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Greening New Zealand’s growth

One of the many working groups that have been beavering away under the National-led Government has been a Green Growth Advisory Group (GGAG). It reported its findings and recommendations to the Government in December 2011 and these were made public in March in a report called “Greening New Zealand’s Growth.” “Greening New Zealand’s Growth” was not produced at the whim of the New Zealand government, however; it was produced in response to the OECD’s “Green Growth Declaration” of June 2009, in which Ministers from 34 countries declared that their countries would: “Strengthen their efforts to pursue green growth strategies as part of their responses to the [global financial] crisis and beyond, acknowledging that green and growth can go hand-in-hand.”

What is green growth?

The first issue is to define what policy-makers mean when they talk about green growth. According to the OECD, whose lead New Zealand has largely followed in this area:

Green growth means fostering economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. To do this, it must catalyse investment and innovation which will underpin sustained growth and give rise to new economic opportunities.

Put simply, green growth is an attempt to see economic and environmental concerns both prioritised for the future.

When green growth is spoken about it assumes that economic development and growth is still desirable, but if the world carries on producing and consuming goods and services at current levels it will harm the quality of “natural assets,” such as water and air. Thus, countries ought to find new and better ways of growing their economies while preserving the environment.

The OECD states that the goals of green growth ought to be improving resource management, boosting productivity; and encouraging economic activity to take place where it can help society and protect the environment over the long-term. This means that the key ingredients of higher economic growth—that is, innovation, investment and competition—are still key aspects of how the OECD suggests countries should think about green growth.

What does Green Growth mean in practice?

The OECD has so far been a major proponent of green growth. It has suggested some strategies which it recommends countries ought to pursue to make these changes. These strategies generally involve trying to combine the power of the free market to use competition to foster growth, while simultaneously trying trying to factor in externalities. This could result in policies that can incentivise the efficient use of natural resources. Examples could be subsidies and joint public-private funds to pay for environmentally-friendly technology or strategies to make pollution more expensive, like environmental taxes.

As it can be difficult to quantify environmental costs and for certain kinds of innovation to flourish, the OECD notes that market solutions will not always be best. It urges countries ought to use a mixture of price-based instruments and financial incentives to discourage environmentally harmful activity and encourage more efficient, cleaner ways of producing and consuming goods and services.

What has been proposed for New Zealand?

Similar to the OECD’s own assessment and recommendations, the GGAG did not suggest that the free market should be left alone to work out what sort of solutions may best green New Zealand’s growth. It proposed “greening” New Zealand’s current growth strategies. As the GGAG’s chair, Phil O’Reilly, said at “Greening New Zealand’s Growth’s” launch:

[We should] try and steer the [innovation eco-]system gently and lightly towards clean tech solutions where they are economically rational and where consumers might want them.

The GGAG’s immediate recommendations were not too strict, however, and were geared around building awareness and an evidence base of what New Zealand can do to green its growth and to measure the country’s progress towards green growth goals. Some specific suggestions in “Greening New Zealand’s Growth” were that:

  • consensus on green growth objectives should be built;
  • a dashboard of indicators should be produced once every three years to generate evidence which could be used to help with public policy decisions;
  • the Energy Efficiency and Conservation Authority (EECA) should be refocused to help businesses, farms and households to reduce their greenhouse gas emissions; and
  • reforms should be continued to encourage green growth-oriented innovation through more government support for the transfer, adaption and adoption of existing knowledge and technology into New Zealand from overseas, and to give more capability to officials for assessing which companies ought to be funded for green growth.

What to make of Green Growth for New Zealand

No matter what one personally thinks about green growth, New Zealand’s major political parties are convinced these issues are problems and the Government is set on addressing green growth. The green growth project rests on a couple of assumptions that are important to think about. One is that economic growth and environmental sustainability are compatible. The assumption is that high tech should be able to produce green tech—but is this actually the case?

The other assumption is that the government is well placed to help pull the two ends of economic growth and environmental sustainability into alignment. We ought to consider how much we think resource allocation decisions and decisions about what kind of environmental outcomes are desirable should be left to the decisions of citizens, producers and consumers, and how much the government should take responsibility for directing industry, business and consumer choices towards certain ends. For example, should the government:

  • introduce or change laws and regulations to make it is easier for industry and business to be more competitive;
  • reintroduce R&D tax credits to encourage innovation;
  • collect more environmental taxes on polluting industries; or
  • subsidise certain types of business or industry because they might have a positive effect on the environment?

If certain sustainability targets and environmental ends are desired, then there is great potential for the government to steer the economy towards particular outcomes and to try and “pick winners” from industry and business. History shows us that this is notoriously tricky business!

We should also be realistic about the costs that business, industry, farmers and households may have to meet to comply with green growth requirements. The financial impact of the Emissions Trading Scheme (ETS), the carbon costs of which are shared by producers and consumers, is a good case in point. We need to remember that in New Zealand, 97 percent of businesses are Small to Medium-sized Enterprises (SME)—that is, businesses run by the sole traders and the entrepreneurial people in our communities who employ less than twenty employees. SMEs also account for 44 percent of New Zealand’s economic output on a value-added basis. For SMEs, increased environmental compliance costs could be the difference between making a small profit, breaking even or going into the red. We need to be sure that New Zealand is heading down the right track before these small and medium businesses are asked to take on any additional costs that may be associated with the “green growth” project.

Third, we should also be mindful of any new taxes or levies that could be introduced to curb pollution. Taxes ought to be raised to pay for the things that we, as taxpayers, think the government should provide. Behavioural taxes, which are meant to change how people behave, ought to be used sparingly. If a tax really is the best solution to an environmental issue, we should ask the government to plough the revenue into reducing the taxes that will be most friendly to business, competition and innovation: personal income taxes and corporate taxes. This would help to ensure that taxes do not take too much money away from the productive economy.

Green growth policies are likely to stick at the government level because international pressures are driving the agenda forward, but New Zealand needs to be sure that it is clear about what it is trying to achieve and whether or not it is realistic, before running too far ahead.

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