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Let’s talk money: What will it take to save our planet?

22 May 2015
by Guest author
Step away from the subsidies

Step away from the subsidies

Ariana Mozafari, OECD Environment Directorate

That wise mantra that knowledge is power has clearly never stepped inside a business meeting. In this day and age, money is power. Money builds hospitals and roads and civilisations. The OECD can work its hardest to raise awareness on the truths of climate change, but the world won’t see developments in green technology and infrastructure unless we have eager investors backing up investment and research and development in low-carbon technologies.

In the past, many have claimed that environmental protection and green projects are a high-risk investment that can hinder economic development. Low returns and low confidence in green growth and high-capital needs in low-carbon infrastructure projects make investing in environmentally-friendly technologies a seemingly unprofitable business. Less-developed nations have even fewer incentives to invest: as they try to climb out of the poverty rut, how can they possibly spare financial resources to focus on preserving the environment?

Contrary to popular belief, climate change and economic development don’t have to be two opposing policies competing for governments’ attention. This week’s second annual Green Investment Financing Forum at the OECD showed that huge investors that have traditionally invested in fossil fuels and high-emissions activities are, in fact, the best financial resources to save our planet from climate disaster.

Like the Porter Hypothesis says, climate change action and economic growth can feed off  each other. The Green Investment Financing Forum gathered senior representatives from investment firms and institutional investors from around the world such as Goldman Sachs and Aviva. The GIFF proposed suggestions to achieve a balanced future global economy, which should ideally be centered on an environmentally-conscious, competitive and productive investment field that delivers the risk-adjusted returns that fiduciaries need. The discussions included:

  • Providing greater transparency in risk evaluation for investing in green projects. Green growth needs to become a predictable engine for business and the economy. Greater transparency means greater confidence in the investment project, which will hopefully facilitate more long-term investments in green infrastructure.
  • Driving up demand for investing in green growth. There should be a competitive and open market for providing environmentally-conscious products and services. There needs to be a shift to a customer-focused approach to drive up competition.
  • Creating more financial literacy, so that politicians can create policies that have positive incentives for businesses and mainstream investors can understand how to invest in the sector. We need to know what businesses expect in return for their investments, and we need to create efficient and effective incentives and solutions that benefit them directly.
  • Improving data collection and disclosure for banks, investors, and businesses. We need to know how companies view green growth and the carbon content of their businesses and assets if we’re going to attract more investors towards green growth. Governments and international bodies should be able to track past green investments and how they perform.

Professor Daniel Esty, Hillhouse Professor of Environmental Law and Policy at Yale University, also argued that finding capital is not the issue in furthering green technology—in fact, financial resources are abundant. According to Esty and the Connecticut Green Bank, the world needs more innovative projects for green growth.

Esty also urged governments to steer private capital in the direction of low-carbon investment, with a three-step plan outlined below. The current actions governments are taking, he said, are not enough to save our planet from climate change.

  1. Governments need to provide clarity and normalize the marketplace. Leaders need to change the image of green investments to prove that these environmentally-friendly projects will not be “high-risk” financial ventures.
  2. Governments should minimize the soft costs for these green projects. Examples of these include mitigating building and permit costs to encourage green growth.
  3. Governments must also frame a new idea of what is “clean energy.” Leaders should not be pushing renewable energy standards that allow burning “biomass” (aka firewood), for example, to slide by as “clean energy reform.”

And, overall, governments should be subsidising industries who are the “winners” in green development and stepping away from subsidising fossil fuels, taking the golden opportunity to do so in today’s low-interest economy. Just take a look at Indonesia’s government if you need some low-carbon inspiration. They seized the opportunity to reform fossil fuel subsidies and put the money towards better use to help the poor and reduce carbon emissions.

The road to climate change is a long one, and yet the need for policymakers to shift archaic policies towards greener growth has never been more critical. As Nobel Peace Prize winner Al Gore commented on the nature of drastic policy changes throughout history: “After the last no, comes a yes.”

Useful links

For more policy suggestions that facilitate low-carbon investment, check out the OECD’s policy highlights on Investment in Clean Energy Infrastructure and the OECD’s report for the G20 on Mapping Channels to Mobilise Institutional Investment in Sustainable Energy.

 

Are you rich or poor?

21 May 2015
by Brian Keeley

In it togetherIn a world where wealth reports and rich lists regularly occupy the headlines, most of us have surely asked ourselves where we sit on the spectrum that starts with struggling to get by and ends with Bill Gate’s estimated fortune of $79 billion.

If you think you already know the answer, think again. Research indicates that many of us have only a vague idea of how our income compares to that of our neighbours. For example, in France in 2011 about three out of five poor people thought they were better off than they were. Conversely, about four out of five rich people didn’t appreciate just how well off they were.

Similarly, many of us don’t have a strong sense of the income gap in our own countries. Americans, for example, typically think the gap between rich and poor is smaller than it is. On the other hand, people in a number of European countries, such as Hungary and Slovenia, often think the gap is wider than it is.

If these questions have been on your mind, we have some good news. From today, a new OECD research tool lets you get some hard numbers on whether you’re rich or poor. Simply type in where you live, your age and your income, and Compare Your Income will tell you where you stand on the income scale in your country – up there with Mr. Gates or … well, down here with the rest of us.

Share of the pie

But the tool goes further that. It also lets you check if your sense of where you stand in relation to everyone else is accurate – you may be pleasantly surprised or sadly disappointed. More broadly, it also explores your understanding of how income is distributed in the country where you live.

Over the next few years, the anonymous and confidential responses that users provide to Compare Your Income will be used by the OECD to develop a clearer picture of people’s perception of wealth, poverty and income inequality in OECD countries. That, in turn, will feed into future analysis of income inequality – an issue that has “moved to the top of the policy agenda in many countries,” according to In It Together, a new OECD report that’s also released today

Given current trends, income inequality is likely to remain a top policy item for some time to come. As In It Together notes, the gap between rich and poor is now at its highest level in 30 years in most countries. Today, the top 10% earns 9.6 times the income of the poorest 10%; back in the 1980s, the ratio stood at just 7 to 1.

But there’s perhaps a sense in this latest OECD report that the focus of the debate is shifting – from top earners, the so-called 1%, to a large swathe of low earners, or what might be called the bottom 40%. In recent decades, these low earners have gained little from economic growth in many OECD countries and, in some cases, have seen real falls in their incomes.

As we discussed here on the blog last year, OECD research indicates that the declining economic power of this bottom 40% of low earners is bad not just for them but also for the overall economy. The research shows that when the gap between rich and poor grows, lower earners invest less in education and skills. By contrast, there is little or no change in how much middle and high-income families invest. The consequence of this underinvestment is a smaller talent pool for the economy, which, in turn, slows growth.

The new report adds further detail to this research and also looks at some of the factors that are weakening the situation of low earners, including growing concentration of wealth – as opposed to income – and the decline of “traditional” employment. We’ll return to some of these subjects soon.

Useful links

In It Together: Why Less Inequality Benefits All is the third in a series of OECD reports on income inequality. The previous titles are Growing Unequal? (2008) and Divided We Stand (2011).

OECD work on income inequality and poverty

OECD Income Distribution Database

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