Opinion 139 Overseas Development December 2009 Institute

Must developing countries growth to save the planet?

he high levels of economic growth we Domestic mitigation measures have seen in many countries since the Mitigation policies – designed to reduce emis- industrial revolution have delivered sions – constitute a key part of most low car- much higher standards of living and bon growth strategies, but may slow growth at Twelfare for those countries, but have also least in the short term, as they raise the cost resulted in significant growth in carbon emis- of using energy. The extent to which developing sions. This has resulted in the climate change countries should be asked to bear the costs of problems that we all now face. Modelling sug- mitigation is highly controversial, and will be Karen Ellis gests that the stabilisation of climate change a key focus of the negotiations taking place requires significant cuts in emissions (by both under the UNFCCC process. The most important developed and developing countries), so it developing country players in this negotiation ‘The poorest seems that we now need to slow or reverse – the largest emitting countries such as China – countries should economic growth – which is politically unpalat- have been speaking out about their willingness not have to sacrifice able – or to urgently find ways to grow that do to contribute to international efforts to tackle not result in higher carbon (or greenhouse gas) climate change, and are developing policies to growth to tackle emissions. In other words, we need to seek out do so. However the extent to which they will be climate change – a new, low carbon growth strategies. prepared to make binding emission reduction problem caused Because poor countries have experienced commitments as part of a global deal remains slower growth, they have also contributed far to be seen. mainly by rich less to climate change than the rich world. But mitigation brings opportunities as well countries. But Yet they are being hit first and hardest by its as costs. This could be the case if, for example, they will need to affects. Few would question that developing there is fast growth in demand for environ- rethink their growth countries should have the opportunity to grow mental goods and services, from which some their way out of poverty. But how can this be developing countries can benefit. China, for strategies if they reconciled with the need to reduce global car- example, is the world’s biggest producer of are to maximise bon emissions? photovoltaic cells (which convert sunlight into their future growth Some argue that rich countries should bear energy), and Brazil is a world leader in bioetha- the brunt of the necessary adjustment by accept- nol production and associated technologies, prospects’ ing much lower or even negative rates of growth both of which are likely to provide substantial if developing countries are to have the neces- export opportunities for these countries. sary space to grow their way out of poverty. But Other possible benefits associated with that would be difficult politically. It may also be mitigation could occur if there are strong syn- unnecessary: Nick Stern recently argued that ergies between green technology change and rich countries may need to reconsider their pur- general technological progress, which is a key suit of continued economic growth, but only in source of growth. Policies designed to promote the longer term. But the evidence suggests that green technological innovation and technology the biggest developing countries will also need transfer could, therefore, also increase growth. Overseas Development Institute to reduce carbon emissions relative to GDP in In addition, some mitigation policies generate ODI is the UK’s leading independent order to avoid what are considered to be ‘dan- revenues (e.g. carbon taxes), providing oppor- think tank on international develop- gerous’ levels of climate change in future. tunities to stimulate growth through the judi- ment and humanitarian issues. So there has been an increased focus on cious use of the revenues raised. ODI Opinions are signed pieces by finding ways for countries to achieve low car- ODI researchers on current develop- bon growth, and some are beginning to develop ment and humanitarian topics. strategies along those lines. A selection have International mitigation measures This and other ODI Opinions are avail- been reviewed in a new report by ODI (Ellis et International mitigation policies will also gener- able from www.odi.org.uk al., 2009). ate both opportunities and threats for develop- Opinion

ing countries. Many of the most cost effective miti- access to finance. These are challenges that have gation opportunities are in the developing world, stunted growth in many countries to date, and are and this could allow some developing countries unlikely to be resolved quickly. to capitalise on potentially huge new sources of International mitigation policies may also pose a finance through carbon markets and other mitiga- threat to some existing sources of growth in devel- tion mechanisms. An appropriate policy framework oping countries. For example, if mitigation policies will be important in securing both public and private succeed in driving down the demand for oil, and finance through such mechanisms. If used well thereby its price, this will generate a net loss for oil these financial inflows could contribute to higher exporting countries (though conversely a net gain growth rates in those countries. for oil importers). Air transport taxes might reduce These international mitigation mechanisms will demand for tourism or for air freighted exports need to be developed, reformed and scaled up such as fruit and vegetables. And border taxes may significantly. The Clean Development Mechanism be introduced to discourage the import of carbon (CDM) is one such initiative but, to date, its impact intensive products, which could reduce export has remained relatively low, and focused within income from certain industries. The impact of these specific geographical regions. Previous ODI research policies will vary significantly by country, depend- found that over half of all registered projects were ing on their sectoral composition. The analysis of based in India or China – which have received the potential impact of different kinds of mitigation considerable financing for large energy related policies is fairly limited to date and the subject of a industrial projects – while only 2% were located in forthcoming ODI study. sub-Saharan Africa. The CDM could be expanded to provide incen- tives for developing countries to avoid deforestation The need to reassess growth in future, in conjunction with mechanisms such as strategies REDD (Reduced Emissions from Deforestation and Regardless of whether a country wants to undertake Degradation), and could unlock enormous resources mitigation itself, or seeks a low carbon growth path, for countries with forests. Guyana has developed a optimal growth strategies will need to be reassessed growth strategy predicated on the future develop- in light of the changes that will be brought about ment of such mechanisms, and is trying, actively, to both by climate change itself and by international influence international progress towards this goal. mitigation efforts. Developing countries will need to Some developing countries are, therefore, find climate resilient growth strategies (i.e. growth positioning themselves to take advantage of the strategies that are achievable despite the impact opportunities afforded by international mitigation of climate change). They will also need to identify efforts. But not all countries will be able to do this, and manage opportunities (such as new markets or such as those without carbon assets, or with few sources of finance) and risks (such as trade barri- Overseas Development existing sources of emissions to mitigate. And even ers or changing patterns of demand) that arise from Institute countries with the required assets may find it hard international mitigation efforts, if they are to maxim- 111 Westminster Bridge to capitalise on these opportunities, because of the ise their future growth prospects. Road, London SE1 7JD same kinds of issues that have constrained growth Tel +44 (0)20 7922 0300 in general, such as: low human capital; poor invest- Fax +44 (0)20 7922 0399 ment climate; market failures; lack of institutional Written by Karen Ellis, ODI Research Fellow capabilities; organisational challenges; and lack of ([email protected]). Email [email protected]

Readers are encouraged to quote or reproduce mate- rial from ODI Opinions for their own publications, but as copyright holder, ODI requests due acknowledge- ment and a copy of the publication. The views presented in this paper are those of the author and do not necessarily represent the views of ODI. References © Overseas Development Institute 2009 Ellis K., Baker, B., Lemma, A. (2009) ‘Policies for low carbon growth’. ODI Research Report. December. ODI: London ISSN 1756-7629 (www.odi.org.uk/resources/details.asp?id=4575&title=policies-low-carbon-growth).