Guest Article #56

Green Growth: Time to Reframe the Way We Think About Growth

In many countries, Green is the colour of hope. So, how “green” are we in 2011? The substantive achievements of COP 16 in Cancun, Mexico, were a crucial step in the international effort to address climate change and re-injected hope, trust and confidence in multilateral cooperation. But in order for this cooperation to be effective, we need to support it with major policy shifts at home.

At the OECD, we have been tasked by our ministers to help them reframe growth models. Our Green Growth Strategy addresses a range of environmental issues from climate change to water scarcity, and seeks to integrate growth and environmental policies. It includes concrete recommendations for policy makers and stakeholders.

With some advanced economies experiencing weak growth and high unemployment, and emerging economies grappling with rapid population growth, inflationary pressure and the fight against poverty, “green” will go nowhere if it is not accompanied by growth.

But, how can we design our policies so that green and growth can fit together more effectively?

First, our concepts of growth need to go beyond GDP. We need, for instance to recognize social and environmental assets as source of well being. Undervaluing and mismanaging natural assets may not have been a problem in the past, but it is utterly unsustainable now. We have to do much more to incorporate negative externalities and systemic environmental risk into our thinking about growth.  This does not have to be a radical change but it does mean that environmental policy and economic policy need to be better integrated and coordinated.

Second, some of today's macroeconomic and environmental challenges can be addressed, at least in part, by sound economic instruments. Environmental taxes can be a useful tool for addressing fiscal sustainability and they can be a source of revenue for social programmes. They may also allow for a reduction on labour taxes, helping to boost job creation.  The use of such economic instruments, and in particular, putting a price on carbon, will be the crucial ingredient to align growth with green.

Third, environmental policies have to reflect a better understanding of what makes for robust, competitive and dynamic economies. Innovation is a key driver of growth and productivity but also a key driver for “greening” our economies. This is especially true in the case of overcoming our carbon addiction. New ideas, new technologies and competition are going to be absolutely fundamental to set us on a green growth path.

Finally, we have to recognise that the time to act is now. Climate Change Policy and Practice readers will be well aware that the longer we wait to make deep emission cuts, the tougher it will be to change trajectory. Emissions today will be in the atmosphere for generations. Policy choices and investment decisions made today will lock-in, or lock-out, emissions for decades to come.

I fear we often overlook the fact that institutions also follow path dependent patterns. As much as we know that climate change remains a major risk to growth, many governments still treat it as a purely environmental issue. To overcome this, we need to be very deliberate in our reframing of growth. We also need to create green growth strategies which can bring down institutional barriers to change.

The OECD is there to help governments, policy makers and the stakeholders to work towards concrete policy action and change. Green is not only the colour of hope; green is the colour of growth!