A N A N A LY T I C A L F R A M E W O R K F O R I N C LU S I V E G R E E N G R O W T H
TABLE 1.1 Potential benefits of green growth policies Type of benefit
Impact on welfare
Channels through which policy affects welfare
Environmental
Increases welfare directly
Improved environment
Economic
Increases welfare by raising income
Increase in factors of production (physical capital, human capital, and natural capital) Accelerated innovation, through correcting market failures in knowledge Enhanced efficiency, through correcting nonenvironmental market failures and influencing behaviors
Social
Increases welfare through distributional effects, reduced volatility, and other social indicators
Increased resilience to natural disasters, commodity price volatility, and economic crises Job creation and poverty reduction
better measure of trade-offs than traditional national income accounting. As such, it is central to green growth strategies. In sum, although many observers fear that green policies require incurring large costs now for benefits that will materialize only in the long term, the reality is that many of the benefits can occur in the short and medium term. Moreover, green policies can contribute to growth. Action therefore needs to be taken now—at least on issues that carry a risk of lock-in and irreversibility—to minimize regret and avoid costly policy reversals. In the next two chapters, we look at the crosscutting issues of market and governance, beginning with the range of tools that can be marshaled to change behavior with respect to environmental and natural resources—tools that aim to improve social welfare through greener growth.
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Notes 1. Kuznets argued that as a country develops and national income rises, inequality increases, but once a certain national income level is reached, inequality then declines. His now disproved theory was extended to the environment, where it has also been rejected (Andreoni and Levinson 2001; Barbier 1997; Brock and Taylor 2010). 2. Another common interpretation is that the environmental Kuznets curve reflects structural transformation of an economy. As economies become more industrial, environ-
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mental quality deteriorates. But as economies shift from industry to services, environmental quality improves. In some cases, even specialists debate the importance of these relationships. Later efforts to explicitly model the environment into an endogenous growth framework include work by Smulders (1994) and Bovenberg and Smulders (1996); for a review, see Smulders (1999). Few studies examine the potential for substituting other inputs for natural capital (Markandya and Pedroso-Galinato 2007). It may be possible to compensate for the loss of natural capital with other types of capital in the short term but not the long term. An example would be increasing the use of fertilizer to compensate for soil degradation— a short-term solution that is not sustainable over the long term. For an illustration of this point in the context of South Africa, see World Bank (2011). This argument on the impact of green policies on productivity is the macro-scale equivalent of the Porter hypothesis (Porter and van der Linde 1995), which states that regulation can enhance innovation and business performance at the micro scale (for a review, see Ambec and others 2011). A frequently asked question is whether public support of green innovation should target green innovation or general innovation. The opposite question—can green innovation policies accelerate innovation in general?—is posed here. Hallegatte (2011) suggests that development can increase or decrease risk, depending
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