Enabling conditions

for Standardization estimates that these measures have played an important role in the uptake of the ISO 14000 series on environmental management and the ISO 14065 series on greenhouse gas monitoring in lower income countries and small organisations (IISD 2009).

Despite their potential for kick-starting a green

economy, once incentives and subsidies have been created, they can be difficult to remove as recipients have a vested interest in their continuation. In general, governments can try to keep expenses to a minimum by designing subsidies that are time-bound and with cost control in mind. For example, depending on the support mechanism, this might include regular programme reviews, with agreed conditions for adjustment, as well as caps on total spending and clear sunset provisions (Victor 2009). Moreover, an International Energy Agency (IEA) analysis of subsidies for renewable energy suggests that, where countries aim to stimulate private investment in a sector, it is important that the support is stable and predictable, gives certainty to investors, and is phased out over time in order to motivate innovation (OECD/IEA 2008).

In terms of sustainable public procurement, one of the biggest hurdles facing governments

is that

environmentally and socially preferable goods and services can have higher up-front costs than less sustainable alternatives. This is especially true where markets for green alternatives are still in their infancy. There are a number of strategies to reduce these costs, such as:

■ Focusing on goods and services, which promise lower overall costs in the short-to-medium term once their efficiency gains in running costs are taken into account;

Box 3: Private finance initiatives

Where governments lack the technical expertise to ensure that an asset is constructed and operated (or a service provided) in the most cost-effective and sustainable way, or where the availability of public funds is limited, one alternative is private finance initiatives (PFIs). Under a PFI arrangement, a tender is advertised specifying what asset or service a government would like to achieve, including criteria for promoting sustainable development objectives. It then selects the best bidder and enters into a contract where the design, finance and construction are all provided by the private sector, often through a consortium of enterprises. The logic is that by integrating these functions in one package, sustainable design

and green technologies can be planned for in an integrated manner and better efficiencies can be achieved. A variant on this model is co-investment, whereby the public sector provides a share of the project capital.

The advantage of the PFI model is that it allows the private consortium to operate the asset for a substantial period of time, thus harnessing their ingenuity and efficiency and often creating cost savings. PFIs also involve extensive risk transfer to the private sector and, as a result, greater cost certainty for the government. Of course this comes at a cost – the private sector will not bear the risk without being compensated.

■ Considering long-term leasing of items such as electronic equipment, vehicles and furniture, which transfer the costs of maintenance, repair, upgrading and replacement back to the suppliers;

■ Transforming tenders for individual products into tenders for integrated services; and

■ Exploring cooperative contracts and central purchasing platforms, through which the purchases of many agencies can be collectively negotiated to obtain sizable bulk discounts.

2.2 Addressing environmental externalities and market failures

Supporting a green economic transition will require that governments address existing market failures, including where markets are completely lacking, as is the case for many ecosystem services, or when markets fail to account for the true costs and benefits of the economic activity. Unsustainable economic activity often enjoys a price advantage when there is a negative externality; that is, where the production or consumption of goods and services has negative spill-over effects on third parties, the cost of which is not fully reflected in market prices. In essence, an externality means that the market price of an unsustainable good or service is lower than its actual social costs, with the difference borne primarily by people other than the buyer and seller. For instance, in a number of economic sectors, such as transportation, negative externalities such as pollution, health impacts or loss of productivity, are typically not reflected in costs. The situation for waste is similar, where the full cost associated with the handling

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