Smart Cities for All_World Bank_Fay_Green Growth

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ED Seminar: SDNs Green Growth Report

23 February 2012, 15:00-16:30, MC 2-800

Marianne Fay, Chief Economist, SDN

GREENING GROWTHA Path to Sustainable Development


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Green growth is

economic growth that is environmentally sustainable.

It is not a new paradigm, but aims to operationalize sustainable

development by enabling developing countries to achieve robustgrowth without locking themselves into unsustainable patterns.

Green growth policies need to focus on what is required in the next 5-

10 years to avoid lock-in and irreversible environmental damage.

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Greening growth

1. Necessary

2. Efficient

3. Good4. Affordable

5. But challenging

6. The way forward: tailored strategies thatpromote smart behavior and tackle upfrontfinancing needs

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MAKING DEVELOPMENT SUSTAINABLEREQUIRES GREENING GROWTH

1. Necessary

4


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5

Sustainable

development

Economic

EnvironmentalSocial


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CURRENT GROWTH PATTERNS ARE NOTONLY UNSUSTAINABLE, THEY AREINEFFICIENT

2. Efficient

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Y = f(A, K, L, E)Y = f(A, K, L)

Environment as natural capital

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Loess plateau- before Loess plateau- after

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Environment as natural capital


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Environmental policies as apotential source of growth

Y = f(A(P), K(P), L(P), E(P))

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Bolstering resilience

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Strengthening laborsupply and productivity

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Promoting innovation

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9.6

9.5

9

8

7.7

7.4

6

4.8

4

4

3.9

3.8

3.83.7

3.7

3.5

3.5

2.8

2.5

2.32.1

0 2 4 6 8 10 12

Ghana

Tajikistan

China *

CAR

NigeriaIran

Pakistan

Egypt

Bangladesh

Benin

Peru

Algeria

Morocco

Colombia

Lebanon

Nepal

Syria

Guatemala

El salvador

JordanTunisia

A bad environment is costly

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Cost of Environmental Degradation

(% of GDP equivalent)

Source: Country Environmental Analyses, World Bank


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GREEN GROWTH IS MOSTLY GOODGROWTH POLICY (BUT NO SUBSTITUTEAND TRADE-OFFS HAVE TO BE MANAGED)

3. Good

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Mostly good growth policies

Get prices right and fix markets (LAND!),address coordination failures andknowledge externalities, assign propertyrights

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But no substitute

Green jobs potential depends on labor marketstructure and constraints:

Business environment in South Africa where

unemployment is around 24%


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Care must be taken that the poor benefitReplacing fuel subsidies with better targeted safety nets helps the poor

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The cost to the budget of transferring $1

to the poorest 20% of the population via

gasoline subsidies is $33

Average distribution of energy consumption subsidy benefit

across 20 countries

Source: Arze del Granado et al (2010)


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Trade-offs need to be managed


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BECAUSE MUCH OF WHATS NEEDED PAYS

FOR ITSELF AND INNOVATION HELPS

4. Affordable

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Much of whats needed pays for itself

Increased investment needsin water, energy, land $0.9-1.7 Tr/year

But potential benefits $2.9Tr./year

Rising to $3.7 Tr. for carbonat $30 per ton and energy,agriculture and watersubsidies removed.

20Source: McKinsey Global Institute (2011)

Energy

Water Steel

Land


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Innovation keeps costs in check

Stringent air

pollution regs inCA results in

refineries moreproductive thatn

in rest of US

EPA SO2reductions

realized at halfthe expected

cost

Noimpact ofEU ETS onprofit of

Germanfirms

EPA Dinosebpesticide

ban resultedin higheryields

US phase-out ofleadedgas at athird thepredicted

cost

Envtregulationsimproved

productivityof MX food

industry

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No impactof climate

levy onperform-ance of

UK firms

Environmental regulations:- lead to innovation- cost less than expected- can improve productivity- impacts vary across

industries


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POLITICAL ECONOMY, ENTRENCHEDBEHAVIORS, AND THE NEED FOR SPEEDYACTION

5. But challenging

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Political economy, social acceptability and

entrenched behaviors

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Th l h ll


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0

1

2

3

4

1950 1970 1990 2010 2030

Billions of people living in urban areas

The real challenges:The need to act fast to avoid lock-in and irreversibility

24Source: Bertaud (2004)Source: World Development Indicators

Th l h ll


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The real challenges:Access to capital

25Source: WDR (2010), OECD, and IEA

The example of climate finance


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TAILORED STRATEGIES, POLICIES THATPROMOTE SMART BEHAVIOR AND TACKLEUPFRONT CAPITAL CONSTRAINTS

6. The way forward

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Focus on whats urgent and entails


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Focus on whats urgent and entailsmore positive local co-benefits

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Co-benefits Trade-offs(to be considered at higher

level of income or paid for

by external funds)

Synergies(attractive regardless of

income, provided that financial

mechanism can be found)Inertia/

Irreversibility risk

Low inertia and

irreversibility risk

(i.e. action is not

urgent)

Lower-carbon, higher-

cost energy supply

Stricter wastewater

regulation

Drinking water andsanitation

Lower-carbon, lower-cost

energy supply

Loss reduction in supply

Demand management

High inertia and

irreversibility risk

(i.e. action in urgent)

Reduced deforestation

Coastal zone protection

Land use planning

Public urban transport

Fisheries catch

management


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Pursue smart prices and regulation policies

Get prices right

But understand their limitations: Create alternatives to improve price elasticity

Address market imperfections Political economy constraints

Combine with regulations

Address political economy Learn from success

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Inform and nudge citizens and businesses

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Inform and nudge citizens and businesses

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Innovative finance:green fund and beyond

Focus on upfront financing:

Political and commercial risk

Borrowing constraints; social vs economic return

Green finance, but also:

Leverage public and IFI resources

Local public finance

Payment for environmental services

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The mission of the Green GrowthKnowledge Platform is to:

i. enhance and expand efforts to identify and address majorknowledge gaps in green growth theory and practice, and

ii. help countries design and implement policies to movetoward a green economy

through four main sets of activities:

Knowledge

Gap Analysis Global Dialogue Green Growth

in ActionApplied Research


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GREENING GROWTHA Path to Sustainable Development

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