G re e n E c o n o m y a n d G re e n G ro w t h :

World Bank ApproachesMike Toman, Lead Economist and Manager,

Environment and Energy Research Team 18 May 2010

MDG Challenge

1) Eradicate poverty & hunger Natural resource degradation

2) Universal primary education Water/sanitation; energy access

3) Gender equality/empowerment Land use; indoor air pollution

4) Reduce child mortality Water/sanitation

5) Improve maternal health Water quality; energy/pollution

6) Combat major diseases Air & water quality//climate change

7) Environmental sustainability NR degradation; BD, CC; governance

8) Global public good partnerships Biodiversity, int’l waters, CC

Environment and MDGs

Low-carbon growth “Green stimulus” recovery packages “Green infrastructure” investment Meeting basic energy and water needs Increasing resilience to natural variability Improved efficiency of existing

environmental regulation Correcting harmful market distortions New economic opportunities (green supply

chains, eco-tourism, green innovation,…)

Many Themes Under “Green Economy”

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A guaranteed “win-win” for environment and GDP growth◦Real costs of environmental protection yield

improvement in quality of life A direct path to new markets and economic

opportunities◦Some green technologies are not (yet) market ready;

others are missed opportunities An assured solution to problems of poverty

reduction and social equity◦South Africa’s electricity “lifeline” policy yields

significant benefits but also requires ongoing expenditures; broader “safety net” challenges

What Green Growth is Not:

Complement technology development and standards, implementation targets with pro-environment, pro-inclusive-growth economic incentives

Target incentives for cost-effectiveness Solid enforced legal structure also key Policy reforms go beyond the environment

and energy sphere

BUT: If addressed as an Economic Issue, Green Economy is a

Growth Opportunity

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Stronger environmental & natural resource management & investment to enhance growth, reduce poverty Enhanced quality and availability of communal

land and water resources in rural areas Growth-enhancing investments in technical

improvements and infrastructure that also reduce environmental impacts

Includes but goes beyond existing approaches for environmental protection

General Concepts of “Green Economy” and “Green Growth”

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Maintain environmental sustainability◦“Meet needs of present without

compromising ability of future to meet its needs”

◦Offset “natural capital” depletion with other social wealth build-up – increased aggregate savings to accelerate growth

General Concepts of “Green Economy” and “Green Growth”

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Reduce market failures and institutional barriers to green markets◦ Institutional and governance improvements that

improve economic incentives for sustainability (investment and consumption)

o Addressing economically wasteful and environmental harmful subsidies – energy, water, land use, …with concern for impacts on poor

o Targeted, cost-effective fiscal incentives for green investment

Improved national accounting for costs of resource and environmental depletion

General Concepts of “Green Economy” and “Green Growth”

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Enhancing natural resource productivity – “basic needs plus”

Addressing emerging problems as economy grows and diversifies

Taking opportunities in green innovation and new market and employment development

Not just low-carbon development!

Different Emphases at Various Stages of Development

Core Near-Term Policy Issues: Employment Fiscal Space Efficiency of Resource Use Immediate environmental threats Stage setting for longer-term sustainability

Key Message: Green Economy is an Economic Challenge and a

Growth Opportunity

Not listed in any priority order

Stronger and clearer economic incentives are crucial for advancing on all these issues – not just for the environment

Price signals reflecting social costs of resource & environmental impacts are inherent part of incentive system – induce more efficient and sustainable uses

But, there is much more to the story than the pain of higher product prices!

Role of Economic Incentives

Changes in input demands creates ready demand for more eco-efficient technology – increasing economic rewards, reducing risks & financing barriers◦ Can be complemented selectively with

performance standards, demonstrations to increase scale and lower costs

◦ Signals can be designed to reflect balance of more immediate and longer-term environmental and resource conservation priorities

Price Signals Reinforce Green Investment and Consumption

Can start with most available, low-cost and labor-intensive opportunities◦ Solar water heating◦ Green building retrofits◦ Off-grid power for more remote areas◦ Installation of efficient water using devices◦ Audit and assessment functions◦ Transport congestion reduction◦ On-site materials recycling, re-use

Green Incentives Feed Back Directly on Employment Possibilities

Financing technology innovation/diffusion, other longer-term green growth options

Increase green job skills Help for cost of lifeline measures Measures to reduce highly segmented and

distorted labor markets◦ Research indicates net cost of increasing energy

prices may be minimal if accompanied by fiscal and labor market reforms

Green Pricing Measures Can Increase Badly Needed Fiscal Space

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Improved access for rural/poor credit, transportation infrastructure, education for rural/poor

Cost-effective, market-enhancing economic regulation in energy sector

Reduced institutional barriers to green technology policies – finance, trade, human knowledge

Need for Complementary Measures

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Subsidizing some green investment can be costly, especially if not well targeted◦ Tax breaks reduce fiscal space◦ Feed-in tariffs for costlier renewables shift cost to

all users Industrial policy to develop green markets

and technologies?◦ Generally has worked only for certain countries

in certain circumstances◦ Important to rely on comparative advantages for

managing market and regulatory uncertainties

Cautionary Notes in Targeting Policies and Measures

World Bank Has Strong and Growing Commitment to Mainstreaming

Environment in Growth Initiatives Goal of 50% clean energy lending in

relatively near future, including low-emission transport

Improved watershed management (not just end of pipe treatment)

Support for country access to donor green grant funding

Integrating environment into national level development partnership strategies

Technical assistance and knowledge transfer

Africa Climate Resilient Growth Strategy

Assessment of poverty, environment and health linkages in Egypt, Yemen and Djibouti

Expanded Bank assistance in Sub-Saharan Africa for management of protected areas

Some Examples of WB Supported Environment Mainstreaming

Range of environment – growth synergies not yet fully mapped out◦Tradeoffs between nearer-term stimulus

and longer-term growth◦Relative growth performance of more or

less green strategies◦Role of innovation and strategic capacity

investment to enhance green growth

Need for Analytically Sound, Evidence-based Measures Is

Paramount

….I have discovered the secret that after climbing a great hill, one only finds that there are many more hills to climb….

….I dare not linger, for my long walk is not ended.

A Very Wise Man Once Said…

mtoman@worldbank.org

Questions and comments very welcome. Thank you!

End of presentation

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Persisting Environmental Challenges

Environmental Healthand Pollution Management

24% of disease burden and 23% of all deaths in developing countries from environmental risk factors

Half of malnutrition caused by poor sanitation from lack of access to safe water

Indoor air pollution responsible for 1.5 million premature deaths from respiratory illness; 2.7% of global burden of disease

Sustainable Natural Resource Management

Deterioration seen in water, air, forests, grasslands, marine resources, agro-ecosystems

Overfishing: 75% of global fish stocks fully or over-exploited

Damages to protected areas, wetlands, other ecosystem buffers

Climate Change

FY09, ENRM portfolio amounted to $13 billion (10% of total)

Active Environment and Natural Resource Management (ENRM) Portfolio

Environment Lending FY09

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Persisting Environmental Challenges

Policies, Governance Institutions,InternationalCooperation

Limited inter-ministerial coordination for advancing and balancing economic, environmental goals

Limited coordination among levels of governmentShortcomings in natural resource managementChallenges and opportunities of urbanization Inadequate enforcementEnvironmentally and economically harmful policy

distortionsWeaknesses in international cooperation

2001 Environment Strategy: Environmental Quality and Poverty

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Higher profile of env in country strategies Maintain safeguards management Increased analysis of environmental

opportunities and implementation costs◦ So far, limited economic analysis of

environmental improvements in practice Increased env policy-based lending

Variety of Implementation Methods

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Studies highlight severe infrastructure gaps:

Infrastructure and Green Economy

% house-holds with regular access to:

All developing countries

Africa Non-Africa low-income countries

Electricity 63 29 56

Improved water

84 60 79

Improved sanitation

52 31 48

All weather road (rural)

64 36 42

South Africa figures better, e.g. 81% electricity access

Africa’s Expenditure Gaps Amplified by Various Inefficiencies:

Africa country grouping

Infra Needs (%GDP)

Spending (%GDP)

Correctable inefficiencies(%GDP)

Net gap (%GDP)

Middle income

10 6 2 2

Resource rich

12 5 3 4

Low income

22 10 3 9

Fragile states

36 6 5 25

All Africa 15 7 3 5

Source: World Bank Africa Infrastructure Country Diagnostic, 2010

Private Participation Remains Limited

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

20

40

60

80

100

120

140

160

180

East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia

Sub-Saharan Africa

Source: World Bank data base on private infrastructure investment (PPIAF)

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WB infrastructure lending increased from $2.5billion in FY2008 to $3.6 billion in FY2009

Separate longer-term economic benefits from near-term stimulus effects◦ Many green growth investments could have

large employment impacts only over the longer term

Economic benefits of “creating new jobs” depends on cost-effectiveness of stimulus

Green Growth and “Green Stimulus”

Eskom investment – critical need to alleviate power supply problems, longer-term focus on improved efficiency and renewables◦ Current WB guidance on coal investment

Continued emphasis on biodiversity and tourism benefits from protected areas◦ Cape Peninsula, Simangaliso Wetland Park

Water –persistent need to improve systemic management and resilience to shocks, increase efficiency of use

Illustrative Examples – South Africa context