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I N C LU S I V E G R E E N G R O W T H: T H E PAT H WAY TO S U S TA I N A B L E D E V E LO PM E N T

(Laffont 1999). But the government cannot set credible and predictable signals over the very long term, and economic agents do not anticipate changes that occur over decades. As a result, there is underinvestment in land-use planning, resilient infrastructure, research, and other interventions critical to greening growth but whose benefits take time to materialize. Given these constraints, action at the sector level may make sense in sectors with significant potential for both lock-in and green impacts (Vogt-Schilb and Hallegatte 2011; chapter 3). Overlapping sectoral objectives— such as the 20 percent renewable energy target in Europe, fuel-economy standards in the automobile industry, and changes in urban planning, building norms, and infrastructure design—may thus be part of an efficient mitigation policy. However, sectoral policies are vulnerable to regulation capture, rent seeking, and inefficient micromanagement (Laffont 1996; Rodrik 2005). Rent-seeking behavior is likely to affect policies even in countries with strong institutional capacity and appropriate checks and balances (Anthoff and Hahn 2010; Helm 2010). Systematic appraisal of policies, using cost-benefit analysis where feasible, can mitigate these risks (see a discussion on such analysis below). It is also important for national authorities to ensure that sector policies are developed through a transparent process that provides opportunities for all stakeholders to contribute.

reduce reliance on diesel generators and is combined with demand-side action and measures to transition to cleaner sources of energy. Similarly, building coastal dikes can be part of a long-term land-use strategy to manage risks—although if it is not combined with appropriate maintenance and land use regulations, it can increase vulnerability. Given these kinds of consequences, a green growth strategy needs to be designed before individual projects are evaluated and selected.

Step 1: Identify economic and social objectives and key obstacles Step 1 is to identify the key economic and social objectives in terms of the growth and welfare channels noted in the green growth framework presented in chapter 1 (the fi rst three bullets relate to growth; the last two, to welfare):

A step-by-step process for crafting a green growth strategy

• Increase production factors (human, natural, and physical capital). • Enhance efficiency, by correcting market failures to move closer to the production function (the maximum production level possible with the available technology, physical capital, labor, and environment, assuming maximum efficiency). • Push out the production frontier, by correcting innovation and dissemination market failures in order to be able to produce more with less. • Increase economic resilience and reduce vulnerability to natural hazards and commodity price volatility. • Increase the job content and poverty reduction of growth (that is, move toward “inclusive growth”).

How should policy makers design a green growth strategy that fits the country’s requirements? This section proposes a series of steps to follow. A key principle is that individual projects need to be assessed with respect to a strategy rather than in an abstract and isolated way. For instance, building coalpowered electricity plants can be a useful short-term component of a strategy to green electricity over the long term, if doing so helps

In addition, policy makers need to take other important policy goals—such as maintaining a balance in regional and local development, which may also offer a potential source of synergy—into account. Once the objectives have been identified, the next step is to identify the market or institutional failures that retard growth and limit well-being (table 7.2). Hausmann and others (2008) claim that different countries

Inclusive Green Growth  
Inclusive Green Growth  

As the global population heads toward 9 billion by 2050, decisions made today will lock countries into growth patterns that may or may not b...