Enabling conditions Box 1: Investing in green infrastructure
A number of sector chapters in this report recommend specific public investments in infrastructure or public services that enable green markets and more efficient use of the environment and natural resources. Improving the physical and telecommunications infrastructure of agricultural communities, for example, can stimulate growth in sustainable agricultural markets and provide employment and development opportunities in rural areas.
It is estimated that the vast majority of green infrastructure investment will take place in developing countries to address issues related to the quality and availability of essential economic goods and services including energy, water, sanitation and transport (UNEP 2010b). These investment choices will have a significant bearing on future patterns of economic development and environmental conditions, and can therefore
have a considerable impact on the transition to a green economy.
Globally, it is estimated that from 2008-2009 some US$ 512 billion out of US$ 3.3 trillion in public funds committed to government stimulus packages was earmarked for low carbon and environmental infrastructure investments (Barbier 2010b). For example, in January 2009, at the height of the global recession, the Republic of Korea launched its national Green New Deal plan. At a cost of around US$ 36 billion, or approximately 3 per cent of GDP, the initiative aims to create 960,000 jobs based on green infrastructure projects and public services. The low-carbon projects include developing railroads and mass transit, fuel efficient vehicles and
clean fuels, environmentally energy friendly conservation buildings. and Additional
projects aim to improve water management and ecological protection (Barbier 2010a).
cent of the property tax (Ministry of New and Renewable Energy of India 2010). Similarly, accelerated depreciation is often used to encourage the production of energy from renewable sources. It allows an investor to depreciate the value of eligible fixed assets at a higher rate, which reduces the investor’s taxable income. In Mexico, investors in environmentally sound infrastructure have benefited from accelerated depreciation since 2005, and in Hong Kong, buyers of environmentally friendly vehicles benefit from a reduction in registration tax and other tax incentives (National Ecology Institute of Mexico 2007; Environmental Protection Department of Hong Kong).
Loan support is also common, either through favourable lending conditions (such as loan guarantees or less stringent repayment conditions) or low-cost financing (such as subsidised interest rates or soft loans). These types of measures have been successfully implemented in both developed and developing countries. In Brazil, for instance, the São Paulo State Industrial Pollution Control Programme (PROCOP), established in 1980, provided preferential credit and technical assistance to polluters, making the pre-treatment process less burdensome. The project was funded by the state government and the World Bank and administered by the state pollution control agency, CETESB, and it is considered to have played an important role in encouraging environmental pollution control activities and improving environmental quality in São Paulo, Brazil (Benjamin and Weiss 1997).
Many countries also provide legislative support to favoured industries. The establishment of mandates can guarantee a market for producers, such as the European Commission’s Renewable Energy Directive, which requires EU countries to source 20 per cent of their energy from renewables by 2020. Feed-in tariffs operate in a similar fashion, by requiring electricity suppliers to purchase renewables-based electricity from producers at a certain price.
The important thing to note, however, is that none of these policies are free – they all use up scarce fiscal resources, and are vulnerable to capture by industry. The essence of green industrial policy should be that government investments are targeted at helping infant industries mature, are closely monitored, and are strictly time-limited (see Ensuring rational public expenditure for more information).
As an alternative to committing additional funding to the stimulation of green industry, governments can also focus on how their existing spending is being used – namely, sustainable public procurement. Procurement of goods and services by governments and state-owned enterprises usually represents a large proportion of total public spending. Analysis in 2001 estimated that OECD countries spent between 13-20 per cent of their GDP on procurement of such goods and services as buildings, rail and road infrastructure, cleaning and other services, and purchases of office supplies and energy (IISD 2008).