Green Growth OECD – CANADA 50 YEARS

3rd June 2011

Simon Upton, Director, Environment

Growth & development

Wealth and GDP (2005 US$ per capita, wealth on bottom axis)

0 100000 200000 300000 400000 500000 600000 700000 800000 900000 10000000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000 OECDHigh income, non-OECD

OECD average

Global average

$2 per day

Bubble size = popula-tion

Low income

Middle income

Growth – not just a developing country concern

1996 1998 2000 2002 2004 2006 2008 2010 2012-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

-20000000.0

-15000000.0

-10000000.0

-5000000.0

0.0

5000000.0

10000000.0

15000000.0

20000000.0To return to 2007 employment levels

Additional un-employed since 2007 (Right hand axis)

Employment growth (%)(Left hand axis)

Jobs

Belgium

New Zealand

Germany

Czech Republic

Netherlands

Italy

SpainFrance

Greece

Portugal

OECD

United Kingdom

United States

Ireland

0

2

4

6

8

10

12

14

16Per cent of GDP

Deficit improvement to achieve 60% debt to GDP by 2025

DebtDemographics

Australia

Belgium

Canada

France

Germany

Greece

Ireland

Japan

Netherlands

New Zealand

Spain

Sweden

United Kingd

om

United States

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

PensionsLong term careHealth

Percent of GDP

Changes in age related public spending to 2025

The need for green

0

0.5

1

1.5

2

2.5

3

3.5

4

Biocapacity(Hectares of biologically productive land per per-son)

2050

World GDP (2005, PPP)USD 300 trillion

2030

USD 150 trillion

2010USD 70 trillion

1990

Food + 35%Energy + 37%Resources + 70%

Source: OECD Source: Global Footprint Network

Risks in not going green: bottlenecks

1990 1993 1996 1999 2002 2005 2008 20110.0

50.0

100.0

150.0

200.0

250.0

Food Price Index

Source: World Bank Source: OECD.

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Energy commodity price index constant USD 2000

Risks in not going green: shocks to food supply

Production +35%

Land +6%

Land at risk of erosion + 17%

By 2030, business as usual:

OECD

BRIC

RoW

-10.0-8.0-6.0-4.0-2.00.0

loss to agricultureloss to infrastructureloss to other causes

Biodiversity loss(2000-2030)

Pressures on natural capital

Water scarcity +30%

% mean species abundance lossSource: OECD

Risks in not going green: water scarcity

OECD 2005 OECD 2030 Non-OECD 2005 Non-OECD 20300

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Severe Medium

Low or No

Severe: +87 mil-lion

Severe: +986 million

Total severe 2030 = 3.9 billion

Living with risk of water scarcity (millions of people under water stress)

Source: OECD

Risks in not going green: pollution and human health

Premature deaths from PM10 exposure(per million inhabitants)

Pacific

Europe

North America

Asia

Brazil

Russia

China

South Asia

Rest of World

0 100 200 300 400 500 600 700 800 900 1000

2000 2030

Source: OECD

Risks in not going green: systemic risks

GHG emissions and climate change(per million inhabitants)

Costs of climate change(% loss, present value of consumption)

20052008

20112014

20172020

20232026

20292032

20352038

20412044

20472050

0

20

40

60

80

100

120

140

160

180

200

Business as usual

GHG stabilisation pol-icy

Market impacts +Risk of extreme events

+Non-market impacts

+Feedbacks0

5

10

15

20

25

30

35

2.15.0

10.9

14.4

Source: OECD (see e.g. OECD (2008) “Costs of Inaction”) and UK Treasury “Stern review”

Better measurement: the capital base of economies

US CHINA BRAZIL INDIA VENEZUELA0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Reproducible Capital

Human Capital

Natural Capital

Source: Arrow et al (2009) in NBER WP 16599

Capital stock shares

Better measurement for better policy choices

Cost of GHG mitigation: GDP and GDP+

Source: OECD

Growth from green perspective

0

50

100

150

200

250

300

350

400

450

GDP - BAU

GDP- GHG stablisation

The gap in 2050 = 4%

Direct cost of GHG mitigation

Source: OECD

Structural reforms

Green Fiscal Reform

0 0.5 1 1.5 2 2.5 30123456789

10US

New Zealand

Japan

Ireland UK

Switzerland

Greece

Sweden

Netherlands

Revenue from taxes on energy, CO2 and other pollutants, % of GDP, 2008. Excludes vehicle taxes

Def

icit

impr

ovem

ent t

o st

abili

se d

ebt b

y 20

25,

% o

f GD

P

Current environmental taxes

0

1

2

3

4

5

6

0

5

10

15

20

25

30

35

40

45

50OtherMotor vehiclesEnergyTotal revenue (right hand axis)

Tax revenue, % of GDP

Improving resource management

Source: “Sunken Billions”, FAO World Bank

Revenue, 2004

$78 billion

$50 billion

$10 bn+

Over-exploited(31%)

Fully-exploited(53%)

State of catch fisheries, 2008

Under-exploited(16%)

Operating deficit, $5 billion

Subsidies

Economic loss

Source: FAO

Source: Joint OECD/IEA analysis

Removing fossil fuel subsidies

Oil-exporting countries ¹

India China Russia Rest of the World

Non-EU Eastern European Countries²

-2

-1

0

1

2

3

4

5

Income gains from unilateral subsidy removal (% change in HH income vs BAU)

USD 115 billion, 2009 investment in renewables

10% less emissions globally

from removal of fossil fuel subsidies

USD 312 billion2009 , developing country fossil fuel consumption subsidies

?

Reframing environmental challenges

Regulation and diffusion of ICT

US

UK

Sweden

Germany

Belgium

France

Greece

Spain

Canada

ICT

inve

stm

ent

% o

f tot

al, a

vera

ge 1

995-

2003

Regulation in ICT-using sectorsAverage1995-2003

Source: OECD

Overcoming inertia

Lifespan of capital investments

Pattern of transport links and urban developments

Building stock (residential and commercial)

Power stations

Electric transmissions and distributions, telecom, pipelines

Manufacturing equipement

Commercial heating and cooling equipement

Trucks, buses, trucks trailers, tractors

Cars

Residential space heating and cooling equipement

Residential water heating equipment

0 50 100 150 200 250 300

Rents embodied in

fossil fuel reserves

Sunk capital

USD 16 trillion

USD 6.7 trillion

World GDP

Costs of moving too slow

300GW retired early (loss > USD 70 billion)

Coal-fired generation capacity, IEA 450ppm scenario

Response to prices

-20

0

20

40

60

80

100

120

140

160

180

0 100 200 300 400 500 600 700 800 900

SEK

per

kg N

Ox

Emission intensity in kg NOx per GWh1991 1992 1994 1996

Marginal Abatement Cost Curves of Taxed Emitters

NOx Tax in Sweden

Source: OECD

It’s ok to imagine new patterns of growth and innovation

Source: Merrill Lynch

Green Growth framework

•Balanced tax structures•R&D and innovation policy•Competition•Infrastructure investment•Openness to trade and FDI

Enabling conditions

•Pricing of pollution and resource use•Subsidy reform•Regulatory and policy predictability•Support to basic research and emerging technologies•Governance of natural assets

Key policy tools

• Water scarcity• Climate change• Health impacts of pollution• Biodiversity loss

Major environmental issues

• Skills and labour market adjustment• Distributional and competitiveness concerns• Science and technology cooperation • Development assistance• Management of global public goods

Promoting transition

• Productivity of resource use• Physical evolution of the natural asset base• Environmental quality of life• Opportunities arising from environmental considerations• Evolution of policy and social responses• Promoting efforts consistent with international standards

Measurement agenda