Is your valley as green as it should be? Incorporating economic development into environmental performance indicators

Sustainability rankings are receiving increasing attention by the academic and the policy making communities because of their potential to influence environmental legislation and reshape competitive landscapes. Unfortunately, most of the indicators used to produce these rankings do not take into account economic development and tend to be biased in favor of richer countries. To circumvent this limitation we develop a novel, rigorous and simple metric that ranks countries by their potential environmental performance relative to their wealth; in other words, by the degree of sustainability that a country should achieve, given its level of affluence. We apply our approach to measure the sustainability level of 15 developed economies with respect to the share of renewable energy sources in their electricity generating portfolios. The resulting ranking produces changes in the perceived greenness of certain countries. If adopted, it would allow these countries to increase their bargaining power in international negotiations. It would also alter the pressure faced by their governments to implement or discontinue environmental policies such as feed-in tariffs. Although we applied it at the country level and in the context of renewable energy, the method has far-reaching implications and it can also be used to compare corporate sustainability levels.