Much «clean» growth possible in developing world with existing technology, right strategy and incentives, UNCTAD Report says

Huge gains can be made by focusing on energy efficiency, sustainable agriculture, and off-grid renewable power, study says; economic, food, and climate crises provide opportunity for change

Geneva, 8 February 2010 - The stress of the global financial crisis -- as well as concerns about climate change and food prices -- should be used by developing countries to shift towards "clean" growth, a new UNCTAD report recommends. It says such progress is possible and affordable with existing technology, based on the right strategy and incentives.

UNCTAD´s Trade and Environment Review 2009/2010 (1) (TER 09/10), released today, contends that while conventional wisdom holds that economic crises are times for belt-tightening and cost-cutting, the opposite is true in the current case. The urgency of the crisis gives governments of the world´s poorer nations the chance to re-direct resources to economic growth that is more economically efficient, better for the environment, more socially equitable, and more promising over the long term.

Because so little has been done in such nations, the TER notes, huge gains can be realized in improving energy efficiency, enhancing sustainable agricultural methods, and stimulating the use of rural, "off-grid" renewable energy. If approached intelligently, such improvements should yield savings that pay for themselves or even generate quick profits. In addition, shifting to "clean" growth should create jobs, the report says. But to make this progress happen, governments must eliminate market barriers and policies that prevent the flow of capital into these promising sectors.

The study maintains that large improvements in energy efficiency can be achieved in many low-income and least developed countries "at negative net cost." For example, efficient building technologies may be applied using local materials, in many cases reducing heating and related costs. According to studies by the European Commission, better energy efficiency can result in yearly savings of up to €1,000 for an average EU household. "Green" buildings are not much more expensive than normal construction in many developing counties, since they pay off in the form of reduced energy bills. Materials for insulation and ventilation, for example, are often available locally. The construction of energy-efficient buildings, the retrofitting of existing buildings, and the manufacture of energy-efficient building components are expected to grow worldwide by 6% annually. Most new jobs in the sector will be created locally, often in small enterprises (the construction sector already accounts for 5-10% of all employment at national level). Energy efficiency programmes are thus especially promising for underdeveloped regions and areas with high unemployment, the report says (see figure 1).

Payback periods for such energy-efficient investment in developing countries would generally be shorter than in developed countries, because there is more potential for replacing inefficient equipment, the study notes.

Similar opportunities exist in sustainable agriculture, opened up by alternative production methods, developments in technology, and changing consumer preferences, the report says. It recommends that governments encourage the use of various forms of sustainable agriculture, including organic farming, low external input sustainable agriculture, or integrated pest management that minimizes the use of agro-chemicals.

Organic farming, for example, is good for the environment and often fits the circumstances of smallholder farmers who make up the majority of food producers in the developing world. Such farmers in many cases can´t afford fertilizer or pesticides and are used to functioning without them. Organic produce sells for higher prices, and recent Food and Agriculture Organization (FAO) research has shown that when organic farming is combined with reduced tillage techniques, farming can become almost climate-neutral. According to UNCTAD research, farms that engage in certified organic production in East Africa were significantly more profitable than comparable groups of farms engaged in conventional production. In contrast to the experience of developed countries, organic conversion in many African countries is associated with increases, rather than reductions, in yield.

UNCTAD has made 35 specific recommendations on overcoming institutional, economic and political obstacles to organic farming. Many are low-cost measures. The report recommends that publicly funded research and extension work should be shifted towards "sustainable ecosystem-based agriculture."

Steps to provide "off-grid" renewable energy supplies, especially in rural areas, also hold great promise for the developing world. The TER notes that such technologies as solar panels, windmills, biogas generators (using agricultural waste), and small hydro-power facilities can power homes and communities, increase agricultural production, improve health by reducing air pollution from indoor fires, and create jobs.

The TER notes that Grameen Shakti, a subprogramme of the Grameen microcredit bank in Bangladesh, has helped more than 2 million people in 40,000 rural villages gain access to renewable energy through solar home installations and biogas facilities. And the Employment (EmPower) and Power Partnership Programme of Decentralized Energy Systems of India illustrates how self-sustained growth can be triggered through rural electrification that supports many village micro-enterprises and generates employment in agriculture, construction materials, handicrafts, maintenance, and repair services.

Although the initial procurement and installation costs of renewable energy equipment are high (depending on how sophisticated the technology is), the running costs are very low, as there are no fuel costs. Furthermore, the decentralized nature of such energy supplies means that the high cost of building expanded electricity grids is avoided. For example, in the EmPower programme, power from local renewable energy sources is about 30% cheaper than grid-provided electricity. Such systems contribute to enhanced energy security and shield developing-country economies from both the escalating energy prices of conventional fuels and the notorious price volatility of fossil fuels.

Macro-economic costs are not the greatest barrier to taking advantage of the opportunities for clean growth, the TER says. Rather, it is the lack of appropriate policies, regulations, and institutional structures to support the shift towards clean growth. The key policy challenge is to leverage through better incentives for private investment and to initiate cumulative technological changes in "clean" growth, thereby supporting economic diversification and creating dynamic job and income opportunities.

Against this background, the TER 09/10 highlights the importance of far more pro-active government roles and the more pronounced use of industrial policies, reversing the trend of government passivity advocated under neoliberal growth policies. Such a shift to active industrial policies may require greater "policy space" than is available under current rules of the multilateral trading system, the report says.

ANNEX

Tables and figures

Figure 1: Efficient building technologies: total, growth centers


Source: McKinsey Germany, Energy: A key to competitive advantage - New sources of growth and productivity, Frankfurt, April 2009, p. 29,

Note:CHP - combined heat and power.
a Market currently too small to estimate the growth rate.