Towards a green economy

command and control regulations, and standards, as well as the effective enforcement of these laws, can be important in driving green investment. This section considers key national regulatory tools identified by the sector chapters in this report.

A well-designed regulatory framework can create rights and incentives

that drive green economic activity,

remove barriers to green investments, and regulate the most harmful forms of unsustainable behaviour, either by creating minimum standards or prohibiting certain activities entirely.

Regulations provide the legal basis that government authorities can rely on for monitoring and enforcing compliance. A well-designed regulatory framework can reduce regulatory and business risks, and increase the confidence of investors and markets. It is often better for businesses to work to clear and effectively enforced standards, and not have to deal with uncertainty or face competition from those who do not comply with the rules (Network Heads of European Protection Agencies 2005). Moreover, regulations may also be particularly appropriate where market-based instruments are not applicable or appropriate, such as where no market exists for ecosystem services (UNEP 2010b).

In many cases, the challenge is not to establish new regulations but to better align existing regulatory frameworks with government objectives to promote green economic activity. Good practice in regulation involves periodic review, and when this is undertaken it should be fact-based, analytically rigorous and should promote procedural and legal certainty by being timely,

transparent and non-discriminatory. To use

regulatory tools to promote green economic activity in key sectors, it is important to first establish the extent to which existing regulatory frameworks are aligned with policy objectives. This makes it possible to decide which laws should be amended and whether or not any new legislation is needed. The sector chapters of this report have identified a number of areas where regulatory frameworks need to be better aligned with environmental and social development objectives. Although they may be more or less relevant depending on the regulatory frameworks of different countries and jurisdictions, they are illustrative of the type of problems and solutions that find their source in legislation.

Designing fair and effective rules and regulations requires a deep understanding of the regulated sectors. Such rules should seek to be open to encourage and enable trade, investment and financing. The Manufacturing chapter, for example, notes that some industries are highly heterogeneous, making them difficult to regulate without being too soft or too severe. As regulators work

with firms to establish appropriate rules, there is also the risk of “regulatory capture”, where the resulting legislation is more in the commercial than the public interest. Even where a regulation is well-designed, adequate institutional capacity is nevertheless essential to ensure that as little administrative burden as possible is placed on businesses.

Standards Standards can be effective tools for achieving environmental objectives and enabling markets in sustainable goods and services. This is because they inform consumers about products and production processes, and create or strengthen demand for sustainable products. Technical standards (i.e. requirements on products and/or processes and production methods) are mainly developed and implemented at the national level, although standards that aim at enhancing energy efficiency and that set targets for emission reductions are also developed internationally. The requirements may be based on the design or the particular characteristics required, such as many biofuel standards, or they may be performance- based, as is the case with many energy efficiency standards (WTO-UNEP 2009). Mandatory standards, in particular, can be very effective in achieving a desired outcome.

In some cases, environmental regulation can drive innovation and economic growth. Companies innovate in response to, for example, tighter waste regulations by changing product design and production processes so that they generate less waste (Network Heads of European Protection Agencies 2005). It has been argued that countries with high environmental standards often have market-leading firms and record better economic performance than countries with lower standards. This is because higher standards can induce efficiency and stimulate innovation, which can have a positive effect on competitiveness for those needing to comply with the standards (Porter 1990).

Nonetheless, the development of standards poses some risks. In many cases, it can be difficult to establish a standard with certainty. Even if an appropriate standard can be found, as time passes it can create a “ceiling of mediocrity”, failing to adequately promote further improvements in performance if there are no mechanisms for regular review and revision (Smith 2008). Complex standards also risk discriminating against small and medium-sized enterprises, particularly in developing countries, which often lack adequate resources to comply with legislation and demonstrate compliance to regulatory authorities.

Property laws and access rights In a number of chapters – Agriculture, Forests, Fisheries and Water – a common message emerges: unless people have clear rights over a resource, they will lack the incentive

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