Green Economy – Why, What and How?

GREEN TOOL BOX: INFORMATION BRIEF JUNE 2017

The current global economic growth path is environmentally unsustainable. Present patterns of production and consumption degrade and deplete many of the world’s environmental resources. There is thus a need for new approaches that can promote inclusive and environmentally sustainable economic development – a green economy. Working towards a green economy (GE) offers such approaches. It conforms with Agenda 2030, Sweden’s policy framework for international 1 development cooperation and Sida’s Photo:Anders Ekbom Asella town market, Ethiopia: Promoting a green economy by Environmental Policy. It also promotes broad- strengthening local markets and incomes based on agro-diver- based employment and reduction of poverty in sity and sustainable crop production. its various dimensions. This brief explains why green economy is needed, what it is, how it can sustainability and inclusion – bringing people and key be done, and what Sida does, and can do, to actors together towards better livelihoods in smarter, promote it. cleaner, innovative and more resource efficient econo- mies; GE accounts for the environment and the value WHY GREEN ECONOMY? of natural assets in planning and decision-making, and The economic system needs transformation towards envi- focuses on the quality and sources of economic growth ronmental sustainability and increased resource efficien- – as opposed to today’s focus on the growth number only. cy, strengthened resilience to environmental pressures Economic growth is necessary to reduce poverty in low and risks, and more and smarter use of green technolo- income countries, but it needs to be socially and environ- gies and innovations. Working towards a green economy mentally sustainable. promotes poverty reduction in the four dimensions iden- tified by Sida. It promotes opportunities and choice among Working towards a green economy complements tradi- poor people by increasing their access to a clean and safe tional environmental management by emphasizing use environment; it promotes human security by preventing or of economic instruments (pollution taxes, fees etc.), addressing conflicts over access to land, food, water and and place more responsibility on economic and financial other natural resources; it promotes increased power and actors to promote and ensure environmentally sustainable voice among the poor by e.g. strengthening their rights to practices. It addresses economic externalities, e.g. envi- a safe and clean environment, functioning ecosystems, ronmental costs that are imposed on others, and econom- food and health; it promotes resources including enhanced ic distortions that create pollution and natural resource quality and quantity of natural resources, reduces pollution depletion and degradation. Making pollution more costly or degradation of air, water and lands, and other environ- provides incentives for new green jobs, technologies, ment-related risks and vulnerabilities. investments and opportunities for trade.

WHAT IS GREEN ECONOMY? Operationalizing green economy typically implies ana- Promoting a Green economy (GE) implies transformation lyzing and addressing economic driving forces to envi- of today’s policies and practices towards environmental ronmental degradation; e.g. identifying the environ-men- sustainability. It challenges business as usual. Key ele- tal impacts of subsidies of water, electricity and petrol. It ments of GE are efficiency, incentives, transformation, includes analysis of economic impacts of environmental degradation, natural resource depletion as well as iden- tifying economic benefits of environmental management. 1 www.government.se/legal-documents/2017/05/policy-framework-for- swedish-development-cooperation-and-humanitarian-assistance/ What are the financial, economic and social costs of water, low carbon development. The green bonds function as soil and air pollution? What are the economic benefits conventional bonds but focus on green investments; of green economy reform? Greening the economy also they serve as economic incentives among investors to includes economic valuation to take stock of the state of increase and re-direct financial flows towards greener the environment in economic terms. solutions and instruments to transform the economy towards environmental sustainability. Another key area of GE work is design and implementa- • Public Environmental Expenditure Reviews (PEER): tion of new policies, instruments and actions to address PEERs are a tool to analyze the government’s budget the key environmental problems and promote economic allocations to environmental activities across sectors, opportunities. At the international level this is done via trends across sectors and time, and if these are coher- the international conventions, treaties and agreements. ent with national development plans and priorities. At national and local levels it is most often done via envi- Examples from Tanzania and Mozambique show PEERs ronmental fiscal reform (changes in taxes, fees, subsidies as useful eye openers to planners and decision-makers etc.) or in projects and various initiatives like green jobs to inform policy processes and budgets. programs, green bonds, and other green investments, innovations and demonstration projects that can be THE POLITICS OF GREEN ECONOMY scaled-up (e.g. renewable energy, sustainable housing General requirements for successful work towards a and transport solutions). Yet another key area of work is green economy are political will and leadership – inter- measuring and reporting progress, such as budget allo- nationally, nationally and locally – and stronger involve- cations to environmental management, development of ment of economic and financial actors and agencies. It measures of wealth, economic growth and savings that requires strengthening national and local capacity, and also include changes in environmental quality and natural competence to promote change. It often requires broad- capital, e.g. Natural Resource Accounting and green GDP. based and profound changes in mindsets, norms, ethics and behavior among consumers and producers. It presup- EXAMPLES: poses appropriate sequencing of reforms and steps to ACTIONS PROMOTING GREENER ECONOMIES make progress – identification of low-cost measures that • Green economy reform in Ethiopia: In 2011, Ethiopia can be implemented quickly; and ownership among users launched a Climate-Resilient Green Economy (CRGE) and implementers. Strategy. It builds on Ethiopia’s vision to become a low- carbon middle-income country by 2025. The Strategy Promoting GE includes many win-win opportunities, that promotes resource efficient, low-polluting alternatives need to be communicated and known among decision- to business-as-usual economic growth, by implement- makers. Examples include transformed supply chains ing an investment plan of over 60 larger investment of clean and ecologically certified products and growth projects. Thematically the investment plan covers four in green export markets, New green companies may be different areas of work: (1) Improving crop and livestock created with higher sustainability standards that capture production practices, (2) protecting and re-establishing international market shares. forests, (3) expanding electric power generation from renewable sources and (4) leap-frogging to modern and Greening economies typically also imply address- energy-efficient technologies. The investments are low- ing trade-offs and goal conflicts between economic, cost measures, and rely (mostly) on international and environmental and social objectives. Examples include private finance, and private sector mobilization. Despite eviction and compensation of poor squatters in forests several implementation challenges it offers a positive designated for conservation and climate change mitiga- example of how GE can be embraced and operational- tion; or food security vs climate change mitigation, where ized from national to local level. agricultural lands are set aside for large-scale production • Promotion of green jobs in Zambia: Together with the of bio-fuels. private sector, donors, UN and academia, Zambia’s gov- ernment has made use of several green economy tools Green economy reforms also include addressing envi- to stimulate a greener construction sector. The program ronmental governance and political economy issues, and has developed new building codes, trained micro, small managing winners and losers across actors and sectors. and medium enterprises (MSMEs) in resource effi- Polluting businesses will lose incomes, while new greener cient building techniques, involved large companies in actors will grow, employ, and profit. This happens e.g. in demonstration projects etc. to create new markets for the energy sector where solar and wind energy companies greener and decent jobs. produce more jobs and take market shares from e.g. oil • Green Bonds: The World Bank, SEB and Toyota and and coal. cities like London, Gothenburg and Johannesburg have issued green bonds to finance investments in green and HOW DOES SIDA PROMOTE GREEN ECONOMY? • Market transformation – The Better Cotton Initiative: Generally, greening an economy through development In an effort to green markets Sida supports The Better cooperation can be done mainly through dialogue, and Cotton Initiative, which aims at making global cotton through the support Sida provides, often in combinations. production better for the producers, the environment and the sector’s future. It involves global producers like Dialogue H&M, IKEA and Adidas and a range of local stakeholders Dialogue may be used with partner country governments, along the cotton value chain. It has helped to improve private sector actors, or NGOs/CSOs. Dialogue comple- management practices, reduce use of water and chemi- ments other measures, and has typically been common in cals, and increase the cotton farmers’ incomes and the area of removal of subsidies (e.g. in energy reforms in capacities for development. Eastern Europe) that are costly to the Treasury and harm- • Enhanced water use in textile production: Since 2010, ful to the environment. Other examples of dialogues are 35 major Swedish companies work in the Sweden in the area of land rights and environment, in situations Textile Water Initiative to promote sustainable water where land rights are controversial yet critical for pro- use in their businesses. A platform is built for knowl- moting sustainable and equitable land use. Sweden has edge exchange aiming at promoting better understand- also used dialogue to influence and strengthen partner ing of, and solutions to, the industry’s water challenges. countries’ safeguard systems for social and environmen- The Initiative works in China, India, Bangladesh, Turkey tal sustainability. and Ethiopia with 280 local suppliers targeted for implementation. Examples of interventions supported by Sida: • Coffee and Climate: Sida promotes coffee farmers in • Capacity building in environmental economics in the Latin America, Africa and Asia to effectively respond to global Environment for Development (EfD) program; it changing climatic conditions by combining state of the involves universities and regional networks of special- art climate change science and proven farming meth- ists in Africa, Asia and Latin America that conduct policy ods, offering appropriate and practical tools for produc- relevant research and outreach to produce new knowl- tion, forming a network of relevant stakeholders in the edge and inform and influence planners and decision- field, and promoting sustainable value chains. makers, in order to green their economies. • Power Africa energy sector reform; around 600 mil- • The Swedish Environmental Protection Agency’s global lion people lack access to electricity in sub-Saharan program on accounting for ecosystem services; eco- Africa. Sida supports expansion of renewable energy system services (such as biodiversity, wetlands, grazing production and access in the region, and phasing out of areas, oceans, rainforests and coral reefs) are typically non-renewable energy sources. Specifically, Sida sup- unrecognized and underpriced in the economic system. ports institutional development (development of policies, This leads to over-exploitation and degradation. In this legal and regulatory frameworks), investments in green program Sida supports more sustainable decision-­ energy, research, and strengthening capacity among making by enhancing methodologies used to value key public agencies and civil society, in order to increase ecosystem services, and engagement with senior plan- understanding and management of energy-environmen- ners and decision-makers to enhance partner countries’ tal issues, raise awareness and strengthen people’s resource use. rights and participation. • Climate change finance and gender equality in SE Asia: Sida works in a partnership with UNDP to strengthen Although Sida is a relatively large supporter of green climate change finance and budgeting in Asia and the economy initiatives, still many opportunities remain to be Pacific. It works with the governments and other stake- exploited. Using economic policy instruments to green holders in Bangladesh, Cambodia, Thailand, Indonesia, economies is a powerful yet little used set of measures. Vanuatu and Tonga – all vulnerable to climate related Still it is free in most low-income countries to pollute extreme-weather events like storms and floods – to waters, air and lands. Natural resources are sold too improve governance, effectiveness, accountability and cheaply, and ecosystem functions are consumed and responses to climate risks and impacts. Projects in depleted at no private costs; the poor typically suffer the the initiative aim to reduce poverty and vulnerability to most and pay the price. Greening economies by using climate risks, and strengthen human rights and gender cost-effective economic policy instruments, in smart equality in the climate programming. combinations with other environmental management • International training program on strategic environ- tools, may promote not only environmental and social mental assessment (SEA) in government agencies; it sustainability but also inclusive economic development. builds capacity on SEA in public agencies and ministries in 12 partner countries in Africa and Asia in order to better integrate environment in policies, plans and pro- grams, which contribute to greening their economies. E-mail: [email protected]. Homepage: http://www.sida.se 64 88 (0)8-20 +46 Telefax: 00. 50 (0)8-698 +46 Telephone: 199, Stockholm Valhallavägen Office: Sweden. Stockholm, SE-105 25 Address: SWEDISH INTERNATIONAL DEVELOPMENT COOPERATION AGENCY COOPERATION DEVELOPMENT INTERNATIONAL SWEDISH http://www.efdinitiative.org/ Environment for Development (EfD) Initiative http://www.beijer.kva.se/ Economics Ecological of Insitute Beijer The https://www.oecd.org/dac/50526354.pdf Policymakers for – aSummary Countries Developing and Growth Green DAC OECD GreenEconomy_LR.pdf Pressure under aPlanet for Economy AGreen 2012. ICSU www.un-page.org for on Action Green Economy;Partnership organisational-structure/working-groups http://www.enterprise-development.org/ Group Working Growth Green DCED www.teebweb.org &Biodiversity; Ecosystems of Economics The www.greeneconomycoalition.org Green Economy Coalition; www.gggi.org (GGGI); Institute Growth Green Global greengrowthknowledge.org Platform; Knowledge Growth Green WorldBankGreenBonds.html treasury.worldbank.org/cmd/htm/ Bonds; Green www.ethcrge.info/crge.php Ethiopia Climate Resilient Green Economic plan; www.zambiagreenjobs.org Programme; Jobs Green Zambia www.unpei.org Initiative (UNDP/UNEP);Poverty-Environment SOURCES OF MORESOURCES INFORMATION http://www.icsu.org/rio20/policy-briefs/

Art. no.: sida62059en, urn:nbn:se:Sida-62059en Print: Edita 2017