Slides

1. New Approaches to Economic Challenges
NAEC Group Meeting, 28 November 2014
SESSION 3
NEW APPROACHES TO
ENVIRONMENTAL CHALLENGES
Shardul Agrawala
Head, Environment and Economy Integration Division
OECD Environment Directorate

2. 2
Policy questions
• What are the costs of policy inaction on environmental challenges ?
What are the benefits of policy action ? (CIRCLE: Project B9)
• What effect does tightening of environmental policies have on
productivity growth? (Project B10)
• What are the economic, environmental, and distributional effects of
environmental policy reforms ? (Project B11)

3. 1. Closing the CIRCLE: Quantifying feedbacks of
environmental pressures on the economy
Population & demographics Capital supply Natural resources
Local air pollution
Health &
environment
Land use
Biodiversity
Energy use
Economic growth
Water use
GHG emissions Deforestation
Climate
change
Water stress &
water quality
Nat. resources
use
Resource
depletion
3

4. 4
Costs of inaction on climate change
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
0%
-1%
-2%
-3%
Global damages as percentage of GDP
Likely uncertainty range (Business as Usual)
Likely uncertainty range (Committed by 2060)
Central projection (Business as Usual)
Central projection (Committed by 2060)
Central projection (highly nonlinear damages)
-4%
-5%
-6%
-7%
-8%
-9%
Likely uncertainty range (Business as Usual)
Likely uncertainty range (Committed by 2060)
Central projection (Business as Usual)
Central projection (Committed by 2060)
Central projection (highly nonlinear damages)

5. 2. Quantifying stringency and burdens of
environmental policies

6. Some insights on environmental policies and economic outcomes
Increasing Environmental Policy Stringency
does not harm productivity growth
A. World Economic Forum – perceived environmental policy stringency B. Environmental policy stringency proxy (OECD, de jure)
AUS
AUT
BEL
CZE
CAN
CHE
IRL
CHL
DEU
DNK
ESP
EST
GBR
GRC
HRV
HUN ISR
ITA
JPN
MEX
NLD
NOR
NZL
POL
PRT
SVK
SVN
SWE
TUR
USA
ZAF
KOR
FRA
ISL
7
6
5
4
3
0,5 1 1,5 2 2,5 3 3,5 4 4,5
Total BEEP indicator
WEF perceived EPS
(2012)
More stringent environmental policies
Policies more burdensome to entry and
competition
AUS
AUT
BEL
CAN
CHE
DEU
DNK
ESP
GBR
GRC
HUN
ITA
JPN
NLD
NOR
POL
PRT
SVK
SWE
USA
IRL
KOR
FRA
5
4
3
2
1
0,5 1 1,5 2 2,5 3 3,5 4 4,5
Total BEEP indicator
OECD EPS
(de jure, 2012)
More stringent environmental policies
Policies more burdensome to entry and competition
Negative
anticipation
effect
Positive rebound
effect
Stringent environmental policies can be
designed without imposing burdens to entry
and competition

7. 3. Assessing macroeconomic, environmental, and
distributional consequences of environmental policies
Environmental Policy (Fossil fuel subsidy reform)
Economy -wide effects
• Market prices
• Wages and rents
• Taxes and transfers
Household-level effects
• Income
• Expenditures
• Demand adjustment
Macro model Microsimulation models
Economic
Efficiency
Environmental
effectiveness
Distributional
effect
7

8. Distributional effects of fossil fuel subsidy phase out by 2020 in Indonesia
14
12
10
8
6
4
2
0
-2
-4
-6
Real income variation in 2020 (% baseline)
Cash transfers
Labour support
Food subsidies
Commodity price effect
1 11 21 31 41 51 61 71 81 91
Income centile groups
Source: ENV-Linkages
Total effect

9. Thank You
9