In this economically and environmentally-challenged world, governments must look to the green economy to find new sources of growth and jobs. They should put in place policies that tap into the innovation, investment and entrepreneurship driving the shift towards a greener economy.
Green growth makes economic as well as environmental sense. In natural resource sectors alone, commercial opportunities related to investments in environmental sustainability could run into trillions of dollars by 2050, according to the OECD.
Two broad sets of policies are essential elements in any green growth strategy. The first set mutually reinforces economic growth and the conservation of natural capital, including core fiscal and regulatory settings and innovative policies. The second includes policies that provide incentives to use natural resources and make pollution more expensive.
Replacing natural capital with physical capital is expensive and the infrastructure to, for example, clean polluted water can be costly but the cost of inaction can be even higher. Greening growth now is necessary to prevent further erosion of natural capital, such as scarcity of water and other resources, more pollution, climate change and biodiversity loss, all of which can undermine future growth.
Green growth has the potential to address economic and environmental challenges and open up new sources of growth through the following channels:
1) Productivity – incentives for greater efficiency in the use of resources and natural assets; enhancing productivity; reducing waste and energy consumption; and making resources available to highest value use;
2) Innovation – Opportunities for innovation, spurred by policies and framework conditions that allow for new ways of addressing environmental problems;
3) New markets – Creation of new markets by stimulating demands for green technologies; goods and services; creating potential for new job opportunities;
4) Confidence – boosting investor confidence through greater predictability and stability around how governments are going to deal with major environmental issues;
5) Stability – More balanced macroeconomic conditions; reduced resource price volatility; supporting fiscal consolidation through, for example, reviewing composition and efficiency of public spending; and increasing revenues through the pricing of pollution.
It can also reduce risks of negative shocks to growth from resource bottlenecks that make investment more costly, such as the need for capital intensive infrastructure when water supplies become scarce or their quality decreases (such as desalination equipment – here in Malta we have already had experience of this).
In this regard, the loss of natural capital can exceed the gains generated by economic activity, undermining the ability to sustain future growth.
Imbalances in natural systems also raise the risk of profound abrupt, highly damaging and potentially irreversible effects, as has happened to some fish stocks and arable land, through uncontrolled overfishing and unsustainable land use.
Attempts to identify potential thresholds even at global level suggest that in some cases – climate change, global nitrogen cycles and biodiversity loss, these have already been exceeded.
Green growth strategies need to encourage greener behaviour by enterprises and consumers, facilitate smooth and just reallocation of jobs, capital and technology towards greener activities and provide adequate incentives and support to green innovation.