Most people are prepared to express their support for the green economy. Some would also see the green economy as a vehicle for achieving other social and economic targets. At the same time, one cannot note any strong expansion of the green economy, at least not globally. Why such a discrepancy, and what could be done to reduce it? This is a wide subject, and I will only discuss some economic and financial aspects.
There are many studies which convincingly show that unless we rapidly reduce our burden on the environment, the future costs to the economy and the threats to our living standards will be very high indeed. Much would be gained in economic terms by reacting forcefully and quickly.
The problem is that the changes come at a prize, which people in the end are not prepared to pay – in particular in times of economic distress. Why does it become so costly?
Most of the negative externalities which give rise to costs in the macroeconomic studies have no price at the individual, micro-economic level. Hence, they are not reflected in the economic calculations which form the basis for the individual decisions. And if these aspects are included in the decision-making on the basis of other arguments (environmental, social, ethical etc.), they will appear as an additional cost.
However, the authorities can influence the microeconomic cost structures by e.g. putting a price on emissions, supporting certain investments and/or introducing norms and other measures. The challenge is, that international cooperation is needed in order to avoid distortions in the competitive positions between different geographical areas and economic actors.
It can be argued that international cooperation should benefit from working more along these lines than embarking on detailed and complex international agreements; the discussions should be based on relative prices which reflect the environmental targets which we try to achieve.
A discussion which rests on “wrong” relative prices will be based on unsustainable cost structures. As seen, this leads to a wrong-footed discussion and demands for compensation e.g. on the part of emerging economies. These feel that adopting best available techniques – which tend to be more expensive - puts them at a cost-disadvantage as compared to the developed countries, which still in many cases rely on “brown” techniques.
However, the emerging countries will have all to gain and none to lose by implementing the most modern and efficient production techniques. This is also what the developed countries did at the time, but their structures are now in many cases outdated and will have to be sooner or later replaced. By investing once, rather than twice, the emerging economies will reap a substantial competitive advantage.
Having said this, there are many activities which contribute to the development of the green economy and also bring direct economic benefits to the consumer. Good examples are provided by activities which reduce housing costs. These include simple measures as the installation of thermostats, double-windows and other energy-saving measures. All measures which reduce production costs support the competitive edge and make economic sense to the economic agents and do not require much or any intervention by the authorities.
Is financing a problem? Yes and no. Investments which are based on sound economic principles will always find finance. Hence, there are many investments which increase efficiency - and reduce the burden on the environment - and strengthen the competitive position which will be easily financed. Projects which rely on temporary support and are not in themselves viable, will find it more difficult to get finance.
A good case in point is wind-energy. This is not viable on the basis of prevailing price-structures, and hence it relies on different kinds of public support. It is not prudent banking to provide long-term finance to a project which is relying on support which could turn out to be short-term.
Identifying hurdles does not imply that we should give in on the green economy. On the contrary, one should try to overcome these and also to utilize the possibilities that this provides to producers. The Nordic producers of equipment for the green economy are well placed in many areas. This is in part because the environment has been high on the political agenda in these countries for quite some time, and in part it is because the climate and the long geographical distances have supported development work in these areas.
However, the Nordics are small players on the global market, and much would be gained if the forces could be joined. This is in particular true for the unification of norms – which would support the creation of larger markets – and research, where the costs easily become unbearable for small economies. But competition between the individual players have to be retained in order to keep these activities viable on the global scene.
All in all, the green economy will not come by itself. It will require much international cooperation, forceful measures and predictability of policies. And this will become much more difficult if it gets linked to a lot of other targets. An old rule says that one cannot have more targets than instruments, and developing the green economy does not open an avenue for solving other targets which might in themselves have a high priority.