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UNCTAD Policy Brief: Building a Development-led Green Economy (no. 23 - June 2011)

Policy brief by UNCTAD, 2011

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This policy brief describes the challenges faced by governments in transiting to a green economy.It emphasises that a viable transition must take into consideration constraints on growth, competitive disadvantages and unequal benefits, especially for developing countries,and that specific support must be given to green industries to promote this environmentally and socially sustainable economy strategy.

N° 23, June 2011


UNCTAD


Building a development-led
green economy


Meeting the challenges
In the wake of the food, energy and financial
crises, numerous governments are promoting
green economy strategies to open more stable
and sustainable development pathways. The
green economy emphasizes production and
consumption modes that are environmentally
and socially sustainable. By sustaining natural
resources and ecosystem services, it protects
the global commons allowing current and
future generations to meet their needs. And by
promoting social inclusiveness it generates jobs
for the poor and enhances their access to basic
services.


A transition to a green economy involves
expanding green production and markets;
reducing depletion of natural resources and
degradation of ecosystems caused by economic
activity; and increasing reliance on low-carbon
energy supply to mitigate climate change. The
transition is not automatic though; it needs
to be supported by development-led policies
and concerted actions to ensure outcomes are
inclusive across and within countries.


Certainly, the goals of a green economy are broad,
comprehensive and ambitious, but they are not
new. A lot of what is implied in the green economy
concept dates back to Agenda 21, a ‘blueprint
for sustainable development’, adopted during
the 1992 Earth Summit in Rio. However, despite
progress made, greater efforts are needed. The
2012 Rio+20 Conference will thus focus on
promoting the green economy as a catalyst to
accelerate progress on sustainable development.


The Rio+20 negotiations aim to build support for
a green economy that yields win-win outcomes
for the environment and economy, and for
developing and developed countries alike.
Negotiations will be challenging since some
believe that a transition to a green economy will
introduce constraints on growth, competitive
disadvantages and unequal benefits among
countries. A globally viable transition must allay
these concerns and effectively address challenges
facing developing countries which lack sufficient
financial, technical and human capital needed to
structurally transform their economies along a
new green trajectory. International cooperation
providing capacity building, technology transfer
and financial assistance will play a central role in
filling these gaps.


Governments have regulation and incentive-
based instruments as levers to promote


the transition in their domestic economies.
Information dissemination campaigns to facilitate
the choices of consumers and businesses will also
be essential in facilitating the transition. But alone
these levers may not be sufficient. Recognizing
this, countries allocated more than $470 billion
in their 2008-2009 economic recovery packages
towards green investments. Some countries – the
US, China, Republic of Korea, France, Germany
and Mexico – expanded fiscal stimulus into
broader long-term programmes promoting a
low-carbon economy, some of which are being
advanced through national industrial policies.


Trade plays a central role in the diffusion of green
goods and services. Already, both developed
and developing countries are pursuing expanded
export opportunities for green goods such
as green technologies, sustainably produced
agricultural, timber and fisheries products, as
well as for green services such as ecotourism
and carbon sequestration.


More industrialized countries see the expansion
of green technology exports as a critical step
to ensuring competitiveness going forward. For
example, China has extended support to clean
energy technology manufacturers. The US
launched the Renewable Energy and Energy
Efficiency Export Initiative to support clean
energy technology exports. Other countries
have also introduced policies and incentives to
support their green sectors.


However, specific support to green industries and
sectors can be challenged under current WTO
rules. For example, in 2010 the US filed a complaint
asserting that China’s production subsidies
for renewable energy technology operated as
a barrier to US exports. Also in 2010, Japan,
the US and the EU filed for consultations with
Canada, claiming the feed-in tariff programme of
the province of Ontario provided less favourable
treatment to imported solar panels than those
produced locally. As respondents, both China
and Canada claim that sustainable development
requires national policies to promote green
industry and jobs, and that their policies are
WTO consistent. Future WTO rulings on these
and similar disputes will provide guidance on
the acceptable scope for government support
to green sectors. Nevertheless, trade rule reform
may be needed to ensure adequate policy space
for countries to promote green sectors.


Regulations and standards, including private
standards, are prevalent in a greening global
economy. Green regulations and standards apply




not only to green products, but more broadly to all goods
and services through efforts to integrate green production,
packaging, transportation, distribution and recycling into
global supply chains. When pioneering green regulation is
introduced in the world’s largest market, it is bound to impact
other countries through trade. Companies exporting to the EU
manufacture their products to meet stringent EU standards. At
the same time, similar environmental regulations are emerging
across the world. This trend points to the importance of
harmonizing standards and raising the capacity of developing
country businesses to integrate green requirements into their
operations to facilitate their participation in a greening global
economy.


Seizing new trade opportunities
A green economy is driven by both domestic and foreign
demand for green goods and services, including more efficient
and low-carbon energy systems, organic food, ecotourism,
solid waste and water recycling, environmental consulting,
and emerging categories that include green construction,
sustainable harvested timber products, electric bicycles and
hybrid cars. Many green categories represent just a small
fraction of their ‘brown’ counterparts indicating a vast potential
for growth. Whether in high-tech goods, commodities, basic
manufactures or services, the export opportunities offered in a
greening global economy are significant and expanding faster
than overall world trade; a trend that is expected to continue.


The global market in low-carbon and energy efficient
technologies is projected to nearly triple to $2.2 trillion in 2020.
The supply-side response to this burgeoning market has been
significant, with a rapid ramping-up of production and export
capacity in a handful of developing countries, in some cases
facilitated by foreign investment and technology transfer by
multinational companies, as well as national industrial policies
targeting green sectors.


Renewable energy technologies such as solar panels and
wind turbines, and energy efficient products such as compact
fluorescent lamps are among the green technologies seeing
the sharpest rise in exports. Developing countries have
made significant progress in supplying global markets for
these products; their share of world exports increased from
24 percent in 2002 to 50 percent in 2009, generating export
revenues of $22 billion in 2009. But relatively few developing
countries are participating in this trend. Only six developing
economies – China, Taiwan Province of China, India, Republic
of Korea, Malaysia and Singapore – account for over 90 percent
of developing countries’ exports of this group of products.
And although exports by countries such as Brazil, Mexico,
Philippines, South Africa, Turkey and Vietnam are growing,
exports from most other developing countries remain minimal
or entirely absent.


However, green technologies are often produced in
developed and more industrialized developing countries
using intermediate inputs originating from a wide variety
of developing countries that are integrated in global supply
chains. Trade in intermediate goods, which accounts for about
40 percent of world merchandise trade, is thus an important
entry point for developing countries to supply green markets.
Participation in supply chains generates economy-wide gains,
such as employment, improvement in technology and skills,
productive capacity upgrading, and diversification into value-
added exports.


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UNCTAD


While businesses in more industrialized developing countries
are seizing new export opportunities for green technologies,
businesses in less industrialized developing countries
continue to build their export capacities for green products
such as organic food and beverages, natural cosmetics and
fibres, biofuels, and sustainably harvested timber and fisheries
products, and for green services such as ecotourism. In each
of these sectors developing country exports are experiencing
sharp growth, generating employment, advancing rural
development and protecting the environment.


The global market for organic food and beverage products is
projected to reach $60 billion this year; a more than three-fold
expansion from 2000 levels. Organic farming is practiced on
37 million hectares in 160 countries; a nearly four-fold increase
over the past decade. Increases in organic farmland are
occurring predominantly in developing countries to respond
to growth in demand in Northern markets. About 75 percent
of the more than 1.8 million producers worldwide are farmers
in over 110 developing countries, with the largest numbers in
India, Uganda, Mexico, Ethiopia, Tanzania, Peru, Turkey and
Burkina Faso.


Consumer preferences for natural fibres such as organic
cotton, wool, hemp and silk used in textiles, and natural oils,
waxes, fats and herbs used in cosmetics, are providing new
income opportunities in the South. These and other biotrade
products are important exports for many developing countries.
In Latin America alone, biotrade exports generated over $230
million in 2008. Biofuels are also a growing export commodity
for developing countries which account for over 40 percent of
world bioethanol production and 12 percent of world biodiesel
production. Top producers are Brazil, China, India, Colombia,
Republic of Korea, Thailand and Malaysia.


Developing countries are also increasing their presence in
sustainably harvested timber products markets. Globally,
forest land area certified by the Forest Stewardship Council
increased seven-fold over the past decade to reach nearly
140 million hectares in 2010 with developing countries’ share
of this total rising to about 20 percent. Sustainably harvested
fish is another growing export of developing countries which
account for 50 percent of global fish exports with net export
revenues exceeding $25 billion.


Green services represent additional export opportunities for
developing countries. Ecotourism is projected to capture 25
percent of global tourism revenues in 2012, with international
tourists spending $240 billion in ecotourism destinations. The
majority of these destinations are in developing countries such
as Brazil, UAE, Belize, Kenya, Gabon, Botswana, Costa Rica,
Laos, Nepal and Palau. Carbon sequestration is another area
where developing countries are exporting green services,
including through international mechanisms such as CDM
and REDD.


Through its research and country-based activities UNCTAD
supports national reviews of economic, regulatory,
institutional and trade policy factors related to enhancing
productive capacities in green sectors. Further information
and background material on issues addressed in this policy
brief are available on UNCTAD’s website: www.unctad.org/
greeneconomy or by contacting UNCTAD at greeneconomy@
unctad.org.




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