Enabling Conditions for Advancing Green Economy

Introduction
This quest for a green economy concept has been accompanied by widespread discouragement
with the prevailing economic activities, a sense of fatigue emanating from the many concurrent
crises and market failures experienced during the very first decade of the new millennium,
including the financial and economic crisis of 2008. But at the same time, there is increasing
evidence of a way forward, a new economic paradigm – one in which material wealth is not
delivered perforce at the expense of growing environmental risks, ecological scarcities and social
disparities.

There has been an era of misallocation of capital which has led to several crises such as climate,
biodiversity, fuel, food, water, The fuel price shock of 2007-2008 and the related skyrocketing
food and commodity prices, reflect both structural weaknesses and unresolved risks. The
accelerating carbon emissions indicate a mounting threat of climate change, with potentially
disastrous consequences to human. Collectively, these crises are severely impacting the possibility
of sustaining prosperity worldwide and achieving the Millennium Development Goals (MDGs)
for reducing extreme poverty. They are also compounding persistent social problems, such as job
losses, socio-economic insecurity, disease and social instability. However, the causes of these
crises vary, but at a fundamental level they all share a common feature: the gross misallocation of
capital. During the last two decades, much capital was poured into industrialization, fossil and
relatively little in comparison was invested in renewable energy, energy efficiency, public
transportation, sustainable agriculture, ecosystem and biodiversity protection, and land and water
conservation.

Mounting evidence also suggests that transitioning to a green economy has sound economic and
social justification. There is a strong case emerging for a redoubling of efforts by both governments
as well as the private sector to engage in such an economic transformation. According to IEA
(2009) enabling conditions for a green economy (GE) can pave the way for the success of public
and private investment in greening the world’s economies (IEA 2009).

For governments, this would include leveling the playing field for greener products by:
 phasing out antiquated subsidies,
 reforming policies and providing new incentives, (see the table below for countries
examples)
 strengthening market infrastructure and market-based mechanisms
 redirecting public investment,
 and greening public procurement.

For the private sector, this would involve:

 Understanding and sizing the true opportunity represented by green economy transitions
across a number of key sectors,
 and responding to policy reforms and price signals through higher levels of financing and
investment.
Examples of government investment incentives that promote GE
Government Investment Incentive Country Example
Foregoing government revenue - by reducing Turkey offers reduced license fees for entities
or removing fees applying for licenses to construct renewable
energy facilities and provides deductions for
the rent and right of access and usage of the
land during the investment period.
Tax incentives and rebates, e.g. on property A number of municipalities in India have
tax, import taxes and duties, sales tax etc. for established a rebate in the property tax for
purchase of green technology or services – users of solar water heaters. In some cases this
note that a disadvantage of tax credits is that rebate is 6-10 per cent of the property tax.
they do not not lower the barrier of initial
upfront payment, and therefore do not help
low-income households as subsidies may
Accelerated depreciation, which allows an In Mexico, investors in environmentally sound
investor to depreciate the value of eligible infrastructure have benefited from accelerated
fixed assets at a higher rate, which reduces the depreciation since 2005, and in Hong Kong,
investor’s taxable income – often used to buyers of environmentally friendly vehicles
encourage the production of energy from benefit from a reduction in registration tax and
renewable sources other tax incentives
Loan support – through favourable lending In Brazil, the São Paulo State Industrial
conditions (such as loan guarantees or less Pollution Control Programme, established in
stringent repayment conditions) or low-cost 1980, provided preferential credit and
financing (such as subsidized interest rates or technical assistance to polluters, making the
soft loans) pre-treatment process less burdensome. The
project was funded by the state government
and the World Bank.
Legislative support to favoured industries The European Commission’s Renewable
Energy Directive requires EU countries to
source 20 per cent of their energy from
renewables by 2020 provides an incentive for
development of renewable technologies.
Feed-in tariffs (FITs), requiring electricity Kenya has an FIT policy that stipulates long-
suppliers to purchase electricity from term power purchase agreements of a
renewable energy sourced producers at a pre- minimum of 20 years for purchase of
determined price that is sufficiently attractive renewable energy from wind, biomass, small-
to stimulate new investment in the renewable hydro power, geothermal, biogas and solar
sector — this ensures that these producers have energy.
a guaranteed market and an attractive return on Targeted benefits are: additional renewables-
investment for the electricity they produce based electricity generation capacity;
enhancing employment and poverty alleviation
in rural areas; and increasing income
opportunities for business development.
Enabling conditions for a green economy
To make the transition to a green economy, specific enabling conditions will be required. These
enabling conditions consist of national regulations, policies, subsidies and incentives, as well as
international market and legal infrastructure, trade and technical assistance. Currently, enabling
conditions are heavily weighted towards, and encourage, the prevailing brown economy, which
depends excessively on fossil fuels, resource depletion and environmental degradation.

For example, price and production subsidies for fossil fuels collectively exceeded US$ 650 billion
in 2008 (IEA et al. 2010). This high level of subsidy can adversely affect the adoption of clean
energy while contributing to more greenhouse gas emissions. In contrast, enabling conditions for
a green economy can pave the way for the success of public and private investment in greening
the world’s economies (IEA 2009). In addition to these policies, creating the right conditions for
investment in the green economy requires a combination of capacity building, information sharing,
dissemination of good policy practice, social assistance, skill development, general education and
awareness to make sure that green measures are well designed, implemented, enforced and
understood.

Enabling conditions can be created by a wide range of actors and entities, including, first and
foremost, governments, multilateral environmental agreements – notably the United Nations
Framework Convention on Climate Change (UNFCCC), international and national non-
governmental organizations (NGOs), unions, and private sector actors from multi-national
corporations and large firms to small and medium-sized enterprises (SMEs).

At a national level, examples of such enabling conditions are:

 changes to fiscal policy,
 reform and reduction of environmentally harmful subsidies;
 employing new market-based instruments;
 targeting public investments to green key sectors;
 greening public procurement;
 Improving environmental rules and regulations, as well as their enforcement.
At an international level, there are also opportunities to add to market infrastructure, improve
trade and aid flows and foster greater international cooperation (United Nations General Assembly
2010).

At the national level, any strategy to green economies should consider the impact of environmental
policies within the broader context of policies to address innovation and economic performance
(Porter and Van der Linde 1995).2 In this view, government policy plays a critical role within
economies to encourage innovation and growth. Such intervention is important as a means for
fostering innovation and for choosing the direction of change (Stoneman ed. 1995; Foray ed.
2009).

However, it is noted that there are fundamental pre-requisites for a transition to a green economy.
Such a foundation would enable countries in the region to create a policy foundation for a green
economy
Regional GE dialogue suggests that a shift to a more resilient and greener economic pathway
must be built upon a more secure, equitable and democratic foundation. The key elements of that
foundation include:
 A shared vision, across political parties, nations, and sectors of society, which
demonstrates a sense of a shared identity and commitment to the collective social good
 Human security, including equitable access to health care, education, and economic
opportunity
 Good governance that is democratic and transparent and that encourages respectful
dialogue involving all sectors of society
 A strong research and information base, for understanding the underlying causes of
problems and developing effective and efficient solutions
 A well-educated citizenry that is exposed to a wide range of ideas and perspectives and
has the skills and tools to participate actively in the economy
 Involved young people who have a vision of the region’s potential and the talents and
motivation to become its future leaders
 An informed and mobilized civil society that takes a prominent role in national and
regional debates on development priorities, that engages effectively with all sectors of
society, that gives priority to the needs of the poor and marginalized, and that reflects a
diversity of viewpoints and ideologies
 A commitment to global cooperation across existing political, cultural and linguistic
divides, that extends throughout the globe, in order to expand economic markets and
opportunities, facilitate the exchange of skills and labour, reduce dependence on
uncontrollable external economic drivers, spread risk and increase resilience.

United Nations Environment Programme (UNEP) suggestions on the foundations for a green
economy include:
 development of a regulatory framework to encourage green investment, protect
environmental assets and set standards for sustainable production and consumption
(including by governments themselves)
 protection of and investment in natural capital, including through incorporation of the value
of natural capital into national accounts
 encouragement of low carbon technologies and green innovation through direct
investment, tax incentives and other measures
 investment in work force reskilling to facilitate the shift from “brown” to “green” jobs

More importantly, moving towards a green development path is almost certainly a means for
attaining welfare improvements across a society, but it is also often a means for attaining future
growth improvement. This is because a shift away from basic production modes of development
based on extraction and consumption and towards more complex modes of development can be a
good long-term strategy for growth.

There are several reasons why this shift might be good for long-term competitiveness as well as
for social welfare.
First, employing strong environmental policies can drive inefficiencies out of the economy by
removing those firms and industries that only exist because of implicit subsidies in under-priced
resources. The free use of air, water and ecosystems is not a value-less good for any actor in an
economy and amounts to subsidizing negative net worth activities. Introducing effective regulation
and market-based mechanisms to contain pollution and limit the accumulation of environmental
liabilities drives the economy in a more efficient direction.

Second, resource pricing is important not just for the pricing of natural capital and services, but
also for pricing of all the other inputs within an economy. An economy allocates its efforts and
expenditures according to relative prices, and under-priced resources result in unbalanced
economies. Policy makers should be targeting the future they wish their economies to achieve, and
this will usually require higher relative prices on resources. An economy that wishes to develop
around knowledge, R&D, human capital and innovation should not be providing free natural
resources.

Third, employing resource pricing drives investments into research and development (R&D) and
innovation. It does so because avoiding costly resources can be accomplished by researching and
finding new production methods. This will include investment in all of the factors (human capital
and knowledge) and all of the activities (R&D and innovation) listed above. Moving towards more
efficient resource pricing is about turning the economy’s emphasis towards different foundations
of development.

Fourth, these investments may then generate innovation rents. Policies that reflect scarcities that
are prevalent in the local economy can also reflect scarcities prevalent more widely. For this
reason, a solution to a problem of resource scarcity identified locally (via R&D investments) may
have applicability and hence more global marketability. The first solution to a widely experienced
problem can be patented, licensed and marketed widely.

Fifth, aggressive environmental regulation may anticipate future widely-experienced scarcities and
provide a template for other jurisdictions to follow. Such policy leadership can be the first step in
the process of innovation, investment, regulation and resource pricing described above (Network
of Heads of European Environment Protection Agencies 2005).

Lastly, the benefits from a strong policy framework to address market failures and ecological
scarcities will flow down the environment pathway that comes from altering the direction of an
economy. Policies and market-based mechanisms that enhance perceived resource prices creates
incentives to shift the economy onto a completely different foundation – one based more on
investments in innovation and its inputs of human capital, knowledge, and research and
development.