Mario Amano, Road to Green Development

Date: Aug 12, 2011      Source: WEC      

The OECD Green Growth Strategy is the outcome of a visionary Ministerial mandate that the OECD received in 2009, in the midst of the financial and economic crisis. Faced with pressing economic and environmental challenges, governments saw a dual opportunity in green growth: Both as a way to support the recovery and to lay the foundations for more sustainable growth over the long-germ.

Just several weeks ago we delivered the Strategy to Heads of State and Ministers from over forty countries, who welcomed it first and foremost as a growth strategy.

Why Green Growth?

In the 20th century the world population grew 4 times, economic output 22 times and fossil fuel consumption 14 times. The resilience of a wide range of environmental systems is now being tested by the requirements of a rapidly growing global population and increased levels of economic activity. Green growth is about addressing this challenge while expanding economic opportunities.

But what is new about green growth? Since the Rio Earth Summit almost twenty years ago, we have known that green and growth must go together. What is different now? Let me give you a simple answer: Green Growth is not about replacing sustainable development with a new paradigm. Green growth is about making it happen in reality. It is about implementation, about concrete recommendations for policy makers and stakeholders. Our Green Growth Strategy aims to present an achievable and actionable policy framework.

What are the benefits from greening growth?

The Strategy is essentially a lens for looking at growth. It shows that the transition to greener trajectories can deliver important economic benefits. For example, the IEA estimates that a 17% increase in the type of investment needed to deliver low-carbon energy systems between now and 2050 would yield an estimated cumulative USD 112 trillion in fuel savings.

Overall, economic gains can be realized directly through enhanced resource productivity, reduced waste and energy consumption, and from ensuring that natural resources reflect their true value. Our preliminary work on green growth indicators shows that environmental and resource productivity has been increasing. These improvements, however, have not been sufficient to achieve the absolute decoupling we need for many pressures on the environment.

Green growth can also lead to new sources of growth and jobs from innovation and the emergence of green markets and activities. Today’s green economy is relatively small, if judged simply by the size of industries producing green goods and services. But significant growth potential is foreseen, in particular in the emerging economies. Looking at natural resources sectors alone, commercial opportunities related to environmental sustainability could be between USD 2.1 and 6.3 trillion by 2050. Similarly, China is currently the world’s leader in renewable energy, with related investment reaching CNY 34.6 billion. And these are only part of the picture, as many of the environmental and growth effects will arise from greening all sectors of the economy.

Without a green growth focus, there is a real risk that future environmental damage can outweigh the short-term economic benefits of current policies. Over-exploitation of groundwater is a case in point, and one from which China and other countries have learned the problem. The World Bank has estimated that in China the cost of excessive use of groundwater was in the range of 0.3% of GDP, with those lost falling largely on the agriculture sector.

What are the essentials of green growth strategies?

Green growth intends to be relevant for all countries. We understand there is no “one-size-fits-all” prescription for implementing green growth. Strategies will differ across countries, according to economic and institutional settings, resource endowments and particular environmental pressure points. There is nevertheless some common ingredients that apply in all settings.

Any green growth strategy will require policies that mutually reinforce economic growth and the sustainable management of natural capital. These include measures to encourage innovation and infrastructure investment, and good framework conditions for well-functioning product and labor markets. Environmental fiscal reform is a key part of this package. Higher environmental taxes, for example, combined with lower taxes on labor can be a successful strategy for growth-oriented tax reform.

Economic instruments, such as putting a price on carbon and resource taxation, are a favorite of economists for their cost-effectiveness and because of the incentives they provide for innovation. They hold the key for aligning growth with green. Countries like Sweden know this well. Sweden’s 1992 tax to address pollution from Nitrous Oxides reduced emission by a third after just two years. It also provided the flexibility for firms to find the least costly and best-fit solutions in their particular context. New technical solutions emerged, and a large number of patents were taken out by Swedish companies. China will most likely to introduce its environmental tax and carbon tax in the period of 12th Five Year Plan, the OECD stands ready to provide China relevant experiences of our member countries.

Taxes related to energy and greenhouse gas emission can also raise significant fiscal revenues. For example, if industrialized countries were to use carbon taxes or auctioned emissions permits to reach the greenhouse gas emission targets they pledged in the Cancun Agreements, they could raise as much as 1% of GDP or about USD 400 billion per year by 2020.

Eliminating bad policies from the past, like fossil fuel subsidies, could also offer budgetary opportunities to boost green growth. Fossil fuel subsidy reform presents a clear win-win opportunity which could result in real income gains in most countries, while significantly reducing greenhouse gas emissions—OECD estimates that this one policy measure could reduce emissions by as much as 10% in 2050 compared with business as usual. Emerging economies, such as India and Indonesia, are setting a strong example by implementing reforms in this area, including well-targeted compensation measures for vulnerable groups. We have also seen some progress in North America: Mexico took steps in 2010 to slowly reduce subsidies to gasoline and diesel fuel consumption, as highlighted in our recent Economic Survey of Mexico, the US government has proposed eliminating the tax breaks that favor oil and gas production, and Canada will phase-out by 2015 the accelerated capital cost allowance mechanisms that currently support oil-sands projects.

When developing strategies for green growth, we have to bear in mind that changing current patterns of growth, consumer habits, technology and infrastructure is a long-term project. And we will have to live with the consequences of past decisions for years to come. China is in the midst of rapid construction, urbanization and development. It is precisely the right time to break this “path dependency”, and create China’s own model of green economy development for the future. Action taken now can open up untapped opportunities, and avoiding costly lock-in.

To leapfrog, green innovations must become much more widespread throughout society and shared across national borders. Governments have a key role to play through funding relevant research, targeting barriers to the early-stage commercial development of green technologies, strengthening related markets and accelerating international technology transfer. Non-technological changes and innovation such as new business models, work patterns, city planning or transportation arrangements will also be instrumental in driving greener growth.

In the area of investment, the scale of change that is needed is not trivial. Of the 91 trillion US dollars of investment capital in the global bond market only 0.012% is currently in “green” bonds. There is clearly a need to make it more attractive for investors to shift capital to green infrastructure projects, low-emission energy sources, and smarter transport systems. A number of governments, like the UK, are taking innovative steps to ramp up such investment. The 3 billion pounds earmarked in its new Green Investment Bank are expected to leverage an additional 15 billion pounds of private investment in green projects by 2015.

What about green jobs?

As green activities develop, new jobs will be created. For example, up to 20 million jobs could be created worldwide by 2030 in renewable energy industries. Indeed, it is expected that restructuring the energy sector towards a cleaner energy mix can generate some net employment gains, because the renewable energy sector currently generates more jobs per megawatt of power installed, per unit of energy produced, and per dollar of investment, than the fossil fuel-based energy sector.

However, a transition to green growth is much more than shifting our energy mix. It involves systemic changes across the entire economy. As part of the structural adjustment, some jobs will be at risk, and these losses need to be carefully managed. But the overall employment impacts should not be overstated. In fact, our simulations show that labor market outcomes can improve if revenues from carbon pricing are used to promote labor demand.

A carefully designed package of labor market, social protection and skills development policies can assure that the labor market is both dynamic-continuously redeploying labor from declining to growing industries and firms-and inclusive.

Making green growth reform happen

Successful policy reform will depend on getting all stakeholders on board. This means involving businesses and communities at the outset, and being clear about policy objectives and options. For a growing number of companies, the “green race” is on. And they are demanding greater policy predictability and longer-term thinking from governments. Uncertainty about future regulation is already becoming a major investment barrier in areas like non-conventional oil and natural gas industries.

Ultimately, the challenges for green growth strategies will be to bring together a range of policy areas across government. Governments must articulate a clear vision and treat the challenges as ones that cut across their core economic strategies. There will need to be a leading role for Finance and Economy ministries.

It also implies effective governance across levels government. We are seeing a number of initiatives emerging at the local level and that can form part of the green growth puzzle. Many of these are also happening here, in this province and in this city.

The need for green growth indicators

Finally, to use a well-worn adage, you cannot manage what you do not measure. Green growth is no different. This is why our Indicators Report puts forward an ambitious measurement agenda. It is just a start at this stage but, ultimately, we need to work towards producing a core set of indicators that captures the different dimensions of green growth. We will be working closely with national statistical agencies to move this agenda forward.

Next steps of OECD work on green growth

A year from today, and twenty years after the Rio Earth Summit in 1992, Heads of State and leaders from every corner of the world will gather again in Rio with a view to reach a renewed political commitment on sustainable development. Now, more than ever, is the time to ask ourselves what hasn’t worked and why. And this time we have to come up with concrete, workable solutions.

Green growth is a key part of the solution. And the Green Growth Strategy marks the start of OECD’s commitment to help accelerate progress.

Over the next years, we will be turning our attention towards supporting country’s implementation and helping to instill a whole-of-government vision for green growth. We will be tailoring the green growth strategy to provide country-specific and sector-specific guidance. This will mean mainstreaming green growth in our economic analysis and country surveys. It will also mean continued work on green growth indicators and other measurement tools.

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