The OECD Green Growth Strategy: Key lessons so far

©Hannibal Hanschke/Reuters

Can a durable recovery come from greener growth? That largely depends on the policies. In 2011 the OECD will deliver its Green Growth Strategy. Here are some early pointers.

Green growth may seem far down the list of priorities for countries facing doubledigit deficits and high unemployment, but the planet doesn’t wait. Today, the reality is that environmental challenges like climate change and deforestation can no longer be put off. What can governments do? Are there ways of both solving short-term economic problems and laying the path for a longer-term growth that respects our planet?

We believe there are. In 2011, the OECD will deliver a Green Growth Strategy providing a host of policy recommendations that can help governments green their economies. Elemental in the report is the fact that the environment and the economy can no longer be considered in isolation. In fact, environmental considerations need to be an inherent part of economic policy, not an annex or an afterthought.

While the term “green growth” has surged in popularity, what does it really mean? Until now, environmentally friendly policies have referred to those measures that encourage growth and development while preserving the environment, biodiversity and the earth’s natural resources. But green growth goes beyond this notion: policymakers should see the environment as a source of future growth too, be it from manufacturing photovoltaic panels and retrofitting houses for energy efficiency, to developing the services, networks and skills needed to support a greener economy.

Many countries have already taken advantage of the economic crisis, and the resulting stimulus packages, to move towards greener growth. A number of stimulus packages included public investments in green infrastructure– particularly in the areas of public transport, low-carbon energy production, smart electricity grids, and water and sanitation. Major emerging markets like China and Brazil are only too aware of the threat to the global environment posed by their current growth paths and are taking action. China’s stimulus package includes the largest green stimulus programme of any country, accounting for almost 40% of the total $586 billion package.

So what can we learn from the OECD’s Green Growth Strategy at this midway point?

First, governments need to think on an economy-wide, sector-by-sector basis if they are to encourage root-and-branch transformations. All sectors have a role to play. Green growth is about targeting business and consumer behaviour, both by sending out the right economic signals and by raising awareness. Anything less will mean that the current impetus for green growth will be short-lived.

People and firms understand prices. They control their demand for goods and services depending on how much they want or need them, and wish to pay for them. This is why putting a price on pollution, or on depletion of natural resources, is key to pushing both businesses and consumers towards greener choices. Taxes on emissions and charges for natural resources, like water, can reshape markets that have a negative impact on the environment. Canada, Ireland and Japan have recently introduced different forms of taxes on greenhouse gas emissions. Sweden has had a stringent system of carbon taxes on both businesses and consumers since 1991. But green taxes are not only a domestic matter. By co-operating on green tax policies, countries can prevent firm relocations and the resulting job losses.

Tradable permit systems, like those for carbon, also help by putting a price on emissions. Under such schemes, a group of countries–or states as is the case in the US–places a maximum cap on emissions and divides the total into shares. Companies, or countries, then receive a quota of shares which they are then allowed to trade among themselves, thereby creating a market and a market price. Some of the proceeds from auctioning permits could be used for green social goals, such as heating assistance for low-income groups, weatherisation programmes, and clean energy R&D. Under the EU Emissions Trading Scheme, the largest such scheme in the world, Germany–which will be auctioning the largest amount of emission allowances–has indicated that at least 50% of the projected annual revenue will be spent on climate initiatives, a double win for green growth. There is much scope for expanding the use of green taxes and tradable permit schemes, and in a time of bloating fiscal deficits, this could be a good thing. In fact, industrialised governments could raise as much as 2.5% of GDP if they used trading systems with full permit auctioning to cut emissions by 20% by 2020, relative to 1990 levels.

Improving innovation will also be a major driver of greener growth and predictable and credible tax rates are the key to encouraging investment in innovation.

Countries should do more to reduce barriers to trade and skilled immigration too, as these affect the spread of clean technologies and the know-how that comes with them. Young firms are a major source of more radical innovations so improving the conditions for entrepreneurship is key. Of course, governments themselves are at the centre of innovation. Public funding for research and development and greener government procurement of goods and services can both act as major drivers of green innovation.

Other policies, such as cutting subsidies for fossil fuel use can also result in leaps to greener growth, while promoting efficiency and relieving costs on the public purse at the same time. OECD analysis based on data from the International Energy Agency, finds that removing subsidies to fossil fuel consumption in emerging and developing countries could lead to a 10% reduction in global greenhouse gas emissions by 2050. Countries hope that green growth will lead to new, greener jobs. Korea–an inspiration behind the OECD Green Growth Strategy– has been implementing its Green New Deal policy since January 2009 as a part of an economic recovery package, investing KRW 50 trillion to create 960,000 jobs in environmentally friendly fields. France also dedicated 21% of its $33 billion to green measures that are estimated to create 80,000-110,000 jobs during 2009-2010.

But this optimism merits a note of caution. Many jobs created by stimulus packages are likely to be of a temporary nature. And more important, while moving towards greener growth could create opportunities in new sectors, the structural change will be accompanied by employment losses in the more traditional, polluting and resource-intensive sectors.

Part of the problem is that innovation can make skills obsolete, and the accompanying job loss is painful. To soften the blow and sustain the political appetite for a move to green growth, governments will need to complement green jobcreation policies with policies that help job-losers regain the job market.

Green growth must be encouraged globally too, the Green Growth Strategy finds. For this to happen it has to be kept fair and honest. That means that governments must not use the environment as a pretext for protecting domestic industries from international competition. Instead, they must view this as an opportunity to deepen economic integration, increase technological co-operation and exchange, and reduce pressure on scarce global resources.

The need for cross-border co-operation is being underlined every day. Countries are hesitating to introduce carbon taxes, for instance, citing concerns about losing competitiveness by moving alone. This is especially important in today’s crisis world, so co-ordinated efforts will be needed to move countries forward. The OECD is working hard to forge such progress.

While there is much to learn from international co-operation, simply cutting and pasting policies will not work. Specific policies may need to be tailored to each country’s individual needs. Information campaigns will work in some countries, others may need to emphasise taxes, and so on.

For developing countries, green growth and development must go hand in hand. Although today most developing countries are relatively minor contributors to greenhouse gas emissions, their contribution is expected to increase rapidly. Innovation and assisting with new sources of growth must become part and parcel of mainstream development assistance programmes. Even in the poorest countries, where dependence on natural resources makes them especially vulnerable to the impacts of climate change, green growth policies would help as a central part of development aid and capacity-building efforts.

Finally, climate change seems to have stolen the headlines from another great environmental threat: the loss of our planet’s biodiversity: This loss is happening at an accelerating rate, driven primarily by changes in land use such as conversion to agriculture, unsustainable use of natural resources, invasive alien species, climate change and pollution. Such loss affects ecosystems, climate and ultimately human well-being and survival.

Some policies directly pay landowners to look after their biodiversity, which could be a valuable model to follow.

As the world economy battles towards a recovery, few policymakers believe that we can return to pre-crisis growth models. This crisis has provided the world’s governments with an opportunity to change the way that we associate economic growth with the environment, and most countries have vowed to respond to the challenge. The Green Growth Strategy should prove a valuable tool to ensure that those responses succeed.

For more information, contact green.growth@oecd.org

©OECD Observer No 279, May 2010




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