Towards Green Growth
Prepared by Michael Marien
This important report is not well-known, unfortunately, and not for summer reading on the beach. But as a sensible, well-documented, and broad-ranging way forward for all nations, addressing many critical problems in one package, there is nothing like it!
At the OECD Ministerial Council Meeting in June 2009, it was agreed that environment and economic growth can go hand-in-hand, and the OECD was asked to develop a Green Growth Strategy. Several Green Growth reports have already been published, and this report summarizes work done so far. OECD will continue to support global efforts to promote green growth, which will be reflected in OECD country reviews and work on green growth indicators, toolkits, and sectoral studies. (See Table 5.3, p132, for 16 examples of OECD work on green growth and potential directions.)
“Green growth means fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. To do this, it must catalyze investment and innovation which will underpin sustained growth and give rise to new economic opportunities. A return to ‘business as usual’ would be unwise and ultimately unsustainable, involving risks that could impose human costs and constraints on economic growth and development.” Risks include increased water scarcity, resource bottlenecks, air and water pollution, and irreversible climate change and biodiversity loss.
Green growth has the potential to address economic and environmental challenges and open up new sources of growth through: 1) greater productivity in efficient use of resources and natural assets; 2) opportunities for innovation, spurred by policies and framework conditions that allow for new ways to address environmental problems; 3) new markets and job opportunities by stimulating demand for green technologies, goods, and services; 4) boosting investor confidence through greater predictability and stability as concerns government response to major environmental issues; 5) more stability from balanced macroeconomic conditions and reduced resource price volatility; 6) reduced risk of negative shocks from resource bottlenecks and imbalances in natural systems.
There is no “one-size-fits-all” for green growth strategies. Advanced, emerging, and developing countries will face different challenges and opportunities. However, there are common considerations that need to be addressed in all settings. “Most important, good economic policy lies at the heart of any strategy for green growth.”
A green growth strategy takes into account the full value of natural capital as a factor of production and its role in growth. It focuses on cost-effective ways of attenuating environmental pressures to effect transition towards new patterns of growth. “Focusing on GDP as a measure of economic progress overlooks the contribution of natural assets to wealth, health, and well-being.” A green growth strategy thus targets a range of measures of progress and incorporates a longer time horizon.
Also, “there are important complementarities between green growth and poverty reduction, which can be capitalized to help drive progress towards the Millennium Development Goals,” e.g.: bringing more efficient water and transport infrastructure to people, alleviating poor health associated with environmental degradation, and introducing efficient green technologies that can reduce costs and increase productivity. Green growth is not a replacement for sustainable development, but should be seen as a subset, in that it is narrower in scope.
Policy Framework for Green Growth
1) Policy Design. Realizing the value of the natural resource base in a way conducive to growth can employ a wide range of policy instruments: cap-and-trade permit systems, baseline-and-credit permit systems, taxes on pollution or resource use, utilizing subsidies (while removing perverse subsidies that encourage pollution or over-extraction of resources), deposit –refund systems on containers, performance standards, technology standards, active technology support policies, and voluntary approaches.
2) Market Instruments. For most countries, instruments that directly impact price signals are a necessary, though not always sufficient, condition for greening growth. Such instruments internalize externalities such as pollution, and properly value all factors of production. Use of environmentally related taxes has widened over recent decades ( a chart shows environmentally related tax revenues as a percent of GDP for each OECD country in 2009, ranging from less than 1% in Mexico and the US to over 2% in most countries and over 3% in several countries.)
3) Regulations and the Regulatory Environment. Regulatory policies are crucial elements of the green growth policy framework, presenting incentives for green growth and to improve existing arrangements as concerns resource use, energy efficiency, emissions standards, product market competition, trade and foreign direct investment, and private sector voluntary initiatives.
4) Changing Consumer Behavior. Pricing use of environmental resources is a powerful tool for influencing household decisions, e.g.: households charged for water use 20% less than those that are not. Third party certification can also improve consumer confidence in the green attributes of products.
5) Innovation. The core of transforming an economy is innovation: not only new technologies, but organizational and systemic changes involving new ways of doing things. Green technology development is accelerating in some areas, but needs to be boosted with clear and stable market signals (e.g. carbon pricing) and by targeting barriers to early-stage commercial development.
6) Investing in Infrastructure. Shifting to a greener growth trajectory requires special attention to energy, water, transport, and communications networks. For many countries, especially those outside the OECD, there are opportunities to leap-frog by introducing greener and more efficient infrastructures.
7) Institutions and Governance. Capacity to implement wide-ranging policy reform is an essential condition for greening growth. For some countries, building such capacity will be the central feature of green growth. Finance and core economic ministries must play a leading role, as well as all levels of government (state-level policies can, however, be beneficial in the absence of federal policy).
Promoting Transition to Green Growth
1) Develop Strategies for Reform. (See Policy Framework, above.)
2) Facilitate Adjustment in the Labor Market. As new green sectors and activities develop, other activities may be displaced. Policies involving skills, education, and the labor market can help to smooth the transition by minimizing skill bottlenecks and ensuring that firms and workers are able to seize new opportunities.
3) Manage Distributional Impacts on Firms and Households. This is crucial to reform success in terms of generating support and ensuring fair and positive outcomes. The policy-making process needs to be transparent, and affected groups need to be part of the process. Negative impacts on low-income households need to be offset with well-targeted programs.
4) Promote International Cooperation. Creating a global architecture conducive to greener growth, so that all countries benefit and domestic policy does not have negative consequences for others. Global challenges require cooperation on a global scale to protect the global commons (e.g., the UNEP-led Green Economy Initiative begun in 2008, FAO’s project on Greening the Economy with Agriculture, and the Global Green Growth Institute initiated by South Korea in 2010).
Measuring Progress Towards Green Growth
Monitoring progress requires indicators based on internationally comparable data, embedded in a conceptual framework. A small set of “headline indicators” has been selected, and explicated in a companion document, Towards Green Growth: Monitoring Progress. OECD Indicators (OECD, June 2011, 141p). Four areas capture the main features of green growth:
1) Environmental and Resource Productivity: on aspects of production that are rarely quantified in economic models and accounting frameworks (e.g., carbon and energy productivity);
2) Environmental Asset Base: to reflect the fact that a declining asset base presents risks to growth (e.g. renewable stocks such as forests and freshwater, non-renewable stocks, soil and wildlife resources);
3) Environmental Quality of Life: exposure to natural and industrial risks and losses, environmentally-induced health problems and related costs, access to sewage treatment and drinking water;
4) Economic Opportunities and Policy Responses: on the effect of policy in delivering green growth, e.g.: R&D, patents, innovations, energy pricing, green taxation, water pricing and cost recovery.