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
Green policies hold the potential to sharply boost output
shifted production frontier
production frontier enhanced eﬃciency
Z = composite of human (labor), physical, and natural capital
(i) Note: Arrow (i) represents increase in factors of production. Arrow (ii) represents enhanced eﬃciency and stimulus eﬀect. Arrow (iii) represents shift in production frontier.
help maintain and even increase fi sheries and thus the economic activity that depends on them (box 1.3). • Increase labor by improving health (Hanna 2011). Better environmental policies can decrease atmospheric pollution in cities, reduce the severity and incidence of respiratory diseases, increase labor effectiveness, and reduce days lost to illness. A study on the link between air pollution and labor productivity on farms in California shows that a decrease in ozone concentrations of 10 parts per billion (for an average value of 50 parts per billion) increased worker productivity by 4.2 percent (Graff Zivin and Neidell 2011). • Increase physical capital by better managing natural risks, which in turn leads to lower capital losses from natural disasters (Hallegatte and others 2007). Protecting mangroves, for instance, not only protects biodiversity, it can also improve the resilience of coastal zones to hurricanes and storm surges, thereby
reducing economic losses caused by coastal floods.
Eﬃciency eﬀect The efficiency channel works by increasing productivity, through correcting market failures and influencing behaviors, and by enhancing the efficiency of resource use (arrow ii in figure 1.4). One example is energy efficiency. Many firms and households fail to make cost-effective energyefficiency investments—probably because of market failures and behavioral biases (Gillingham and others 2009). Improving the insulation of new buildings is often costeffective, but firms and households often fail to do so because of a lack of information and the fact that building and housing prices do not adequately reflect differences in heating costs. Environmental policies that aim to reduce energy consumption and carbon emissions may correct these market
Published on May 23, 2012
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