. In practice,

the burden of excise and other indirect taxes is also

known to be imposed on the consumer. As a result,

demand is less than balanced, and allocative and

productive efficiency is not achieved. Society's gross

welfare decreases.

At the same time, proponents of the green

economy argue that the above discussions, especially

market optimization and efficiency, are very abstract

concepts. In this context, they can be said to agree

with behavioural economics. According to

Behavioural economics, consumers are not rational in

decision-making. They are closer to the nature of

Homo sapiens than Homo economics. Therefore,

tools such as price and the invisible hand of the

market cannot guarantee social well-being even in

perfect competition. And in the mixed case of real

markets with monopolies and oligopolies, the

likelihood of this is even less.

In its essence, the green economy suggests that

there will be as many natural areas as possible,

including forests, enclosures for animals, and as low

as possible industrial and household waste, even in

densely populated areas. And in practice, this can

only happen with the expansion of social properties.

Private property and businesses, on the other hand,

will have to adhere to regulatory norms. As you can

see, this contradicts a pure market model.

The Coase theorem offers an optimal solution to

this dilemma. Positive externalities are subsidized

and negative externalities are subject to taxes and

On Measurements of Green Economy: Sustainable Economic Growth, Steady State and Social Discount Rate

fines. This principle also has a direct connection to

the green economy. For example, ensuring that the

plant world is pollinated can be done in a regulatory

way, in addition to the processes that take place

through natural ventilation. Honey producers need to

be encouraged through subsidies to areas where the

plant world needs to expand.

The manifestations of the theory of the green

economy criticize the priority of constant economic

growth. That is, the well-being of the population

should not be measured by constant economic

growth. Therefore, the antigrowth position is

distinguished.

Indeed, even according to economics, human

needs increase endlessly, as reflected in the Maslow

model. Of course, even in a green economy, human

needs are supported as much as possible. However,

this must be based on natural quality. The well-being

of the population, on the other hand, can be ensured

only by optimally and wisely allocation of limited

natural resources.

The above problem can be analysed through

existing models based on population growth and a

limited resource paradigm. The main ones are the

Malthus and Kremer models. These include

alternative models.

According to the Malthus model, the population

will grow steadily, and hence proportionately their

needs. Because of the limitations of natural resources,

especially crops, per capita resources decrease and

the level of well-being of the population decreases.

Economic growth is not the only solution, which

contributes to a further increase in needs in such a

condition. Indeed, until recent history, the plant world

was considered a key source not only for food but also

for energy. For example, in the warming and

processing industry, wood has been used primarily as

fuel. If alternative coal, gas, oil and other fuels were

not discovered, it was inevitable to expect forest areas

to decline dramatically.

According to Kremer's model, on the contrary, the

population's well-being increases as the world

population increases. More innovative ideas will

emerge among the larger population, and this in turn

will allow a more effective distribution of resources.

Indeed, the "green revolution" of the 20th century has

repeatedly increased agricultural production per

capita. The quality of new technologies is expanding

the eligibility period for these products, the quality of

which used to break down rapidly. New generations

of logistics made it easier to maintain and transport

them. That is, the efficiency associated with time and

distance is also increasing. The use of alternative

methods, such as wind in energy, synthetic materials

in textiles, and chemistry in pharmaceuticals, was

also unexpected in the Malthus era.

In general, the conversion of resources without

processing and ineffective waste is typical of a period

and space where the population is infrequent.

Looking for opportunities to recycle and distribute

them more efficiently is typical of more populated

areas. This thesis can also be observed by comparing

it in the cross-section of historical times and

countries. For example, by comparing Japan with

relatively low per capita resources and developing

countries with increased per capita resources.

According to the Solow model, the Steady state is

such a state of the economy that the efficiency of

capital per capita stabilizes. It can be assumed that it

is at this stage the possibilities of the green economy

implication are more likely. If per capita capital is

lower than this level, investment increases will keep

the economy growing, and meanwhile, the relative

costs of the green economy will be greater. When the

capital savings per capita are above this level,

investments will not be able to provide economic

growth, and it will be more effective to direct them to

the green economy.

In the Solow model, the next issue beyond steady

state is that it is required to find such a point in the

capital accumulation, where the optimal level of gross

consumption of the population is achieved. GDP will

be produced in the most appropriate amount for the

welfare of the population, even if it is less than a

Steady state. In particular, industrial and household

waste to the environment will be at the minimum

level.

In the case of endogenous models, which are

alternatives to the Solow model, however, economic

growth can be constant, and in this case, it is

necessary to abandon permanent economic growth in

order to advance the green economy, as some green

economists have criticized.

For the golden medium, it is necessary to establish

a coordinated mixture of the above existing models.

This model should be modified so that it fits as much

as possible into the reality, so that it can be put into

practice not only within the academic framework, but

also when putting the green economy on the agenda.

We now formulate the above considerations

through identities in order to apply them to

quantitative and qualitative measurement of green

economics and economic growth, and to lay the

foundation for estimating by regressional method.

Let the expression of gross produced products in

the economy through production factors be as follows

in traditional works:

GDP=A*F(K,L,N,H) (1)

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Where GDP is the gross domestic product, A is

the level of technology, F is the production function,

K is the amount of physical capital, L is the number

of hours of labour worked, H is human capital, and N

is the natural resource units.

We assume that the Constant return to scale and

Inada conditions hold, as in economic growth models

and in many cases empirically approved works. In

this case, the productivity of each factor increases

infinitely in its scarcity and, on the contrary,

decreases when it increases. Including this for the

productivity of natural resources we can formulate sa

follows

(lim)┬(N→∞) (∂F/∂N)=0 and

(lim)┬(N→0) (∂F/∂N)=∞ (2)

The population increases and natural resources

are spontaneously reproduced along with time.

Depending on their reproduction rate, per capita

natural resources (N/L) either decrease or increase.

According to the Malthus model, N/L should

decrease as the population grows, as consumption

increases. According to Kremer, on the contrary, this

ratio increases because the technological level in (1)

A in the equation, increases the substitutes of N its

efficiency. It is evident from identity (1) that in order

for N/L to increase, A and H must be as much as

possible.

Under the conditions of modern stock markets,

where the spot rates are changing every second in a

continuous time horizon and under the conditions of

variable interest rates in a given period, the

intertemporal relation in which the social discount

rate is considered can be written as follows

PV=∫_0^T▒〖〖FVe〗^(-∫^t r(τ)dτ) dt〗 (3)

Where PV is the investment value at the beginning

of the period; FV is the value planned to be reached

at the end of the period, T is the length of the period;

r(t) is the real interest rate at time t.

The above formula can be estimated by a discrete,

i.e. an annual, quarter, monthly and other period

timing. In this case, r(t) represents the forward or

futures rates rather than the spot rate. If the time-

dependent function of the Social discount rate is

known or evaluated, the desired investment amount

can be determined by continuous discounting.

Based on the definitions given to the green

economy and the points of view placed on its relations

with economic growth, now we consider its

applications and measurements.

Green economy can be manifested in practice in

the following directions:

- Production of goods and services for a

qualitative and healthy lifestyle;

- Stop or at least reduce air pollution;

- Improving the quality of capital;

- Saving and efficient allocation of resources;

- Social equality;

- Biodiversity.

Undoubtedly, the factor that most negatively

affects the development of the green economy is

environmental pollution. The main pollutants are

industrial, transport and domestic waste, including

Carbon dioxide (CO2) and methane gases.

Statistics of Greenhouse gases in cross-country

indicate that in the past two decades, post-industrial

countries, including the United States, Germany and

Japan, have decreased by about 12, 19 and 13%,

respectively, and industrial developing countries,

including China, Brazil, have increased by about 33

and 69%, respectively.

The question of whether the rest of the countries

will also reduce pollution when a Steady-state arrives

can be predicted through CO2 and economic growth

dynamics, but it is difficult to find an exact answer as

the solution will depend on many other factors. Each

country has its own macroeconomic policy, which, in

addition to socio-political factors, can stimulate or

indirectly limit production, depending on

unemployment, inflation, foreign trade and the

stability of the national currency. It is inevitable that

the green economy will fall out of the agenda when

the CO2 reduction policy causes unemployment

above all.

At the same time, it is desirable that the policy of

reducing CO2 in each country or region be supported

at a global level. In addition to the UN, international

financial organizations, including the IMF, World

Bank have also been active in this issue in recent

times.

Many projects focused on the development of the

Green Economy are mainly done by nonprofit

organizations, which can operate at the expense of

international organizations and foundations. They

focus on two areas: environmental pollution

prevention and plant breeding. As the main projects,

Low Carbon Economy, Trillion Tree Campaign,

Ecosia, and Trees for the Future can be shown as the

reformation agenda. Trees for the Future has helped

plant 35 million trees for 120,000 families in a total

of 6,800 villages across Asia, Africa and America [2].

Domestic projects have also been developed in

countries, with international and government funding

provided in both directions.

Now let's focus on the problems in the

development of the green economy. As noted above,

Green Economy projects have a nonprofit look that

may not be attractive to investors who are their

On Measurements of Green Economy: Sustainable Economic Growth, Steady State and Social Discount Rate

financial source. The expected return from industry

and other traditional business settlements is an

opportunity cost for eco-investment. So the dividend

promised to them should be more than the average

conventional interest rate and dividends. In this case,

methods that are beyond market mechanisms, such as

social claims should be included.

The next issue is that budget funds, which are

focused on green projects, reduce the supply of funds

in the financial markets. This can lead to further

increases in interest rates, a reduction in investment,

and a contraction of gross supply. This can ultimately

increase unemployment and inflationary pressure.

According to the International Labor

Organization (ILO), while a total of 78 million jobs

will be reduced under the two scenarios, 103 million

new types of jobs will be created in the future (Table

1).

Table 1: ILO-2019 Horizon 2030 job creation forecasts for

green economy scenarios (in millions of jobs).

Horizon 2030

scenarios

Risk of job

destruction

Potential job

creation

Balance

Energy transition

scenario

-7 +25 +18

Circular economy

scenario

-71 +78 +7

Total -78 + 103 +25

Source: ILO (ILO pdf Web, p.5)

The main issue is the provision of social assistance to

the stratified population, which is likely to lose jobs,

and preparing them for jobs suitable for the green

economy during the transition period. According to

the ILO, three sectors in the green economy are:

production and destruction of water; sanitation and

waste treatment; protection of nature, referring to the

following professions, mainly specific to the

environment and biodiversity sectors:

Transport;

Building;

Agriculture and livestock;

Forest industry;

Fishing;

Manufacture.

Also, due to the development of AI, programming

and training of green projects for the green profession

can be carried out in a low-cost and effective way.

Even on the way to creating embodied capital, many

IT and other tech professionals can keep self-

employment and even create additional jobs. As it is

known, a new type of capital increases the efficiency

of labour, and this, in turn, increases the average

salary. The increase in the gross demand of the

population with increased income encourages green

industries of a new type, thus the multiplicator effect

will continue until the new steady state is achieved.

From the above considerations, measurement of

the green economy is possible through a dual

approach: examination of the dependence of

reduction in greenhouse effects and biodiversity

indicators on economic growth. Plotting the change

in the CO2 output of countries given in 2010 and

2022 and the economic growth change in the

corresponding years give the following results

(Figure 1)

(Source: by authors based on data (Statista: Link) and

(World Bank link)

Figure 1: Relation between economic growth and CO2

emission.

The results of Figure 1 can be formulated as follows

Δ𝐶𝑂2



 0,326  1,03561 𝜆𝑔 (4)

Where CoE is the change in CO2 emission, g is

the economic growth rate. 𝛌 is the bias error of the

elasticity coefficient and there is no bias when it is

zero.

Now we will associate economic growth with the

Global Green Economy Index. To do this, we bring

this index rating of 2022 and the economic

performance indicators of the same year to the

regression equation and the result is as follows.

𝐺𝐺𝐸𝐼



= 5,6301 – 0,008(1 – γ)g (5)

Where GGEI is the predicted GGEI score value, g

is the economic growth rate, γ is the bias error of the

elasticity coefficient and there is no bias when γ is

zero.

(5) The regression relation of the equation is

reflected in Figure 2.

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(Source: by authors based on data (GGEI, 2022) and (World

Bank link)

Figure 2: Regression scatterplot of GDP change and GGEI

score.

Thus, in each of the results we attribute, there is

reverse proportionality among the indicators that

represent economic growth and the green economy.

That is, economic growth either increases CO2 or

lowers ranking relative to the green index. This

confirms our hypothesis about the Steady-state, albeit

somewhat.

In fact, the fact that no country ceases to grow

economically may question the application of Solow

and other exogenous models. For instance, developed

countries even though have lower economic growth

than catching-up economies, they still have annual

growth in GDP. However, many of them have

reduced greenhouse pollution. To understand this, it

is advisable to consider a green economy using a

modified variant with endogenous models. In

particular, Barro's work gives the following

modification, in which the Cobb Douglass production

function and the AK model are combined (Barro,

1995 p.66). This model is “asymptotically”

approaching the steady state, providing economic

growth at any stage of each capital accumulation.

Indeed, this formulation is closer to reality and

implies that the transition to the green economy can

be achieved even though the level of capital

accumulation is not right at the steady state but

somewhere around.

As for Social discount, the green economy

measure can be expressed by adjustment through it.

For example, according to the Zero emission agenda

by 2050, the annual CO2 reduction is 6%, and by

2030 half of this plan should be implemented

effectively. Hence because discount rate is pre

trimmed, according to the formulated problem we

evaluate Formula (2) to obtain the following

numerical result

∫_t^2050▒〖r(t)dt〗≈0.06

According to the Half life estimation by 2030

CO2 to be reduced by a factor of ln2/[0.06(2030-t)].

Economic growth, on the other hand, slows down to

match the (4) or (5) regression coefficients, leading to

a Steady state and this in turn to a green economy.

3 CONCLUSIONS

Green economics is becoming an alternative to

traditional economics. This direction, formed by the

Industrial Revolution and its consequences, has

managed to become globally popular, despite being

relatively new, and international organizations,

becoming the agendas of the country's authorities.

There are various concepts about the green

economy. It promotes issues such as not only

preserving environmental naturalness and producing

natural products but also social equality.

The question of measuring the green economy has

not yet come to a clear template, as it is somewhat

abstract in relation to traditionalist indicators.

Nevertheless, it is now internationally listed,

including the Global Green Economy Index, Green

Development index.

Some green economists question the positivity of

economic growth and are critical in many cases. The

main thesis is that constant economic growth cannot

serve to increase the elegance and social well-being

of people, but rather ineffectively dispose of

resources, stimulating excessive consumption. and as

a rebuttal to them, the market mechanism increases

not only nominal, but also real wealth, including

greenery.

Through the multi-factor modification of

neoclassical economic growth models through capital

and non-labour human capital and Natural Resources,

the processes of economic growth, transition to

steady state and the green economy can be sought.

The experience of developed and developing

countries is in many cases consistent with this. In

some idiosyncratic keys, however, the addition of

endogenous models also brings the analysis closer to

realism. Through Social discount, it is possible to

extract the value of the traditional GDP corrected to

the green economy.

We have made a brief regression analysis of

Greenhouse gas capping and ggei s related to

economic growth. The main problem at our disposal

is the lack of online selections and the issue, which

should also be analysed through the Deep Natural

Sciences, is purely economic. Therefore, in

perspective, we are referring to multi-factor

regression analysis.

On Measurements of Green Economy: Sustainable Economic Growth, Steady State and Social Discount Rate

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