NEWS ANALYSIS: Green is Now the Wealth of Nations

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By Ramesh Jaura

Traversing a long and bumpy road since Adam Smith reflected on 'The Wealth of Nations' at the beginning of the Industrial Revolution, his legatees have discovered a new source: the green economy.

The Organisation for Economic Cooperation and Development (OECD), also known as "the rich man's club", has come round to the view that "governments must look to the green economy to find new sources of growth and jobs". It is advising them to "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," says the OECD in what reads like re-inventing the wheel that the Club of Rome, environmental activists and the Green parties in Europe, most significantly in Germany, have been 'wheeling' since the late 1960s.

"In natural resource sectors alone, commercial opportunities related to investments in environmental sustainability could run into trillions of dollars by 2050," says a media release on behalf of the 30-nation group, which continues to be dominated by Europe and the United States. Smith told their mercantilists more than 230 years ago that labour is the wealth of a nation and that production is not an end in itself.

The OECD's new report 'Towards Green Growth' is going step beyond a moral preaching and offering governments a practical framework how they can boost economic growth and protect the environment.
"This report shows that green and growth can go together,” said the OECD Secretary-General Angel Gurría on May 25, presenting the report in Paris. "With the right policies in place, we can create jobs, increase prosperity, preserve our environment and improve the quality of life. All at the same time."

Green growth was in fact a key theme of OECD Week in Paris, which coincided with the launch of the Green Growth Strategy at the Ministerial Council Meeting and OECD's 50th Anniversary Forum's workshop and a panel discussion on May 24-25.

Gurría, a Mexican national, hit the nail on the head when he pointed out that "the launch of our Green Growth Strategy is a landmark in the history of this Organisation."

Think of the drawn-out battle between the protagonists of so-called 'modern' and 'neo-liberal' economy and environmental activists in multiple garbs, fought with near religious zeal reminiscent of 'holy' wars.
Green growth was not about piece-meal measures, said Gurria, pleading for a "transformational change" in the prevailing economic model of growth. Such a change would require wider application of price signals to reflect the true value of natural resources, the costs of pollution, and provide the right incentives to change behaviour and encourage innovation.

"Environmental fiscal reform is key. Higher environmental taxes, for example, combined with lower taxes on labour can be a successful strategy for growth-oriented tax reform. Phase-out of subsidies on fossil fuels, is also critical," he said. India and Indonesia were setting a strong example.

Price signals, however, are not sufficient by themselves. Complementary regulations and performance standards that address pollution or energy efficiency are of vital significance.

There is also need to scale-up green innovation and share it across national borders. Governments have a critical role by way of funding research, targeting barriers to early-stage development, and accelerating technology transfer. "We also need to provide the long-term policy certainty to business to mobilise their talent and resources for green innovation," the OECD Secretary-General said.

"At the same time we need to guard against any downside risks or unintended consequences. Greener growth will see new jobs created, but we need suitable labour market policies to facilitate the re-allocation of workers from contracting to expanding sectors," he cautioned, echoing Adam Smith who warned employers of bygone centuries not to ignore labour as the source of the wealth of a nation.

The OECD perceives two broad sets of policies as 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 innovation policies. The second includes policies that provide incentives to use natural resources efficiently and make pollution more expensive.

A core element of the strategy is that "replacing natural capital with physical capital is expensive and the infrastructure needed to clean polluted water can be costly, but the cost of inaction can be higher still."
Greening growth now, the report argues, is necessary to prevent further erosion of natural capital, including increased scarcity of water and other resources, more pollution, climate change, and biodiversity loss, all of which can undermine future growth.

Gurria, the economist, stressed the need "to address any distributional consequences through targeted compensatory measures, for example to low income households."

He seems to distinctly remember that the Zapatista revolt on New Year's Day 1994 marred the joy and pride at the international recognition of Mexico as a 'modern state' underlined by its membership of the OECD on the same day.

Gurria's first term as the OECD Secretary General started on June 1, 2006. In September 2010 he was reappointed to a second five-year mandate when his current term finishes on June 1, 2011. He responded saying that the OECD must continue in its role as a global standard setter. But he warned that the challenges are formidable. “The international consensus needed to deal with major issues such as climate change, migration or poverty is not happening.”

Gurria was reflecting the concerns of several emerging and developing economies when he emphasised the need to monitor green investment measures to ensure that they are not used as disguised protectionism.

The OECD will continue to support national and global efforts to promote green growth in the run-up to the Rio+20 Conference in June 2012. "Going forward, OECD will integrate green growth into national reviews and in future work on indicators, toolkits, sectoral studies and development co-operation," says Nathalie Girouard from the Green Growth Strategy team or the OECD's Media Division.

The origin of the new strategy goes back to June 2009, when government ministers from 34 countries signed a Green Growth Declaration, declaring that they will: "Strengthen their efforts to pursue green growth strategies as part of their responses to the crisis and beyond, acknowledging that green and growth can go hand-in-hand." They endorsed a mandate for the OECD to develop a Green Growth Strategy, bringing together economic, environmental, social, technological, and development aspects into a comprehensive framework.

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