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Studia Generalia Lecture

Sustainable Development: One of the Main Challenges for the

OECD’s Future Work

Kiyo AkasakaOECD, Deputy Secretary General

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Overview

I. What is the OECD?

II. Sustainable Development

III. OECD Recommendations

IV. Finland’s track record

V. OECD and the Global Challenges

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I. What is the OECD?

An intergovernmental organisation

30 Member Countries + 100 partners

€188m budget and 2000 staff

Mission:- Growth- Development- Trade

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Address the economic, social and environmental challenges of globalisation.

Provide and pool comparative data.

Do analysis and forecasts to underpin national policies and multilateral co-operation.

Share experiences about policy among policymakers.

Submit to “peer reviews” of their national policies and performance.

OECD is a forum where countries:

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OECD work method

Analysis

Data collection &case studies

Discussion

Recommendations

Implementation

Peer reviews,multilateral surveillance

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II. Sustainable Development

3 dimensions of Sustainable Dev:– Environmental Protection– Economic Growth– Social Development

Our Common Future - Brundtland Report– development which meets the needs of the present without

compromising the ability of future generations to meet their own needs

OECD aims to reduce trade offs between the three dimensions

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OECD Environmental Challenges

• Some air pollutants (lead, CFCs, NOx, SOx)

• Forest coverage in OECD regions

• Water use

• Surface water quality

• Hazardous waste & toxic emissions from industry

• Energy production & use

• Forest quality in OECD regions

•Waste management

•GHG emissions

• Motor vehicle & aviation air pollution

• Agricultural pollution & groundwater quality

• Over-fishing

• Biodiversity & tropical forest coverage

• Chemicals in the environment

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Considerable progress in:Water management:

Water pricing, tradable permits, river basin managementClean up of most polluted waters, point-source pollutionChallenges: groundwater pollution, diffuse pollution (e.g. agricultural)

Reducing local air pollutants:OECD NOx emissions reduced by 15% since 1990, and SOx emissions by 40%.Regulatory timetables for air quality in all OECD regions to 2008Better transport and air pollution taxes, charges and regulationsChallenges: small PMs, VOCs, smog, critical loads for acid rain

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Reductions in SOx and NOx emissions

0

50

100

150

1990 1992 1994 1996 1998 2000

fossil fuel supply

SOx emissions

gross domestic product

OECD SOx and NOx emissionsIndex 1990=100

NOx emissions

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Progress (contd.)

Environmental and health risks from chemicals & GMOs:

Regulatory frameworks for assessing risks of GMOs, Unique Identifiers.

Challenges: bioaccumulating and toxic chemicals in the environment.

Entry into force of multilateral environmental agreements:

Rotterdam Convention on Prior Informed Consent.

Stockholm Convention on Persistent Organic Pollutants.

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Major environmental challenges:

Climate change

Decoupling environmental pressures from economic growth

Biodiversity management

Resource mobilisation

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Climate Change

●Only one-third of OECD countries have stabilised or reduced GHG emissions since 1990.

●Policies slowly being adopted, but insufficient.

●Only a slight decoupling of GHG emissions from economic growth.

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The mitigation challenge

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CO2 Emissions

0

25

50

75

100

125

1990 1992 1994 1996 1998 2000

fossil fuel supplyCO2 emissions from energy use

gross domestic product

OECD emissionsIndex 1990=100

GHG emissions

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1990-2001 1990-2001% %

change change

Australia 21 Korea ..Austria 10 Luxembourg -55Belgium 6.7 Mexico ..Canada 18.5 Netherlands 4.6Czech Republic -22.9 New Zealand 17.2Denmark 0.3 Norway 8.1Finland 4.7 Poland -32.2France 0 Portugal 36.4Germany -18 Slovak Republic -30.6Greece 26.1 Spain 33.1Hungary -22.7 Sweden -3.1Iceland -4.1 Switzerland 0.7Ireland 31.5 Turkey ..Italy 7.2 United Kingdom -11.7Japan 9.5 United States 13

OECD 5.6

GHG Emmissions

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Decoupling Environmental Pressures from Growth

AgricultureGovernment support to farmers = €229 billion (2003).

80% are environmentally damaging subsidies.

Transport & EnergyAir pollution, CO2 emissions, congestion, urban sprawl.

New technologies: promising, but slow.

Challenges: air transport, public transport, energy efficiency, fuel mix.

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BiodiversityProtected areas have increased in OECD to 14.6% of land area, but biodiversity loss outside these areas continues.

Percentage of endangered species continues to increase.

75% of marine fish stocks are fully exploited, overexploited, depleting, or recovering.

Challenges: better management of protected areas, establishment of marine parks, integration of biodiversity concerns in sectoral policies.

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Biodiversity (contd.)

1980 1985 1990 1997 20030

2

4

6

8

10

12

14

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Natural monuments (III)Habitat/species management areas (IV)Protected landscapes/seascapes (V)Managed resource protected areas (VI)

Strict nature reserves (Ia)Wilderness areas (Ib)National parks (II)

I to VI

Protected areas, OECD% of total area

IUCN categories:

Without IUCN category assigned

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International Financial Resources

Resources are insufficient:

$68.5 billion ODA in 2003

Only $5-6 billion to environment-related projects.

MDG goals to halve population without access to water & sanitation by 2015

Additional investment needs = $75 billion p.a. (current ODA and lending = $4 billion).

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Traffic Lights Summary

Some progress, but not enough.

Priority red lights: climate change, biodiversity, decoupling in agriculture, transport, energy.

More efficient and effective environmental policies -- taxes, tradable permits, subsidy removal.

Need for greater environmental policy integration and international co-operation.

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III. OECD Recommendations

Based on:

Costs & benefits of present and future environmental policies

Costs of inaction on environmental issues

Obstacles to reform, such as competitiveness concerns and social impacts

Appropriate policy mixes for particular sectors

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Environmental Goals & Economic Efficiency

Environment protection costs about 1 to 2% of GDP in OECD countries.

Design policies that lead to more economically efficient environmental policies.

Costs could be reduced by approximately 25%.

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Economic Instruments

Voluntary agreements

Regulations

Trading Schemes

Taxation

Removal of Subsidies

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Trends in environmental policy

Increased use of economic instruments (taxes; tradable permits)

Concern with impacts on society and competitiveness

Increased use of voluntary approaches… but these are often ineffective and costly

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Regulations

The main instrument used to control air pollution and resource extraction.

Many forms of regulations.

Regulatory instruments typically impose different costs across emitters.

Regulations mandating the use of a particular technology discourage innovation and have very high costs.

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Environmentally related taxes7 % of total tax revenue (OECD average)

2.5 % of GDP (range 1 - 4.5%)

http://www.oecd.org/env/policies/taxes/index.htm

Motor vehicles

26%

Transport fuels

64%

Heating &process fuels

5%

Electricity

3%

Other9%

Other 1%

Waste 1%

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Effectiveness of taxes?

FINLAND: – Pioneer in carbon taxes (1990)

DENMARK: – sulphur tax – tax on non-hazardous waste NORWAY:

– CO2 tax

SWEDEN:– sulphur tax

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But… taxes can be distortionary

Tax rate variations or exemptions such as: – under-taxing transport diesel fuel.– under-taxing coal.– tax-free aviation fuel (& airlines tickets).– almost full energy tax exemption to the industrial

sector.

Over 1500 tax exemptions recorded in the OECD environmental taxes database.

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Voluntary approaches

Broad use in EU, US, Japan Some Benefits Limitations:

– may not achieve extra environmental benefits– asymmetry in information – industry knows

more about costs – need of back-up policy for non-compliance

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Tradable permits

High potential for CO2/ GHGs:

Continue/ extend in other areas: – SOx

– Water, waste, transport

OECD: strategic guidelines and ex post evaluation.

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Reform of harmful subsidies

OECD country subsidies: – Well over €400 billion p.a. – $318 billion (2002) for agriculture

Environmentally harmful subsidy reform:

Obstacles to reform:– lack of comparable/ reliable data.– vested interests.– difficult to agree on alternative (e.g. income support)

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Estimates of Env-Related Subsidies – late 1990s

Sector OECD countries

non-OECD countries

Total

Agriculture 335 65 400

Water 15 45 60

Energy 80 160 240

Forestry 5 30 35

Fisheries 10 10 20

Other sectors (mainly road transport)

280 30 310

Total 725 340 1065

(% GDP) (3.4) (6.3) (4)

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Integrated Decision Making

Is there a common understanding of SD? Is there clear commitment and leadership? Are institutional structures in place to steer

SD? Is stakeholder involvement in decision making

encouraged? Is the diversity of knowledge and scientific

input to problems well managed?

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Future Work on SD at the OECD

Obstacles to removing environmentally harmful subsidies

Obstacles to the further use of economic instruments

Material flow accounting, decoupling and resource productivity

Inputs to the UNCSD process

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IV. Finland’s Track Record

The economy:

Impressive record from 1993-2000 Strong recovery since 2002 GDP per capita well ahead of Euro-area

and OECD averages Population aging a major challenge Need to enhance effectiveness of public

spending

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Finland and Sustainable Development

What is Finland’s environmental policy track record?

What more can it contribute to help reach targets such as those set out in the MDGs?

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2002-2003 OECD Economic Surveys : S.D. in Finland

1. Climate Change

2. Air Pollution

3. Natural Resources - forests

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SD Policy Advice to Finland (1)

Climate Change:

Participate in EU-wide permit trading scheme in order to increase cost effectiveness of emission abatement.

Equalise carbon taxes across various sectors of the economy.

Reassess exemption of energy taxes on peat.

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SD Policy Advice (2)

Air Pollution:

Reduce particulate pollution by accelerating the replacement of older cars and diesel engines by new models.

Reconsider tax differential between diesel and gasoline so they reflect externalities.

Create a trading scheme for NOx emissions.

Institute road pricing.

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SD Policy Advice (3)

Natural Resources:

Good governance of forest resources.

Costs and benefits of expanding protected areas needs to be weighed.

Competitive bidding might expand forest protection at least cost to society.

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V. Global Challenges

Millennium Development Goals

Plan of Implementation of the World Summit on Sustainable Development

– Poverty eradication– Changing patterns of consumption and production– Protecting and managing natural resources– Health (HIV/AIDS, etc)

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OECD Development Strategy

Shaping Globalization– Regionalisation, Globalisation, the Doha Agenda, International Migration,

Global Risk Management, Security and Development

Supporting Reforms for Development– Policy Coherence, Poverty Reduction, Investment and Private Sector

Development, Institutions, Governance and Capacity Building

Improving Development Co-operation and Finance

– Aid Effectiveness, Aid Harmonisation, Mobilisation of Domestic Resources and Taxation, Statistical Capacity Building

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OECD Contributions

OECD Clients:

OECD Member Countries

100 partner Countries

International organisations & forums– UNCSD, MDG+5, G-8

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Finland and the OECD

Julin Report Trade and Development Ministerial Active participation in the OECD

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Kiitos!