Engaging in the Transition to a Green Economy
This article presents what we at UNCTAD believe are key issues and considerations
that need to be taken into account in the deliberations at the United Nations Conference
on Sustainable Development in June 2012. It argues that sustainable development is an
imperative rather than an option; describes the role of states and markets in a transition
to a green economy; highlights the role of trade in advancing a green economy; and
examines developing countries’ need for technical and financial assistance to make
successful green economy transitions that are adapted to every countries’ own
circumstances. In concluding, ideas are suggested on what UNCTAD can do to help
developing countries accrue development gains from a green economy.
UNCTAD believes that the Rio+20 Conference provides a critical opportunity for all
countries, developed and developing alike, to define and shape the green economy,
one that can provide important trade opportunities to countries of varied levels of
development. Ideally, the Conference will elaborate a roadmap defining actors, actions,
responsibilities and an effective institutional framework in order to advance an inclusive
and development-led green economy.
Sustaining human development and advancing social goals
As a society, we face a major challenge: finding ways to continue to advance social
development while ensuring that the global commons can be sustained. How can
society meet this challenge? Some have argued that we should moderate economic
growth, but this is not acceptable because we need it to meet the consumption needs of
a growing global population, create much-needed jobs and reduce poverty. Others have
suggested that we manage population, yet current production and consumption patterns
are, even at existing population levels, already environmentally unsustainable. It is
technological progress that emerges as the critical way to achieve sustainable
economic and population growth and lower adverse externalities from future production
and consumption processes.
The green economy is about unlocking technological progress, not for its own sake, but
as a means of stabilizing natural and environmental systems and further economic and
social objectives. This involved not only hard technologies—the equipment and
hardware we use to produce goods and services—but also about soft technologies,
such as the production processes and consumption patterns we adopt in our lifestyles
and economies.
To become politically and economically viable, the green economy must be more than
simply ‘green washing’ the global economy: it must be development-led and targeted at
improving living standards by generating new employment opportunities for the poor
and enhancing their access to basic services such as energy, water, transportation,
communications, healthcare and education. In developed countries, the transition to a
green economy means reducing resource and pollution intensity; in developing
countries, it means not replicating the prevailing unsustainable consumption patterns of
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developed countries. The green economy also seeks to be inclusive so that no
population group is marginalized from a full and beneficial participation.
Most people would certainly agree on the need for prompt and effective actions by the
international community and that, despite varied capacities to respond to the challenges
of sustainable development, all countries share a vision that our global commons must
be effectively managed to meet the needs of present and future generations. The effort
involves both state and private actors, not as an act of altruism, rather to protect their
shared interest in preserving the global commons and thereby sustaining their own
economic prospects.
The Rio+20 Conference aims to build on this momentum for political commitment,
urgent action and strengthened international cooperation to ensure an inclusive
transition to a green economy that is truly global in scope.
Stimulating the green economy transition
A successful transition will require effective frameworks and reforms at the national and
international levels. At the national level, governments have regulation and incentivebased instruments as levers to promote the transition in their domestic economies. They
will also have to supply direct support especially in early stages, for example, through
grants and subsidies to green technology research and development and to green
goods and services sectors, and perhaps use government procurement as a means of
developing the market for green start-up industries. Campaigns to facilitate the green
choices of consumers and businesses will also be essential to enable the transition.
At the international level, cooperating will be essential in providing capacity-building,
facilitating technology transfer and coordinating financial assistance for many
developing countries, which lack the financial, technical and human capital needed to
transform their economies. However, international economic and environmental
agreements in support of the transition should avoid imposing new conditions and
distortions in international trade, development cooperation and financial assistance.
They should also avoid a “one-size-fits-all” template insensitive to countries’ different
starting points and diverse development priorities and provide them with sufficient
flexibility to sequence and implement the rules and modalities to be adopted.
It is therefore very likely that Rio+20 will recognize that countries are at different levels
of development and will therefore make the transition to a green economy at different
speeds.
Trade as a transmitter of green goods and services
Since no single country is in a position to supply all the goods and services needed in a
green economy, trade, with its ability to facilitate the flow of green goods and services
across borders, has a unique and central role to play in ensuring an inclusive transition.
Markets are already reflecting this, 2,000 corporations in over 90 countries filing
Corporate Social Responsibility (CSR) reports—which include both environmental and
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social equity concerns—up from virtually zero at the time of the 1992 Rio Summit. The
number of firms certified to the ISO 14001 environmental management standard rose
from under 40,000 in 2000 to over 200,000 from over 150 countries in 2009, with over
40 percent in developing countries. 1 This mirrors the transition to a green economy
evident in market trends in a wide range of sectors, including energy, agriculture,
forestry and services.
Global growth in renewable energy sources that contribute to world primary energy
supply now greatly exceeds that of fossil-fuel, averaging, since 1990, respectively 42,
25 and 15 percent in solar PV, wind and biofuel, compared with only 1.3 percent for oil. 2
In 2010, USD 211 billion was invested in renewable energy supply, more than 5 times
higher than in 2004. 3 And, for the first time, new spending by developing countries on
utility-scale renewable energy projects and equity capital for renewable energy
companies surpassed that of developed countries; USD 72 billion against USD 70
billion.
In agriculture, the global market for organic food and beverage products is projected to
reach USD60 billion this year, more than three times 2000 levels. Organic farming is
practised on 37 million hectares in 160 countries, a nearly four-fold increase over the
past decade. The increases are predominantly in developing countries in response to
growth in demand in developed countries.
Developing countries are also increasing their presence in markets for sustainably
harvested timber products markets. Globally, the area of forestland certified by the
Forestry Stewardship Council has increased seven-fold over the past decade reaching
nearly 140 million hectares in 2010, about 20 per cent of which are in developing
countries.
In the services sector, carbon emission trading grew from only USD11 billion in 2005 to
USD142 billion in 2010, the larger part, USD120 billion in developed countries.
However, Clean Development Mechanism 4 projects in 81 developing countries
accounted for USD20 billion in investment in 2010 5 . For its part, ecotourism is projected
to capture 25 percent of global tourism revenues in 2012, with international tourists
spending USD240 billion in destinations mostly in developing countries.
Given the wide variety of goods and services highlighted in a green economy, it is highly
recommended that developing countries be able to identify export opportunities where
they have comparative advantage and implement strategies to enhance productive
capacity.
1
ISO, 2009, The ISO Survey.
IEA, 2011, IAE Database.
3
UNEP, 2011, Global Trends in Renewable Energy Investment 2011.
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See Article 12, Kyoto protocol
5
World Bank, 2011, State and Trends of the Carbon Market 2011.
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Trade volumes of environmental goods and services (EGS) are expected to grow
substantially, exceeding the overall annual growth in world trade, with the global market
projected to nearly triple from USD 800 billion today to $2.2 trillion in 2020, an annual
market growth 11 percent between 2010 and 2020. 6 This could provide developing
countries with many new export opportunities, which they will nevertheless require
capacity-building assistance to identify and realize.
Market access
On the downside, and despite its many benefits, the green economy may pose a
number of threats to developing countries in terms of market access, due to the
possible new stringent environmental and social standards restricting the import of the
many ‘brown’ goods they currently export. Such restrictions could include bans on noncompliant products and border carbon adjustments (BCAs), i.e. ‘taxes’ on imports based
on the environmental footprint from their production and transport.
At the same time, the multiplicity of private standards and improved make informed
choices difficult for consumers: transparent and harmonized consumer information
could increase access of small producers to green markets and enhance the overall
eco-efficiency of consumption patterns.
Other policies that might reduce market access include grants, subsidies and favourable
taxation government procurement opportunities provided to domestic firms. The extent
to which a global greening economy will lead to new forms of green protectionism is yet
not clear but some initial indications point to potential cases in key markets.
This suggests that the transition will have to be effectively managed to prevent and
resolve any conflicts. International cooperation will be essential to support developing
countries seeking to sustain and deepen their participation in world trade, not only for
goods and services that are inherently “green” but also more generally for all goods and
services that are progressively becoming “greener”.
It could also help countries identify and adopt innovative and constructive approaches to
resolving potential conflicts before they become trade restricting and worsen into a trade
dispute. A mechanism such as a “Forum on Green Economy and Trade” could serve as
a platform aimed for consensus building among governmental and non-governmental
representatives, not as a venue for formal negotiation.
The Forum could, by reframing discussions from conflict resolution to conflict
prevention, serve a pre-emptive function reducing the burden of cases seeking formal
arbitration. Rather than finding solutions to compensate a complainant, the Forum could
enhance the ability of the parties involved to find cooperative approaches towards the
resolution of trade-related green economy conflicts. For example, developing countries
could receive enhanced financial and capacity-building support to enable them to
comply with new green standards; or firms in high-income countries could receive
6
HSBC Global Research, 2010, Sizing the climate economy.
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specific subsidy support predicated on their including a share of developing country
content in the supported green technology R&D or production activities.
The Rio+20 Conference is therefore a means for the international community to explore
ways to help developing countries preserve their market access in a greening global
economy.
The central role of technology
Technological progress is the motor of a green economy and its prompt and effective
transfer will be critical in promoting a global transition. How can this be accelerated
when most developing countries lack the sophisticated regulatory and institutional
frameworks and business environment, while governments in developed countries do
not often directly own the technologies?
Technology transfer takes place primarily through private agents via licensing
agreements, joint R&D initiatives, the establishment of manufacturing plants, corporate
mergers and acquisitions, public-private partnerships and capacity-building initiatives.
Transfer tends to only occur for countries with certain macroeconomic and institutional
conditions in place, such as rule of law, good governance and robustness of institutions,
financial and regulatory stability and systems for the protection of intellectual property
rights (IPR).
Consumers must also have the means to pay for the final products, which is a limiting
factor in the transfer of clean technologies to supply energy and water services to lowincome populations. In addition, licensing agreements with non-OECD countries are
generally limited to larger, higher income developing countries, leaving the remainder
without access. Thus, financial support mechanisms are needed to enable countries
that lack strong investment and business climates to benefit from the transfer of green
technology.
The Rio+20 Conference will certainly recognize that strengthened international
cooperation and collaboration on research and development is required for developing,
absorbing, adapting and disseminating green technologies. It may also encourage
better ways of spreading information about green technologies and policy initiatives for
their transfer.
It could also explore options for reforming the global intellectual property regime, for
example broadening the scope of compulsory licensing for essential green
technologies; limiting the duration of patent protection; and allowing more liberal use of
existing patented knowledge to generate innovations. Such options will be critical to
enhancing the dissemination of future IPR-protected green technologies.
Factors such as lack of foreign and domestic investment due to an unfavourable
business environment, limits in access to finance and gaps in technical capacity limit the
spread of non-IPR-protected technology such as solar cells, wind turbines and hydro5
turbine plants. Indeed, it is in many cases easier to attract foreign investment in IPRprotected technologies rather than non-protected as investors often seek secure
guarantees for exclusivity.
Financing for developing countries
Additional and innovative sources of financing are a sine qua non for access to new
technology and the transition to a green economy; however, the significant pressure on
the treasuries of developed economies means that we cannot rely solely on official
grants and development aid, but must include public-induced private investment.
A massive amount of corporate money is searching for new investment opportunities—
cash reserves, according to the US Federal Reserve Bank reached 1.3 trillion dollars in
2010. The priority for developing countries must be to create a domestic environment
conducive to their own green economic objectives—including instruments, incentives,
regulations, etc—as a means of making them more attractive to foreign investment and
to avoid protectionist schemes.
However, some countries will have little or no ability to attract private investments and
should be the primary targets for new and additional official financial support. What
mechanisms can be envisaged?
The High-level Advisory Group on Climate Change Financing (AGF), established by UN
Secretary General, looked into potential funding sources and concluded that it is
challenging but feasible to mobilize USD100 billion per year by 2020. This could be
realized through a wide variety of sources—public and private, bilateral and multilateral,
including alternative finance—and through the scaling up of existing sources and
increased private flows.
Grants and highly concessional loans are crucial for adaptation in the least developed
countries (LDCs) and Small Island Developing States (SIDS). The AGF further
recognized that key elements of financial flows would be mutually reinforcing. Careful
and wise use of public in combination with private funds can generate truly
transformational investments.
Carbon pricing (e.g., carbon taxes or emissions permits) emerged as especially
important for mobilizing climate financing, both as a means of raising revenue and
providing mitigation incentives. According to the AGF, a carbon price of between USD
20-USD25 per ton of CO2 equivalent in 2020 is key to achieving the goal of USD 100
billion per year. (Carbon prices in August 2011 ranged between USD14 and USD 17).
The higher the carbon price, the steeper the rise in available revenues and the stronger
the mutual reinforcement of abatement and measures for mitigation.
Actual estimates of potential revenue potential in 2020 are based on a number of
assumptions, particularly carbon price and the share allocated to international climate
finance. Allocating 10 per cent of carbon revenues, based on a price of between
USD20-USD25 per ton of CO2 equivalent, could mobilize up to USD 30 billion annually
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to international climate action. A further USD10 billion per year could be raised from
carbon pricing international transportation, assuming no net incidence on developing
countries and earmarking between 25 and 50 per cent of total revenues. Up to USD10
billion could be mobilized from other instruments, such as the redeployment of fossil fuel
subsidies in developed countries or some form of financial transaction tax, though
diverging views will make it difficult to implement the latter universally.
Some governments may prefer to increase direct budget contributions based on existing
public finance sources, such as domestic revenues, before they implement new
instruments. Whether this is politically acceptable will depend on national circumstances
and fiscal environment. Nevertheless, the AGF expects that direct budget contributions
will play a key role in the long term.
Ways forward from the perspective of UNCTAD
Discussions at the Rio+20 Conference will need to identify effective approaches to
accelerating the transition to an equitable, inclusive and development-led green
economy. Approaches will necessarily be comprehensive yet practical to ensure the
transition is internationally managed and promotes and supports the participation of
developing countries.
With this in mind and based on its mandate and areas of comparative advantage,
UNCTAD is exploring the means to:
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Establish a forum for international cooperation on trade-related green economy
challenges. UNCTAD’s Forum on Green Economy and Trade would provide
consultation and information exchange services to governments;
Launch a technical assistance programme that responds to increasing demand
for green economy capacity building. Activities within UNCTAD’s programme
would be designed to assist interested developing countries and regional bodies
to identify their comparative advantages for the production and export of specific
green goods and services with dynamic growth trends. It would provide a
methodology to support trade analyses and national and regional interactive
reviews of economic, regulatory, institutional and trade policy factors related to
enhancing productive capacities in green sectors of interest;
Organize a multi-year expert meeting focused on examining critical green
economy issues of importance to developing countries. Over a 4-year period,
UNCTAD’s multi-year expert meeting would support innovative approaches to a
green economy by promoting open, intergovernmental discussion on a wide
range of topics selected by member states, and serving as a vehicle for the
exchange of best practices, national experiences and success stories. Topics
could include: the design of national and regional policy frameworks to support
green economy activities; ways to enhance international cooperation on
technology transfer; leveraging finance for technology transfer; trade implications
of greening agriculture, manufacturing and services sectors.
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UNCTAD looks forward to its participation in the Rio+20 Conference to advance the
consideration of these and other practical approaches proposed to support a
development-led green economy.
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