Background to the release of the Green Growth Strategy Interim Report: Implementing our Commitment for a Sustainable Future, at the Meeting of the OECD Council at Ministerial Level, 27-28 May 2010.
Green growth in the current economic context
New strategies are needed to strengthen long-term growth and employment potential. These include structural reforms and harnessing new sources of growth such as innovation and green growth. The costs of environmental inaction – of continuing business-as-usual – are too high to ignore. Green growth provides opportunities for new green industries, jobs and technologies. It is important to accelerate our shift toward green economies through cost-efficient policies, with due attention to the structural changes throughout the transition process.
The Green Growth Strategy
The OECD’s Green Growth Strategy wants to ensure that green growth is not a short-term response to the crisis but that it encourages greater economic integration, technology co-operation and reduced pressure on scarce environmental resources.
The Strategy will advance a comprehensive policy toolkit. It will identify barriers and policies to promote green growth at the national level. These include policies to manage the industrial re-structuring as well as any associated employment or income distribution aspects.
Given that green growth is a cross-border challenge, the Strategy will outline approaches that will require enhanced co-operation at the global level (e.g. international transfer of green technologies, addressing the competitiveness effects of policy action, financing for climate change, and strategies for pro-poor green growth in developing countries).
Using a new accounting framework and green growth indicators, the Strategy will measure progress over time and across countries, making it a practical tool for policymakers.
The Interim Report
The Interim Report discusses a few of the issues that will be addressed in the 2011 Green Growth Strategy Synthesis Report. It notes the steps that countries have taken so far to promote greener growth, as well as some of the barriers to transition. It also proposes a framework for green growth strategies to help ensure an efficient shift to more sustainable economies.
As part of their fiscal stimulus packages, governments have already taken a number of measures to green the recovery – including investing in green infrastructure and R&D for green innovation, as well as strengthening environmentally-related taxes. These have been a valuable part of the stimulus packages and will continue to be so as enhanced public spending continues.
The Report presents recent OECD analysis on environmentally-related taxes, charges and emission trading schemes. While their use is spreading across OECD and emerging economies, it should go wider. Not only are green taxes good for the environment, they can also be an important source of government revenues that can contribute to fiscal consolidation or be recycled - for example, to reduce tax on employment. OECD analysis shows that if all industrialised countries were to cut their emissions by 20% by 2020 relative to 1990 levels, via taxes or emission trading systems with full permit auctioning, proceeds generated in 2020 could be as high as 2.5% of GDP across countries.
Reforming environmentally-harmful fossil fuel subsidies would remove one barrier to green growth. New OECD analysis based on IEA data finds that removing subsidies to fossil fuel consumption in emerging and developing countries could reduce global greenhouse gas emissions by 10% in 2050 compared with business-as-usual. It would also make these economies more efficient, reduce the burden on government budgets, and lessen the distortive effects of subsidies on competition.
As shown in OECD’s Innovation Strategy, a “green-growth” based recovery will depend on innovation for several reasons. Most notably, innovation -- of both a radical and incremental nature -- is essential for tackling environmental challenges in an affordable and timely manner. Market forces – long-term high prices – would limit growth and could fail to ensure necessary progress. To accelerating green innovation, we will need a mix of policy tools and to encourage entrepreneurship, especially given growing evidence that small firms are an important source of radical innovations.
Technology development and transfer, and the ability to use it, are key to creating a positive global green growth dynamic. Stepping up efforts for greater co-operation on science, technology and innovation will be essential and will, in many cases, depend on the design of new governance mechanisms.
A number of governments have also emphasised the employment potential associated with the green components of the stimulus responses. However, preliminary OECD analysis suggests that such projections must be viewed with some caution. In the current context of low economic activity, the Report finds that green jobs can have a significant short-term, positive impact on employment and could accelerate the transition to green growth. The long-run impact on net employment is, however, uncertain and will be examined in depth in the 2011 Synthesis Report.
For example, labour reallocation across sectors, firms and regions is likely to be considerable, and the transition to green growth will demand new job skills. Evidence from a number of countries shows a shortage of workers in certain sectors where green growth policies have created a need for new skills, and the Interim Report identifies some of the labour market and training policies that governments will find useful.
Implementing green growth policies will require closer co-operation between different ministries and levels of government.