With a population of 7 billion, the world in 2012 faces highly complex economic and social challenges. While protecting the environment and conserving natural resources remain key policy priorities, many countries are also struggling with slow economic growth, stretched public finances and high levels of unemployment. Tackling these pressing challenges requires a deep cultural shift towards "greener" and more innovative sources of growth, and more sustainable consumption patterns.

Over the last four decades, human endeavour has unleashed unprecedented economic growth in the pursuit of higher living standards. While the world’s population has increased by over 3 billion people since 1970, the size of the world economy has more than tripled. While this growth has pulled millions out of poverty, it has been unevenly distributed and incurred significant cost to the environment. Natural assets have been and continue to be depleted, with the services they deliver already compromised by environmental pollution. Providing for a further 2 billion people by 2050 and improving the living standards for all will challenge our ability to manage and restore those natural assets on which all life depends. Failure to do so will have serious consequences, especially for the poor, and ultimately undermine the growth and human development of future generations.

This chapter provides background to the OECD Environmental Outlooks, explains the methodology used – including the traffic light system – and outlines the report structure. It focuses on the four Red light environmental challenges – climate change, biodiversity, water, and the health impacts of environmental pollution – identified as the most pressing challenges in the coming decades. The analysis in the Environmental Outlook is global, but its policy recommendations focus on OECD countries and the key emerging economies of Brazil, Russia, India, Indonesia, China and South Africa (the BRIICS). The Environmental Outlook makes future projections to analyse economic and environmental trends over the coming decades, by combining a general equilibrium economic modelling framework (the OECD’s ENV-Linkages model) with a comprehensive environmental modelling framework (the IMAGE suite of models of the PBL Netherlands Environmental Assessment Agency). The Environmental Outlook’s Baseline scenario presents stylised projections of what the world could look like in 2050 if current socio-economic and environmental trends and existing policies are maintained, but no new policies are introduced to protect the environment. To compare against the Baseline, the Outlook also presents the results of what if… simulations which model the potential effects of policies designed to tackle key environmental problems. This edition of the Outlook has been prepared for the Environment Ministers’ Meeting at the OECD in March 2012, and as an OECD input to the United Nations Conference on Sustainable Development (Rio+20) in June 2012. It is designed to be read alongside the OECD’s green growth strategy, Towards Green Growth.

The chapter starts by describing current demographic trends and corresponding Baseline projections (notably for population growth/composition including ageing, and urbanisation). It then outlines economic trends and projections, including economic growth (GDP, consumption, sectoral composition) and its drivers, such as labour and capital. These trends are based on a gradual conditional convergence of income levels among countries. In its final section it explores two factors which directly link economic trends to environmental pressures: energy use (energy mix such as fossil fuels, renewables and nuclear) and land use (in particular agricultural land). The projected key socio-economic developments under the Environmental Outlook Baseline scenario presented in this chapter serve as the basis for the environmental projections described in the other chapters of this Outlook. The chapter focuses on global projections for major world regions such as the group of OECD countries, emerging economies of Brazil, Russia, India, Indonesia, China and South Africa (the BRIICS) and the rest of the world.

This chapter analyses the policy implications of the climate change challenge. Are current emission reduction pledges made in Copenhagen/Cancun enough to stabilise the climate and limit global average temperature increase to 2 oC? If not, what will the consequences be? What alternative growth pathways could stabilise the global average atmospheric concentration of greenhouse gases (GHG) at 450 ppm, the level which has a 50% chance of keeping the temperature rise to 2 oC? What policies are needed, and what will be the costs and benefits to the economy? How can the world adapt to the warming that is already occurring? To shed light on these questions, this chapter first looks at trends to 2050 in GHG concentration and emissions (including from land use), temperature and precipitation under the Environmental Outlook Baseline scenario of business-as-usual (i.e. no new action). It then takes stock of the state of climate policy today. Most countries use a mix of policy instruments, including carbon pricing (carbon taxes, cap-and-trade emissions trading, fossil fuel subsidy reform), other energy efficiency policies, information-based approaches and innovation policies to foster clean technology. The chapter then looks at what further action is needed by comparing different mitigation scenarios against the Baseline. These include various scenarios to stabilise GHG concentrations at 450 ppm and 550 ppm using different technology options, e.g. carbon capture and storage, phasing out nuclear power, and increasing the use of biofuels; linking carbon markets; and various emissions permit allocation rules. The chapter concludes by outlining how limiting global warming will require transformative policies to reconcile short-term action with long-term climate objectives, balancing their costs and benefits. Timely adaptation policies to limit damage by the already changing climate will also be essential.

Biodiversity loss is a major environmental challenge facing humankind. Despite some local successes, biodiversity is on the decline globally and this loss is projected to continue. Continuing with business as usual may have far-reaching adverse implications for human well-being, security and economic growth. This chapter summarises the considerable benefits and often hidden values of biodiversity and the ecosystems of which it is a part. It then looks at trends in several indicators of biodiversity – species abundance (e.g. mean species abundance or MSA), threatened species, forest area (deforestation) and marine fish stocks – and the implications of business-as-usual trends continuing to the year 2050 under the OECD Environmental Outlook Baseline scenario. The chapter provides an overview of the different policy instruments available for biodiversity conservation and sustainable use, ranging from regulations to market-driven approaches, such as payments for ecosystem services (PES). Some more ambitious policy scenarios are examined – such as the implications of meeting the Aichi Biodiversity Target under the Convention on Biological Diversity (CBD) to expand the global protected area network to at least 17% of terrestrial land by 2020. Possible synergies and trade-offs of meeting climate mitigation goals (through different bioenergy and land use scenarios, for example) and the impacts on biodiversity are also examined. The chapter concludes with a discussion of key needs for further policy action in the context of biodiversity and how this links to the broader green growth agenda.

Around the world, cities, farmers, industries, energy suppliers, and ecosystems are increasingly competing for their daily water needs. Without proper water management, the costs of this situation can be high – not just financially, but also in terms of lost opportunities, compromised health and environmental damage. Without major policy changes and considerable improvements in water management, by 2050 the situation is likely to deteriorate, increasing uncertainty about water availability. This chapter summarises the key pressures on water, as well as the main policy responses. It starts by looking at current water challenges and trends and how they could affect the water outlook in 2050. It considers competing demands for water (from agriculture/irrigation, industry, electricity, domestic/urban supply, environment flows) and over-exploitation (both surface and groundwater), water stress, water-related disasters (e.g. floods), water pollution (in particular nutrient effluents – nitrogen and phosphorus – from agriculture and wastewater) and discharge into the seas, and lack of access to water supply and sanitation (as defined by the Millennium Development Goals or MDGs). It reviews the existing policy tools to manage water (such as water rights, water pricing), and explores how the water outlook could be improved by more ambitious policies. The chapter discusses emerging issues in water policy; it pays particular attention to water as a driver of green growth, the water-energy-food nexus, allocating water for healthy ecosystems, and alternative sources of water (reuse). For all these, governance, the use of economic instruments, investment and infrastructure development are important dimensions. They all contribute to and facilitate water policy reforms in OECD countries and globally.

This chapter examines the current and projected impacts on human health of four key environmental factors – air pollution (focusing on premature deaths from exposure to outdoor airborne particulate matter, or PM, and ground-level ozone as well as indoor air pollution), unsafe water supply and poor sanitation (including in the context of the relevant Millennium Development Goals or MDGs), chemicals (chemical hazards, exposure) and climate change (focusing on the incidence of malaria). For each issue the chapter first describes the current trends, then how the picture could look in 2050 without new policies (the Environmental Outlook’s Baseline scenario), and finally the policy actions required. Air pollution, unsafe water supply, poor sanitation and hazardous chemicals exert significant pressures on human health, particularly for the elderly and the young. While some global trends (e.g. access to improved water sources) are getting better, others – such as urban air pollution and lack of access to basic sanitation – continue to pose a serious risk to human health. In addition, the incremental effects of climate change are contributing to the global burden of disease. Ambitious and flexible abatement policies (e.g. standards, fuel taxes, chemical testing and assessment, green procurement, cap-and-trade emissions trading, transport policies) as well as further investment in water and sanitation services are needed to address these risks. Identified hazards need to be assessed and tackled, and there is also a need to be vigilant and react quickly to new and emerging risks to human health that are not well understood (e.g. endocrine disrupters, manufactured nanomaterials).