Towards a green economy Key messages

1. Enabling a green economy means creating a context in which economic activity increases human well-being and social equity, and significantly reduces environmental risks and ecological

scarcities. Changing the economic environment in this way is an ambitious undertaking which requires a holistic set of policies to overcome a broad range of barriers across the investment landscape. This chapter identifies six key areas of policy-making which most governments will need to focus on in order to correct the incentive structures in current, unsustainable markets and to alter investment landscapes in the short to medium-term. It also raises the question of whether classical measures of economic performance, such as Gross Domestic Product (GDP) growth, are adequate for assessing wealth creation and human well-being in the transition to a green economy.

2. Carefully designed investment and spending can stimulate the greening of economic sectors. While the bulk of green economy investment will ultimately have to come from the private sector, the effective use of public expenditure and investment incentives can play a useful role in triggering the transition to a green economy. A number of sector chapters in the report recommend public investments in infrastructure and public services to enable green markets and ensure more efficient use of the environment and natural resources. Governments can also stimulate markets by using sustainable public procurement practices that create high-volume and long-term demand for green goods and services. This sends signals that allow firms to make longer-term investments in innovation and producers to realise economies of scale, leading in turn to the wider commercialisation of green goods and services, as well as more sustainable consumption. Investment and spending for a green economy, however, require regular assessments to ensure equity, transparency, accountability and cost effectiveness.

3. Taxes and market-based instruments are powerful tools to promote green investment and innovation. Significant price distortions exist that can discourage green investments or contribute to

the failure to scale up such investments. In a number of economic sectors, negative externalities, such as pollution, health impacts or loss of productivity, are typically not reflected in costs, thereby reducing the incentive to shift to more sustainable goods and services. A solution to this problem is to internalise the cost of the externality in the price of a good or service via a corrective tax, charge or levy closer to the source of the pollution or, in some cases, by using other market-based instruments, such as tradable permit schemes. Also, markets establishing payments for providing ecosystem services, such as carbon sequestration, watershed protection, biodiversity benefits and landscape beauty, can influence land use decisions by enabling landholders to capture more of the value of these environmental services than they would have done in the absence of the scheme.

4. Government spending in areas that deplete environmental assets is counterproductive to a green economy transition. A number of the sector chapters highlight how poorly managed

government spending can represent a significant cost to countries. Artificially lowering the price of goods through subsidisation can encourage inefficiency, waste and overuse, leading to the premature scarcity of valuable finite resources or the degradation of renewable resources and ecosystems. Such outdated subsidies can also be socially unfair. Moreover, they can reduce the profitability of green investments: when subsidisation makes unsustainable activity artificially cheap or low risk, it biases the market against investment in green alternatives. Reforming environmentally harmful and economically costly subsidies can therefore bring both fiscal and environmental benefits. However, short-term support measures accompanying the reform may be necessary to protect the poor.

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