Economic Policy Considerations in the Transition to a Green Economy Michael A. Trueblood Director, USAID/CAR Economic Development Office Astana Economic Forum 22 May 2013

Presentation Outline Concepts and Definitions Best Practices and Lessons Learned from Other Countries US Policy and Research Experience

Concepts, Definitions, and Rationale Related to the Green Economy

Green Economy Defined There are many different definitions of a green economy UNEP’s working definition of a green economy is: “one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression, a green economy can be thought of as one which is low carbon, resource efficient and socially inclusive.”

Key Dimensions of Green Economy Economic Environmental Social The three pillars of sustainable development

Elements of a Green Economy Low Carbon Intensity High end-use efficiency Low-carbon power sources Natural resource management Water, forests, biodiversity, soil Resilient to climate change Improved environmental practices Waste treatment, local air and water quality Benefits distributed throughout the population Urban v. Rural

Why Green Growth in General? Preserves the natural resource base for future generations Modeling results shows higher rates of economic growth over the long run than traditional (“brown”) growth paths More job creation in the long run

Why Green Growth Locally? High commodity dependency in Central Asia region Prices high now, but may not be in the future Opportunity to “leap frog” technologies and avoid locking in old “brown” technologies Opportunity to plan new developments and cities using efficient designs

Energy Inefficiency is High in Central Asia OECD average Source: World Bank, World Development Indicators

Challenge of Diversification Aluminum Oil Natural gas Gold Energy Ask people which industries they think are the largest in each country

Real Primary Commodity Prices Are Prone to Large Long Run Variations Oil (right axis) Prices are adjusted for inflation Natural gas (left axis)

Best Practices and Lessons Learned from Other Countries

Economic Policy Overview “One size doesn’t fit all” “A mix of policy instruments will be required” (OECD 2011) “A combination of policy instruments [are needed], including price-based policies, norms and regulations, public production and direct investment, information creation and dissemination, education and moral suasion, and industrial and innovation policies” (World Bank (2012)

Six “I’s” of the Economic Policy Toolbox to Promote A Green Economy Internalizing (externalities) Incentivizing Institutional development Investments Information Inclusion Source: UN, A Guide to the Green Economy - Issue 3 (2012)

Some Common Policy Instruments Taxes on economic “bads” Market mechanisms, e.g. “cap and trade” Regulations Integrated planning Investments R&D Infrastructure Human capital Natural resources capital Agriculture

Principles of Good National Sustainable Development Strategies (NSDS)* Integrate policies Take an intergenerational timeframe Conduct strong analysis and assessments Coordinate across government and develop institutions Involve local and regional governments Encourage stakeholder participation Develop indicators and targets Monitoring and evaluation follow through * 106 countries have completed NSDS as of 2009 (UN 2012) Source: UN, A Guide to the Green Economy - Issue 3 (2012)

Related: Low-Emission Development Strategies (LEDS) - Lessons Learned Best practices: Strategies are fact-based Develop capacity building Strong leadership and awareness building Coordinate government action Involve stakeholders Source: UN, A Guide to the Green Economy - Issue 3 (2012)

Positive Examples of Recent NSDS Strategies Adapted from UN, A Guide to the Green Economy - Issue 3 (2012)

US Policy and Research Experience

The US Experience Different levels of government carry different types of authority: Federal: regulation, provide subsidies to states/sectors, platforms, standards, data, research State: planning, regulation, taxation, education Local: “where the rubber meets the road” Policy design and implementation can be both top down and bottom up States can act as laboratories for innovative policies Strong emphasis on both compulsory and voluntary measures

US Economic Theory Often Ahead of Economic Policy There are several examples: Pollution taxes – 1920’s (Pigou) Polluter pays principle (internalizing pollution externality) Not really noticed until the 1960’s Green GDP accounting (1980s and 1990s) Green productivity measurements (1980s and 1990s) Tradable permits / cap and trade (1980s and 1990s) Efficiency measurement with jointly produced goods and bads Data are very limited, sometimes expensive to collect Economic agencies such as BEA (Commerce Department) and ERS (Agriculture Dept.) are advancing research methods

States as Laboratories for Green Policy Consider California’s example* California Environmental Quality Act (CEQA) – 1970 Following the oil spill off Santa Barbara Promoted alternative energies for decades Including windmill farms Several policies to promote clean air (see next slide) AB32 law (2006) Will cut greenhouse gas emissions to 1990 levels by 2020 Implements a cap and trade system (second biggest after EU) Carmakers have to reduce emissions 13 other states followed, so industry complied to avoid patchwork regulations * If California were a country, it would have the world’s 12th largest GDP.

California and Air Pollution Let’s learn some lessons from Los Angeles, California Air quality in LA is one of the most rapidly improving in the United States A typical day in the 1970s A typical day today

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Appendix Slides

Natural Resource Management Water management inefficiency Water still given a zero price in most CAR countries Not treated as a commodity that is scarce like other commodities when it is in fact scarce Leads to waste and inefficiency Rest of world is moving toward water markets – CAR region is not moving in this direction yet Water districts along historical political districts rather than watershed management districts Uncertainty of global climate change effects on snow melt