The alternatives and challenges of greener development: Getting the entire coverage bundle proper

Climate change and, extra usually, environmental harm have quantifiable financial and well being prices, which weigh on long-term development and well-being. If left unchecked, local weather change is projected to lower world GDP by 0.7 to 2.5% by 2060. At the identical time, the prices to society of air air pollution already seem substantial–equal to some 4% of GDP throughout OECD nations and even greater in some quickly growing economies. Yet world motion within the environmental area proceeds solely slowly–too slowly to be as much as the challenges we face. Why is it so?

One main objective of environmental insurance policies is to encourage corporations and households to cut back the harm they do to the pure surroundings, for example, by adopting new applied sciences, concepts and merchandise that enhance environmental efficiency. Policymakers have lengthy feared that such insurance policies can be a constraint on their nation’s competitiveness–a variety of empirical research tried to attribute a big a part of the Seventies productiveness slowdown within the United States to the growing function of environmental insurance policies. But a shift is beginning to happen which ought to make environmental insurance policies politically simpler to advance. 

One cause for the shift is that the claims of total unfavorable results of environmental insurance policies have discovered little backup in analysis. In reality, anecdotal proof has been reasonably comforting: development didn’t collapse after the implementation of quite a few environmental insurance policies through the years, be it unilateral introduction of environmental taxes or broader world actions, such because the Montreal Protocol to cut back ozone layer depletion.

Moreover, new compelling proof from the OECD signifies that the economic system and the surroundings might be improved collectively. Based on the expertise of a big set of nations, it reveals that productiveness has usually not been negatively affected by insurance policies that promote take care of the surroundings. Yes, insurance policies require some non permanent changes, however these have a tendency to clean away inside a few years.

As importantly, the most efficient and technologically superior corporations (and industries) have a tendency to truly acquire from tighter environmental insurance policies, an consequence doubtless reflecting their superior capacity to understand the brand new alternatives by innovating and enhancing their merchandise, but additionally by relocating their manufacturing overseas. In distinction, the least productive corporations–which usually use their sources much less effectively–may even see a brief fall of their productiveness development, probably as they require extra investments to deal with the extra stringent environmental necessities. Some of the least productive corporations might stop to function. Still, if sources are swiftly reallocated to younger and increasing corporations, the general impacts won’t essentially be unfavorable and might be optimistic, each for the economic system and the surroundings, significantly if insurance policies are in place to allow entry and exit of corporations and to help employment.

Our proof on worldwide commerce and the surroundings provides one other optimistic perspective to this image of the results of environmental insurance policies. A current evaluation reveals that extra stringent environmental insurance policies spur the event of a marketplace for a complete vary of apparatus particularly meant for stopping and abating air pollution. Indeed, it concludes that stringent regulation positively impacts nations’ specialisation in environmental merchandise, which is a quickly increasing world market. Increased commerce in such merchandise can spur world enhancements in environmental high quality. In reality, when mixed with stringent, well-designed environmental insurance policies, open commerce can type a significant channel for decreasing air pollution and spurring development each globally and domestically.

Economic dynamism is essential to make sure such optimistic outcomes, and coverage design can do lots to contribute. The total coverage framework needs to be oriented to encourage development of younger and dynamic corporations, and the event of latest merchandise and concepts that fulfil tighter environmental requirements. Such insurance policies embody minimising boundaries to market entry and competitors, enhancing entry to financing, and selling commerce and innovation to make sure these new merchandise and concepts move in. But, equally importantly, the precise design of environmental insurance policies issues. The key phrases are flexibility and competitors: market-based devices, equivalent to inexperienced taxes, that depart the selection to the agency as to which clear know-how to make use of, are likely to have extra strong optimistic results on productiveness. On the opposite, whereas guidelines to spur markets are essential, insurance policies that result in extreme and pointless inexperienced (pink) tape or present benefits to incumbents, equivalent to laxer norms or subsidies that prop up soiled and inefficient corporations, can forestall each environmental and financial progress.

Many OECD nations look like waking as much as these new coverage choices for doing higher in designing each normal framework insurance policies and environmental insurance policies. Similarly, nations may do far more to align insurance policies throughout many alternative areas, equivalent to taxation, funding, land-use or sectoral insurance policies, to be extra in step with environmental targets. They can study from nations the place even stringent environmental insurance policies are additionally competition-friendly and may help the entry and scaling up of latest cleaner applied sciences, merchandise and enterprise concepts.

A complementary method to enabling the labour market to regulate can also be essential, significantly as greater productiveness corporations will want to have the ability to entice the appropriately expert employees as a way to maximise their benefits. In sum, reforming environmental insurance policies on this manner can facilitate the achievement of each environmental and financial goals and assist forge a more healthy, extra affluent planet.

The creator would significantly prefer to thank Tomasz Kozluk of the OECD Economics Department for his enter.



Adalet McGowan, Müge, Dan Andrews and Chiara Criscuolo
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OECD, IEA, ITF and NEA (forthcoming), “Aligning insurance policies for the transition to a low-carbon economic system”OECD Publishing.

OECD (forthcoming), Towards Green Growth? Tracking Progress, OECD Green Growth Studies, OECD Publishing.

Albrizio, Silvia et al. (2014), “Do Environmental Policies Matter for Productivity Growth? Insights from New Cross-Country Measures of Environmental Policies”, OECD Economics Department Working Papers, No. 1176, OECD Publishing.

Braconier, Henrik, Giussepe Nicoletti and Ben Westmore (2014), “Policy challenges for the next 50 years”, OECD Economic Policy Papers, No 9, OECD Publishing.

Kozluk, Tomasz and Vera Zipperer (2014), “Environmental policies and productivity growth: a critical review of empirical findings”, OECD Journal: Economic Studies, Vol. 2014/1, OECD Publishing.

Sauvage, Jehan (2014), “The Stringency of Environmental Regulations and Trade in Environmental Goods”, OECD Trade and Environment Working Papers, 2014/03, OECD Publishing.

OECD (2014) “Green growth: environmental policies and productivity can work together”, OECD Policy Brief, OECD Paris. See

OECD (2014), “The cost of air pollution: health impacts of road transport”, OECD Publishing.


OECD work on Environment

OECD work on Economy

Do environmental insurance policies matter for productiveness development?

Green development and sustainable growth

Economic insurance policies to foster inexperienced development

Environmental insurance policies haven’t got to harm productiveness


OECD Forum 2015 Issues

OECD Observer web site


‌‌‌‌Catherine Mann

Catherine Mann
Chief Economist, OECD

© OECD Yearbook 2015

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