Remarks by Angel Gurría, OECD Secretary-General
Luxembourg, 31 March 2010
Minister Wiseler, ladies and gentlemen,
It is a great pleasure to be here to present the second OECD Environmental Performance Review of Luxembourg. It assesses Luxembourg’s environmental performance in the period 2000-2009, both achievements and remaining challenges, and presents 41 specific recommendations.
Since we began work on this review, the full dimensions of the financial and economic crisis have become dramatically clearer. After growing at a rate of 4% per year for much of the preceding decade, the economy stopped growing in 2008, and contracted by 3.9% in 2009. Although growth is set to resume in 2010, the Luxembourg economy remains vulnerable because of its high exposure to financial services and trade. In these circumstances it might be tempting to say: “Let’s put the environment on the backburner while we deal with the financial crisis.” I believe that this would be a mistake. I would rather argue that in responding to the crisis, environment should be part of a comprehensive strategy to re-launch economic growth and to restructure the economy.
Last June, Ministers of Economy, Finance, Trade and Foreign Affairs from 34 countries met at OECD to address this issue. Amongst other things, they adopted a Declaration on Green Growth. They agreed to develop frameworks for recovery that would restore sustainable economic growth, prevent environmental deterioration and enhance quality of life. They recognised that environment is not just a matter for environmental policy-makers; it is an element of economic policy and a driver of economic recovery.
The environment is no longer seen as an item only on the cost side of the balance sheet. Important economic benefits can flow from well-designed environmental policies and investments. They could take the form, for example, of skills for new and better jobs and improved technologies, as well as healthier populations and more productive natural resources.
Implementing such policies makes sense both to stimulate economic activity in the short term, and also to help steer our economies in ways that are stronger, cleaner and fairer in the longer term. This is why the OECD is now engaged in developing a Green Growth Strategy as one of our top priorities.
In this regard I would like to commend the Luxembourg government for its efforts to integrate environment into its programme to re-launch growth. The government agreed to a fiscal stimulus of more than 3% of GDP in 2009, and a further 1.5% in 2010. Some of the measures included are intended to promote greener growth such as: incentives to purchase less polluting cars and more energy efficient appliances; measures to promote energy efficiency and the use of renewable energies; and additional support for environmentally-related R&D. However, some measures in the stimulus package such as road construction can clearly have negative environmental impacts. All measures in the stimulus package require careful assessment from environmental and economic perspectives.
The Environmental Performance Review documents how Luxembourg has taken various other measures to integrate economic and environmental policies and to promote sustainable development. This includes the adoption of an inter-departmental Commission on Sustainable Development, and the preparation of a second sustainable development plan. Following elections last year, a new Ministry of Sustainable Development and Infrastructure was established. I think it is not too late to congratulate Monsieur Wiseler on his appointment as Minister of this new Ministry which creates new opportunities to promote more balanced development.
Minister Wiseler, one of the issues you may wish to consider is the development of a long-term environmental vision that could provide direction to, and support for, Luxembourg’s pursuit of sustainable development. The Environmental Performance Review suggests that one element of this vision could be the synergies between environment and R&D, technology, exports, energy savings and resource productivity in the context of diversifying the national economy. The report notes that, in some political debates, the environment is seen as a constraint on economic development. A new environmental vision that shows how environment can stimulate and support economic activity would help overcome these concerns. The French experience with “Le Grenelle Environnement” provides one possible, and inspiring, model for mobilising public opinion for the development of a new national environment vision.
The Environmental Performance Review documents the main environmental achievements that Luxembourg has recorded since the last review, notably in reducing the amounts of some pollutants relative to the fast rate of economic growth. These achievements were supported by a strengthening of environmental laws and institutions, and by significant environmentally-related investments that in recent years have averaged slightly more than 1% GDP.
The Review also identifies a number of key challenges that require further action by Luxembourg. Many of these are linked to a unique set of environmental pressures: Luxembourg is at the cross-roads of a busy, industrial region. As a result there is a high volume of through-traffic. Each day, more than 130 000 non-residents come to work in Luxembourg from neighbouring countries, often by car. As a result, transport infrastructure, as well as residential and commercial property development, have continued to encroach on scarce green areas. These factors help to explain why in Luxembourg the carbon-intensity of the economy and the rate of municipal waste production per capita are amongst the highest in OECD.
Regarding climate change, in 2007 greenhouse gas emissions were at the same level as in 1990. However, this far exceeds the target to reduce emissions by 28% established within the Kyoto Protocol and the EU burden-sharing agreement. It is unlikely that Luxembourg will meet this target by domestic measures alone. We understand that current estimates suggest that Luxembourg will have to spend about 360 million EURO to purchase carbon credits abroad in order to meet its emission reduction targets.
Domestically, the main source of emissions is transport. Transport-related emissions have risen rapidly over the last decade and more, in part because of the through traffic, but also because the price of gasoline and diesel is lower in Luxembourg than in neighbouring countries. Sales to non-residents account for 75% of fuel sales in Luxembourg, including to “gas pump tourists” who cross the border to purchase fuel for their vehicles. This is a sensitive issue in Luxembourg, but nevertheless we recommend that the fuel price differential with neighbouring countries should be reduced by increasing taxes. This would encourage more efficient use of fuel thereby reducing pollution, and discourage “gas pump tourism.”
Addressing environmental problems generally requires an appropriate mix of policy instruments. However, we believe that there are several other areas in which the use of market-based approaches could assist Luxembourg to address its environmental challenges in an efficient and effective manner.
First, in the water sector, better pricing would provide incentives to households, industry and farmers to use water more efficiently. It would also help to raise finance for investments in waste water treatment plants. These are needed to improve water quality: currently at least 40% of surface water does not meet European standards for chemical and biological quality.
Second, I mentioned that the amount of municipal waste produced per person is among the highest in OECD. However, only a third of the population pay for waste services on a cost-recovery basis. Financing of waste services is otherwise supported by taxpayers through State and communal budgets. Payments for waste services on a cost recovery basis should be extended in order to provide better incentives to reduce municipal waste generation and to finance waste management services.
Third, the number of endangered species in Luxembourg is high, and the rate of extinction of some species is higher than in neighbouring countries. This is especially true in agricultural areas. Ecosystems such as rivers, lakes and forests are often valuable repositories of biodiversity and provide a range of ecological services. Many countries are now exploring ways to put a price on these services and devising programmes to capture those prices. Another approach involves linking payments to farmers with improved biodiversity payments. Luxembourg should examine how these, and other measures, could be applied on its territory in order to reverse the decline in biodiversity.
In concluding my remarks, I would like to mention one other area where I believe Luxembourg should be commended: that is, its continued strong commitment to development cooperation. In 2008, Official Development Assistance reached 0.97% of GDP, and may achieve the target of 1% of GDP in 2010, making Luxembourg one of the world’s most generous donors relative to the size of its economy. About 8% of bilateral aid is for the environment, mostly for water supply and sanitation. We hope that Luxembourg will maintain its high level of aid: many people in developing countries have been hit even harder than populations in OECD countries and are in desperate need of assistance. We hope too that Luxembourg will reinforce its commitment to the environmental part of its aid programme, both in terms of the amounts allocated and the quality of cooperation provided. The international community needs to build on the pledges made in the Copenhagen agreement last December to sustain the drive toward a post-Kyoto agreement on climate change. Luxembourg is well-placed to contribute to the further efforts on both climate change mitigation and adaptation.
Minister Wiseler, ladies and gentlemen,
Reviewing country policies is one of the core functions of OECD; we do it not just for environment but also for economic policy, aid, and energy. The objective is not to rank countries in a league table. Rather we aim to help countries to learn from each others’ experience and to suggest ways to achieve their policy goals more efficiently and effectively.
This Environmental Performance Review is the result of a rich and co-operative dialogue between Luxembourg and the other OECD members. I would like to thank those who have contributed to it, from government, business, academia and civil society. We sincerely hope that it will help to advance the environmental policy debate in Luxembourg, and support you in re-launching the economy in a way that is stronger, cleaner and fairer. Thank you very much.