Besides comprising a majority of the world’s population, cities concentrate disproportional amounts of the world’s economy and decision-making power. Further, though urban areas cover only around two percent of the Earth’s surface, they consume 75 percent of its resources. Yet as a hub for social and political movements and centres of technological and institutional knowledge and innovation, cities can be a powerful catalyst of greener economies.

The growing size and importance of cities across the globe make them arguably the single most important entities in the fostering of a green economy. Because of their spatial distribution and diversity, the management of cities can be more responsive to urgent problems while being somewhat liberated from competing national interests (e.g., regional development agendas and sector lobbies) and responsibilities (such as national defense costs).

As a result, urban transitional activities are playing an increasingly important role in the implementation of policies regarding global environmental issues like climate change and biodiversity loss. The green economy provides another platform for ambitious cities to promote their green credentials.

The green economy will take on a different character in different cities depending on their level of development and spatial organization. It is important to recognize that cities face different challenges. While urbanization increases at a global scale, when this is differentiated by region the picture that emerges is unique to each individual city.

Cities in developed countries seek to grow by generating new jobs and industry. As a result, some cities are declining as they lose the battle for investment and talent. African and Asian cities have some of the highest growth rates and their development path will have a crucial influence on global development in the 21st century.

The way out of the urban development vs. environmental degradation dilemma is not necessarily to stop urban growth, but to harmonize the resulting opportunities and challenges.

For those cities embarking on development transitions, it is important to remember that infrastructure lasts at least 30 years, but often much longer. Once in place, many management options become technical adaptation and retrofitting rather than new design. Therefore the need to understand the relative importance of different tools available to cities is crucial if the green economy is to become a precursor to sustainable development.

The way out of the urban development versus environmental degradation dilemma is not necessarily to stop urban growth, which is almost impossible in some cases, but to reconcile and harmonize the resulting opportunities and challenges.

History has proven that urbanization can be managed in a way that promotes both the economy and human well-being. Because of the concentration of people, resources, knowledge and economic activities in urban areas, a properly managed cities-led green economy could provide the economy of scale, political momentum and efficiency gains necessary to lower the use of resources and energy.

The opportunities and the obstacles for a greener economy in cities are analyzed by looking at the specific economic processes that take place in cities, namely transformation of space (urban development), production and consumption, circulation (trade and transportation) and the production of ecosystem services, social services and knowledge. Understanding how to green those processes can have huge social, economic and environmental impacts on the cities and beyond.

Transformation of space: urban development

Physical and spatial development of cities are among the most significant components of urban economy. Urban development transforms natural environment and resources into man-made superstructures and infrastructure and this transformation places significant stress on the remaining natural environment.

The way we build our cities also influences how we spend and distribute our economic resources. Urban forms and spatial distribution of urban functions play a critical role in this respect. Sprawled cities, where low-density is the norm and urban functions are distantly located, increase the consumption of energy and natural resources including both terrestrial and aquatic resources.

The cost of urban development is high in dispersed cities, as relatively large land areas are dedicated to urban infrastructure and utilities. For instance, 70 percent of the cost of urban water supply systems goes towards piping, and 30 percent of urban energy consumption goes towards the pumping of water and the collection of wastewater. Therefore a smaller land-use area can result in lower utility operation costs.

Similar conclusions can also apply to transportation infrastructure. Compact cities with high density and mixed-use urban quarters (e.g., concentrating and combining retail, office and residential activities) can reduce travel activity and therefore result in energy-savings and lower levels of land-use change.

Overall, through the preservation of surrounding agricultural and forest land (for example, by combining agrarian activities and residential land use) cities can benefit from the ecosystem services provided by these areas, potentially reducing certain infrastructure costs while increasing the quality of life of its residents.

A key component of urban development that can promote the transition to a green economy is the superstructure: more specifically, the buildings. The building sector is one of the main contributors to carbon emissions, utilizing approximately 40 percent of global energy consumption; it consumes 12 percent of all fresh water and generates 40 percent of the total volume of waste. One of the key goals of the green urban economy is to promote energy and resource efficiency and to provide high quality, healthy and affordable buildings for urban residents.

Consumption and production in cities

In an increasingly urbanized world challenged by global environmental change and pervasive inequalities, cities are looking for new pathways to provide human well-being while using natural resources sustainably. Developing a green economy for urban areas is a response to those challenges. Such an approach should take into account sustainable production and consumption issues, as cities consume vast amounts of resources to meet increasing demands for goods and services, which can lead to environmental impact and economic exploitation in the non-urban supply areas.

Sustainable consumption and production should aim to transform current environmental challenges faced by cities into economic opportunities.

Sustainable consumption and production should aim to transform current environmental challenges faced by cities into economic opportunities by boosting the demand for more sustainable products and technologies, improving the environmental performance of products throughout their lifecycle, helping consumers to make informed choices, and by promoting awareness and lifestyle changes that help individuals to adapt their urban life to today’s challenges.

By enhancing local ecosystem services, urban areas can provide well-being for their residents while reducing their consumption footprints, thus creating opportunities for greening both their economies and their landscapes. From heat island control to flood mitigation, from local food provisioning to water purification, managing local ecosystems to increase their functionality will create innovative economic opportunities for clean development and ultimately render cities and local economies visibly greener.

Circulation: trade and transportation

Transportation is fundamental to a city’s economic productivity as it determines the accessibility and efficient urban circulation of people, resources and goods. Transportation can also be an effective countermeasure against the spatial mismatch of labour and workplace and housing and services.

The availability of transport infrastructure influences the location of activity centres, including industrial, commercial, and residential areas. Thus, an improved urban transportation system can decrease travel time and increase cost-effectiveness allowing for reliable, quick, and low-cost freight movement and convenient access for employees and residents. Additionally, the transport sector (including green transport) is a source of investment and urban employment (e.g., infrastructure development and management).

To align trade and transport goals requires a mix of the three pillars of transport policy options: avoid, shift and improve. The first priority is to avoid movements of people and goods without reducing the economic efficiency. For example, working remotely — a benefit of advances in information technology — can increase efficiency and reduce travel.

The second pillar is to promote a shift to efficient modes of transport. The use of public transport and non-motorized vehicles can be promoted by improving the design of a city-wide public transport network — enhancing its flow, improving multimodal connectivity and ensuring the safety, security, convenience (barrier-free) and affordability of public transport.

A challenge to this shift is that most public transport systems are not financially sustainable and are heavily subsidized. Increasing ridership to help with cost recovery requires ‘soft’ measures to change people’s preferences for private and informal transport. These are helpful because the factors that influence people’s mode choice go beyond the existence of alternatives, with convenience and cost being prime elements.

Particularly in the context of developing countries, the economic role of informal transport is significant as a source of mobility and employment particularly for the urban poor. In fact, these modes — including rickshaws, motorcycle taxis, and small vans — provide flexible, low-cost, door-to-door transportation and movement of goods, that can service difficult-to-reach streets and narrow passageways. Policies that restrict the use of informal transportation may unintentionally disrupt some urban economic activity.

The third pillar is to improve the efficiency of road vehicles through technological improvements such as fuel-efficient vehicles, alternative power sources and efficient driving methods (for example, reduced idling). However, technology introduces the issue of cost equity. A green urban economy can be stimulated through investment in and promotion of green technologies but these have to be considered as only part of the solution, recognizing that not everyone can afford them.

Ecosystem, social and knowledge services

Some of the most important parts of a city economy are those not captured directly by the market or prices, such as ecosystem services, social services (e.g., community-based social capital) and knowledge-based activities (e.g., education, and human/intellectual capital).

One of the biggest challenges to achieving a greener city economy is to shift the focus of urban development policy away from traditional measurements of GDP (such as building houses, factories or roads) and direct attention to ways we value and manage non-monetary resources and their influences beyond city boundaries.

Urban ecosystems provide a series of benefits to the local population such as recreation, culture-based services (e.g., traditions based on biodiversity), water and food provision, flood control services, energy and climate change mitigation (carbon and heat island management). Moreover, preserving the quantity and quality of those services can be fundamental for poverty eradication in the city since the poorest populations primarily make use of these resources as they are often denied access to services from the built infrastructure of cities (especially in terms of energy and sanitation).

Cities have both dependence and significant impact on the ecosystems beyond their boundaries. For example, many city-based financial institutions provide capital for activities beyond city boundaries (most notably extractive industries of mining and oil production operations). Whilst wider structural changes to the economy would need to occur, this could be accelerated if those institutions dedicated more of their resources towards greening the economy.

Cities are also responsible for a large part of the greenhouse gases (GHGs) produced worldwide, which affect a wide swath of urban, rural and forest environments globally. Thus, it is crucial to create mechanisms that facilitate green economic links beyond city boundaries.

Challenges ahead: Building the urban governance mechanisms

Greening the economy of cities is a necessary pre-condition to achieving a greener global economy that leads to poverty eradication. Steering the governance within and beyond cities is needed to divert cities’ huge physical, financial, human, social, natural and intellectual capital towards the objective of a greener economy.

The green economy has also emerged as a central development theme because of a deep-seated belief that sustainable progress will fail if we do not focus on economic gains; and cities are fundamental economic centres. What is important to recognize is that if the green economy is to be a prerequisite for sustainable development then it will have to be different from our current understanding of the economic processes.

If the green economy is to be a prerequisite for sustainable development then it will have to be different from our current understanding of the economic processes.

A green economy goes beyond simply greening parts of the conventional economy. It will require a broader understanding of how the economy functions, including not only the appropriate pricing of environmental externalities, but also the creation of the right institutions that steer the economy in this direction.

Much of the conceptualisation regarding the green economy has been in development for quite some time. Indeed substantial progress has been made on how to attribute economic values to nature, most recently through The Economics of Ecosystems and Biodiversity and many solutions and pathways are laid out in the United Nations Environment Programme’s 2011 Green Economy Report. The challenge is therefore not in finding solutions or best practices but rather to develop the governance mechanisms to move the economy in the proper (green) direction that results in benefits throughout the whole of society including the poor and most vulnerable.

To do so, we need to create the right institutions in and boost the organizational capacity of cities. This involves not only local governments, but also non-governmental actors and networks beyond cities. We need the appropriate flow of knowledge, information and resources from local to local, and from local to global, to facilitate the processes of change.

Cities are highly complex entities. They cannot exist in isolation and are therefore underpinned by a host of internal and external linkages. Very often these linkages are invisible at the city level but are precisely those that need to be considered when we talk of cities, governance and the green economy.

Most cities or groups within cities guard their governance boundaries tightly, sometimes in a very unfair and selfish, inward-looking manner. The benefits of good public transportation, sustainable affordable buildings/housing, renewable decentralized energy sources and sustainable consumption patterns can make cities better, not only for their own citizens, but also for the wider society.

If we fail to recognize and govern the links between cities and the local and global environment, we will be undermining the viability of cities in the long term, with unthinkable consequences to humanity, the majority of which today live in cities.

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For an in-depth focus on this article’s topic please see the related UNU-IAS Policy Report: “Governance Challenges for Greening the Urban Economy: Understanding and Assessing the Links between Governance and Green Economy in Cities“.