Fortunately, there is a far brighter prospect the OECD can foresee, which the world’s environment ministers will focus on at the important OECD ministerial conference in April: we can overcome the environmental challenges we face as the necessary policies and solutions are available, achievable and affordable, especially compared with the projected accumulation of wealth and with the costs of inaction.
But we need to act now not only out of environmental concerns but also purely for economic reasons. Take the new investments in energy infrastructures that are set to take place in emerging and developed countries over the next decade. By acting now, we can ensure that these projects lock in the right fuel, technology and efficiency standards. A rare window of opportunity to get this right is now open and we must use it to avoid far costlier investments later on.
The figures are compelling. Our experts believe that if we can live with a 98% increase in global GDP from now to 2030, instead of 99% in our “business as usual” baseline scenario, the improvements in air and water quality would be considerable. Foregoing that single percentage point would bring us some way towards reducing greenhouse gas emissions. A percentage point over a quarter century is not a high price to pay–call it the cost of an insurance premium. Not cheap, but affordable.
How do we achieve that necessary investment? Our 2008 Environmental Outlook, published in March, builds on several decades of environmental analysis and expertise by the OECD. It examines the economic and environmental topics from every angle, developing model-based analyses and drawing on expertise from other organisations and national agencies in the OECD and beyond.
Our message is simple: with the size of the world economy expected to double by 2030, we must move to a low-carbon, greener growth path. We have to design policy mixes that are able to respond to new circumstances.
Market-based instruments must be given more space in the mix because they can lower the cost of action. After all, if economic activities cause environmental degradation, then economic tools must form a key part of the solution. Market-based instruments are the lynchpin in the policy mix, but will need to be complemented by stronger regulations and standards, R&D and further technological developments, eco-labelling and education to overcome some of the information gaps and market failures hampering action.
Policymakers should focus on taxing the “bad” instead of subsidising the good and on creating the virtuous circle that produces positive externalities. Although some subsidies may be needed, say, to support basic R&D, removing environmentally harmful subsidies, particularly for fossil fuels and agricultural production, should be a priority to reduce pollution and stress on our natural resources. There are other economic instruments, including emissions trading and taxes, that could help us put the right price on the source of the problem: carbon.
Restructuring the global economy along low-carbon lines will require concerted policy action and leadership. It will require the engagement of all actors and the inclusion of all sectors. It will also require more co-operation among different ministries and among different stakeholders from business, labour and civil society.
People are ready to change. Many are in fact leading the way! But the transition nonetheless needs to be carefully managed to address social and competitiveness issues. Otherwise, important policy action will not be agreed or implemented. We must also prepare our economies to take advantage of new eco-innovative opportunities.
Climate change is mankind’s main long-term challenge and the global cost of action will be lower if all countries work together to share the burden fairly. OECD countries must work closely with major players such as Brazil, China, India, Indonesia, South Africa and Russia, alongside other developing countries. Acting now is not just about avoiding problems ahead. It is about building a better global economy. That is our goal and we must start right away.
©OECD Observer No 266, March 2008