Green Growth And Developing Countries Economics Essay

This scoping report is to discuss different models of partnership between donors and businesses. By partnership, we refer to an arrangement whereby an individual business (or small group of businesses) works with one or more donors in a joint project or programme to deliver a specific outcome. Alternatively, it could include facilities which are set up to facilitate a number of partnerships between business and donors such as the Business Innovation Facility, or Challenge Fund approaches, or the Business Call to Action.

This particular component of the wider scoping output focuses on describing and discussing partnership approaches which have been developed between (multilateral or bilateral) donor agencies and individual businesses, or overarching facilities designed to develop those kinds of partnerships with the specific objective of promoting green or low-carbon investment or innovation by business.

We have visited partnerships established in a range of different relevant sectors, including agriculture, energy (inc. energy generation and energy efficiency), forest, disaster reduction, water supply (inc. sanitation), recycling/waste management, green buildings construction, transportation, heavy industry and manufacturing, and some cross-sector issues. The review provides a long list of case studies (attached to this report), drawn from developing countries around the world, showcasing different partnerships adopted between business and donors.

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In this report, after a brief introduction to the concept of green growth and its relationship with developing countries; as well as a description of the conventional contributions from donors and businesses in a partnership, a framework or typology will be developed to categorise the different types of partnerships. It will go on to analyse and compare primarily their pros and cons, and their potential value and suitability for different development purposes.

Green growth and developing countries

The most serious problems facing the world today – water and food supply crises, extreme volatility in energy and food prices, rising greenhouse gas emissions, severe income disparity and chronic fiscal imbalances – either stem from environmental mismanagement or inequality, both. Aside from the chronic fiscal imbalances that mostly concern the developed economies, developing countries are the most vulnerable to all of these risks. The key question if whether (and how) environmental goals can be reconciled with growth and poverty reduction in the developing world. The concept of “green growth” offers real opportunities for more inclusive growth in developing countries while protecting the environment.

Developing countries are the key to achieving global green growth. Although today most developing countries contribute only minor shares to global greenhouse gas (GHG) emissions, their emissions will increase if they follow the same path to economic growth as developed countries have followed. Increasingly developing countries are becoming sources of global economic growth, but accompanied by growing emissions and more intensive use of natural resources. The potential economic and social impacts of environmental degradation are particularly serious for developing countries given their dependence on natural resources for economic growth and their vulnerability to energy, food, water scarcity, climate change and extreme weather risks. All these factors are challenging their ability to develop.

Developing countries have the greatest opportunities for capitalising on the synergies between environmental and economic sustainability. A green growth approach is the chance for emerging and developing economies to leapfrog unsustainable and wasteful production and consumption patterns. They can still factor environmental issues into their infrastructure investment decisions and can further develop agriculture and other natural resources in a way that improves livelihoods, creates jobs, and reduces poverty. They are less constrained than developed countries, which are now locked into investment choices and sunk capital from previous decades. Adequate financing and capacity would offer developing economies the opportunity to lay down the infrastructure and networks needed to support a sustainable development path.

Collaborations between developed and developing countries are essential in efforts to move towards global green growth. But there is no “one-size-fits-all” prescription for implementing a green growth strategy. National development strategies must be based on each country’s strengths, bottlenecks and constraints. Developed, emerging and developing countries will face different challenges and opportunities in greening growth, as will countries with differing economic and political circumstances. (OECD, 2012)

What is green growth and why it is important for developing countries

If the world continues a “business as usual” approach to meeting the rising global demand for food, energy and infrastructure, the world will exceed its ecological carrying capacity. Volatile commodity prices, uncontrollable pollution, severe damage to human health, and irreversible loss of biodiversity systems will be the consequences of these business-as-usual investment decisions.

The concept of green growth reframes the conventional growth model and re-assesses many of the investment decisions in meeting energy, agriculture, water and the resource demands of economic growth. The OECD defines green growth as a means to foster economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. In this concept, natural capital plays a significant role in ensuring that production and welfare gains are reaped. (OECD, 2012)

Some elements of a green growth path to development

The overarching goal of green growth is to establish incentives or institutions that increase well-being by:

improving resource management so as to boost productivity;

encouraging economic activity to take place where it is of best advantage to society over the long-term;

finding new ways of meeting the above two objectives, i.e. innovation;

Recognising the full value of natural capital as a factor of production along with other commodities and services.

Greening the growth path of an economy depends on its policy and institutional settings, level of development, resource endowments and particular environmental pressure points. Policy action requires looking across a very wide range of policies, not just traditionally “green” policies.

Matching green growth policies and poverty reduction objectives will be important for adapting this framework to emerging and developing countries. There are important complementarities between green growth and poverty reduction, which can help to drive progress towards achieving the Millennium Development Goals (MDGs). These include:

more efficient water, energy and transport infrastructure;

alleviating poor health associated with environmental degradation; and

introducing efficient technologies that can reduce costs and increase productivity, while easing environmental pressure.

Given the centrality of natural assets in low income countries, green growth policies can reduce vulnerability to environmental risks and increase the livelihood security of the poor.

Source: Based on OECD (2011b), Towards Green Growth – A summary for policy makers, OECD, Paris.

Green growth and sustainable development

Sustainable development provides an important context for green growth. Green growth has not been conceived as a replacement for sustainable development, but rather should be considered as a means to achieve it. It is narrower in scope, entailing an operational policy agenda that can help achieve concrete, measurable progress at the interface of the economy and the environment. It provides a strong focus on fostering the necessary conditions for innovation, investment and competition that can give rise to new sources of economic growth, consistent with resilient ecosystems.

Green growth strategies need to pay specific attention to many of the social issues and equity concerns that can arise as a direct result of greening the economy – both at the national and international level. To achieve this they should be implemented in parallel with initiatives centring on the broader social pillar of sustainable development.

The goal for many developing economies is to achieve diversified and sustainable growth over time, which leads to poverty reduction, increased well-being and major improvements in the quality of life of its citizens. This is achieved by taking into account the full value of natural capital and recognising its essential role in economic growth. A green growth model promotes a cost-effective and resource efficient way of guiding sustainable production and consumption choices. Put simply, green growth will help developing countries to achieve sustainable development. (OECD, 2012)

Green growth benefits for developing countries

Many developing countries face different and more difficult policy choices than developed countries in defining and implementing green growth strategies. Choosing not to bring more land under cultivation because of the high environmental costs will be difficult for a country with high levels of rural poverty. Though, options for increasing the productivity of existing cultivated land should be explored. Evidently, systems to pay poor countries for ecosystem services and increase the economic and welfare benefit accruing to them and their citizens from maintaining environmental assets will be critical for the political feasibility of green growth strategies. Emerging evidence has reiterated that green growth activities can offer both short term and longer term benefits and opportunities to developing countries. Payment for ecosystems services in Costa Rica, sustainable natural resource extraction in Azerbaijan, social enterprise to promote organic waste treatment in Bangladesh have demonstrated the economic opportunities from investing in natural resources and promoting sectoral sustainability.

In the short run, green growth policies are most likely to deliver local benefits in improved environmental management through sustainable waste treatment, better access to water and energy and more desirable health outcomes from controlled pollution. However, these short run benefits should be examined against the immediate costs of identified policies. Phasing out fossil fuel subsidies will trigger higher energy price which will burden both consumers and producers; air pollution controls will affect competitiveness and the prospects of specific sectors, potentially threatening jobs; providing fewer incentives for agricultural fertiliser usage to boost soil productivity and promote sustainable agriculture could decrease the income of many small-scale poor farmers. There are certainly trade-offs in the policy implications although the scale varies according to the nature of the economy and the implementation of the green growth measures. In many cases the poor are potential losers as a result of shifting to green growth. In some cases, powerful actors, including political parties, unions, and the private sector face disadvantages from shifting away from their country’s current development plan. Hence, the short-term benefits can become more visible if appropriate and targeted social complementary policies are implemented hand in hand with green growth measures.

In the longer run, the recognised infrastructure deficits to support economic activities are considerable, but there is potential for technology leapfrogging and climate-resilient implementation. Severe shortages of electricity supply and high urbanisation rates demand more efficient energy and public transportation systems in cities. There may be potential job creation, for instance, through sustainable management of natural resources which could on one hand release the tension of urban migration given most of these opportunities are available in rural areas; on the other hand to preserve local livelihoods from environmental impacts, in particular of climate change. (OECD, 2012)

Green growth: what can it bring developing countries?

Economic benefits

Increased GDP – production of green goods and services

Increased revenue from pricing ecosystem services (or their reduction prevented)

Economic diversification, i.e. improved management of economic risks and reduced vulnerability

Innovation, access and uptake of green technologies, i.e. improved market confidence

Environmental benefits

Increased productivity and efficiency of natural resource use

Natural capital used within ecological limits

Reduced adverse environmental impact and improved natural hazard/risk management

Social benefits

Increased livelihood opportunities, income and/or quality of life, notably of the poor

Decent jobs that benefit poor people created and sustained

Enhanced social, human and knowledge capital

Reduced inequality