Remarks by Angel Gurría,
8 February 2017
(as prepared for delivery)
Dear Minister Lövin, Ladies and Gentlemen,
Let me thank Minister Lövin for inviting me today. I’m delighted to share the OECD’s perspectives on investing to reach the Paris goals and sustainable economic growth, a topic of great relevance in the current global context.
The global economy is still stumbling along with growth of around 3%. Weak investment and trade continue to weigh on the economic engine. Productivity and wage growth remain subdued. The hallmarks of the low-growth trap are very much present. And in a number of OECD countries faith in open markets is weakening. Many citizens are losing faith in the capacity of global integration and free trade to provide opportunities for them or to help alleviate poverty and inequality, and tackle climate change.
We are facing a complex challenge. Delivering on our sustainable development commitments from 2015 – the SDGs and the Paris Agreement – can help recover social trust in our economic systems, in openness, in free trade, in globalisation. We need to build a globalisation that works for all, that works for the planet, that leaves no-one behind. This will be the focus of this year’s OECD Ministerial Council Meeting.
It will be a crucial Meeting, because with every challenge comes an opportunity. An opportunity to take action on climate change and an opportunity to align the climate and inclusive growth agendas. Because these are two interconnected challenges.
There is still fear in some quarters that climate action hurts economic growth and development. Our evidence tells a different story. In fact, policymakers have to tackle the issue of climate change and inequality together, because poorer populations suffer disproportionately from the effects of environmental degradation and the impacts of climate change. This undermines the well-being and opportunities of the worst off, and in doing so it hinders overall economic growth.
Yet public policies are not always aligned to deliver on both fronts. For instance, restrictive land-use regulations intended to reduce sprawl and the carbon footprint of the built environment can actually drive up housing costs.
Urban congestion charges too, which increase the cost of vehicle use to reduce emissions, may disproportionately affect poorer populations in distant suburbs, and prevent them from accessing opportunities. Although this problem could be addressed by allocating some of the revenue from the congestion charge to improve public transport, better connecting distant suburbs.
All the while, up to USD 200 billion is spent by governments in OECD and selected emerging economies every year on subsidies and tax breaks for fossil fuels. These subsidies do not only work directly against climate goals, they are also often poorly targeted to support low-income households. This kind of trade-off has to change.
Investment in green growth can deliver dividends on both fronts. Investing to make infrastructure low-carbon and resilient adds little towards initial investment costs. But missing this opportunity, would lock economies onto carbon-intensive pathway, a “high-carbon trap”, putting us on a collision course with nature. Now is the time for smart investments that yield positive synergies combatting climate change while helping to drive growth and tackling inequality.
The current low-interest rates create fiscal space in many countries that allows for increased public investment in infrastructure. The challenge is to ensure that investment is green and leverages more of the right kind of investment from the private sector.
There are many things that governments can do to open up or improve channels for green investment, by creating the right stable and predictable policy environment to help mobilise private capital. They can also deploy risk mitigating techniques like credit enhancement for green bonds.
The Swedish government is at the vanguard of this approach, looking at ways to promote the market for green bonds. The bond market currently provides about one third of total financing for corporates globally, but has yet to play a significant role in green financing. Labelled green bonds issued globally in 2015 represented less than 1% of total US bond issuance alone!
Governments can also consider purpose-built green banks designed to “crowd in” private capital. Over a dozen national and sub-national governments are already using innovative transaction structures, risk-reduction and transaction-enabling techniques to channel investment into the right kind of areas like commercial and residential energy efficiency retrofits, rooftop solar photovoltaic systems and municipal-level, energy-efficient street lighting. All these efforts contribute to “greening” the financial markets and catalysing investment in low-carbon infrastructure.
All these efforts will pay off. For example, public transit investment can open up new labour market opportunities for lower-income workers; and local green job strategies can provide disadvantaged social groups with access to new skills and opportunities.
There are other co-benefits to climate action too, like reduced local air pollution. Unless more stringent policies are adopted, premature deaths from outdoor air pollution will be an estimated 6-9 million annually in 2060 at the global level, with related healthcare costs set to increase from USD 21 billion in 2015 to USD 176 billion in 2060. In some regions, resulting economic costs are projected to represent over 3% of GDP!
The OECD is working to promote and support such efforts in countries and regions across the world, at all stages of development. For example, we joined forces with the C40 – the largest network of global megacities taking action on climate change – to help deliver on the climate, growth and inclusion agendas through the Champion Mayors for Inclusive Growth initiative.
This is vital because by 2050 more than 70% of the global population is expected to live in cities, which brings serious implications for climate change and the environment, in areas as diverse as air quality, water availability and quality, to land-use and waste management. This initiative is crucial because sub-national governments actually manage around 72% of direct public investment across the OECD.
Last year, we also launched the OECD Centre on Green Finance and Investment, with the aim of developing effective policies, institutions, and instruments for green finance and investment to catalyse the transition to a green, low-emissions, climate-resilient global economy. We encourage Sweden and other Nordic countries to use the Centre as a platform to share their valuable experiences and progressive approaches, both in the public and private sectors.
Finally, the OECD is also advising the German G20 Presidency on investing for people and planet through our project on “Growth, Investment and the Low-Carbon Transition” whose outcomes will be launched in May this year, and which I invite you all to watch out for.
Ladies and Gentlemen,
Our people and our planet demand a stronger effort. The national plans put forward under the Paris Agreement are still collectively insufficient to limit global warming to well below 2°C above pre-industrial levels. So we must do more and we must do it now! And we must do it inclusively.
Sweden, with its ambitious new climate policy legislative framework, complete with the goal to achieve zero net GHG emissions by 2045, and signpost goals for 2030 and 2040, is leading by example, building a truly “Fossil Free Sweden”, promoting growth, sustainability and inclusiveness all at once. The OECD will keep working with Sweden and with all our Members and Partners to align the agendas for climate change and sustainable, inclusive economic growth.