Ryan Parmentier, OECD Environment Directorate
Imagine you have an important decision to make. Do you carefully consider the long-term implications of each possible option or do you act impulsively? Would you approach the decision-making process differently if the consequences stretched out to 30 or even 50 years?
Urban, spatial and land use planning professionals repeatedly find themselves in this predicament. There are significant and long-lasting economic as well as environmental impacts of the decisions that are made with respect to transportation, energy, waste, water, buildings and infrastructure. Yet, many land-use interventions do not properly account for environmental consequences. The decisions made regarding where and when roads are built, and the density, type and location of buildings all have long-term impacts on air pollution, greenhouse gas emissions, biodiversity and water use. Even seemingly indirect or unrelated decisions on the taxation of property can have a significant impact on environmental outcomes. As a result, the innumerable decisions related to land use – both big and small – need to be made so that growth is green.
This is an easy thing to say, but an increasingly challenging thing to do in a world that is changing incredibly fast. As a recent article on urban planning in the Economist pointed out, the city of London took 2000 years to grow from 30,000 to almost 10 million people. Cities in China are achieving the same growth rate in just 30 years! The pressures to deliver the services required by an expanding global population are challenging and the long-term environmental consequences are becoming impossible to ignore.
The 2016 OECD Green Growth and Sustainable Development Forum will tackle these very issues under the theme of “Urban green growth, spatial planning and land use”. An engaging agenda is being developed that will explore, through examples, whether existing land-use policies support green growth. The Forum will discuss the challenge of urban sprawl and the associated social and environmental consequences. It will examine the green growth challenges at the city level, giving consideration to innovative approaches and best practices. Issues related to resilient infrastructure, tracking and measuring progress on green growth as well as the role that finance and tax policies can have on land use outcomes will also be discussed. One session will focus on the OECD’s Inclusive Growth in Cities Campaign and discuss how to build cities that are both inclusive and environmentally sustainable.
The Forum will consider green growth at all relevant levels, i.e. from both the national and sub-national perspectives and part of the broader international agenda. The latter includes the Sendai Framework for Disaster Risk Reduction 2015-2030, the United Nations Sustainable Development Goals, the Paris Agreement on climate change, Habitat III (the United Nations Conference on Housing and Sustainable Urban Development – Quito, Ecuador 17-20 October, 2016) and the 2017 Annual Green Growth Knowledge Platform Conference on resilient infrastructure that will be hosted by the World Bank.
The wide-ranging issues related to land use and the broader international agenda clearly demonstrate that to be successful, co-operation is crucial. This includes co-operation across local, regional and national levels to effectively green urban and spatial planning as well as land-use policies and decisions. Enhanced international co-operation is becoming urgent. This is particularly relevant in a world that is facing increasing uncertainty. There will be growing pressure and a natural instinct to continue to make decisions that benefit the short term when the future is uncertain. But now more than ever, we need to work together to make sure that does not happen.
The 2016 OECD Green Growth and Sustainable Development (GGSD) Forum: Urban Green Growth, Spatial Planning and Land Use Paris, 9-10 November
“Cities and Green Growth: A Conceptual Framework”, OECD Regional Development Working Papers 2011/08
Redefining an industrial revolution: OECD 2015 Green Growth and Sustainable Development Forum (14-15 December 2015, Paris)
Ryan Parmenter, OECD Environment Directorate
Besides the sound of whistling steam, what comes into your head when you hear the term “industrial revolution”? Some might think of new innovative technologies and processes, or even economic growth. Others might think of environmental degradation. Just type “industrial revolution” into Google Images and you’ll quickly see both of these perspectives.
The images of the industrial revolution highlight the new steam-powered trains as well as the innovative factories that drove large-scale societal change. Yet, those same images also show blackened skies due to the increased use of coal. These images are similar to those landscapes described by F. Scott Fitzgerald’s The Great Gatsby (the “valley of ashes”) or even in Dr. Seuss’ The Lorax.
But, what if things were done differently? What if an industrial revolution occurred without negatively affecting the environment, and in fact helped to reach green goals cost effectively, faster and at scale needed to bring about meaningful change?
Environmental performance can be a founding principle rather than an afterthought. Innovative technologies to improve productivity and performance could be developed using a systems approach, rather than being pursued in sectoral or technological isolation. Exciting possibilities are emerging. One example is the pursuit of a biobased economy. This is about seeking to transition from a fossil-based to a bio-based economy by using biomass for non-food applications. This requires innovative applications in chemicals, materials, transport fuels, electricity and heat. Another example is smart grids. But even this approach is evolving to consider larger systematic opportunities available through smart cities. These are examples of where the innovation complementarities are considered in order to maximise the benefits across technologies and sectors.
Innovative businesses can also be encouraged by policy. As demonstrated in the past, incremental improvements in existing technologies as well as radical or disruptive technological change are necessary for an industrial revolution. Therefore, it is important to identify the right policy mix to support both types of innovation. Policies need to encourage new green businesses to enter the market and existing businesses to improve their productivity and environmental performance or else exit the market. This is a critical balance as environmental policies can at times benefit new entrants to the market, or favour existing firms (i.e., incumbents) through practices such as ‘grandfathering’ legislation. The nature and level of government policies will have a direct impact on the dynamics of firms entering and exiting the market – ultimately shaping the nature of innovation activities.
Big data sources
The increasing number of unconventional and “big” data sources could be used to drive greener growth. Evolving technologies for satellites and now even cellphones are rapidly expanding the number of opportunities available to collect information needed for air pollution monitoring or real-time resource use (e.g. energy and water). For example, drones can now be used to gather increasingly detailed information in order to green the agriculture sector. Other examples of exploiting new sources of data exist in the energy, transportation, water sectors as well as others. To be successful, the technical, regulatory and policy implications of these data sources must be considered, while addressing how the information is collected and ensuring its confidentiality.
Public engagement, International co-operation & Measurement
Public engagement should be considered fundamental to ensure that risks are managed and that trust is established in the process of pursuing innovative and green technologies. New forms of governance and adjustments to the regulatory system may be required to ensure that human health and safety is protected while allowing for emerging technologies to be used. International co-operation can also be used to develop innovative processes and technologies. Environmental impacts such as climate change do not respect international borders and neither do the benefits of green innovations. This requires the use of the appropriate mechanisms and incentives to encourage co-operation. The effective measurement of innovation is also an important consideration. Meaningful government support needs to be established based on credible information. Decisions need to be made on how and when government support is provided, both to encourage successful innovations and also to end support when initiatives are unsuccessful.
So, for those interested in exploring any of these issues, or more broadly considering how to foster a green industrial revolution, it will be worthwhile to plan a trip to the OECD Green Growth and Sustainable Development Forum* in Paris this December.
This year’s theme for the OECD Green Growth and Sustainable Development Forum is “Enabling the next industrial revolution: systems innovation for green growth”. Rather than a large trade fair style event, the Forum allows for in-depth discussions between those advising and lobbying governments. The objective is to share policy analysis and experience among countries and the community of green growth and sustainable development practitioners. Through these shared experiences and analysis, key knowledge gaps can be identified to inform future work in this important area. Given that the Forum will be taking place directly on the heels of the COP21 negotiations in Paris, the timing is perfect for considering the best ways of encouraging a green industrial revolution. Those interested can register for the Forum here.
Nathalie Girouard, OECD Environment Directorate
In a recent lecture on climate change, the OECD Secretary-General stated that “Tomorrow’s societies engineered around yesterday’s solutions won’t get us there.” The OECD’s work on green growth is just one example of where the Organisation is working towards the development of solutions for today.
The OECD’s 2011 Green Growth Strategy set out a framework for governments to foster economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services necessary for human well-being. To ensure the OECD’s advice on green growth did not become a solution for the past, the Organisation recently prepared the Towards Green Growth? Tracking Progress report. The report takes stock of country experiences and challenges in implementing green growth. It reviews and strengthens the green growth strategy based on the lessons from country efforts, as well as advances in OECD work – including more than 130 green growth publications and over 115 country surveillance reviews containing more than 300 green growth recommendations. Lastly, it assesses the green growth mainstreaming efforts that have been made within the OECD, as these experiences are relevant and instructive for governments and organisations going through the same process. The aim of the report is to accelerate countries’ implementation of green growth policies by providing more targeted and coherent policy advice. In other words, provide relevant solutions that are effective for today’s green growth challenges.
The analysis of country experience shows that countries are making progress, but more work is needed. Thus far, 42 countries have signed on to the OECD’s declaration on green growth. Roughly a third of OECD member countries and a number of OECD partner countries have adapted, or are adopting the Green Growth Strategy’s indicator framework. Examples of green growth policies include China’s 12th 5-year plan on green development, Portugal’s Green Growth Commitment, and Ireland’s framework for sustainable development. Yet to date, no country has comprehensively linked environmental and economic reform priorities. The analysis of the OECD’s green growth recommendations identified that common challenges facing countries relate to the implementation of market instruments to price pollution; orienting tax systems to advance green growth; designing environmentally relevant subsidies; and gearing sectoral policy towards green growth.
This analysis, along with the assessment of OECD’s work on green growth allowed for the development of several key findings and recommendations. First, direct pricing of environmentally harmful activity is indispensable to green growth, but political opposition remains a challenge. To respond to this opposition, more effort is required to tackle the social challenges of reform (e.g., labour market and household impacts). In addition, where constituencies are strongly against tax increases or shifts, governments may need to consider policy mechanisms other than direct pricing.
Misalignments in government policy are also acting as a major hurdle to meaningful reform. Two prominent examples are that governments spend roughly $640 billion per year on environmentally-harmful fossil fuel subsidies and that diesel fuel is taxed at a lower rate than gasoline in 33 out of 34 OECD countries – despite the fact that diesel emits higher levels of harmful local air pollutants and CO2.
The analysis of the mainstreaming process for green growth at the OECD showed that it is proceeding rapidly, but unevenly. Around 70% of OECD country policy surveillance documents contain green growth recommendations. This accomplishment is in part driven by the OECD’s Economic Surveys, where over 80% include green growth recommendations. The elements driving this successful mainstreaming include: high-level leadership and clear accountabilities; formal structures for collaboration; clear articulation of how green growth links to other policy priorities; and dedicated human resources. Nevertheless, more work is needed to better integrate green growth into the OECD’s work on investment and innovation. The forthcoming Green Growth and Sustainable Development Forum on Systems Innovation for Green Growth is one mechanism that can be used to advance work in this important area.
To ensure that the OECD’s green growth strategy remains relevant, the report also outlines a series of improvements. These are intended to modernise the strategy and outline work priorities for governments, the OECD and others. These include enhancing the understanding of complementarities and trade-offs between economic and environmental goals; enhancing public trust in green growth by addressing the social impacts of reform; and ensuring that policies are coherent and aligned within and across sectors. Further developing and considering the ocean economy and mining in gearing sectoral policies for green growth. Lastly, using green growth indicators to raise awareness, measure progress and identify opportunities and risks as well as factoring in the challenges and opportunities that green growth represents for developing and emerging economies.
2015 needs to be a big year for green growth. The Tracking Progress Report is just one of the many contributions to continue to advance work in this field. While governments and international organisations endeavour to green growth through the forthcoming Sustainable Development Goals and the COP21 negotiations, it is important to remember that solutions for today can also come from individuals. As George Eliot said, “The strongest principle of growth lies in human choice.”
To explore the findings of the report, a publication launch webinar will be hosted by the Green Growth Knowledge Platform (GGKP) on 27 July, featuring Carlo Carraro (Co-Chair of the GGKP Advisory Committee), the OECD’s Chief Economist Catherine L. Mann and Kevin Urama (Managing Director, Quantum Global Research Lab) as the lead discussants.
Key recommendations in English, French and Spanish
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.
- 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.
- Governments should minimize the soft costs for these green projects. Examples of these include mitigating building and permit costs to encourage green growth.
- 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.”
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.
Today’s post is by Ryan Parmenter, Policy Analyst in the OECD Environment Directorate’s Green Growth and Global Relations Division
Ever plodded through flood waters to get to a conference? In late January, the Green Growth Knowledge Platform (GGKP) held their 3rd annual conference in Venice, Italy at the impressive Ca’ Foscari University. More than 200 experts from universities, governments and agencies converged to discuss the role that fiscal policies can play in greening growth. With the streets filling rapidly with water, nature (influenced by a changing climate) provided extra motivation to act immediately on this issue as participants flocked to indoor heaters and radiators to dry out their drenched shoes and socks.
Using an innovative format, we discussed the findings of over 50 peer-reviewed papers. This ensured that the conference subject was covered from a variety of angles. I personally attended sessions that ranged from considering how to use carbon taxation revenues to address pension deficits, to evaluating an Italian car scrapping programme.
I was struck by one theme that cut across nearly all of the discussions: the ongoing problem of mainstreaming green growth. Mainstreaming needs to involve people from the organisations and ministries that make decisions on a wide range of policies and programmes. To be truly effective at addressing the complexity and scale required for greening growth, engagement is required with more than just those who work strictly on environmental matters.
Almost all of the discussions I attended noted some element of concern about whether the right people were in the room. There were repeated calls from panellists, moderators and participants regarding the need to address the social implications of greening growth as well as increased engagement with central banks and finance ministries. On a broader level, it was noted that success requires a collective effort and international co-operation in order to address the green growth concerns that so easily expand across borders.
Related to mainstreaming, there were two stand out moments:
In a parallel session on Climate Change and the Green Economy Transition, Erika Jorgensen from the World Bank pointed out that Environment Ministries do not by themselves have the authority or funding required to effectively address green growth. She extended the point to say that any national priority cannot be handled by a single government ministry. This was a direct and succinct assessment of the mainstreaming problem and the reality facing green growth issues.
In another moment, during a high-level panel discussion on Complementary Structural Policies for Effective Fiscal Reform, Simon Upton (OECD Director of Environment) requested a show of hands to determine if anyone in the room represented social ministries (e.g., health or labour). Although no official count was provided, it was evident that only one or two of the 200 people in attendance raised their hands. This was a very effective illustration of the often narrow attention that green growth issues can receive.
Based on the prevalence of this challenge at the conference, it would seem that the very well-worn problem of “silos” is still relevant for green growth and requires attention. To its credit, the OECD continues to do its part related to mainstreaming. In total, 13 OECD experts participated in the event representing the Economics Department (ECO), the Centre for Tax Policy and Administration (CTP), the Trade and Agricultural Directorate (TAD) and the Environment Directorate (ENV). In addition, the OECD presented its forthcoming study with the International Energy Agency, International Transport Forum and Nuclear Energy Agency on “Aligning Policies for the Transition to a Low-Carbon Economy”. This project looks to identify the frictions and unintended consequences of policies in areas such as investment, finance, energy, taxation and innovation that may be working against climate policy. In other words, such a project is trying to involve ministers and parts of governments not typically involved in climate policy discussions. This is just one of the ways in which the OECD is trying to develop a broader, systems approach to inform green growth policy assessment and development.
So, apart from mainstreaming (and a fair amount of “urban-streaming” in the streets and overflowing canals outside), nature’s wicked sense of timing meant this green growth conference had a real a sense of urgency. With the city of Venice flooding during the second day our soggy socks were very effective in reminding us about the real world changes that are occurring and the need for continued action from all ministries, academia and other key players to work on going green.
Two cheers for Piketty: Or, why both he and the OECD and nearly everyone else are wrong on growth. Part 1
Today’s post is the first of two articles by Rupert Read, Reader in Philosophy in the School of Politics, Philosophy and Languages at the University of East Anglia, Chair of Green House and parliamentary candidate for Cambridge for the UK Green Party. Part 2 will appear tomorrow
Piketty’s alleged-updating of Marx, Capital in the 21st century, is taking the intellectual world by storm. I’m delighted that such an improbable happening can occur in our rather-impoverished public sphere, and pleased to cheer him on.
Piketty’s proposal for a global wealth tax to counteract the literally-insane levels of inequality now generated in our world is most welcome.
Piketty’s prior analysis of the importance of wealth-inequality (and not just income-inequality, on which Wilkinson and Pickett focussed in their epochal work The Spirit Level) is of course equally welcome.
That’s two thumbs-up. But sadly, I can’t give Piketty anything like a full-throated ‘three cheers’.
Piketty argues that if growth in a capitalist economy is higher then, other things being equal, wealth will be more evenly distributed. (I am extremely doubtful as to whether he has proved this; causation is of course not proven by mere correlation. The data are equally compatible with the claim that there has been a lucky partial correlation between high economic growth and periods of democratic regulation, reform and governance of the economy, and that it is the latter that have been more responsible for the relative evenness of wealth-distribution at times of higher economic growth.)
However, his claim in any case only applies to present-day people. Piketty fails almost completely to think about future people. If economic growth will lead to future generations suffering, then it is not egalitarian – provided that we take seriously that future generations matter, that they ought to be included as among our equals. Now, economists will counter that all people from now to the end of time are in their equations as if they live in a discounted present: but that it is the point. Rashly – madly – assuming that growth will continue forever, and additionally assuming that humans are selfish and don’t really care about their offspring, standard economists standardly discount the future: the further into the future one looks, the less the people living there matter, so far as economists are concerned. This is unacceptable.
I suggest that, at a time when it is ever clearer that humanity is running up against the limits to growth (the climate crisis being only the most large-scale of these phenomena), it is delusional and in fact disgraceful to seek to make an ‘egalitarian’ argument in favour of growthism. Growthism is causing the undermining of the living conditions of all our children and grandchildren: for it is above all economic growth that is to blame for our collective breaching of planetary limits. This alone is enough to completely undermine Piketty’s case for economic growth. For if we can’t take care of our descendants, what good are we? The first virtue of any decent society is to not destroy the conditions of possibility for its children, the conditions of possibility for their flourishing.
But there’s more. Piketty makes the assumption that our economy must remain fundamentally capitalist (and in this fundamental respect it is more than presumptuous of him to seek to don the mantle of Marx). But given the looming contradiction between capitalism and the planet, he ought not to have done so. Stopping doing so would mean that the truth, if such it is, that growth is necessary in a capitalist economy to help allegedly equalise the distribution of wealth no longer carries much weight: for we have to start to think beyond a capitalist economy.
A post-growth ‘steady-state’ economy by definition would not be one in which the growth imperative of capitalism was allowed to let rip: in such a post-growth economy/society, humankind would continue to develop culturally, but would no longer seek to expand the amount of economic activity and would seek to reduce to one-planet levels the amount of material throughput (i.e. of resource-use and pollution).
A post-growth society will be forced to face the question which growthist ideology – with its promise of an ever-growing pie – allows one endlessly to evade: how shall we share what together we have? So Piketty’s claim that a ‘stalling’ of growth is bad for the majority may well be exactly wrong. Not just because the capture of all growth by the elite is happening right now. But also because once one considers the future, and once one considers that we need in any case to be thinking beyond capitalist political economy, and once one considers especially the way in which growth functions as a rhetorical device to shield from view the necessity for sharing out the wealth more fairly, then it is simply no longer convincing.
I would submit in fact that a ‘stalling’ of growth – or, better, a facing up to living in a post-growth society – and a willingness to see that we simply can’t keep growing the pie now that the ingredients are running out, will finally be what force the majority to take back some of the wealth currently being hoarded by the rich.
Some portions of this article appeared previously in my Green economics versus growth economics, available here
Does income inequality hurt economic growth? From the OECD Directorate for Employment, Labour and Social Affairs
Can you have your green cake and eat it too? Environmental policies as an ingredient for economic growth
Today’s post is by Maroussia Klep of the OECD Environment Directorate
In today’s hard times, policy-makers can find it difficult to sell their environmental policies. To many, these policies represent a burden on the economy. They might secure the well-being of our grandchildren, sceptics argue, but risk preventing the growth we badly need today.
In this context, recent OECD findings provide renewed optimism. As revealed by thorough economic assessments, well-designed green policies not only secure long-term wellbeing, but can uphold current productivity levels too. In other words, it is possible to increase the economic pie and make it greener at the same time.
As ecological concerns gained momentum in the last decades, many studies have attempted to identify the impacts of environmental policies on the economy, with varying conclusions. In the United States for instance, scholars tried to relate the economic slowdown in the 1970s to the introduction of such policies; but their results were largely inconclusive. On the opposite side, economist Michael Porter suggested in a 1991 article that stringent policies could actually increase competitiveness: “strict environmental regulations do not inevitably hinder competitive advantage against rivals”, says Porter, “indeed, they often enhance it.”
In a report published this month, OECD splits the difference. The in-depth empirical analysis across OECD countries in the last twenty years revealed that well-designed green policies can sustain current levels of productivity growth.
When new policies are put in place, the more productive and technologically advanced firms are usually those able to reap the most benefits. They have indeed the firepower to seize market opportunities and rapidly adopt new technologies. Besides, once technological improvements are realized in an industry, the positive economic effects will often spread out across industries and countries via integrated production chains. According to OECD, these positive outcomes can be further encouraged if environmental policies offer flexibility for compliance, a reason to favour market-based instruments (such as taxes) over rigid regulations and standards.
In parallel, the less productive and technologically advanced firms may require more investment in order to comply with regulations, and may even have to drop out of the market if they are unable to adapt to changing conditions. In a competitive market, such entry and exit should lead to a swift reallocation of capital and sustain overall industry productivity.
It is therefore essential for policy-makers to support market competition. In particular, the design of environmental policies should as far as possible guarantee a level-playing field among competitors.
This brings us back to our recipe: which are the key ingredients for a “growing green cake”?
First and foremost, OECD argues, legislators shall ensure that the burdens imposed on competition by new policies are minimised and do not inhibit the entry of new and potentially cleaner firms and technologies. As highlighted in the report, countries such as Canada, New Zealand and Israel could further reduce the high administrative costs imposed on new entrants and facilitate access to environmental licences. In the same vein, instruments that favour incumbents, such as subsidies based on past performance, may put young firms at a disadvantage and impede market entry.
But the report also provides encouraging examples. In many countries, green policies and economic wellbeing go already hand in hand. The Netherlands, Switzerland and Austria, for instance, have implemented relatively stringent environmental policies that remain competition-friendly. For this, they have set measures to facilitate market access for new entrants, minimize red-tape and provide fair and equal conditions to all market players. These successful case studies can inspire policy-makers in OECD countries and beyond when designing green policies or revising existing ones.
Of course, the priority of environmental policies is to secure long-term sustainability. However, if the right conditions are put in place, greening the economy while upholding today’s growth trends could become a piece of cake.
The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness? by Ambec et al. in the Review of Environmental Economics and Policy