FEATURE: CDKN seeks your views on green growth – join the debate
In an exclusive CDKN discussion series, our Executive Chair Simon Maxwell is seeking your views on what green growth means for developing countries. Simon has put together ten propositions on green growth, and will be answering your questions and comments on two of these propositions each week for the next five weeks. Visit Ten observations on climate change and growth to read the paper in full.
The impact of climate change on growth, and the impact of growth on climate change, are much debated. Growth optimists argue that green growth options will make it possible for economies to expand, while preventing irreversible global warming. Growth pessimists say this is unachievable, adding that we consume too much, and should accept lower growth rates.
But from the perspective of developing countries, continued growth seems to be an imperative if the Millennium Development Goals are to be met. Developing country governments’ main concern is that measures taken to combat climate change, might dampen growth prospects. Yet fast-growing developing economies are increasingly contributing to climate change: what should be done?
Much of the current debate focuses on mitigation and adaptation, important components of climate-related policy. At CDKN, we add a third dimension, development. Climate compatible development is development that minimises the harm caused by climate impacts, while maximising the many human development opportunities presented by a low- emissions, more resilient future.
Here are the first two propositions for debate:
1. Growth does matter for poor countries – even though most poverty is not in the poorest countries
It is self-evident that very poor countries with very high levels of poverty will need to grow, if basic human needs are to be met. Take Burundi, where 81% of the population lives on less than $US1.25 a day, and where national per capita income is only $US1.04 per day. No redistribution from rich to poor within the country could eliminate poverty.
That is an extreme example, and it is notable that 72% of the poor now live in what are formally described as middle income countries, including China, India, Nigeria and Pakistan. Do those countries need to grow, or could they solve the poverty problem through redistribution?
Martin Ravallion at the World Bank has explored this question. He concludes that ‘the marginal tax rates (MTRs) needed to fill the poverty gap for the international poverty line of $1.25 a day are clearly prohibitive (marginal tax rates of 100% or more) for the majority of countries with consumption per capita under $2,000 per year at 2005 PPP. Even covering half the poverty gap would require prohibitive MTRs in the majority of poor countries. Yet amongst better-off developing countries—over $4,000 per year (say)—the marginal tax rates needed for substantial pro-poor redistribution are very small—less than 1% on average, and under 6% in all cases.
According to the figures published in the World Development Report 2010, 35 or so countries had per capita income of below $US 2000, including Bangladesh, Cambodia, Haiti, and many countries in Africa; and about 20 lay between $US 2000 and $US 4000, including India, Indonesia and Pakistan. For all these countries, accounting for the bulk of the world’s poor, there should be no doubt that growth is a priority.
China and some others lie above the $US 4000 threshold, but for all countries, reducing core poverty is only the first step on the development path. Convergence with rich countries makes quite other demands, and raises other questions, to which we shall come.
Simon argues that all countries should see reducing core poverty as only the first step on the development path – growth will be vital in the long term. Do you agree, and what does this mean for the fight against climate change? Let us know in the comments box below.
2. Climate change is one driver, but the measures taken to tackle climate change will also have effects on growth
Climate change will impact directly on growth, as the Stern Review and many other reports have found. Most of the impacts will be negative. Heat and water stress will affect crop productivity. Glacier melt will reduce the potential for irrigation. Extreme climatic events will disrupt livelihoods and damage productive infrastructure. One rule-of-thumb estimate is that each one-degree rise in temperature above the optimum during the growing season leads to a 10% decline in grain yields.
At the same time, measures taken to tackle climate change can also have an effect on growth, at least in the short term. A carbon tax, for example, might increase production and transport costs, and could result in an increase in prices, reducing demand and real income. A carbon tax regime could affect foreign direct investment and trade flows to a country, positively or negatively. Carbon labeling of products could have positive or negative effects on a country’s trade prospects, depending on consumer demand (and hence market opportunities) for carbon labeling in overseas markets, as well as the skills transfers in place to operationalise such opportunities.
Simon suggests that climate change policies will have an impact on trade, capital flows, development finance, technology and growth, positive and negative. These possibilities are detailed in Appendix 1 of the paper Ten observations on climate change and growth Do you agree that developing countries are likely to experience such impacts? Please share your views in the comments box below.