Opening Remarks by Angel Gurría,
Pretoria, South Africa, 25 July 2017
(As prepared for delivery)
[Minister], Ladies and Gentlemen,
We gather as governments around the globe strive to re-ignite growth while improving well-being, boosting productivity, reducing inequality and tackling dangerous climate change. That’s quite a challenge! We can succeed. But only if the economic solutions we design and implement are also green, resilient, sustainable solutions. These must be delivered through aligned policy packages, including climate, fiscal and investment policies, and structural reforms.
The OECD’s recent report “Investing in Climate, Investing in Growth” – commissioned by the German G20 Presidency and delivered to Chancellor Merkel at the Petersberg Climate Dialogue in Berlin, provides policymakers with a tool to enable the low-carbon, low-emissions transition, while also providing near-term economic, employment and health benefits. That report is the focus of today’s seminar, and I would like to take this opportunity to thank the South African Department of Environmental Affairs for their contribution to the study. Thanks also go to the Institute for Global Dialogue for hosting and co-organising this seminar with the OECD.
The report looked at synergies between policies that revive economic growth, and policies which tackle climate change. And the results were astounding.
A climate-compatible policy package to get to below 2ºC can increase long-run output by up to 2.8% on average across the G20 by 2050, relative to the baseline, which assumes a continuation of current policies.
If the positive impacts of avoiding climate damage, such as increased flooding, storms, droughts and extreme weather events, are also taken into account, the net effect on output rises to nearly 5% by 2050.
And the benefits will not just be felt thirty years down the line. We can start reaping the rewards of this approach now. Our modelling work indicates a net growth effect of around 1% for G20 economies as early as 2021. At the same time, our results show that doing nothing in the short-term would lead to average losses of 2% of GDP. On top of this economic cost, doing nothing will also mean that even more stringent climate policies will need to be introduced later with a greater sense of urgency, even of emergency. We are talking about lives lost; homes and livelihoods destroyed; we are talking about climate refugees.
Preventing this humanitarian and environmental disaster will require large-scale investment in infrastructure over the next decade. The report shows that around USD 6.3 trillion a year of investment in infrastructure is required, on average, between 2016 and 2030 to meet development needs globally – that’s without taking climate into account. The good news is that making these investments climate compatible will only cost an additional USD 0.6 trillion a year over the same period. This is a relatively modest increase, less than 10% considering the short and long-term gains in terms of growth, productivity and well-being that both advanced and developing economies stand to gain. For example, such incremental costs could be offset by fuel savings of up to USD 1.7 trillion per year through 2030, producing a net saving of over one trillion dollars per year.
But it is clear that the pace of the transition will vary across countries. It will depend on countries’ circumstances – income level, socio-economic context, and natural resource endowment, for example. The analysis presented in the report recognises these differences, because it aims to speak to all G20 countries, and beyond.
I won’t take you through every policy priority set out in this 300 page report, I leave you to do that in your own time. But I will focus on two areas that are vital in the South African context.
Firstly, the infrastructure dimension is paramount everywhere but particularly so in South Africa. Not just to achieve a greener future, but also to achieve a more inclusive and productive future. This is why infrastructure investment is also a key pillar of the latest OECD Economic Survey of South Africa, which I launched yesterday with Minister of Finance Malusi Gigaba.
Current infrastructure spending in G20 countries is only around 60% of the needed level. However, now is the time! Low interest rates have increased fiscal space in many countries. Governments, including South Africa, can capitalise on that. There are also opportunities to improve the tax and spending mix to align stronger economic growth with low-emissions, resilient development, and to attract private sector investment. Working with the South African research organisation, Trade & Industrial Policy Strategies (TIPS), and in collaboration with the National Treasury and Department of Environmental Affairs, recent OECD analysis shows that domestic climate policy mobilised some USD 9 billion between 2010-15 for renewable energy and energy efficiency, a far greater amount than raised through direct project co-finance. Developed countries also need to step up their efforts to meet the commitment they made to mobilise USD100bn a year by 2020 in climate finance to developing countries.
As an example of a pure equity investment, Google, along with the Public Investment Corp (PIC) and the Development Bank of Southern Africa (DBSA), financed the USD 230 million Jasper Solar Energy Project in 2013 in the Northern Cape. South Africa has also been successful in harnessing the role of National Development Banks to finance infrastructure. For example, the Industrial Development Corporation (IDC) and the DBSA are financing the development of renewable energy projects as part of the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme. This shows South Africa’s level of ambition and creative policy approach, but there is much more left to do.
The second area I want to highlight as vital for the South African context relates to getting the policy mix of structural reforms right. Reducing barriers to innovation, trade and investment are key to enabling the development and penetration of low-carbon options, along with increased R&D to help drive growth in productivity. This is particularly relevant for countries like South Africa with a relatively high-carbon intensity of its GDP.
You face a number of challenges in reducing your carbon footprint while also maintaining growth and meeting development objectives, such as increasing energy access and security. Improving access to education and skills to support a re-focused workforce, along with measures to facilitate the exit of fossil-intensive firms and the entry of climate-friendly innovators are two arms of an effective “pincer” movement.
Ladies and Gentlemen,
The OECD works in all of these areas and you can count on us to support you every step of the way.
Nelson Mandela once said that, “Sometimes it falls upon a generation to be great. You can be that great generation”. The challenge of climate change asks this generation across the globe to be great, it asks this generation to be creative and to be committed. That is why we are here today.
I look forward to hearing how today’s debate and discussions can help design, develop, and deliver coordinated policy packages to ensure inclusive, sustainable, green growth in South Africa.