What role can International Organisations play in cultivating a greener economy for developing nations?

Alainah Amer, Anahita Roy and Taqi Shah

Introduction

Establishing a greener economy within developing nations is an up and coming topic in policymaking, environment, and economics. The natural foundations that many developing economies possess could be utilised to produce economic benefits is appealing. But before introducing the potential benefits as well as potential drawbacks of encouraging green growth in these countries, it is important to define what a green economy is. Essentially a green economy possesses healthy characteristics such as “low carbon, resource efficient, and socially inclusive” environment (United Nations Environment Programme, 2018, p.1). A green economy contributes to an increase in employment and revenue as a result of investment from both the public and private sectors into economic activities that allow for reduced carbon emissions, green and efficient energy, preservation of biodiversity and the ecosystem as a whole (United Nations Environment Programme, 2018, p.1). 

How can a green economy be beneficial to developing economies? 

To begin with, developing economies are the most vulnerable to climate change. Due to their high dependency on More Economically Developed Countries (MEDCs) for their exploitation of the natural resources they possess (OECD, 2012, p.6). Thus, this is one reason why green growth would be beneficial to developing economies. Not only does it allow locals to be involved and take ownership of the natural land and resources they are surrounded by, but it also facilitates foreign and private investment. As developing economies continue to industrialise and become integrated into global markets, they will begin to follow conventional economic growth patterns, which could result in exponential increases of greenhouse gas emissions and pollution (OECD, 2012, p.6). For this reason, green growth will allow emerging economies to expand while keeping their emissions as low as possible.

What is the role that international organisations play in facilitating the shift towards a green economy in developing nations?

Outlining the World Bank’s Environment Strategy 2021-22

The new Environment Strategy, which has been introduced by the World Bank Group (WBG), calls for client countries to support growth with a specific focus on sustainability and inclusive green growth. Consultations with more than 2,3000 WBG stakeholder members have allowed for this strategy to be put into motion with a vision for “A green, clean, and resilient world for all” (World Bank Group, 2012). This Strategy has drawn inspiration from and is built on the progress made in the WBG 2001 Environment Strategy, which put emphasis on the link between alleviating poverty levels and the environment. Some key lessons which were learnt and will be addressed in the WBG’s latest Environment Strategy is implementing environmental and social safeguards and standards to avoid risks to operations as well as recognising the contribution of the private sector to bridging “funding gaps” (Eltz et al., 2010, p. 8). This allows for more climate initiatives by the private sector as well as more funding for environmental projects to begin and progress. The new Strategy focuses on seven key areas including the green agenda, clean agenda, pollution management, low-emission development strategies and innovative finance, and the resilience agenda. 

What are the issues with past/current international organisation policies targeting green growth in a green economy?

When it comes to international organisations aiding developing economies in their goals, there are always issues that can be improved on. Some of the key issues that have been observed in the past are technocratic domination, lack of understanding of local systems, strategies and policies being too short (ie. 5-year period), lack of government commitment and responsibility, as well as lack of inclusion of the public in environmental and policy decision-making. Moreover, the WBG fails to outline whether the costs of its policy implementations outdo that of the green economic benefits which developing economies could receive (Eltz et al., 2010, p.8). 

However, not only are there internal issues with the strategies and policies that the WBG put in place, but also with the external consequences of these actions. One such consequence is that of climate colonialism, for example in the case of boosting energy security. The African continent is home to the world’s largest solar power plant, the Noor Ouarzazate complex in Morocco, yet it is also the region least connected to the grid (Táíwò, 2019, p.5). The move towards solar power could provide Africans with some access to electricity but these large renewable energy projects in North Africa may actually boost only the European electrical grid, which facilitates enhanced climate-friendly European energy security while sub-Saharan Africans lose out. It is important to make sure that by fulfilling environmental goals, we do not simultaneously lose out on humanitarian aims (Táíwò, 2019, p.5). This type of resource-exploitation feeds into a new form of neocolonialism and furthers the global resource divide.

Policy recommendations: 

  1. Adopting a framework of regional SDGs

International organisations are considered to be a key actor in transforming the global economy from one which is in pursuit of pure economic growth, to one which lays the foundations for a sustainable development strategy. While organisations such as the UN, have made great strides in moving towards this agenda, we believe their strategies need refining to encompass a more holistic approach. The Sustainable Development Goals (SDGs), established in 2015, lay out a blueprint with seventeen global goals to be achieved by the year 2030. The main issue with this framework is that it is based on a ‘one size fits all’ approach that can be universally applied. Moreover, within this framework, the SDGs embody Eurocentric and neo-colonial hegemonic characteristics. The SDGs can be considered a way for the Global North to push its own agenda of continuous development coupled with the exploitation of developing countries. 

Hence, our policy recommendation is to redesign the SDGs to incorporate the differential characteristics of the Global South. If the UN could base the framework on regional SDGs as opposed to a universal framework, the issue of eurocentrism could be combatted. Moreover, we do acknowledge that even with sub-continents there are various differences which could inhibit the effectiveness of the SDGs framework, posing limits to the policy proposal. However, we argue that a model mindful of inter-regional differences is an improvement to the universal agenda set by the UN since different nations can use this as a basic foundation that they can adapt depending on their specific circumstances and capabilities. Moreover, we recommend the UN to be the international governing body that oversees these transitions and strives for local capacity-building mechanisms in order for the regional framework to be a success. 

  1. Incentivising effective market mechanisms through international patents

A fundamentally liberal ideology dominating global discourse is the heavy reliance on market mechanisms to facilitate the transition to a greener economy. This is because countries believe that a competitive environment is the best way to encourage entrepreneurs to produce green products. However, there are several challenges which make market-based mechanisms ineffective. Markets suffer from coordination problems, may send inaccurate price signals, and most importantly, when coupled with weak property rights, which is a common feature of developing states, they can discourage investment. In regards to the latter concern, the lack of ownership rights deters innovation as it enables the rise of free-riders. These are market actors who are likely to emulate the original model without bearing the costs of the risk taken to invest. 

While international organisations may not have the authority to strengthen property rights within a state, they can play a role in creating an international institution to bypass the issue at hand. Hence, we recommend the establishment of an international patent awarding scheme. An environmental labelling scheme has various benefits, particularly appealing to developing countries. These labels can provide the entrepreneurs and the country as a whole with product differentiation that will enable them to enhance their competitive advantage, resulting in higher revenues. These revenues can then be used to invest and grow the economy in a sustainable manner. This will also ensure that at a global market level, the transparency and standard of the product is higher as it is being monitored and awarded by an international governance body. We recognise that an international patent scheme requires intensive legal procedures to ensure fairness and effectiveness. This in turn requires coordination between various international organisations, such as the International Court of Justice. 

  1. Addressing state-based challenges through alternative financing

 International organisations usually help developing countries to develop their industrial capacity through financial assistance. This is a helpful measure, as it works to address the inequality between developed and developing countries. Developed countries would have clear advantages in making their economies greener, as they would have the financial means to do so. Hence, loans and grants enable them to engage in affirmative action and in economic development projects similar to their more affluent counterparts. 

The issue here, however, is the low uptake of loans. Most of the World Bank Group’s projects in this area, for instance, are supported by grants, “suggesting weak client demand for such projects”.  Here, loans can be seen as a more sustainable method of financing as they are repaid, as opposed to grants which are not.  Developing countries currently account for just $1.6 billion out of the $33 billion in outstanding green loans from the World Bank, which signals their lack of confidence or ability to take on such debt to fund sustainable projects. Though grants are still useful and help developing countries achieve their goals, the cyclical pattern of loans would ensure that the flow of liquidity into such projects could be more practically viable and financially sustainable in the long run. The World Bank Group itself has identified overcoming this weak client demand as a “critical determinant of project success”. 

Hence, we propose a policy that addresses the low uptake of loans by developing countries through flexible financing. This would take the form of a loan program can be adapted in accordance to relevant changing circumstances, as long as the changes work towards attaining the objectives of the loan itself. This could be an attractive option to developing countries, as the flexible nature of this loan program would grant them some allowance if the terms of the loan need to be renegotiated over time. However, to ensure its effectiveness, loan programs should certainly be implemented with clear outcomes and subjected to assessments. 

Critics may suggest that adaptable loans could still potentially come short of meeting the financial requirements for projects in countries that may be in financially precarious positions. To overcome this predicament, there could be an implementation of additional financing to act as a safety net “to meet cost overruns and close financing gaps in projects”. This is an approach that has been adopted by the Asian Development Bank, which has proven to be very effective. The ADB reported that easier access and the deployment of such supplementary financing led to fewer loan cancellations during the observed period of 2005-2010.

Conclusion

Over the last few years, governments and other actors in international affairs have greatly recognised the importance of addressing climate change. Hence, this paper has suggested a number of policy proposals that not only allow the international community to address climate change, but to do so in a manner that is not detrimental to the economic growth of developing countries. By adopting a framework of regional SDGs, climate goals can be made more attainable since the challenges faced by developing countries in different parts of the world are incredibly diverse. Incentivising market mechanisms through international patents could encourage product differentiation, allowing local economic growth to occur in an environmentally sustainable manner. Lastly, through the provision of flexible and supplementary financing, international organisations could empower countries to pursue the costly process of making their economies more environmentally sustainable, by providing them with the financial capital to do so. 

Citations

  1. Altenburg, T., & Assmann, C. (Eds.). (2017). Green Industrial Policy. Concept, Policies, Country Experiences. Geneva, Bonn: UN Environment; German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE). https://wedocs.unep.org/bitstream/handle/20.500.11822/22277/Green_industrial_policy.pdf?sequence=1&isAllowed=y
  1. Eltz, Melanie, et al. The World Bank Group 2010 Environment Strategy Analytical Background Papers Strengthening Environmental Institutions and Governance: What Should Be the Role of the World Bank Group? 2010. https://documents1.worldbank.org/curated/en/118331468325446425/pdf/702190ESW0P1200nce0and0Institutions.pdf
  1. OECD. Green Growth and Developing Countries a Summary for Policy Makers. 2012. https://www.oecd.org/dac/50526354.pdf
  1. OECD (2013), “What Have We Learned from Attempts to Introduce Green-Growth Policies?”, OECD Green Growth Papers, No. 2013/02, OECD Publishing, Paris. https://doi.org/10.1787/5k486rchlnxx-en.
  1. Táíwò Olúfẹ́mi O. “How a Green New Deal Could Exploit Developing Countries.” The Conversation, 25 Feb. 2019. https://theconversation.com/how-a-green-new-deal-could-exploit-developing-countries-111726
  1. United Nations Environment Programme. “Green Economy.” UNEP – UN Environment Programme, 2018. http://www.unep.org/regions/asia-and-pacific/regional-initiatives/supporting-resource-efficiency/green-economy
  1. World Bank Group. Toward a Green, Clean, and Resilient World for All. 2012. https://www.worldbank.org/en/topic/environment/publication/environment-strategy-toward-clean-green-resilient-world.print

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