China meets the ‘new normal’

China Survey 2015Anyone who takes even a passing interest in China can’t have failed to notice a shift in mood of late. Gone are the decades of soaraway growth, when the economy expanded by an annual average of 10%, enabling around half a billion people to lift themselves out of poverty.

Instead, at the annual “two sessions” gatherings of legislators and political advisors this month, Premier Li Keqiang announced a growth target for this year of “around 7%”. That’s slightly down on the past two years’ target of 7.5% (although still pretty stunning for most countries). If that forecast holds true, it would see China recording its smallest expansion in a quarter of a century. But, as Premier Li also said (paywall), “it will by no means be easy for us to reach this target”. That’s the reverse of how things used to be. Throughout much of the long boom, the official growth target, typically 8%, was routinely overshot.

There’s a phrase for this change in pace in China – the “new normal”. These days, it’s rarely off the lips of Chinese leaders, from President Xi Jinping on down. What it essentially means is a shift towards slower but more sustainable growth.

As the OECD’s 2015 Economic Survey of China discusses, reaching this new normal will require some long-term transitions. Notably, the reliance on exports will need to give way to a greater role for domestic consumers. And the state will need to step back to allow more room for innovation and entrepreneurship. That will require reforms that Premier Li has dramatically described as “not nail-clipping” but “like taking a knife to one’s own flesh”.

There are shorter-term challenges, too – most notably, ensuring that the slowdown in growth is kept under control. This is not unlike a driver touching the brakes of a car on an icy road – in other words, not without risks. Part of this immediate challenge is the need to cope with some hangovers from the boom years. There are signs of these in many areas of the economy, but two areas are perhaps of particular interest.

The first is overcapacity in industry – in other words, too many businesses, especially in the state sector, have invested more in plant and production facilities than could be justified by their potential market share or profitability. The impact of this is evident in fierce price competition and industry inefficiencies.

It’s also evident in China’s hazy skies. What China’s own National Development Reform Commission has described as “blind” investment in steel mills and smelters has contributed to the air pollution estimated to be causing about 1.3 million premature deaths a year. The issue is attracting growing public concern. When Under the Dome, a documentary about air pollution by journalist Chai Jing, was released last month, it was reportedly watched by more than 150 million people online.

Unwinding overcapacity in industry will be tricky. Rationalising too quickly risks disrupting existing production and employment. Waiting too long only risks exacerbating current problems. And while the state has signalled that part of the solution will lie in a greater role for the private sector, this, too, is not without risks. “Private firms reportedly pollute more than their state-owned counterparts, in particular in the cement, steel and flat glass industries,” the OECD report notes.

A second hangover is to be found in China’s property market, where there is substantial overcapacity – the famed “ghost towns” are just one sign of this.

Over the past couple of years, China’s property market has been cooling, especially in smaller cities, many of which now have an excess of housing. The slowdown reflects a number of factors, including the broader economic cooling and measures by the government to restrict purchase. More recently, some of these restrictions have been eased, likely reflecting official concern that the market may be cooling too quickly.

The Economic Survey of China sounds a note of caution, suggesting that the “price correction ought to continue until the inventory overhang is worked off”. More affordable housing, it suggests, would allow more Chinese to realise their dream of owning a home – a possibility only since the 1990s. There are, as the Survey readily acknowledges, risks to such a strategy. But, it argues, the relatively low levels of household debt in China, among other factors, should help to contain these.

Still, there’s no doubt that the property market will continue to weigh on China’s economy for some time to come, perhaps especially in the provinces, where there are concerns about the level of debt built up some local governments to fund real estate and infrastructure projects. We’ll come back to that subject soon.

Useful links

The OECD’s 2015 Economic Survey of China is launched today in Beijing ahead of this weekend’s China Development Forum, where OECD Secretary-General Angel Gurría will be speaking.

A number of other OECD reports are also being released this week to mark 20 years of China and the OECD working together, including All on Board: Making Inclusive Growth Happen in China and China in a Changing Global Environment.

中国和OECD迎来20年合作伙伴关系

OECD work on China

网站 (中文) (The OECD’s Chinese-language site)

China and the OECD mark 20 years of partnership

China 20The past few decades have seen developing and emerging economies playing an ever-larger role in the world economy. According to OECD estimates from a few years back, in 2011 China and India accounted for 24% of the global economy; by 2060 that was forecast to rise to 46%, overtaking the combined total for current OECD Members.

These shifts have been reflected in changes in the governance of the global economy, for example the expanding role of the G20, of which the OECD is an active partner. They are also reflected in the deepening co-operation between the OECD and non-Member economies and, in particular, with a number of Key Partners – Brazil, China, India, Indonesia and South Africa. This year brings a significant milestone in this process, with China and the OECD marking 20 years of partnership.

The relationship between China and the OECD began modestly enough, with the organisation of a workshop in 1995 on trade and investment. In the years since, it has blossomed: “Today, over 30 Chinese ministries and agencies have been engaged in co-operation with the OECD,” writes Gao Hucheng, Minister of Commerce, in a brochure marking the 20-year anniversary. Areas covered by the OECD-China partnership include economic policy, trade, investment, development, finance and taxation, science and technology, environment, education, agriculture, statistics, anti-corruption, competition and global governance, to name just a few.

Among the more visible aspects of this co-operation are the OECD’s regular surveys of China’s economy, China’s active role in key OECD/G20 initiatives such as the Base Erosion and Profit Shifting (BEPS) project, as well as the participation of Shanghai in the Programme for International Student Assessment (PISA). In 2012, Shanghai students topped the global rankings, maintaining their strong performance from the previous round. China’s participation in PISA is set to deepen, with the addition of Beijing, Jiangsu and Guangdong to the 2015 round.

For both China and the OECD, the benefits of the partnership have clearly been substantial. Writing in the anniversary brochure, Minister Liu He from the Office of the Central Leading Group on Financial and Economic Affairs, describes the partnership as “a mutual learning process [that] has been instrumental in enhancing China’s policy-making capacity”. Lou Jiwei, Minister of Finance, says the “pragmatic and effective” co-operation has “helped China better understand development policies and practices applied by advanced economies.”

On the OECD side, Secretary-General Angel Gurría says China’s active engagement with OECD bodies “enriches the discussion and makes the work undertaken by the Organisation more relevant and valuable”. He adds that China’s adherence to certain OECD instruments “can reinforce the efforts made by countries at different stages of development to address common challenges.”

The importance of China to the OECD is also underlined by William White, Chair of the OECD Economic and Development Review Committee (EDRC): “If it is welcome that China is learning from the experiences of others, China is teaching as well. Its remarkable advances in recent years hold many lessons for others and these are often referred to in the EDRC Reviews of other countries.”

One practical example of how OECD Members are learning from China’s experience comes from the United Kingdom, which has launched a maths teacher exchange with Shanghai. “Our teachers can identify the most effective teaching methods from Shanghai, bring them back to the UK and share them through our maths hub network so all schools benefit,” writes, Nick Gibb MP, Minister of State for School Reform.

Building on the success of the past 20 years, the partnership between China and the OECD looks set to grow even stronger in the coming decades. Last November, the OECD signed a Memorandum of Understanding with the Ministry of Commerce. That agreement, says the OECD, “maps out a common blueprint for future co-operation, taking OECD-China relations to a whole new level of collaboration”.

Useful links

中国和OECD迎来20年合作伙伴关系

OECD-China: 20 Years of Partnership

China and the OECD

网站 (中文) (The OECD’s Chinese-language site)

Visit of OECD Secretary-General to Beijing, March 2015

China Development Forum 2015

The policy maker’s guide to graft

Integrity ForumToday’s post is by Bill Below of the OECD Directorate for Public Governance and Territorial Development

Think back to a time when your purse or wallet was stolen, or your laptop with all your files in it lifted from your bag, or any other possession taken from you. What did you feel? Probably outrage, anger and even despair, perhaps with a surprising sense of helplessness. When corruption occurs, intense emotions rarely, if ever, result (unless you count the joys of mounds of illicitly acquired cash or the agony of incarceration). When corruption swindles the public good, the effect isn’t immediate but muted, diluted across the population, producing a signal so feeble few can feel it—directly. And this may be just what the corruptors, the skimmers, the influence peddlers, the brown-envelopers and breeders of white elephants count on.

The Integrity Forum at the OECD – “Curbing Corruption – Investing in Growth” – will expose corruption in its myriad forms, in both the public and private sectors, as part of the OECD CleanGovBiz initiative, supporting governments, business and civil society to build integrity and fight corruption.

In 2013, OECD countries spent close to USD 1.35 trillion in public investment, representing 3.1% of OECD GDP and 15.6% of total investment (public and private). Sub-national governments undertook more than 60% of this investment. Wherever there is money—particularly huge sums of it—the risk of corruption runs high. This is strongest in the case of government-led mega projects on infrastructure. The cost of corruption and mismanagement, already estimated to contribute to 10-30% of large infrastructure budgets, could prove explosive over the years to come. Indicators point to a wide gap between available infrastructure and growing needs. The investment required just to keep up with projected global GDP growth has been evaluated at 57 trillion USD between 2013 and 2030.

Corruption exerts a direct, detrimental effect on public investment while cheating the public out of money and value that is rightfully theirs. Corruption puts the brakes on growth by potentially denying certain multiplier effects while reducing the productivity and long-term returns on public investment. Given today’s context of anaemic public expenditures, investment efficiency couldn’t be more crucial. But corrupt practices also skew budgets away from essential services such as health and education (already diminished) and result in poor quality infrastructure or infrastructure that is a plain waste of public funds—the proverbial white elephants. Knock-on effects such as higher maintenance for shoddy construction, shorter operational lifetimes, higher prices to cover inflated costs and even injury and death add to the disparaging picture.

A report by BMZ, the German Federal Ministry for Economic Cooperation and Development, provides a striking example. In 2009 the City Archive of Cologne collapsed, killing two people and destroying or damaging numerous historical manuscripts. Restoration of the documents that were saved is estimated to cost 350 million euros. The state attorney found that the building collapsed because of corruption during construction work in the subway that ran underneath it. Only every second or third steel frame was embedded after several tons of steel frames were sold to a scrap dealer, and the Kölner Verkehrsbetriebe (public transport authority) found that 80% of the reinforcements were missing.

Corruption can also create general distrust, both on the part of citizens who see their hard-earned wages wasted in corrupt, state-sponsored endeavours, and by creating an environment inhospitable to investment.

For anyone with corrupt intentions, the public investment cycle presents plenty of entry points. From the initial investment decision through to project selection, implementation and post-project maintenance and evaluation, each phase offers unique opportunities for the unethically minded. How these weak points are exploited depends on the profile of the actor(s) involved. The usual suspects: elected and non-elected public officials, lobbyists, civil society organizations, regulators, contractors, engineers, suppliers, auditors and more. If you think this sounds like a who’s who of total project participants, you’re right—which underlines the massive scale of the challenge. What’s more, fewer than half of building professionals are able (or willing?) to evaluate the annual costs of fraud or corruption to their organization according to one report. On the other hand, global construction industry losses due to construction mismanagement, inefficiency and fraud could reach 2.5 trillion USD by 2020.

How much investment will be captured by corruption depends on whether countries, and corporations, will have the necessary safeguards in place. The Checklist to Curb Corruption in Public Investment is a new OECD tool that will assist governments in mitigating corruption risks in public investment. The checklist identifies corruption entry points over the entire investment cycle and provides real life guidance on how to prevent corruption.

For each shadowy form of corruption there seems to exist a corollary in the world of legitimate business. The enviable position of having “connections in high places” is a nuance away from influence peddling; “informed market information” is a close cousin to insider trading; a company’s “aggressive” efforts to court client loyalty might be bribery by any other name; ambitious targets could easily morph into an “ends-justify-the-means” approach to hitting year-end numbers. While those guilty of corruption may be systematic offenders operating in a corrupt environment, they are just as likely to be first-time offenders, men or women who consider themselves to be “as honest as the next person” (where one places that cursor certainly matters). Corruption can start with a minor moral compromise then crescendo into a long-term scheme for ripping off the public, as graft tends to engender follow-on ethical breaches. The enabling psychology providing the tipping point can be personal or interpersonal. It can exist in isolated pockets within an organization, permeate whole divisions or entities, and even exist on a countrywide level. “Business-as-usual” can take on many different meanings within the ethical spectrum.

Ethical compliance is preferable to enforcement and the heavy burden it places on both private and public organizations. But in reality both are needed if trust and its enabling effect on investment are to be established. Also, the risk of non-compliance must be fully assimilated by an organization. Increasingly, non-compliance represents a substantial risk to organizations, quickly sanctioned by markets, shareholders, stakeholders and citizens. Organizations ignore this at their own peril.

The harsh reality may be that human nature isn’t about to change anytime soon. Research has shown that past behaviour, whether an individual’s or a corporation’s, is a poor predictor of future behaviour. In the fight against corruption, perhaps that’s both the good news and the bad news.

Make a difference! Join us at the OECD Integrity Forum, “Curbing Corruption – Investing in Growth” OECD, Paris, 25-26 March 2015.

Useful links:

OECD work on bribery and corruption

OECD work on trust in government

Follow GOV on Twitter  https://twitter.com/oecdgov

To cap global carbon, use a global licence scheme

Going, going, gone?
Going, going, gone?

Today’s post is by John Jopling of the Irish think tank FEASTA on behalf of CapGlobalCarbon

Irreversible climate change currently threatens everything the OECD does and stands for. This post suggests how the OECD could play a crucial part in helping to establish an effective global response to climate change.

The science is clear: the main cause of climate change is increased emissions of CO2 from human use of fossil fuels. The global total of emissions is all that matters in the context of avoiding calamitous change in the Earth’s climate system. To avoid runaway climate change, the aggregate global total of emissions from the use of fossil fuels must be reduced by something like 6% each year if we start reducing now, or by a greater percentage the longer we delay.

The reason we now have a global crisis is that the current system of inter-governmental negotiations under the 1992 United Nations Framework Convention on Climate Change (UNFCCC) cannot be relied on to achieve these reductions in the overall total of global emissions.

The science on climate change is worrying enough. The knowledge that there is currently no effective system for addressing it is worse.

The reason is that the current system lacks a vital component: a regulator of total aggregate global emissions. To prevent climate change becoming irreversible, it is essential that an effective regulator of the aggregate global total of emissions from the use of fossil fuels is put in place, not to replace the system of inter-national negotiations but as a back up in case it fails. In case, to be specific, the outcome of the negotiations is not enough to satisfy climate science. We are faced with an emergency. We need to design and implement a system that enables us to address it.

There is no time to be lost. The regulator must be science-based and market-friendly. The easiest way to control emissions is to control production. The easiest way to control production is by a global licence scheme administered by a global institution established for the purpose. The number of licences should be determined in compliance with climate science, the number being reduced each year. The global institution would auction the licences and these would then be tradable. Fossil fuel extraction companies would pay the market price for the licences they buy; and pass on the cost to their customers. The global institution would arrange for the net proceeds from the auction to be distributed to or for the benefit of people throughout the world in equal shares, so low carbon fuel uses would benefit. The scheme would thus contribute to social justice and should attract wide support.

Such a scheme would need the cooperation of nation-state governments. The government of each country would have to ban the introduction into that country of fossil fuels not covered by a global licence.

That is the simplest possible way to make sure that aggregate global emissions from fossil fuels are reduced as required by climate science. It involves the least possible interference with market forces and the least negotiation between nation states. The concept is simple and clear. It can, and should, be sold to all concerned in a non-confrontational way, not blaming anyone for anything. We owe it to ourselves and our children to implement it.

As the current system of inter-governmental negotiations shows no sign of introducing any such scheme or any other effective system to regulate the aggregate global total of carbon emissions, and cannot be relied on to do so, the initiative to do this has to come from the global non-governmental sector. The necessary global institution to run the scheme, call it the Global Climate Trust, would need to be independent of both governments and the fossil fuel industry. It could be established by ordinary citizens and thereafter accepted by governments. This is in practise the only way such a body could ever be established; and it is also probably the only way to make sure that this body is indeed independent.

The Trust could be established by a group of institutions and individuals. If established, for example, in England or Ireland, it could be constituted as a trust for public purposes. It would be a legal entity competent to develop relations with nation-state governments and the fossil fuel industry.

Under its constitution, the Trust would be charged with acting on behalf of humanity as a whole, including future generations. It would be subject to the appropriate regulatory and court system of the country in which it is based. The law requires trustees to act with undivided loyalty to the purposes of the trust and they must act transparently. Obligations written into the constitution of the Trust to ensure transparency and accountability would be enforceable in courts of law.

The idea that an international institution could arise from a citizen’s initiative is not new. There is the inspiring example of Henri Dunant whose actions, after he had seen 40,000 soldiers left dead or dying on the battlefield at Solferino in 1859, led to the formation of the International Committee of the Red Cross.

A number of individuals and non-governmental organisations, with a very wide range of interests and activities, need to discuss the details of the Trust and take responsibility for establishing it. The OECD could perhaps host some of the necessary discussions.

The role of the OECD could be crucial not only in hosting discussions and helping to promote this idea but also in bringing governments on board to support it.

Useful links

Cap and share doesn’t appeal to everybody:

OECD work on carbon markets

Transition to a Low-carbon Economy: Public Goals and Corporate Practices

The new demography of death

Click to find out more about the Oxford Institute
Click to find out more about the Oxford Institute of Population Ageing

Today’s post is by Dr. George W. Leeson, Co-Director and Senior Research Fellow in Demography, at the Oxford Institute of Population Ageing (OIPA), as well as co-editor of the Journal of Population Ageing and chair of the editorial board of Ageing Horizons.

In Europe, population ageing continues and brings with it increasing numbers of centenarians and supercentenarians as well as a new demography of death. In the mid-19th century, European populations were young and short-lived with high levels of infant mortality. More than half of the almost 370,000 deaths in England and Wales in 1850 would have occurred among people aged less than 60 years. By the early 21st century, these same populations have become old and long-lived, and almost 90 per cent of the deaths in England and Wales now occur among people aged over 60 years.

Of course, the absolute number of deaths as a demographic measure is not a helpful measure, but in this context we are considering mortality in simple absolute terms to reveal the changing composition of the demography of death behind the story of improving survivorship which is a part of population ageing. In the middle of the 19th century, the absolute number of deaths per year in England & Wales was increasing from around 350,000 to around 600,000 by the end of the 19th century. The number peaked in 1918 at just over 610,000, after which deaths in absolute terms declined to around 440,000.

An element of the dramatic changes in the structural development of death and the demography of death was the decline in infant mortality in England and Wales throughout the 20th century. At the turn of the 20th century, infant mortality had been as high as 154 deaths under 1year per 1000 live births. This rate has been halving every 25 years roughly except for the period from1975 to 1990, where the halving time decreased to around 15 years, returning thereafter to be on track for 25 years halving again, ending at just 4.4 deaths under 1 year per 1000 live births in 2011.

Declines in mortality among the extreme aged have been striking. One hundred and seventy years have seen late-life life expectancy increase by just over 7 years for males and almost 9 years for females—something of an achievement given the previous conviction that mortality at older ages was intractable.

Population ageing is often equated with an increasing number and proportion of frail, dependent older people who become an increasing burden on society and family. The numbers themselves are a warning that societies need to change with the changing demography. One consequence of the numbers change is the new demography of death. Mortality at advanced ages is being delayed and although the future remains difficult to predict, there does seem to be an increasing body of evidence that around the world lives will continue to be extended for some time to come. By the turn of the next century, life expectancies at birth are predicted to be 93 years for males and 95.6 years for females in England and Wales, while at age 65 years, life expectancies are expected to be 29.9 years for males and 31.1 years for females.

The number of people aged 100 years and over in England and Wales increased from less than 200 in 1922 to 570 in 1961. By 1981, this number had climbed to 2,418 and to 12,318 in 2012 and by the middle of the century the number is expected to be close to 300,000 and more than 1 million by 2100.

So more people are living longer and the longest lived are living longer too.

What then of the future and the new demography of death?

The development of this demography of death over the 200 year period from the mid-19th to the mid-21st century is striking. The total number of deaths in England and Wales increases from 342,760 in 1838, when 50 percent of a cohort was dead by age 45 years, to almost twice that number, 666,253 in 2050,when 50 percent of a cohort will be surviving to age 90 years.

It is the structure of this new demography of death that is interesting.

Since 1959, death has been dominated by deaths of people aged 60 years and over and this domination has increased and will continue to increase at least until the middle of this century. In 1959, 78 percent of deaths were people aged 60 years and over. This had increased to 88 percent by 2009 and is predicted to reach 94 percent by 2050. And in line with the ageing of the population of England and Wales, the proportion of the 60-plus deaths aged 80 years and over has also increased and continues to increase—from 34 percent in 1959 to 60 percent in 2009 and 78 percent in 2050.

While this is in all respects a natural consequence of the ongoing demographic development in England and Wales and similar developed economies, there remains the question: are we prepared for this new demography death, its scale and structure, as individuals, families, communities, and societies?

The ageing of European populations in the latter part of the 20th century was a demographic surprise brought about by a combination of demographic resistance to dismissing the idea of a limit to human longevity and the creeping decline in mid- and late-life mortality as the prevention and treatment of, for example, heart disease improved. Experience proved we had pushed old age into our 80s. The future could be an equal demographic surprise if we ignore the evidence of the new demography of death, which also would suggest that the lives of more and more people will continue to be extended and centenarians and supercentenarians would comprise an increasing number and proportion of our populations.

The new demography of death is also a 21st century challenge for the emerging economies of the world, where life expectancies continue to increase. However, these economies are challenged additionally by the speed of their fertility transitions, which in many instances are occurring in one or at most two generations.

How could/should we begin to prepare ourselves for this new demography of death?

It is clearly a challenge to longstanding concepts of old age and retirement – indeed one could ask whether retirement even at age 75 years is sustainable. Family dynamics will be challenged by the survival of extreme aged generations delaying intergenerational succession and depending on smaller families for support in frail and dependent old age.

The additional and confounding prospect of declining population size raises different issues as the workforce contracts. This would lead to policy discussions about controlled labour immigration, perhaps, to compensate for the declining local workforce.

Buried in this demography of death is, however, a success story of survival. Let us not be dismayed by that but let us begin to discuss what it means.

Useful links

Dr. Leeson is a leading member of The Complex Environmental Population Interactions Project which unites key demographers, economists, anthropologists, philosophers and environmentalists.

The video below, introducing population growth and global ageing, is part of the e-learning programme GOTO – Global Opportunities and Threats – by Said Business School. It includes contributions by George Leeson as well as Sarah Harper and Kenneth Howse, also from OIPA.

Solving the super-ageing challenge by Katsutoshi Saito, Chairman, Dai-ichi Life Insurance Company, Ltd at OECD Forum 2014

Climate change: Price carbon now, before low-cost oil says “ciao”

Relics of the Oil Age
Relics of the Oil Age

Today’s post is by Nicolina Lamhauge of the OECD Environment Directorate and Ariana Mozafari, Journalism & French major at the American University in Paris

It’s easy to dream about holidays in far-off exotic islands, especially with current global petrol prices. A sustained low oil price has allowed many of us to put away a little more of that paycheck and think seriously about buying an iWatch or taking that much-deserved break.

As we fantasize about wriggling our toes in the sand or finally being able to wear a phone, big oil companies like BP and Exxon Mobil are scrambling to adjust to this loss in revenue. BP recently announced that it will freeze pay increases in 2015 for its 84,000 staff members and lay off 300 employees. Fossil-fuel giants have had to make drastic changes to reflect that oil is now worth $50-$60 per barrel, rather than over $100 per barrel.

This slide in oil prices did not come without warning. The former oil minister of Saudi Arabia, Sheikh Ahmed Zaki, predicted the end of the Oil Age 15 years ago, and in 2009 Fatih Birol of the IEA urged us to “leave oil before it leaves us”. Zaki said that discoveries of new oil fields and advancing technology in the energy sector will eventually wipe out the demand for oil. “I can tell you with a degree of confidence that after five years there will be a sharp drop in the price of oil” and his premonitions finally seem to be coming true.

We don’t know how long oil prices will stay low, so with energy bills bottoming out, it’s prime time to introduce a tax on carbon, along with policies that push energy innovation in cost-effective ways, and shift decisions about production and consumption towards low-carbon choices.

“Every government will need to explain how their policy settings are consistent with a pathway to eliminate emissions from fossil fuel combustion in the second half of the century,” says OECD Secretary-General Angel Gurría. This means looking at all policy measures to assess if they are effective in reducing CO2 emissions and in line with governments’ climate change objectives. An OECD report, Climate and Carbon: Aligning Prices and Policies outlines specific actions:

  • Put an explicit price on carbon. Explicit carbon pricing mechanisms, such as carbon taxes and emissions trading systems, are generally more cost-effective than most alternative policy options in creating the incentive for economies to transition towards zero-carbon trajectories.
  • Identify other cost-effective policy instruments that put an implicit price on carbon. A number of other policies affect a country’s CO2 emissions and can effectively place an implicit price on carbon. Often these policies have been introduced to achieve objectives other than climate-related goals (such as combatting air pollution or raising revenue), with the result that the CO2 emissions abatement achieved may come at a relatively high cost.
  • Review broader fiscal policy to ensure that it is coherent with stated climate goals. Coherent carbon pricing should also include a review of the country’s fiscal policy to ensure that budgetary transfers and tax expenditures do not, directly or indirectly, encourage the production and use of fossil fuels.
  • Ensure that any regressive impacts of carbon pricing measures are alleviated through complementary measures and that a clear communication strategy is developed to explain them. A good communication strategy can raise awareness of the benefits of the reforms. It can reassure those most affected regarding any compensatory or other measures to mitigate the regressive impacts of reforms without losing the incentive to reduce emissions.
  • Ensure coherence between stated climate goals and domestic policies. Consumers, producers and investors must get a clear policy signal of a rising cost for CO2 emissions over time as a result of explicit and implicit carbon pricing policies.

It’s time for governments to ramp up the development of alternative energies and to nail a price onto every tonne of CO2 emitted. With COP21 taking place in Paris in November, sending the right message on climate change means gradually increasing the cost of CO2 emissions, and creating a strong economic incentive to reduce the carbon entanglement and to move towards a zero-carbon world.

Useful Links

Carbon pricing Policy Perspectives on ISSU

OECD work on climate and carbon: aligning prices and policies

Targeted policies to eradicate poverty

UK DAC peer review
Review of UK development cooperation

Today’s post is from Erik Solheim, Chair of the OECD Development Assistance Committee (DAC)

Poverty has been halved in less than 25 years worldwide. The enormous progress over the past few decades is mainly due to rapid economic growth in the South. China’s economy grew by 10% for decades and 600 million people were consequently brought out of poverty.

Economic growth in poor nations is crucial. But it will not be possible to end extreme poverty by 2030 through economic growth alone, even if African countries grow at 10% for the next 15 years. Poverty eradication will require specific policies targeting the most vulnerable groups. The remaining poor tend to be women, minorities, indigenous peoples and the disabled. Poor people are increasingly living in the countryside and in countries in conflict.

More development finance and good policies will be required to end poverty by 2030. The latest OECD peer review of UK development policies (pdf) concludes that the UK can continue to lead a global push for more and better development assistance. The UK reached the international target of 0.7% of national income for aid last year, the first major economy to do so. If the UK can do it, others can follow. The UK Department for International Development (DFID) is also one of the best in the world at measuring success and evaluating what policies work on the ground. We need to learn from success and implement right policies on a global scale. Here are some success stories.

Brazil reduced poverty and inequality while growing the economy. Key to the success was the Bolsa Familia cash transfer program to poor families given in exchange for enrolling children in school and ensuring vaccinations. Similar conditional cash transfer schemes have worked well across Latin America. DFID has found convincing evidence that cash transfers can reduce both inequality and poverty. The challenge for governments in Africa and South Asia will be to mobilize the finances and to put in place systems and safeguards to implement such cash transfer schemes. Can we think of a Bolsa Familia Global?

The microcredit revolution has spread across the world and given millions of poor people, in particular women, the chance to start small businesses and get out of poverty. Bill Gates has made a bet that mobile banking will be the next big microfinance revolution. The UK was instrumental in setting up Kenya’s M-PESA, the most successful mobile banking company in the world. The challenge will be to identify and channel investments to other successful microfinance initiatives.

No country has reached a high state of development without industrialization. Chinese people in the Zhejiang province are now 200 times richer than in the 1970s due to rapid development and manufacturing. Chinese companies are now moving and investing in manufacturing in Ethiopia and Rwanda, helping provide some of the 1 million new jobs required every month across Africa.  Development assistance can help mobilize more investments into manufacturing and industrial development. Development aid is also successfully used to provide skills training to minorities and other vulnerable groups. The UK supports Camfed, the Campaign for Female Education that helps girls finish school and get a job and the Employment Fund Programme in Nepal providing skills training to women and people considered low-caste.

Three-quarters of the world’s poorest depend on agriculture. Good policies can transform the sector. Vietnam went from a big rice importer to the second biggest exporter in the world by implementing property rights, building roads to markets and introducing better rice varieties. The UK has among other things funded OECD Innovation Prize winner Katalyst, an organisation providing mini-packs of high quality seeds to poor farmers. The simple innovation has benefitted over 2 million farmers in Bangladesh and increased farm incomes by almost £200 million. Africa needs a green agricultural revolution. Grow Africa is a coalition of companies, civil society, governments and aid donors coming together to improve agriculture. More such coalitions for action are needed!

Soon half of the world’s poor will live in fragile states and countries in conflict. Conflict can reverse national development by as much as 30 years. Minorities are often targeted and the poorest suffer the most in war. The international community must do more to prevent and stop conflicts. The UK has made progress in coordinating peace and conflict prevention issues across government through the National Security Council. The UK is also committed to direct 30% its aid to support fragile and conflict affected states. The Conflict, Stability and Security fund, a £1 billion venture capital fund for peace, poverty reduction, state-building and security objectives is an admirable way to support peace entrepreneurs and peace processes.

Rapid sustainable economic growth combined with targeted policies for vulnerable groups will make it possible to eradicate extreme poverty by 2030. The challenge will be to identify and implement the most effective policies. Then to mobilize the finances and political will to get the job done!

Useful links

The 2013 Development Cooperation Report – Ending Poverty