The natural environment provides crucial inputs and services for economic development, but its role for productivity growth is insufficiently explored. Environmental scarcities can pose a drag on productivity growth and a risk for its sustainability. At the same time productivity growth is often seen as the solution to environmental challenges. Methodological problems abound, and overall the literature suggests that environmental issues are a potentially important risk factor. Theoretical models tend to focus the role of resource-augmenting technical progress in the long run, in light of environmental constraints. Macroeconomic studies suggest the contribution of the natural environment to productivity growth has been modest overall. Microeconomic studies focus on partial equilibrium impacts, which in many cases have been found larger than expected. Finally, case studies of historical civilisation collapses suggest the risks may be significant.
This chapter focuses on the labour market aspect of the social consequences of green growth. It discusses the analytical frameworks that have informed past economic analyses of the potential impact of various green growth policies on labour markets and suggests possible directions for future development of models to enable better analysis of potential impacts. It then sketches some of the implications of the various frameworks for the likely distributional impacts of green growth policies. Evidence from countries’ experience with environmental policies is considered, along with empirical work on the likely future impacts of green growth policies. This leads to a discussion of how potential adverse impacts of green growth policies on workers and households can be mitigated.
Cameron Hepburn and Alex Bowen
Alex Bowen and Sam Fankhauser
Chapter 7 reviews the policy measures required to reduce greenhouse gas emissions. They constitute the core content of climate change legislation. The starting point of the chapter is an understanding of the market, policy and behavioural failures that prevent private decision makers from adopting low-carbon solutions on their own accord. The chapter advocates carbon pricing as an effective way of incentivizing emission reductions, although command-and-control interventions are equally possible and have often been successful. Additional problems that need to be addressed include failures in capital markets, externalities related to low-carbon innovation, network issues and barriers preventing the uptake of energy efficiency measures. There are also policy distortions, not least the subsidization of fossil fuels and the underpricing of energy. The chapter further recommends interventions to mitigate the wider socioeconomic impacts of carbon policies, in particular their effect on competitiveness and fuel poverty. These measures do not directly reduce emissions, but they make climate change policy fairer, less disruptive and more acceptable to the public.