- First, the global recession will not diminish the costs of climate change and energy insecurity. The recession was preceded by a surge in global energy prices, with the price of oil reaching $150 a day in July 2008. Due to rising energy costs, prices for food traded internationally increased almost 60% during the first half of 2008, with basic staples such as grains and oilseeds showing the largest increases.
The International Energy Agency (IEA 2008) estimates that, once growth resumes, fossil fuel demand will rise by 45%, and the oil price could reach $180 per barrel. The remaining oil reserves will be concentrated in fewer countries, the risk of oil supply disruptions will rise and oil supply capacity will fall short of demand growth. Greenhouse gas emissions are likely to increase by 45% to 41 gigatonnes in 2030. If atmospheric concentrations of greenhouse gasses lead to 5°C to 6°C warming, GDP could fall by 5-10% globally, and by more than 10% in developing economies (Stern 2007).
- Second, the right mix of investments and policies today could not only reduce carbon dependency and improve the environment, but also create jobs and stimulate innovation and growth in key economic sectors. Certainly, the recovery policies adopted by China and South Korea reflect the belief that investments in clean energy technologies can have a major impact on growth, expanding exports, and creating employment.
For example, one reason that China has adopted green fiscal measures is that its renewable energy sector already has a value of nearly $17 billion and employs close to one million workers. Other green initiatives included promoting fuel-efficient vehicles, rail transport, electricity grid improvements, and pollution control. China has also raised taxes on gasoline and diesel and reduced the sales tax on more fuel-efficient vehicles. In addition, China is the world’s largest recipient of carbon emission reduction credits under the Clean Development Mechanism, currently earning $2 billion from these credits. Overall, China views promotion of green sectors as sound industrial policy: it aims to be the world market leader in solar panels, wind turbines, fuel-efficient cars, and other clean energy industries.
South Korea also sees its industrial strategy tied to green growth. In addition to the green New Deal, the South Korean government plans to establish a $72.2 million renewable energy fund to attract private investment in solar, wind and hydroelectric power projects. In July 2009, South Korea launched a five-year Green Growth Investment Plan, spending an additional $60 billion on reducing carbon dependency and environmental improvements, with the aim of creating up to 1.8 million jobs and boosting economic growth through 2020.
The most important contribution of a green recovery to the world economy is that it may help alleviate global imbalances.
A global green recovery strategy of reducing carbon dependency and improving energy security may help to control both the large current-account deficits incurred by major oil-importing economies, such as the US, or even smaller economies that are facing chronic debt crises, such as Greece, Portugal, and Spain. Globally, such a strategy would also reduce the trade surpluses of fossil fuel exporting economies.
Although the role of any sustained global green recovery in reducing the chronic trade surpluses in Asian and other emerging market economies is more complex, a necessary step will be to rebalance the pattern of economic growth in these economies to absorb more of their savings domestically. Most policy prescriptions advocate moderating the excessive reliance on exports and export-promoting investments, and instead expand imports of capital goods for key sectors with future growth potential and shifting industrial output structure away from labour-intensive goods to skill, capital, and technology-intensive production. Such an approach may actually be helped by key elements in a global green recovery strategy.
By: N. Peter Kramer
