Simon Upton

OECD, Director for the Environment

Economic Instruments to

Achieve Sustainable

Development

Sustainable Development Forum 2014

Prague, 28 November 2014

HOW TO

Internalise externalities?

Induce competition

?

Boostinvestment

?

Track progress

?

Align policies?

Engage people

? Make use of new technologies

?

Tackle social aspects

?

Tonnes of carbon per PPP equivalised unit of GDP (EUR)

Imp

licit

tax

rat

e p

er

ton

ne

of

CO

2

USA

Estonia

Switzerland

Source: OECD (2013), Taxing Energy Use: A Graphical Analysis.

Higher implicit tax rates on carbon are associated with a lower-carbon economy

Prices work!

Czech

Rep.

Put a price on carbon

Taxation of energy in the OECD areabased on carbon content

Source: OECD (2013), Taxing Energy Use: A Graphical Analysis.

Tax on a carbon basis

Sources: OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels; IEA (2014), World Energy Outlook; IEA (2013), Tracking Clean Energy Progress Report; OECD (2013), Effective Carbon Prices.

Reform fossil fuel subsidies Send the right signal!

Existing, emerging and potential ETS’s

6Source: World Bank (2014), The State and Trends of Carbon Pricing

Comply with ETS

39 national and 23 sub-national

1% of large OECD pension fund assets invested directly in infrastructure

LARGE OECD PENSION FUNDS

ASSETS

USD 10 trillion

* based on large OECD pension funds, covering $10+tn* * BNEF estimates

<1%

INFRASTRUCTURE INVESTMENT

(direct)

* <3%

.**

GREEN INFRASTRUCTURE INVESTMENT

(direct)

GREENINFRASTRUCTURE

INVESTMENT(direct)

Biomass and

waste

Geothermal (0.3%)

Wind

Solar

Unlock investment barriers

OECD research: Stricter environmental policies do not harm productivity growth

10

* Pooled across 1990-2012 for 25 OECD countriesSource: OECD (2014) Working Paper by Albrizio, Botta, Kozluk, Zipperer: “Do Environmental Policies Matter for Productivity Growth?“

Boost productivity growth

A. MFP growth and EPS levels B. MFP growth and EPS change (3-year moving average)

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0 1 2 3 4 5EPS indicator - level

MFP growth

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

-0.4 -0.2 0 0.2 0.4 0.6 0.8

EPS indicator - change (3 year average)

MFP growth

EPS indicator of environmental stringency

Multifactor productivity growth

No evident link

But:

In countries with high policy stringency, low-polluting firms outperform high-polluting ones (and reverse)

… and when looking at causal links, then market-based environmental policy instruments support more productivity growth

01

02

03

0

De

nsity

-.05 0 .05Residuals

low pollution ind. in high stringency countries

low pollution ind. in low stringency countries

kernel = epanechnikov, bandwidth = 0.0090

Low-pollution industries tend to be closer to the frontier in high-stringency countries

Address social aspects

Job churning – destruction, creation and reallocation

Source: ENV Linkages Model; Chateau, J., A. Saint-Martin and T. Manfredi (2011), “Employment Impacts of Climate Change Mitigation Policies in OECD: A General-Equilibrium Perspective”, OECD Environment Working Papers, No. 32, OECD Publishing.

Job destruction Job creation

OECD simulation results: Sectoral composition of job creation and destruction

High-income households spend more than twice as much as low-income ones

Source: Living Costs and Food Survey 2014, UK ONS

Proportion of total expenditure spent on fuel in the UK, 2012 (by gross income decile group)

Address social aspects

Israeli economic efficiency of agricultural water use, 1986-2008

Source: OECD (2010), OECD Review of Agricultural Policies: Israel, 2010 .

0

20

40

60

80

100

120

140

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Index 1986=100

Value of agricultural production per m3 of water utilized for irrigation

Real price of fresh water to agriculture (inflation adjusted)

Create incentives …

Israeli patents in selected env. & climate-related technologies

0

10

20

30

40

50

60

70

80

90

100

1995 1997 1999 2001 2003 2005 2007

General environmental management

technologies, 1995-2008

Total patents

Water pollution abatement

number of patents

Patent counts are based on the priority date, the inventor’s country of residence and use fractional counts on PCT filings at international phase (EPO designations).

Source: OECD (2011), OECD Patent Statistics Database; OECD, Environment Directorate

… to innovate

Internationalorganisations

Advisory Body to the French Minister of

Environment, Sustainable Development and Energy

Researchers

Professors

Civil society

Businesses

International organisations

Source: Conseil Economique pour le Développement Durable (CEDD):http://www.developpement-durable.gouv.fr/Rapports,13175.html.

Work together

Measure and communicate

?F

E

OECD

Latin America and Carribbean

Eastern Europe, Caucasus and Central Asia

Asia

Applications of green growth indicators

ECONOMIC

Climate policy comes on top of existing policy frameworks and goals

SOCIAL

COMPETITIONFISCAL

DEVELOPMENT COOPERATION

TRADEINVESTMENT

CLIMATE

Align policies

Thank you for your attention!

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