Otaviano Canuto Vice President Poverty Reduction and Economic Management Network World Bank G20 Seminar on Green Growth, OECD May 22, 2012

 Green growth: preserves ability of environment to deliver services essential for human well being.  Market failures cause over-use of natural assets - hinders development and reduces social welfare.  Green policies address these market failures – to promote development and increase welfare…  Must be evaluated alongside other development policies for net contribution to social welfare. 2

 Main focus of green fiscal policy is on the revenue side  Role of green expenditure policy is more selective  First do no harm!  Then make sure there is a clear economic rationale.  E.g. aspects of climate adaptation and infrastructure  E.g. green innovation and technology adoption  High quality public expenditure management is key.  Green fiscal policy must help ensure that green growth is inclusive. 3

 Most adaptation will be private …  …but government can help facilitate private adaptation  … and provide public goods needed for adaptation  But when, how much and what to invest in adaptation is tricky indeed 4

 Adaptation cost estimates for China vary by a factor of 13 across 17 climate scenarios!  Waiting to make public adaptation investments could sometimes be best  …against which is the urgency of current infrastructure deficits.  No simple answers! 5 Source: Hughes and Chinowsky (2012).

 Kuala Lumpur’s SMART - Stormwater Management and Road Tunnel  It works! Road decks switched to drainage on May 2, 2012 after heavy rains – back to roads May 5.  Colombia’s 2010 study of public contingent liabilities – including natural disaster risks 6

 Innovation is key to reducing costs of green growth.  Knowledge spillovers and other market failures mean that the market generally undersupplies frontier innovation and new technology adoption.  So there is a rationale for policy support.  Adoption and diffusion - more relevant for most developing countries. 7

 Get the pricing and business environment right!  In addition there is a rationale for technology policy, including fiscal incentives – but how specific?  Good policy and institutional design is critical 8

 Quality of Public Expenditure Management institutions is crucial to ensure green expenditures are efficient and effective in practice … a big subject!  Effective institutions need good information – a growing demand from developing countries for better quality information and analysis of public environmental expenditures, especially climate related spending. 9

10  A collaborative work in progress.  Emerging lessons and issues:  From “marketing” to objective information for good decisions.  Need for comprehensive analytical scope  Mainstreaming - link climate change to routine planning and budgeting  Need for better tracking and control of climate related spending as volumes of international climate finance grow.  Need for information helpful in risk and uncertainty management