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BACKGROUND PAPER

The 4thPolicy Forum of the Seoul Initiative Network on Green Growth: Promotion of Green Industry for Green Growth
Song-Do Convensia, Incheon, Republic of Korea 11-13 August 2009

1. IMPLICATION OF THE ECONOMIC RECESSION AND CLIMATE CHANGE The global economic recession poses an unprecedented threat to inclusive and sustainable development and exacerbates the impact of climate change and the fuel crisis. The severe damage to economic growth, incomes, jobs and social equity have already been experienced in every corner of the world. According to the World Banks economic outlook report, the global economy is expected to shrink by 1.7 per cent in 2009. Developing economies are expected to grow only about a third as fast as they grew in 2008. It also reported that every 1 per cent fall in the growth rate translates into an additional 20 million people consigned to poverty in developing countries. 1 After four consecutive years of decreases, the global unemployment rate increased from 5.7 per cent in 2007 to 6.0 per cent in 2008, and is expected to rise to 7.1 per cent in 2009, an increase of 1.4 percentage points over 2007. This would correspond to an increase in the global number of unemployed of 51 million people in comparison with 2007 according to the ILOs 2009 Global Employment Trends Report. Climate change is another serious threat that has worsened the plethora of problems that is being faced by humanity and the global environment. Between 2002 and 2008, the price of crude oil soared, reaching an all-time record of $147 per barrel in July 2008, then fell precipitously as the international financial crisis deepened and economic activity slowed across the globe. In the last day of 2008, crude oil was trading at $36 per barrel. Food commodity prices followed a similar, though more moderate, trend. The increase of food commodity prices caused alarm around the world, for it threatened the food security of millions. It is estimated that higher food prices in Asia and the Pacific pushed up the number of undernourished people in the region from 542 million in 2003-2005 to 583 million in 2007 (FAO, 2008a). The additional food price increases in the first half of 2008 and the marked slowdown in economic activity in the second half are likely to have increased the number of undernourished even more, making it less likely that the Millennium Development Goal of having the 1990 proportion of undernourished people by 2015 will be attained. 2

World Bank, Global Financial Crisis and Implication for Developing Countries, 2008 ESCAP, Economic and Social Survey of Asia and the Pacific 2009, p.41

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In response to the above-cited challenges, it is apt for all countries to make priority policy responses to stem the impacts from the crises and steer the economic system towards a different path. In light of national recovery efforts, rising attention has been given to the stimulus packages that need to aim at not only reviving the economic downturn in the short term, but also strengthening the foundation to open a new period of Low Carbon Green Growth. The argument is based on the rationale that returning to the previous economic growth pattern could make our economy more vulnerable to the similar crises that can occur again in the future. 3 In fact, several countries in the world have already launched green recovery programmes. However, the possible impacts of the economic downturn on sustainability in the Asia-Pacific region are also due special attention. Even before the recession, the sustainability of the Asia Pacific region was assessed to be inherently more vulnerable than other regions. This is in part because the majority of the governments in this region have anchored their development strategies on achieving rapid economic growth. Indeed, the region is the most economically dynamic in the world, and Asias share of global economic output is expected to be doubled, from 30 per cent in 1995 to 60 per cent in 2025 4 . In spite of its remarkable economic growth, meeting the needs of more than 600 million people still living in poverty is still a top priority in this region. Consequently, increasing pressure has been placed on relatively limited environmental carrying capacity of the region. Therefore, it is of great importance to analyze the possible impacts of the multiple crises on regional sustainability and take appropriate policy measures in timely manner in order to pursue Green Growth without hindrance.

2. TURNING THE CHALLENGES INTO OPPORTUNITIES THROUGH GREEN GROWTH The economic recession and climate change is likely to make the sustainability of developing countries in the Asia and Pacific region worse for various reasons: Firstly, the dichotomous views on development versus environment such as the conventional philosophy of grow first, clean-up later could increase under the pretext of economic recovery. Secondly, investment in environmental infrastructure for drinking water, sanitation, and pollution control and prevention may possibly be curtailed or delayed because of a lack of budgetary liquidity. Given that in the Asia-Pacific region, 1.7 billion people still lacked access to improved sanitation in 2006, half a billion had no access to safe water and 2 billion were without piped water, hindrances of investment in infrastructure would cause significantly negative impacts on sustainability and the quality of life for a prolonged period of time. Thirdly, enforcement of and compliance to the environmental regulations are apt to be hampered, and consequently a basis for harmonizing the environmental conservation and economic growth will be

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UN-DESA Policy Brief, No. 12, March 2009 ESCAP, Concept paper for the Expert Group Meeting on Eco-efficiency indicators for Asia and the Pacific, April, 2008

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severely weakened. At the same time, quality of economic growth, in the context of sustainable development, may mean different things in various countries and regions. In Asia and the Pacific, overall, there has been a convergence of rapidly expanding economies, poverty and substantial future consumption pressures, as well as a natural resource base that is more limited than any other in per capita terms. Thus, a focus on meeting human needs and improving well-being with the lowest possible ecological cost is more relevant in Asia and the Pacific than in any other global region. Developing policies to promote and measure the eco-efficiency of economic growth is therefore a key way to meet the most important challenge to sustainable development in this region reducing the pressure on the natural resource base while continuing to meet human needs. 5 Faced with these difficulties, it is indispensable for each country to find policy actions that turn these challenges into opportunities. The policy actions should be able to stimulate recovery and at the same time improve the sustainability of the world economy. In other words, the current economic crisis should not be allowed to overshadow critical long-term issues, such as climate change. Governments need to redirect investment away from energy-intensive economic activity based on fossil fuels and towards low-carbon, greener technologies and industrial activities; they also need to improve access to services that meet the basic needs of the poor. The economic stimulus plans can thus act as catalysts to turn todays crisis into tomorrows sustainable growth initiatives. In this respect, the region could study recent examples such as the Green New Deal and the Green Growth initiative. A number of countries have taken positive steps through the Green New Deal and Green Growth policies are being promoted by the European Union, the United States, and the Republic of Korea, among others. In particular, the European Parliament set legally binding targets in December 2008 to cut GHG emission by 20%, to establish a 20% share for renewable energy and to improve energy efficiency by 20% by 2020. The European Commission has proposed a Green New Deal for addressing both the climate crisis and the current economic crisis, thereby enhancing the competitiveness of European Union industry. The policies of the United States Government in regards to their stimulus package the American Recovery and Reinvestment Act 2009, focuses on: retrofitting buildings to improve energy efficiency; expanding mass transit and freight rail; constructing smart electrical grid transmission systems; and expanding greener sources of power, including wind and solar power and next-generation biofuels. Common elements of the stimulus package include: investment in sustainable infrastructure; energy efficiency and renewable energy technology; and green jobs. By adopting low carbon initiative in terms of investing in coefficient technology, the Green New Deal of the Republic of Korea is expected to create about a million jobs by 2012, thereby facilitating long-term low carbon Green Growth. Japan is also considering its own Green New Deal to counter the twin threats of climate change and the economic

ESCAP, Greening Growth in Asia and the Pacific, December 2008, p.8

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downturn. Under the initiative, Japan is expected to cut CO2 emissions by 15% from 1999 levels by 2020; the initiative sets the ambitious targets of a 20-fold increase in the use of solar power and a 40% boost in the use of next generation environmentally friendly cars. All of these initiatives should lead to a low carbon development path. The Asia and Pacific region needs to act now by adopting its own Green New Deal and Green Growth approaches if it is to maintain its competitiveness in goods and services, which can lead to greener, more sustainable development. Such a strategy will prepare the ground for the region to pursue a path of sustainable development when the global economy recovers. An effective way forward would be to integrate climate-related action into each countrys national development plans and poverty reduction strategies. This would not only give political legitimacy to actions on climate change but also integrates it into broader development policy frameworks. 6

3. GREEN INDUSTRY FOR LONG TERM PROSPERITY A. Overview of Green Industry Green Industry consists of activities which produce goods and services to measure, prevent, limit, minimize or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems. 7 Typically, it includes industrial areas such as pollution control and prevention, waste management and recycling, noise abatement, renewable energy, natural resources and energy efficiency. Green industry contributes to lowering environmental impacts of production and consumption processes through the application of environmentally friendly technology. For the past few years, green industry witnessed remarkable growth all over the world and consequently the market size in 2010 is expected to be 177 per cent greater than it was in year of 1993 ( See Table 1 and Figure 1). Particularly, in spite of low baseline market size of green industry, developing countries have been gaining a much higher growth rate of green markets than developed countries since 1993. For example, Africa and Asia (except Japan) gained an extremely high growth rate in environmental industry market size, which were 12% and 10.9% respectively. Table 1 Potential Growth of Green Markets, Billion US$ dollar8 1993 World Developed Countries Developing Countries
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2010 7,760 6,330 1,430

Growth Rate 177% 157% 421%

4,380 4,040 340

ESCAP, Economic and Social Survey of Asia and the Pacific 2009, p.78 OECD, The environmental goods & services industry: manual for data collection and analysis, Paris,1999

8 The US Environmental Industry and Global Market, EBI Report 2020, 2005

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Figure 1 Potential Growth of Green Market 9

B. Significance of Green Industry promotion In developed countries, it is widely recognized that green industry could be a very useful tool to promote economic growth, stimulate job creation as well as support long-term environmental sustainability. Many leading developed countries are utilizing green industry as an essential tool for boosting their economy. Meanwhile, developing countries also gain a lot of benefits from green industry which has been contributing to reduced carbon dependence, creating green jobs and improving environmental management. 1) Reducing Carbon Dependence Green industry promotion will contribute to decreasing the demand for fossil fuels and also stimulate the development of alternative energy technologies through green investment. This would switch todays carbon-dependent world economy to a more sustainable economy. Moreover, green industry promotion and Green Growth concepts could reduce GHG emissions and address climate change problems without sacrificing economic growth and poverty alleviation. Reducing carbon dependence not only can address climate change mitigation, but also plays significant roles in enhancing national and global energy security. For example, the importation of fossil fuels for the small island developing countries in the Asia-Pacific region has reached 100% and in China, India, Indonesia, the Philippines, Thailand and Vietnam, the fossil fuels provide more than three quarters of final energy consumption 10 . In fact, green industry promotion could encourage the development of clean technology and renewable energy which would dramatically lower the dependence of fossil fuels

Environment: A new business opportunity, Lorraine Bolsinger, 2008 ESCAP, 2008, op cit. 5/12

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imports and therefore strengthen energy security. Moreover, reducing carbon dependency would make a large contribution to improving the human development prospects of the worlds poor. Poor people are more vulnerable to climate-driven impacts, such as rising sea levels, coastal erosion and more frequent storms. For instance, around 14% of all developing country populations and 21% of their urban dwellers live in low elevation costal zones 11 . 2) Creating Green Jobs Millions of green jobs have been created in recent years and Table 2 represents employment statistics for key sectors of green industry. Renewable energy has most employment and more than 2.3 million green jobs have been created in recent years. Meanwhile energy efficiency, especially in the building and construction sector, transportation sector and basic industries and recycling sectors also have significant contribution to existing green jobs, which is around 2.6 million in total. Table 2 Existing and Potential Green Jobs 12 Key Sectors Energy Supply-Renewable sources of energy Energy Efficiency-Green buildings and construction Transportation-Low emission cars, railways and urban public transport Around 1.55 million Employment (2006) More than 2.3 million Potential Employment 20 million in year of 2030 $1.4 million investment of residential energy Less than 1 million efficiency leads to 11.3-13.5 full time equivalent jobs Substantial green employment opportunities in retrofitting diesel buses and in substituting cleaner compressed natural gas or hybridelectric buses Estimation: US 1 million, China 10 million, Basic industries and recycling Brazil 0.5 million (However, to be cautioned Around 0.5 million many existing recycling job cannot be considered green because of the pollution production and health hazards) Government development policies focusing on poverty reduction can also use green industry as an opportunity to create more employment opportunities for the poor and to empower women to participate in the countrys economic social development agenda. A paradigm shift is needed to synergize economic growth with environmental sustainability that will encourage more job opportunities (in the
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McGramjam. G., D. amd B. Anderson, The rising tide: assessing the risks of climate change and human

settlements in low elevation coastal zones, Environment and Urbanization, 2007


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UNEP, Green Jobs: Toward decent work in a sustainable, low-carbon world, 2008. 6/12

form of green jobs) for local people by introducing sustainable development practices. The potential for future green jobs in key sectors is displayed in Table 2 as well. 3) Improving environmental sustainability Promotion of green industry will lead the world to a development pathway that is more environmentally and economically sustainable in the long-term. A sustainable transport system is one of the important green industry sectors. Considering that the transportation sector accounts for more than a quarter of total world energy use and 14% of total greenhouse gas emissions, developing fuel efficient cars and related infrastructure and expanding public transportation networks will significantly contribute to ensuring sustainable growth. Green investments and targeted policy measures on water infrastructure will increase the national capacity to improve the supply of drinking water and sanitation services to the poor and to address water scarcity problems by enhancing the efficiency of water resource use. Green industry also plays a vital role in laying stronger foundations for the compliance of the private sector on environmental regulations and allowing environmental authorities to have greater flexibility in planning policy measures. In short, when environmental and developmental policy measures and investments to foster green industry are planned and executed in a timely and effective manner, we will be able to create a conducive milieu to achieve our short-term goals such as stimulating economic growth, creating jobs and reducing the vulnerability of the poor, as well as the long-term aim which is to realize a low carbon green growth society. 13

4. ROLE OF THE PUBLIC SECTOR TO PROMOTE GREEN INDUSTRY Given that the environment and energy are key areas where public policies can create powerful market incentives and stimulate investment, the role of the public sector for promoting the environmentally-friendly goods and services, green purchasing as well as green investment needs to be enhanced. Several countries in the region including Japan, the Republic of Korea and Thailand have already successfully enlarged markets for environmentally friendly products and services by introducing policy measures such as green public procurement and eco-labeling. Financial obstacles to the sustainable infrastructures needs of entrepreneurs in small and medium enterprises have been effectively addressed in Indonesia and Bangladesh using economic incentives and innovative financing. Those countries knowledge and experiences should be shared when building the capacity of other countries. There are numerous policies now available for decision makers to promote green industry.

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UNEP, Rethinking the Economic Recovery: A Global Green New Deal, 2009

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A. Integrating Green Industry into Development Planning By initiating an assessment of existing business trends and policies the government can begin to integrate policies for Green Growth into national economic development planning. The government can recognize eco-efficiency as a primary objective of economic growth and formulate a national road map towards integrating environmental sustainability into industry practices 14 . Once a government road map has been finalized for greening the countrys economy, existing public policies need to be studied and analyzed to examine their effectiveness and to find contradictory practices. The policies should be focused and then disseminated to ministries, businesses and consumers throughout the country via wide spread public awareness campaigns. Government development policies focusing on poverty reduction can use the Green Growth road map as an opportunity to create more employment opportunities in the form of green jobs and new green industries. A key strategy for Governments in greening businesses is to collaborate with both civil society and businesses, and, when possible, engage the entire society. Corporate ratings disclosure programs that use simplified ratings of pollution control efforts to publicize corporate environmental performance have successfully motivated enterprise-led improvements in several Asian countries, and have increased public awareness of environmental protection issues. 15 B. Strengthening Green Tax and Budget Reform The use of fiscal instruments to encourage the greening of industry is an important policy option for decision makers to facilitate the transition towards more eco-efficient and sustainable companies. They can be utilized to alter industry cycles, price signals and economic growth. Examples of such policy option include government spending (e.g. public procurement and green subsidies), as well as green taxation. Green tax and budget reform (GTBR) refers to a wide spectrum of fiscal pricing measures that have the potential to simultaneously increase revenue and foster Green Growth. More specifically, it entails 1) a shifting of the tax burden from traditional areas of taxation, such as income, savings, and capital gains, to environmentally relevant products and activities such as waste; and 2) the redirecting of subsidies from environmentally perverse activities towards activities that promote Green Growth and poverty reduction. In market economies any kind of reform is nearly impossible if it is working against market signals. GTBR not only works with market signals, but also achieves environmental improvement, at least abatement cost, and provides the greatest chance for economic benefits. 16

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ESCAP, Green Growth Capacity Development Program, Training of Trainers Toolkit ESCAP, Greening Growth in Asia and the Pacific, 2008 ESCAP , Green Growth at a glance, 2006

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C. Promoting Green Public Procurement Green public procurement has been cited as one of the key governmental policies that can be used to encourage the greening of industry. Procurement is the acquisition of goods and services to meet the needs on the best possible terms. In many Asia-Pacific countries government consumption can represent as much as 20 to 25 per cent of GDP. Therefore, the inclusion of environmental criteria in government procurement is a direct way to stimulate the market for environmental goods and services, which will develop both the domestic as well as international markets for sustainable products and services. The government should select a strong lead agency to implement the changes and then introduce a standardized system of assessment. This would involve an assessment of the environmental impacts of a product at all stages of its life cycle, taking into account the environmental costs of securing raw materials, manufacturing, transporting, storing, handling, using and disposing of the product. The products which minimize environmental impacts should then be listed and disseminated to government procurement officers who must be trained in the new polices. Green public procurement also raises public awareness, shows leadership by the government and demonstrates to the consumers how to reduce environmental impacts by utilizing their purchasing power. Policy options to enhance green public procurement can include: Standards and labeling programs; Basic laws and regulations; Development of guidelines and budget system reforms. D. Encouraging Eco-labeling and Carbon Labeling Schemes Regulation is necessary to ensure some improvement in eco-efficiency, essentially with regard to pollution prevention and control, namely, through extended producer responsibility. However, improving the eco-efficiency of consumption patterns could be achieved through policies providing for individual consumers to make environmentally friendly choices. In order to improve the environmental sustainability of the consumption and production patterns of the society, both aspects of the consumptionproduction cycle must be addressed. Eco-labeling has emerged as one of the most popular tools to promote both public and private green procurement. In many cases both governmental and trustworthy third-party organizations have taken the responsibility to set efficient performance standards, test the products and award the labels to show either the energy efficiency savings or the products carbon footprint. As a part of the plan to address climate change, a new concept of eco-labeling has emerged, which is carbon labeling. A carbon emission label or carbon label describes the carbon dioxide emissions

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embodied in a product. 17 The labels will show the amount of carbon dioxide emitted during the products' lifecycle - production, distribution, use and disposal of the goods. The carbon labeling system has been implemented in countries such as the United Kingdom, the United States, Sweden and Canada to enable businesses to demonstrate to consumers their commitment to managing and reducing carbon emissions. Also, in the Republic of Korea, the government decided in July 2008 that selected products will carry labels in the marketplace to show the size of their carbon footprints 18 . Carbon labels will allow shoppers to choose the products with the smallest carbon footprints and permit them to compare locally produced with imported goods and organic products with traditionally farmed foods. It helps the market effectively address climate change. E. Enhancing Institutional Mechanisms It is important for governments across the Asia and Pacific region to create an enabling environment for green industry. This can be achieved by enhancing a countrys institutional capacity for green industry development, including promoting and funding research institutions and development programs and by encouraging the transfer of environmentally sound technologies (ESTs). Technological innovations play a key role in the production and service sectors, while governments play a major role in EST development, transfer and commercialization. F. Greening Small and Medium Enterprises (SMEs) Small and medium scale enterprises play a major role in any countrys economic development providing employment opportunities, promoting entrepreneurship and enhancing technical knowledge. Governments need to plan for and draft appropriate legislation which encourages creativity and innovations while ensuring greater environmental sustainability. This would lead to an increase in competitiveness and better profitability for businesses that improve their eco-efficiency and resource-use, resulting in increased market share, more jobs, economic prosperity and enhanced social well-being. Governments can assist the SME sector with greening business by: The establishment of industrial estates for green SMEs, including the development of smart growth zones and eco-industrial parks; Providing tax breaks as well as concessional finances for investments in new green technologies; Providing managerial and technical training to the SME work force; Assistance in the design, development and marketing of green products; Support for resource recovery parks; Establishing an information network for SMEs and other sphere based knowledge and technology transfer.
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Carbon Emission Label, Wikipedia Product Carbon Labeling Takes Shape in South Korea, Environment News Service, July 28, 2008 10/12

Help in adopting the whole systems approach to production. G. Improving Awareness, Education and Knowledge Management Better education and public awareness campaigns are needed, particularly in developing countries. Environmental impacts can be reduced by the actions of a well informed public working through civil society groups. Public access to environmental information has also been shown to have positive effects on corporate environmental performance. In the Republic of Korea and other Asian countries, research has shown that stock markets react strongly and positively to environmental information disclosure, providing evidence that a company with good environmental performance is also likely to sustain good economic performance. Environmental performance is becoming complimentary with good business practice and readiness for reaping the benefits of globalization. Figure 2. Green Industry Policy Matrix 19

5. CONCLUSION It has been repeatedly highlighted that the multiple crises can be tackled simultaneously and Green Growth enables us to make serious progress on both the climate and economic fronts 20 . In this regard, Green recovery plans are particularly helpful in accelerating the shift of the economic growth models into more climate-friendly ones. Possibly, actions taken and to be taken by leading countries will result in the transformation of the global economic system by changing the rules of games. 21 It is anticipated that carbon intensity and resource efficiency will be increasingly significant in determining
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Sector policies for greening business, 3rdUNESCAP Green Growth Policy Dialogue, Martin Herrndorf Korea Herald, Power Green Growth, protect the planet (Special contribution by UN Secretary-General), April 13 2009 ESCAP, Turning Crisis into opportunity: Greening economic recovery strategies, February 2009

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national economic competitiveness. Keeping pace with the stream and expectation of the times, in this 4th SINGG policy forum, we are going to discuss the impact of the multiple crises on regional sustainability, Green Industry and Environmental Sustainability, Green New Deals and Green Growth amid the global recession, stimulating the market for environmentally friendly goods and services and incentivizing Green Industry. We expect that this policy forum will be a good chance for the participants and many member countries to share their own experiences and up-to-date information, and finally to find effective contact points to make economic and environmental policies. We also expect this forum to be a big step in achieving the vision of the Seoul Initiative: achieving environmentally sustainable economic growth in the Asia and Pacific region by promoting effective environmental policies.

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Prepared by Prepared by Dae Young Ju, Sangmin Nam and Ian Barnes for EVS/EDD N.B. No document emanating from the secretariat should disclaim the views expressed officially in the resolutions of the main organs of the United Nations and in other legislative texts of the Organization such as the Charter of the United Nations and various declarations and conventions. The few examples provided in this paper serve only to illustrate and inspire and are by no means an exhaustive representation of initiatives in the region. This paper is in draft form and as such the secretariat would welcome any comments and suggestions.