Green Economy and Green Growth: World Bank Approaches

1. Green Economy and Green Growth: World Bank Approaches Mike Toman, Lead Economist and Manager, Environment and Energy Research Team 18 May 2010

2. Environment and MDGs

3. Many Themes Under “Green Economy” • Low-carbon growth • “Green stimulus” recovery packages • “Green infrastructure” investment • Meeting basic energy and water needs • Increasing resilience to natural variability • Improved efficiency of existing environmental regulation • Correcting harmful market distortions • New economic opportunities (green supply chains, eco-tourism, green innovation,…)

4. What Green Growth is Not: • A guaranteed “win-win” for environment and GDP growth • Real costs of environmental protection yield improvement in quality of life • A direct path to new markets and economic opportunities • Some green technologies are not (yet) market ready; others are missed opportunities • An assured solution to problems of poverty reduction and social equity • South Africa’s electricity “lifeline” policy yields significant benefits but also requires ongoing expenditures; broader “safety net” challenges

5. BUT: If addressed as an Economic Issue, Green Economy is a Growth Opportunity • Complement technology development and standards, implementation targets with pro-environment, pro-inclusive-growth economic incentives • Target incentives for cost-effectiveness • Solid enforced legal structure also key • Policy reforms go beyond the environment and energy sphere

6. General Concepts of “Green Economy” and “Green Growth” • Stronger environmental & natural resource management & investment to enhance growth, reduce poverty • Enhanced quality and availability of communal land and water resources in rural areas • Growth-enhancing investments in technical improvements and infrastructure that also reduce environmental impacts • Includes but goes beyond existing approaches for environmental protection

7. General Concepts of “Green Economy” and “Green Growth” • Maintain environmental sustainability • “Meet needs of present without compromising ability of future to meet its needs” • Offset “natural capital” depletion with other social wealth build-up – increased aggregate savings to accelerate growth

8. General Concepts of “Green Economy” and “Green Growth” • Reduce market failures and institutional barriers to green markets • Institutional and governance improvements that improve economic incentives for sustainability (investment and consumption) • Addressing economically wasteful and environmental harmful subsidies – energy, water, land use, …with concern for impacts on poor • Targeted, cost-effective fiscal incentives for green investment • Improved national accounting for costs of resource and environmental depletion

9. Different Emphases at Various Stages of Development • Enhancing natural resource productivity – “basic needs plus” • Addressing emerging problems as economy grows and diversifies • Taking opportunities in green innovation and new market and employment development • Not just low-carbon development!

10. Key Message: Green Economy is an Economic Challenge and a Growth Opportunity Core Near-Term Policy Issues: • Employment • Fiscal Space • Efficiency of Resource Use • Immediate environmental threats • Stage setting for longer-term sustainability Not listed in any priority order

11. Role of Economic Incentives • Stronger and clearer economic incentives are crucial for advancing on all these issues – not just for the environment • Price signals reflecting social costs of resource & environmental impacts are inherent part of incentive system – induce more efficient and sustainable uses • But, there is much more to the story than the pain of higher product prices!

12. Price Signals Reinforce Green Investment and Consumption • Changes in input demands creates ready demand for more eco-efficient technology – increasing economic rewards, reducing risks & financing barriers • Can be complemented selectively with performance standards, demonstrations to increase scale and lower costs • Signals can be designed to reflect balance of more immediate and longer-term environmental and resource conservation priorities

13. Green Incentives Feed Back Directly on Employment Possibilities • Can start with most available, low-cost and labor-intensive opportunities • Solar water heating • Green building retrofits • Off-grid power for more remote areas • Installation of efficient water using devices • Audit and assessment functions • Transport congestion reduction • On-site materials recycling, re-use

14. Green Pricing Measures Can Increase Badly Needed Fiscal Space • Financing technology innovation/diffusion, other longer-term green growth options • Increase green job skills • Help for cost of lifeline measures • Measures to reduce highly segmented and distorted labor markets • Research indicates net cost of increasing energy prices may be minimal if accompanied by fiscal and labor market reforms

15. Need for Complementary Measures • Improved access for rural/poor credit, transportation infrastructure, education for rural/poor • Cost-effective, market-enhancing economic regulation in energy sector • Reduced institutional barriers to green technology policies – finance, trade, human knowledge

16. Cautionary Notes in Targeting Policies and Measures • Subsidizing some green investment can be costly, especially if not well targeted • Tax breaks reduce fiscal space • Feed-in tariffs for costlier renewables shift cost to all users • Industrial policy to develop green markets and technologies? • Generally has worked only for certain countries in certain circumstances • Important to rely on comparative advantages for managing market and regulatory uncertainties

17. World Bank Has Strong and Growing Commitment to Mainstreaming Environment in Growth Initiatives • Goal of 50% clean energy lending in relatively near future, including low-emission transport • Improved watershed management (not just end of pipe treatment) • Support for country access to donor green grant funding • Integrating environment into national level development partnership strategies • Technical assistance and knowledge transfer

18. Some Examples of WB Supported Environment Mainstreaming • Africa Climate Resilient Growth Strategy • Assessment of poverty, environment and health linkages in Egypt, Yemen and Djibouti • Expanded Bank assistance in Sub-Saharan Africa for management of protected areas

19. Need for Analytically Sound, Evidence-based Measures Is Paramount • Range of environment – growth synergies not yet fully mapped out • Tradeoffs between nearer-term stimulus and longer-term growth • Relative growth performance of more or less green strategies • Role of innovation and strategic capacity investment to enhance green growth

20. A Very Wise Man Once Said… • ….I have discovered the secret that after climbing a great hill, one only finds that there are many more hills to climb…. • ….I dare not linger, for my long walk is not ended.

21. End of presentation mtoman@worldbank.org Questions and comments very welcome. Thank you!

22. Persisting Environmental Challenges Environmental Health and Pollution Management • 24% of disease burden and 23% of all deaths in developing countries from environmental risk factors • Half of malnutrition caused by poor sanitation from lack of access to safe water • Indoor air pollution responsible for 1.5 million premature deaths from respiratory illness; 2.7% of global burden of disease Sustainable Natural Resource Management • Deterioration seen in water, air, forests, grasslands, marine resources, agro-ecosystems • Overfishing: 75% of global fish stocks fully or over-exploited • Damages to protected areas, wetlands, other ecosystem buffers • Climate Change

23. Environment Lending FY09 FY09, ENRM portfolio amounted to $13 billion (10% of total) Active Environment and Natural Resource Management (ENRM) Portfolio

24. Persisting Environmental Challenges Policies, Governance Institutions, International Cooperation • Limited inter-ministerial coordination for advancing and balancing economic, environmental goals • Limited coordination among levels of government • Shortcomings in natural resource management • Challenges and opportunities of urbanization • Inadequate enforcement • Environmentally and economically harmful policy distortions • Weaknesses in international cooperation

25. 2001 Environment Strategy: Environmental Quality and Poverty

26. Variety of Implementation Methods • Higher profile of env in country strategies • Maintain safeguards management • Increased analysis of environmental opportunities and implementation costs • So far, limited economic analysis of environmental improvements in practice • Increased env policy-based lending

27. Infrastructure and Green Economy Studies highlight severe infrastructure gaps: South Africa figures better, e.g. 81% electricity access

28. Africa’s Expenditure Gaps Amplified by Various Inefficiencies: Source: World Bank Africa Infrastructure Country Diagnostic, 2010

29. Private Participation Remains Limited Source: World Bank data base on private infrastructure investment (PPIAF)

30. Green Growth and “Green Stimulus” • WB infrastructure lending increased from $2.5billion in FY2008 to $3.6 billion in FY2009 • Separate longer-term economic benefits from near-term stimulus effects • Many green growth investments could have large employment impacts only over the longer term • Economic benefits of “creating new jobs” depends on cost-effectiveness of stimulus

31. Illustrative Examples – South Africa context • Eskom investment – critical need to alleviate power supply problems, longer-term focus on improved efficiency and renewables • Current WB guidance on coal investment • Continued emphasis on biodiversity and tourism benefits from protected areas • Cape Peninsula, Simangaliso Wetland Park • Water –persistent need to improve systemic management and resilience to shocks, increase efficiency of use