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The OECD Green Growth Strategy

How can policy help expand economic opportunities without overly straining natural resources or destroying the planet? And how can we relieve intensifying environmental pressures that currently threaten our welfare? The OECD Green Growth Strategy points a way forward.

In the last 100 years the world population has multiplied by four, but economic output has increased 22-fold. This fast growth has led to widespread prosperity and longer, healthier lives. But even wealthier countries realise that our systems of production, trade and consumption cannot be sustained without putting people’s lives at risk. Water scarcity, air and water pollution, resource depletion, climate change and irreversible biodiversity loss are realities that affect everyone. People everywhere know there is no choice but to change course towards more sustainable, green growth.

But what does green growth actually mean? The textbook definition is double-edged: green growth is about being able to foster economic growth and development, while ensuring that the earth’s natural assets continue to provide the resources and environmental services on which our wellbeing relies. Looked at more simply, it is about cleaning up the way our economies grow, both by better managing how we do things today and investing time, money and effort into harnessing new sources of smarter, cleaner economic activity.

The world’s energy needs illustrate the issue clearly. Fossil fuel consumption has risen 14 times in 100 years, yet by 2050 the energy needs of 9 billion people will have to be met for heating, cooking, lighting, production and transport. On the one hand, this is a daunting challenge: fossil fuels are becoming depleted and are becoming costly, and they carry a heavy price tag in terms of air pollution and climate change. On the other hand, this same challenge opens up opportunities for exploiting cleaner energy technologies, insulating old buildings and constructing new ones, and encouraging more efficient means of producing and consuming goods and services. Indeed, energy could generate a new economic revolution, rather as communications did in the 1990s.

There are many initiatives out there to suggest change is already happening. China’s 12th five-year plan has a green development section which provides detailed policy guidelines and targets for tackling climate change (including producing 16% of its primary energy from renewable sources by 2022), and for managing and preserving resources.

Neighbouring Korea has set the pace among OECD countries by launching its own National Strategy for Green Growth (2009-2013), under which the government has earmarked about 2% of GDP to spend on green growth programmes and projects. Denmark’s 2009 Agreement on Green Growth targets modern and competitive farming and food sectors that embrace environmental goals, while from 2012 the UK will invest billions in low-carbon ventures through a new green investment bank. Meanwhile, fossil fuel energy subsidies are to be reduced in India, antipollution taxes are proposed in Australia, and plans are afoot to create 1.4 million new environment-related jobs in Japan. The list goes on.

Moreover, the development of green technology is gathering pace. Patented inventions for renewable energy increased by 24% annually between 1999 and 2008, and by 20% for electric and hybrid vehicles. Patented inventions also rose for energy efficiency in building and lighting, though by a more modest 11%.

A rising share of government energy R&D budgets is also devoted to energy efficiency and renewable energy. Investors are not sitting back: a quarter of all venture capital investments in the United States in the first half of 2010 were in green technologies.

These are all steps in the right direction, but sparking a groundswell of change right across the spectrum is another matter. The trouble is, while governments know where they must go, they are unsure about how to get there. They have no desire to undo the progress in living standards of the past 50 years, or to see their economies grinding to a halt.

There are questions to answer. Will the investment produce desired results for productivity? Which new markets should we encourage?  How can “green” priorities be integrated into economic policymaking? And how can we be sure that other policies– and indeed, other countries–are moving in the same direction? In short, they need a strategy to help them move forward.

To provide one, the OECD unveiled its Green Growth Strategy in May 2011. The fruit of two years’ work, it confirms the conviction expressed at the OECD Ministerial Council Meeting in 2009, which commissioned the project, that green and growth can indeed go hand in hand. The strategy comprises a practical guiding framework for policy, examples of tools for use in promoting green growth, and a process for monitoring progress.

The policy framework is about getting the essentials right, such as institutional settings to improve resource management, encourage economic activity and foster innovation. On the broad economic front, there may be trade or investment barriers to address to improve the spread of green technologies and practices. Or green growth policies may have to be matched with poverty reduction goals, for instance. As for the tools, a wide set is considered that correspond to different situations. For instance, a country facing technological blockages may need to invest in R&D, perhaps using subsidies or other incentives. Small businesses are harbingers of innovation, and some countries may need to take action to help them flourish, such as by improving access to finance and enhancing communications infrastructures. There may be intellectual property rights to address, too.

For fighting pollution and climate change, market-based tools are needed, particularly taxes and carbon markets, while subsidies that incite industries to pollute or extract resources unnecessarily should be wound down. Instead, subsidies could encourage new, cleaner activity, though these should be designed to avoid being locked in to particular activities over time. Also, the likes of waste fees, energy-saving building codes and new public procurement practices could all help stimulate demand for cleaner, smarter goods and services.

As with any transition, green growth will create winners and losers. Some household incomes could be hit, say, by higher fuel taxes. However, there are policies for compensating for such losses, for instance, The Green Growth Strategy will help governments to keep the environment at the heart of their thinking by using lump sum transfers or tax credits that are calculated on the basis of average green tax payments per household. Such policies are explained in the OECD Green Growth Strategy report entitled Towards Green Growth.

An essential driver of the OECD Green Growth Strategy is the ability to set concrete goals and monitor progress. The organisation’s internationally comparable indicators for green growth are capable of sending clear messages to policymakers and the public at large. Environmental and resource productivity is being monitored, for instance–this is rarely carried out in standard accounting frameworks–as are the natural asset base and changes in the quality of life, including through the OECD’s new online tool, the Better Life Index. Indicators describing policy responses and economic opportunities will also help to assess the effectiveness of particular policies and how they may be adjusted.

Green growth is a strategic concept, which helps bring harmony and coherence to existing environmental and economic policy priorities. It helps governments to keep the environment at the heart of their thinking, alongside conventional priorities such as finance, employment and investment.

In short, the OECD Green Growth Strategy is about far more than just technology or innovation. As OECD Secretary-General Angel Gurría explains, it is about what we eat, what we drink, what we recycle, re-use, repair, how we produce and how we consume. It is about how we all behave every day of our lives.

For more information on the OECD Green Growth Strategy, contact Nathalie Girouard, greengrowth@oecd.org

References

These Green Growth Strategy reports are available at www.oecd.org/greengrowth

Towards Green Growth http://www.oecd.org/document/10/0,3746,en_2649_37465_47983690_1_1_1_37465,00.html

Towards Green Growth–Monitoring Progress: OECD Indicators http://www.oecd.org/document/49/0,3746,en_2649_37465_48033720_1_1_1_37465,00.html

Tools for Delivering Green Growth http://www.oecd.org/dataoecd/32/48/48012326.pdf

Towards Green Growth: A Summary for Policymakers http://www.oecd.org/dataoecd/32/49/48012345.pdf

©OECD Observer No 285, Q2 2011




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