These two concepts are not mutually exclusive: we cannot maintain growth in the long run if it is not sustainable; and it will be difficult for us to move society towards green growth without the financial muscle obtained through increased growth.
But, in real life, how do you combine a green agenda and a growth agenda?
In its working paper for the next months as the Presidency of the EU Council, the Danish government is focusing on this positive subject: political action is required to promote the green growth agenda.
Three areas need to be particularly emphasized:
- Energy efficiency
- Duty and subsidy schemes
- And technological neutrality
Firstly, energy efficiency must be a priority. There can be no doubt that energy supplies, over time, should be based on renewable energy sources. But, this will take years, even with a dramatic increase in capacity.
Therefore, solutions are needed which will immediately reduce CO2 emissions – and they are available.
A classic example is from my own sphere: intelligent thermostats. By replacing old thermostats with state-of-the-art versions, you can save up to almost a quarter of the energy used to heat the house. And considering that the pay-back time of energy-efficient solutions is often very short, we can rapidly create a profit which can be reinvested in new green solutions.
Secondly, the duty and subsidy schemes must be organized to favor what we want to maximize and to minimize what we want to eliminate. This may seem simple but, in fact, it is not what is happening.
Today, the price paid to emit CO2 is far below what society pays. Instead, the price it costs to pollute the environment should reflect the actual costs that society bears. Likewise, green subsidies are not just useless transfers to technologies which cannot survive under present market conditions; they are a way of settling systematic differences in cost structures: only by including the price of pollution in the final price of a product are you left with a realistic basis for assessing the investment in question. This is market policy on green terms.
However, to prevent a negative impact on growth, a balance must be reached between new taxes and duties on pollution on the one side and similar concessions for green technologies and improved competitiveness on the other.
The same kind of logic can be applied to the subsidies given to green technologies: this is about creating results, not so much about how to create them.
So, politicians should not make a decision in advance as to which technologies would reduce CO2 emissions the most. Instead, they should set ambitious targets and reward the technologies which prove to be the most efficient. This means subsidies must be technology neutral so that companies and researchers are given the freedom to come up with best possible solutions jointly; without having to move in a certain direction.
The shift to a green economy will be costly. There is no way around that but we cannot continue our present way of driving financial growth and that is why political action is required. If the politicians would focus on energy efficiency, duty and subsidy schemes and technology neutrality, businesses would be able to deliver specific solutions.
This is how we create green growth – for the benefit of the climate and competitiveness.