The case for inclusive green growth

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Women fishers in Ghana. (Andrea Borgarello/World Bank - TerrAfrica)



Over the last 20 years, economic growth has helped to lift almost a billion people out of extreme poverty. But 1 billion people are still extremely poor. 1.1 billion live without electricity and 2.5 billion people without access to sanitation. For them, growth has not been inclusive enough.

In addition, growth has come at the expense of the environment. While environmental degradation affects everyone, the poor are more vulnerable to violent weather, floods, and a changing climate.

Development experts, policymakers, and institutions like the World Bank have learned a major lesson: If we want to succeed in ending poverty, growth needs to be inclusive and sustainable.

Three areas are critical to achieve this: access to energy, responsible resource management, and good governance.

First, people need access to energy to leave poverty behind. But the energy sector also has a very high potential for reducing poverty while making “green” gains.

However, the electricity challenge remains daunting. In Ethiopia, with a population of 91 million people, 68 million are living in the dark. Without electricity children cannot do homework at night, people cannot run competitive businesses, and countries cannot power their economies.

This is why access to sustainable energy is a development goal in itself. According to the latest data, more poor people are gaining access to electricity at a faster rate than ever before. But the gains in renewables and progress in efficiency are too slow. Almost 3 billion still cook with polluting fuels like kerosene, charcoal and dung.

The second critical area for a sustainable and inclusive growth shift is responsible resource management.

The fishery sector, for example, holds many opportunities for smart and sustainable resource management.

A well-managed “blue” economy can ensure food security, promote sustainable tourism, and build resilience. Ineffective fish-stock management and illegal fishing waste $75 billion to $125 billion of global output annually, undermining food security and forgoing revenue.

Indonesia has more than 2.6 million fishermen. It is the world’s second-largest producer of wild-capture fish. 

If it improves governance of the fisheries sector and invests in large scale maritime transport and trade infrastructure, it can double fish production by the year 2019. 

Governance is the third area which needs urgent attention. For many countries, this is the biggest challenge.

Estimates suggest that illegal logging generates approximately $10 billion to $15 billion annually worldwide.

This is a problem of implementing existing regulations or designing better laws. And it is a global issue, rife in many resource-rich countries.

Improving transparency and monitoring is key. Government agencies often don’t know the extent to which sectors are sustainable and which natural resources are being depleted.

The energy sector, for example, needs more and better data on simple energy use and emissions. This comprehensive “green accounting” is currently lacking.

But it is also a matter of leadership, building consensus, taking on vested interests and juggling trade-offs to make the shift from ‘dirty’ and exclusive to sustainable and inclusive growth. 

So how can we overcome the obstacles to making growth sustainable and inclusive?

There are many who fear that greening growth is too expensive, could slow output, or should concern only high-income countries. This fear is short-sighted. Sustainable growth is neither unaffordable nor is it technically out of reach.

But it comes with challenges, including large up-front costs and long-term financing of 15 to 25 years. Few developing countries have suitable capital markets or banking sectors.

Improving the energy mix, for example, will reduce both environmental and fiscal risks. Turkey drastically reduced the share of oil in favor of gas. Thailand has decreased its dependency on petroleum products, from two-thirds to a third.

Another challenge is cost recovery and the right policy environment that ensures we are not only building schools, but also improve education. No power station is of use if the utility company is operating at a massive loss. Few infrastructure projects can charge at full cost. So we should find ways to ease cost recovery, while keeping services affordable for low-income families and communities.

We need to use our opportunities wisely. From 2011 to 2012, investments in clean technology in developing countries increased by 19%. And 90% of clean technology businesses increased their revenue even during the global economic downturn.

China has grown by double digits for decades, but lost a staggering 9% of its expected GDP to “brown growth.” In response, China is shifting economic activity to innovation and higher value-added production.

East Asia could take the lead on green development. Cambodia and Vietnam have integrated green growth plans into economic policies. Thailand’s most recent multi-year development plan includes a goal to reduce energy intensity by 25% by the year 2030.

Others can learn from these experiences. The good news is that more and more countries, developed and developing countries, now understand that their success will depend on how they will grow, not just by how much.

This blog is based on a speech delivered in June 2015.

Join the Conversation

Greg Kaser
July 23, 2015

Affordable nuclear power is major part of the development solution. Although many decision-makers and commentators see distributed generation systems relying on solar power as a solution for developing countries’ rural population, renewable energy sources are unlikely to be sufficient to meet the needs of rapidly growing cities and industry. By 2050, 66 percent of the world’s population will be urban according to UN projections, with rural populations in decline worldwide from the 2020s onwards. Ninety percent of the growth of the urban population will be in Asia and Africa. By 2030 there will be 2.2 billion living in cities of 1 million or over in size, compared to 1.25 billion now. That means 950 million more people in African and Asian developing countries wanting, say, a minimum of 1,000 kWh of electricity a year, which translates into 950 TWh annually – needing either 150 GW of nuclear plants, 200 GW of fossil fuelled plants or about 550 GW of solar or wind power with associated storage capacity.
In a special report issued last year on Africa, the International Energy Agency noted the under-investment in generating capacity and unreliability of electricity grids as a key constraint holding back the development of industry. It advocated a major infrastructure program in the African energy sector to provide more reliable and affordable power and deepen regional integration and calculated that every dollar invested in power supply generates more than US$15 in incremental GDP.
Although nuclear energy can be more expensive than thermal power plants and some renewable sources of energy, the total lifecycle cost varies depending on where the plant is built. In fast-growing emerging economies nuclear power plants can be constructed, operated and decommissioned for US$65-80/MWh, making them one of the top performers of the electricity supply system. The average cost of generating electricity in Sub-Saharan Africa in 2012 was around US$115/MWh, to which must be added the costs of transmission, distribution and retailing of between US$50-80/MWh. Reliable electricity from the grid can also displace more expensive, and polluting, back-up diesel generators, which the IEA estimated to cost US$330/MWh.
Urbanization and rising incomes will enable utilities to restructure their tariffs and introduce ‘smart metering’ and electricity to hundreds of millions of lower to middle income urban households in developing countries. Wireless technology and ‘smart metering’ enable consumers to manage their consumption and budgets conveniently, using, for instance, pre-payment systems accessible from their cell phones or a local vendor. In principle, utilities using nuclear power, and some renewable sources, can provide base-load electricity at a marginal cost. Provided that their capital costs can be recovered from large commercial customers, public electricity suppliers should be in a position to pass on operating and maintenance expenses fully to middle income and richer residential consumers as well as being able to offer concessionary tariffs (or a limited tranche of free power) to the poor. Revenue collection goes up when ‘smart meters’ are installed, so the provision of concessionary tariffs need not result in a much larger overall cost to the utility.
Public-private partnership models could be designed with such poverty reduction objectives in mind and utilities with low marginal cost generating sources are in a position to shape their market demand and build their customer base. These types of initiatives might be eligible for financial support from the international development and infrastructure banks, provided that they revise their current policy that prevents them from financing nuclear energy projects.

hari bagindo pasariboe
October 11, 2015

Economic is slowing down in Indonesia due to haze and smoke from fires. The increasing number of hot spot due to the current elnino episoded in Indonesia started on 15th August 2015 had cause smoke and haze in several provinces includes Riau, Jambi, South Sumatera, Kalimantan Tengah, Kalimantan Selatan, Kalimantan Barat. Other impact such as respiratory problem had caused severe impact to children and adult. Neighborhood contry such as malaysia and singapore are country also impacted by haze and smoke from fires.
In relation to the extreme environment occurences, environmental degradation is the consequences that affects everyone, the poor are more vulnerable to violent weather, smoke and haze from fires, and a changing climate.
I think the current extreme environment occurence from haze and smokes from fires will prolong our effort in ending poverty due to the slowing down and unsustainable in economic growth.