GREENING GROWTH

A Path to Sustainable Development

ED Seminar: SDN’s Green Growth Report 23 February 2012, 15:00-16:30, MC 2-800 Marianne Fay, Chief Economist, SDN

Green growth is…
…economic growth that is environmentally sustainable.
It is not a new paradigm, but aims to operationalize sustainable development by enabling developing countries to achieve robust growth without locking themselves into unsustainable patterns. Green growth policies need to focus on what is required in the next 510 years to avoid lock-in and irreversible environmental damage.

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Greening growth
1. Necessary
2. Efficient 3. Good 4. Affordable 5. But challenging 6. The way forward: tailored strategies that promote smart behavior and tackle upfront financing needs
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1. Necessary
MAKING DEVELOPMENT SUSTAINABLE REQUIRES GREENING GROWTH

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Economic

Sustainable development

Social

Environmental

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2. Efficient
CURRENT GROWTH PATTERNS ARE NOT ONLY UNSUSTAINABLE, THEY ARE INEFFICIENT
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Environment as “natural capital”

Y = f (A, K, L, E) L)

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Environment as “natural capital”
• Loess plateau- before after

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Environmental policies as a potential source of growth
Y = f (A(P), K(P), L(P), E(P))

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Bolstering resilience

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Strengthening labor supply and productivity

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Promoting innovation

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A bad environment is costly
Tunisia Jordan El salvador Guatemala Syria Nepal Lebanon Colombia Morocco Algeria Peru Benin Bangladesh Egypt Pakistan Iran Nigeria CAR China * Tajikistan Ghana 0 2 2.1 2.3 2.5 2.8

Cost of Environmental Degradation (% of GDP equivalent) 3.5
3.5 3.7 3.7 3.8 3.8 3.9 4 4 4.8 6 7.4 7.7 8 9 9.5 9.6 4 6 8 10 12
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Source: Country Environmental Analyses, World Bank

3. Good
GREEN GROWTH IS MOSTLY GOOD GROWTH POLICY (BUT NO SUBSTITUTE AND TRADE-OFFS HAVE TO BE MANAGED)
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Mostly good growth policies
Get prices right and fix markets (LAND!), address coordination failures and knowledge externalities, assign property rights…

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But no substitute
Green jobs potential depends on labor market structure and constraints:
– Business environment in South Africa where unemployment is around 24%

Replacing fuel subsidies with better targeted safety nets helps the poor
Average distribution of energy consumption subsidy benefit across 20 countries

Care must be taken that the poor benefit

Source: Arze del Granado et al (2010)

“The cost to the budget of transferring $1 to the poorest 20% of the population via gasoline subsidies is $33” 17

Trade-offs need to be managed

4. Affordable
BECAUSE MUCH OF WHAT’S NEEDED PAYS FOR ITSELF AND INNOVATION HELPS

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Much of what’s needed pays for itself
• Increased investment needs in water, energy, land $0.91.7 Tr/year • But potential benefits $2.9 Tr./year • Rising to $3.7 Tr. for carbon at $30 per ton and energy, agriculture and water subsidies removed.

Energy

Land Steel 20

Source: McKinsey Global Institute (2011)

Water

Innovation keeps costs in check
EPA Dinoseb pesticide ban resulted in higher yields
Envt regulations improved productivity of MX food industry

Environmental regulations: - lead to innovation Stringent air - cost less than expected pollution regs in CA results in - can improve productivity refineries more - impacts vary thatn productive across in rest industries of US

No impact of EU ETS on profit of German firms

US phaseout of leaded gas at a third the predicted cost

No impact of climate levy on performance of UK firms

EPA SO2 reductions realized at half the expected cost

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5. But challenging
POLITICAL ECONOMY, ENTRENCHED BEHAVIORS, AND THE NEED FOR SPEEDY ACTION
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Political economy, social acceptability and
entrenched behaviors

The real challenges:

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The real challenges:
The need to act fast to avoid lock-in and irreversibility
Billions of people living in urban areas 4

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2

1

0 1950 1970 1990 2010 2030
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Source: World Development Indicators Bertaud (2004)

The real challenges:
Access to capital
The example of climate finance

Source: WDR (2010), OECD, and IEA

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6. The way forward
TAILORED STRATEGIES, POLICIES THAT PROMOTE SMART BEHAVIOR AND TACKLE UPFRONT CAPITAL CONSTRAINTS
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Focus on what’s urgent and entails more positive local co-benefits
Co-benefits Trade-offs
Inertia/ Irreversibility risk
Low inertia and irreversibility risk (i.e. action is not urgent)

Synergies
(attractive regardless of income, provided that financial mechanism can be found)

(to be considered at higher level of income or paid for by external funds)

• Lower-carbon, highercost energy supply • Stricter wastewater regulation

High inertia and irreversibility risk (i.e. action in urgent)

• Reduced deforestation • Coastal zone protection

• Drinking water and sanitation • Lower-carbon, lower-cost energy supply • Loss reduction in supply • Demand management • Land use planning • Public urban transport • Fisheries catch management 27

Pursue smart prices and regulation policies
• Get “prices” right • But understand their limitations:
– Create alternatives to improve price elasticity – Address market imperfections – Political economy constraints

• Combine with regulations • Address political economy
– Learn from success

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Inform and “nudge” citizens and businesses

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Inform and “nudge” citizens and businesses

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green fund and beyond…
• Focus on upfront financing:
– Political and commercial risk – Borrowing constraints; social vs economic return

Innovative finance:

• Green finance, but also:
– Leverage public and IFI resources – Local public finance – Payment for environmental services

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The mission of the Green Growth Knowledge Platform is to:
i. enhance and expand efforts to identify and address major knowledge gaps in green growth theory and practice, and

ii. help countries design and implement policies to move toward a green economy through four main sets of activities:

Knowledge Gap Analysis

Applied Research

Global Dialogue

Green Growth in Action

GREENING GROWTH
A Path to Sustainable Development

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