Remarks by Angel Gurría, OECD Secretary-General, delivered at the Opening of Business Sweden Economic Forum, "Strengthening Competitiveness and Building a Green Economy"
2 December 2014, Paris, France
(As prepared for delivery)
Your Majesty, Ministers, Ladies and Gentleman:
It is a great pleasure to address the Business Sweden Economic Forum. I am very happy to see that so many public and business representatives are attending this forum to discuss ways forward in building green economies while strengthening international competitiveness.
Let me start with my headline message. Green is not only compatible with growth; green is a source of growth. Sweden was one of the first countries to understand this and showed tremendous leadership when it introduced the world’s first carbon tax in 1991, amidst the economic crisis.
Its economy did not collapse with the carbon tax – far from it. Twenty years later, the carbon intensity of the Swedish economy is one of the lowest in the world. Sweden leads Europe in its proportion of electricity generated from renewables.
Yet there is so much more that can be done to foster a fast transition to a low-carbon world whilst creating the competitive economies of the future. Our latest analysis soberly suggests that otherwise we can expect a 1.5% cumulative GDP reduction globally by 2060, and much more beyond that if emissions continue to rise.
Allowing creative green for sustainable growth
To date, our whole way of life has been built around the convenience and power of fossil fuels. It is not only our cars and power plants that are engineered to run on fossil fuels; our institutions and regulations are also wired to a fossil world. But there is no need to keep it that way.
Our latest work suggests that environmental policy stringency has been increasing across OECD countries. And evidence suggests that countries with the more stringent environmental regulations have not suffered a negative effect on overall productivity growth, beyond short term adjustments.
However, to achieve our goals of sustainable, inclusive and green growth, our economies will need new ideas, new technologies and new business models. The talent and insights of businesses are continuously generating new ideas around the globe; this drive must not be thwarted by unnecessary burdens.
Governments therefore need to provide basic research as well as set up the right signals and flexible policies to clear the path for market entry and exit. But the closer we get to market-ready green technologies, the more important the role of business becomes. We therefore need to put in place the right frameworks to allow the creative potential of businesses to seize green growth opportunities in their entirety.
The 'green race' is on and businesses are taking promising steps to capitalise on their investments in this field. OECD research shows that companies are increasingly identifying green goods and technologies as key future growth markets. Investors are looking to green infrastructure for long-term investment.
New “sustainability champions” in emerging economies are setting examples of how to turn constraints into opportunities by innovating and mainstreaming sustainability considerations into their core business.
We need to foster and encourage this important momentum; and there are several principles which can help governments stay on a ‘green track’.
Key principles to keep us on a green track
First, putting a price on carbon is paramount. According to OECD and IEA estimates, governments worldwide continue to support fossil fuel production and consumption by more than 600 billion dollars per year – about 10% of this is by OECD countries.
This keeps fossil fuel use artificially cheaper and drives investors and economies down a mistaken path, on a collision course with nature.
In addition to refraining from subsidising harmful industries, tax policies should also be geared towards supporting a green growth transition. Let me be clear: I am not speaking about increasing the tax burden for firms. I am speaking about shifting the tax base and how we price goods and services.
For example, we can use a price on carbon to create green incentives while cutting corporate and labour taxes [along with social contributions]. In short, where it matters most for investment and entrepreneurship, employment and growth.
In the case of France and Sweden, for example, labour taxes are high and account for about 18% and 15% of GDP respectively; the largest and 6th largest among OECD countries. Here there is scope for reducing labour taxes while increasing environmental taxes. This should help competitiveness in the long run, by favouring modern technologies instead of weighing on labour demand.
Second, environmental policies need to allow entrepreneurs the freedom to choose the most efficient ways to innovate and be greener. Get the incentives right and let the market find the best solutions.
Let me give you an example: back in 1992 Sweden introduced a charge on nitrogen oxide on combustion plants and after just a couple of years, emissions fell by a third. Power plants used a variety of different technologies depending on the best and least costly options for their particular context. As a result, new technical solutions emerged and a large number of patents were taken out by Swedish companies.
Last but not least, environmental policies should not inhibit competition and the entry of new players into the market. This means environmental policies that do not pose administrative barriers or give advantages to incumbents over new entrants.
It also means policies that lower the cost of market-testing new and clean technologies. And it means policies that allow labour and capital to be easily reallocated from the more to the less polluting sectors and firms. This is a prerequisite for business innovation.
In ensuring that these principles are delivered efficiently and to give Green Growth the boost it needs, we must create a level playing field.
Levelling the playing field for green growth
In this respect, international trade should be geared towards promoting green growth and making it more widespread and accessible across national borders.
Open markets remain key to fostering competition, innovation and development, including low-carbon technologies. One of the bright spots in international trade negotiations, since last year’s Bali Ministerial, is the establishment of a group of countries seeking a plurilateral agreement on liberalising trade in environmental goods and services.
In addition, OECD members are increasingly becoming involved in many bilateral and regional trade liberalisation initiatives. Initiatives such as the Transatlantic Trade and Investment Partnership (TTIP) strive to go beyond eliminating tariffs to tackle costly “behind the border” barriers that impede the flow of goods.
For example, regulatory harmonisation can significantly reduce the cost of doing business internationally by promoting greater compatibility and transparency of regulations and standards.
Regarding environmental protection however, it is vital that regulatory harmonisation serves to bring all parties up to the most stringent level, and not down to the lowest common denominator. In the past, the US and the EU have been leaders in integrating environmental provisions into their bilateral trade deals. The era of the “mega-regional” trade agreement should therefore be a further opportunity to pursue our environmental goals.
Your Majesty, Ladies and Gentlemen:
Green business is becoming a ‘megatrend’. Our understanding of the linkages between green technologies and competitiveness is improving and technological game-changers are starting to emerge. Twenty years ago one might have been more cautious about talking about the possibility of a very low carbon economy. But the deployment of renewable energy has often outstripped forecasts.
Governments should now be ready to re-wire their regulations, many of which date back to times when we had no real concerns about the environmental impacts of fossil fuels. This will require a cross-sectoral approach to enable a low-carbon economy to emerge. The OECD stands ready to help.