Much of the attraction of ‘green’ growth to politicians and policy-makers is the apparent promise of job creation. Many developing countries face the prospect of rapidly growing labor forces, so measures that stimulate labor demand look attractive. But is the promise justified? That depends on how labor markets work and how ‘green’ growth policies are implemented.
When I moved from Norway to Washington with my family almost seven years ago, I went from paying more than $8 per gallon for gasoline in Oslo, to around $3 per gallon in the U.S. Our house is close to a bus stop for getting to the Metro, but the bus service is unreliable. Here is a first-hand illustration of how the price of gasoline affects people’s behavior. It is inexpensive to drive, so relatively few people are strongly dependent on bus service; with limited ridership there is less call for more reliable bus service and less money available to provide it. Where it is more expensive to drive, there is greater demand for higher-quality service and lower demand for more fuel-intensive cars. And fewer people want to live far away from their jobs or schools, or in very large dwellings that are costly to heat and cool. Our work in energy and environmental economics confirms how economically sound energy pricing is crucial for inducing more efficient behavior.
This entry is part of a series of posts written by members of the Environment and Energy team of the World Bank's Research Group on economic and policy issues involving energy and climate change mitigation.
Ongoing controversy has surrounded production of crop-based biofuels, ostensibly for the purposes of increase renewable energy use and reducing carbon dioxide (CO2) emissions that causes global warming. To illustrate, a recent report on price volatility in food and agricultural markets prepared by numerous international organizations, including the World Bank, at the request of G20 Governments recommended elimination of current national policies that subsidize or mandate biofuels production or consumption. Some international non-governmental organizations, such as Action Aid strongly supported the recommendation, while some other organizations, such as Renewable Fuel Association opposed it. The June meeting of G20 agriculture ministers did not make any decision in favor or against biofuels, deciding instead to have further analysis.
This entry is the first of a series of posts written by members of the World Bank's Development Research group's Environment and Energy team on economic and policy issues involving energy and climate change mitigation.
Issues relating to energy are among the most important and difficult challenges confronting the world today. Providing sufficient energy to meet the requirements of a growing world population with rising living standards will require major advances in energy supply and efficiency. Doing this while mitigating the risks of climate disruption will be an even more challenging undertaking. It will require a significant shift in the historic pattern of fossil-fuel use and a major transformation of the global energy system. Especially in the developing countries, the choice of technology, policy, and economic levers that will be used to transform and expand their energy systems will have profound implications for their growth, international competitiveness, and economic security and prosperity. This overview focuses on the challenges related to electricity supply; subsequent blogs will address other parts of the energy system.
Global warming may have severe consequences for developing countries prone to extreme weather events. Projections by the Intergovernmental Panel on Climate Change and the World Meteorological Organization suggest the frequencies and/or intensities of climate extremes will increase in the 21st century. Some recent extreme weather events illustrate how severe their consequences can be. Examples include heavy floods in Australia and Brazil in 2011, extreme winter weather all over Europe, heat wave in Russia, devastating floods in Pakistan, India, China, and Mozambique in 2010, and super cyclones in Myanmar (in 2008) and Bangladesh (in 2007).
Presidents Hu and Obama created buzz earlier this week in Washington when they met on pressing bilateral issues, including US-China business and investment regulation, trade, currency imbalances and security concerns. US-China clean energy cooperation is an important part of that bilateral dialogue (see transcript of my intervention at a January 18 US-China Strategic Forum hosted by Brookings).
Cooperation between the two countries can yield big economic benefits. The world is recovering from the worst economic crisis since the Great Depression. In this context, taking advantage of clean energy opportunities is crucial to fueling a sustained global recovery.
As surprising as it may seem, there is a deep dark secret at the core of the System of National Accounts (SNA) – the accounts used by Finance ministries worldwide to measure economic performance. The numbers don’t add up. We can see this in the table below, showing the net worth of Brazil and its composition in 2005. The final two lines in the table report a measure of Brazil’s net national income and the implicit rate of return on wealth (the ratio of income to net worth). The return to Brazil’s produced and natural capital is over 18%! As good economists, we should all be investing our pension funds in Brazil. Why? Because financial market data tell us that the long run real rate of return across the broad range of assets averages only about 5% a year.
|Table – Net worth and net national
Income (NNI) in Brazil, 2005, $million
|Net financial assets||-117,221|
|Implicit rate of return||18.2%|
|Source: The Changing Wealth of Nations
World Bank (2011)
Ghana. Photo: © Arne Hoel/The World Bank
If you have ever had a conversation with a finance minister couched in terms of hectares of forestland or tons of greenhouse gases, then you appreciate one of the central problems of environment and development. It tends to be a short conversation, and for good reason – talking about the environment and natural resources this way simply doesn’t fit the model used by economists. If we want to reach ministers of finance and development planning we need not only to value the economic contribution of nature, but to express it in the framework of the System of National Accounts (which includes, among other measures, Gross Domestic Product or GDP as the predominant indicator of economic progress used by macroeconomists).