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FAQ: Inclusive Green Growth

  • What is inclusive green growth?

    Green growth is growth that is environmentally sustainable. It is efficient in its use of natural resources, clean in that it minimizes pollution and environmental impacts, and resilient in that it accounts for natural hazards and the role of environmental management in preventing physical hazards and excessive commodity price volatility.

    Green growth is a tool to achieve sustainable development, not a competing paradigm. It offers a development pathway that reconciles the urgent need for sustained growth with the imperative of avoiding lock-in to unsustainable growth patterns and irreversible environmental damage. Green growth is not anti-growth; it represents a change in how we manage economies for sustainability.

    Critically, we cannot presume that green growth is inherently inclusive, but Inclusive Green Growth: The Pathway to Sustainable Development (released May 2012) shows that green growth can, and in our view must, be designed in a way that makes it inclusive. While we have good reason to think that improved environmental performance will benefit the poorest and most vulnerable, green growth policies must be carefully designed to maximize benefits and minimize costs for them.

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  • How does inclusive green growth relate to green economy?

    The goal of inclusive green growth is to reduce poverty, promote equity, and create opportunities without irreparably harming the environment. In other words, green growth should create a green economy, which the United Nations Environment Programme (UNEP) defines as one “that results in improved human well-being and social equity, while significantly reducing environment risks and ecological scarcities.”

    So the two concepts are intimately linked – two sides of the same coin. Importantly, neither are new paradigms. Both are inputs into sustainable development, the ultimate objective of growth, development, and environmental policies. The World Bank’s emphasis on growth aims to draw attention to the fact that continued growth in developing countries is necessary – though not sufficient – to deliver on the development agenda.

    This common vision of green growth/economy as instruments to achieve sustainable development is being developed further through the Green Growth Knowledge Platform (GGKP), a joint initiative of the Global Green Growth Institute, the Organisation for Economic Co-operation and Development, UNEP, and the World Bank. The GGKP, which launched in January 2012, is a global network of researchers and development experts seeking to identify and address major knowledge gaps in green growth theory and practice. Through widespread consultation and world-class research, the GGKP aims to provide practitioners and policy makers with better tools to foster economic growth and implement sustainable development.

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  • Why grow green? Can’t developing countries just grow and worry about the environment later?

    Many argue that poor countries should focus on satisfying basic needs before attending to nature, especially given their minimal environmental footprints. This argument is misleading for several reasons. First, many benefits of better environmental performance – clean air and water, solid waste management, resilience to natural disasters, for example – are basic needs, and environmental policies enhance productivity and poverty alleviation. So while poor countries should focus on meeting basic needs and expanding opportunities for growth, they need not do so at the expense of unsustainable environmental degradation.

    Second, environmental performance does not automatically improve with national income. Policy will be required to prevent and remedy growth obstacles and impact upon welfare from unsustainable practices. Typically, only local environmental problems with a high degree of visibility, such as polluted air and water, are reliably resolved as countries develop. In contrast, local problems with complex or less visible consequences, as well as global issues like climate change and biodiversity loss, generally continue to worsen.

    Finally, it may be impossible or prohibitively expensive to clean up once economies have achieved a suitable level of prosperity. The loss of many environmental assets—most obviously biodiversity—is irreversible. Reversing climate change would take centuries, possibly millenia. Economic and technology lock-in also creates substantial inertia. Choices about the design, function, and configuration of long-lived infrastructure that ignore environmental consequences will make subsequent shifts to more environmentally benign structures and processes extremely costly. Think of urban forms in the growing cities of developing countries: a low-density city cannot be easily modified later even if reducing energy demand and lowering energy costs become a priority.

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  • Is green growth feasible during a prolonged economic downturn?

    Policies that encourage an efficient use of resources, savings and investment, worker skill development, and that support development of a solid financial sector, promote worker mobility to seek higher-return employment, foster efficiency-enhancing trade, and provide safety nets are all basic recipes to promote economic growth and to shift toward a greener growth. In some respects, these policies are even more necessary during an economic downturn, and there is no obvious trade-off between recovery and greening.

    Other green investments may nevertheless be more difficult to finance during an economic downturn, when fiscal resources are reduced, such as capital-intensive green electricity supply investments. And available public resources may have to be used as labor-intensive stimulus investments, to create jobs and replace private demand, leading to the selection of relatively low-paying jobs that target low-skilled workers, which may not match the investment structure needed to green growth. There is thus a trade-off in the design of green stimulus plans, due to the mismatch between the long-gestation and more capital-intensive impacts of clean energy investments and the types of expenditures needed to stimulate employment fairly quickly.

    But here also, synergies do exist. Large-scale energy efficiency programs (e.g., weatherization of buildings) and some natural resource conservation activities (e.g., reforestation activities such as in the Republic of Korea’s stimulus program) may be suitable as stimulus for a depressed economy and as an investment to green the economy.

    Over the longer term, green growth can also help mitigate future crises. For instance, increased energy efficiency and reduced reliance on fossil fuels (particularly imported fuels) will reduce economic vulnerability to fuel price shocks.

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  • How do we close the financing gap that constrains green investment?

    Developing countries are characterized by large unsatisfied needs, including needs met by infrastructure such as drinking water and reliable electricity. The scale of unmet needs is particularly great in Sub-Saharan Africa, where less than a third of households have access to electricity. Developing countries are currently investing about half of the amount that would be needed to filling the infrastructure gap (approximately $1.0–1.5 trillion a year, or 7 percent of developing country GDP). The gap that constrains green investment needs to be understood in a more general context of insufficient financing of infrastructure.

    Renewable energy and energy efficiency illustrate the need for innovative public financing instruments. Renewable energy is capital intensive with a long payback period and may face the technology risks associated with emerging technologies (such as concentrated solar) or unique resource risks (drilling for geothermal). And energy efficiency investments tend to be small, with high transaction costs, so that banks may not find them attractive in the absence of dedicated credit lines to increase confidence and capacity and instruments to aggregate small deals.

    How can these obstacles to green investments be overcome? The public sector, international financial institutions (IFIs), and bilateral donors can help by providing funds for project preparation as well as concessional elements for pioneer investments. Such support can go a long way toward changing risk-return profiles and giving investors more confidence in the long-term viability of their projects. Also, financing can be supported by “fund of funds” under which governments invest a relatively small amount of long-term capital in a range of private, professionally managed funds that then invest in clean energy or energy efficiency. In addition, energy service companies (ESCOs), which provide clients with energy auditing, propose energy-savings measures, and financing, can help consolidate the multiple small transactions that are needed for energy and water efficiency. But ESCOs is an industry that often requires public support to establish.

    Finally, the ability to charge at full cost infrastructure services is behind the massive expansion in telecom services, but few other infrastructure sectors are able to do so, although where they have, investors have come, as they did in Colombia’s water sector. Solutions include measures to price infrastructure services close to cost recovery, while ensuring affordability for low-income households. Greening infrastructure can be achieved only if green growth policies are inclusive and deal with the affordability issue: green growth cannot succeed if it is not inclusive.

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  • How can the “green-ness” of growth be measured?

    Countries have long kept a close watch on their national income accounts to evaluate economic performance and assess the effectiveness of their development policies and plans. But traditional indicators based on national income accounts like GDP (gross domestic product) say nothing about the longer term sustainability of current growth patterns.

    The concept of accounting for natural capital has been around for more than 30 years. However, progress in moving beyond conceptual thinking and experimentation toward implementation of natural capital accounting has been slow. A major step toward achieving this vision came recently with the adoption by the UN Statistical Commission of the System for Natural capital accounting straddles all three pillars of sustainable development and can move the world beyond a GDP metric to focus on all assets that a country needs for long-term growth and well-being.

    A World Bank-facilitated global partnership on Wealth Accounting and Valuation of Ecosystem Services (WAVES) aims to promote sustainable development by ensuring that the national accounts used to measure and plan for economic growth include the value of natural capital.

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  • How do you propose to break the log jam in green growth policy by entrenched interests?

    We live in a world of imperfections, from market to government failures, and green growth policies need to account for them. This is why political economy needs to be at the heart of environmental policy design. Greening growth is about a large-scale transition in the economic system, and such transitions – as illustrated by trade liberalization – always have distributional impacts, with winners and losers.

    The environmental case is made even more complicated by the fact that benefits are often distributed among a broad population, while losses affect a small – and thus vocal – community. Green growth can only be successful if it includes complementary measures that help those who are negatively affected to cope and adapt. For example, governments might consider replacing fossil fuels subsidies with compensatory cash transfers to the poor and middle classes. For example, governments might consider replacing fossil fuels subsidies with compensatory cash transfers to the poor and middle classes. Direct transfers are a more efficient and equitable way to reduce poverty, not to mention they don't create incentives for environmentally harmful practices. A number of countries have learned that subsidy reform regimes are only as robust as the underlying political will and the ability of governments to de-politicize the recalibration of prices, for example by linking prices to international markets rather than a malleable regulatory agency.

    Moreover, greening growth will be possible if the economy is well armed to transition toward new sectors, and this will depend on the existence of a sound economic environment, with skilled workers able to shift to higher productivity sectors, safety nets to cushion losses and help affected workers, access to financing and capital to help new sectors develop and invest, a stable regulatory environment that creates certainty for investors, and more. Green growth policies will be efficient and successful only in presence of good growth policies: green growth is thus a complement, not a substitute, to growth policies.

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  • What are the main conclusions of this report?

    The report provides an analytical framework and priority steps for designing public policies and inducing investments needed to strengthen green growth and improve standards of living in rapidly developing countries. Green growth strategies are designed to break the pattern of environmental degradation and natural resource depletion that are too often the consequence of economic growth and to avoid locking growing economies into unsustainable patterns. Economic activity that imperils future environmental viability and fails to efficiently utilize natural resources cannot be sustained.

    Population growth and demographic shifts are occurring at exponential rates in developing countries. Growing quicker, smarter and cleaner is feasible, needed and affordable.
    Policy decisions made now will have wide ranging implications and determine the ability of economies to meet essential needs as well as provide opportunities for value-added growth in the future.

    Some countries are better equipped than others to navigate and speed this transition, but every country can adopt principles of green growth. Green growth incorporates variability, recognizing that low, middle, and high income countries have different priorities and will thus implement very different green growth strategies.

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