Global Growth Recovery Requires Tackling Environmental Cost
Despite the recent slowdown in major economies around the globe, The Conference Board forecasts world economic growth at 4 percent for 2008 and 2009. But the performance of emerging economies remains the biggest cause for uncertainty about global growth. The past decade's economic growth has come at the cost of increased pollution and other environmental damage. Recovery is not just a matter of reversing the cycle or even making significant structural and institutional reforms in the governance of financial markets. It may require a more far-reaching reorientation of the growth model based on a more efficient use of scarce natural resources, the development of new energy sources, and strong international cooperation. The continued growth in emerging economies that is fueling the global economy will also depend on advanced economies sharing state-of-the-art technologies worldwide.
Says Dr. van Ark: "While the difficulty in finding global agreement on a common framework to decrease GHG emissions is challenging, even the most conservative assumptions of emission reduction suggest that there is a shared understanding of the problem. All countries will benefit in productivity and growth terms from greater investments in energy efficiency, most notably those where the resistance against change is often the strongest. Abatement options seem plentiful everywhere, and the required adaptations of technologies between countries are perhaps not as daunting as in the past."
Efforts to Reduce GHG Emissions Face Challenges: 3 Scenarios
The Conference Board has analyzed three scenarios to examine these challenges: one reference scenario that assumes current laws and energy policies remain in effect through 2025; a negative scenario that assumes economies comply with significant cuts in GHG emissions without increasing energy efficiency; and a positive scenario that assumes significant abatement in energy use and improvements in energy technology. Even the reference scenario, which assumes 1.5 percent labor productivity growth for advanced economies and a gradual slowing to 3 percent for emerging economies by the year 2025, shows important gains in energy efficiency that reflect technological progress in energy conservation.
The outcome for productivity growth would be more dismal in the second scenario, even assuming a cut in emission levels of 25 to 50 percent — a modest target compared to what has been proposed under the Kyoto Protocol. In that case, annual productivity growth will slow to no more than 0.5 to 1.5 percent in the emerging economies and 1 percent in the U.S. In Europe and South Korea, productivity growth would even turn negative by 2025. This is an unsustainable scenario from economic, political and human development perspectives.
In the more positive scenario of significant abatement in energy use and significant improvements in energy technology, emerging economies could achieve 3 percent labor productivity growth by 2025, even if they comply with a requirement to keep emissions at current levels. Russia, one of the biggest polluters currently, could even grow productivity at 4 percent. But, even in this optimistic scenario, 2 percent productivity growth in advanced economies versus 3 percent in emerging economies means that the latter countries' ability to catch up rapidly from their low productivity levels will suffer a strong slowdown. This reality will make it difficult to persuade emerging economies to accept even a freeze on emission cuts.
Global Business Can Help to Reduce Technological Inequalities Worldwide
A transfer of environmental technologies from advanced to emerging economies could be the solution. As in the past, low-income economies catch up by benefiting from technologies developed by advanced economies. Says van Ark: "This is the way the U.S. gained on the U.K.'s economic predominance during the 19th century, Europe narrowed its post-World War II development gap, and today's advanced Asian economies managed to show turbo-growth rates in the 1960s and 1970s."
But no technology catch-up comes for free. Emerging countries, which often have different proportions of labor and capital than those present in developed economies, will need to adapt new technologies to local circumstances. And, most important, the transfer of these new technologies will depend on international trade and foreign direct investment.
Says van Ark: "Efforts to realize reductions in GHG emissions will not only depend on effective international coordination on carbon emission trading and carbon taxes, but also on incentives for realizing gains from energy efficiency. Businesses play a leading role when they initiate cheap or cost-free abatement options. There are also large opportunities for more far-reaching technological solutions, which will depend in part on cooperation between the public and private sectors. Above all, opportunities provided by the global business environment widen the scope for reducing technological inequalities worldwide."
