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Chapter 3

Gaining Competitive Advantage with Green Industrial Policy

4.3. PUBLIC POLICIES FOR PROFITABLE subsidised. To reduce potential negative effects
GREEN INNOVATIONS on profits within an industry, pollution charges 45
can be earmarked within the taxed industry. The
Porter favours stringent but flexible economic
money collected can be redistributed directly to
instruments such as pollution charges or trad-
firms, depending on size, measured by output or
able emission permits. These economic instru-
work force. It could also be used to subsidise envi-
ments are more likely to enhance innovation than
ronmental research and development or the adop-

PART 2
command-and-control instruments, such as tech-
tion of cleaner technologies.
nological standards, as they give more freedom to
firms with regards to the technology used to abate Other environmental policy mechanisms, like
pollution. In contrast, by imposing a given tech- cap-and-trade schemes may be difficult to estab-
nology or certain inputs, a technological standard lish politically. One way to improve political
provides fewer incentives to innovate. Simi- feasibility of such a scheme can be to give away
larly, emission or performance standards do not a number of permits for free to an industry, at
encourage firms to go beyond the standards set. least during the initial distribution phase. Under
On the other hand, environmental policy instru- this approach, firms will still have incentives to
ments such as pollution charges can provide an invest in pollution abatement technologies as
incentive for firms to emit less as they can save long as they can make money by selling addi-
money by reducing emissions further. Similarly, tional permits. Later on, fewer permits should
in the presence of an emission permits trading be granted for free and more sold by auction, to
system, firms can save money by purchasing ensure entry of new players into the industry.
fewer permits on the market or even sell their
own emission endowments by cutting emissions Other policy instruments can be effective in
beyond their own emission rights. greening firms. Voluntary approaches can be
a substitute for mandatory environmental
The use of economic instruments appears to be a constraints in countries with weak institutions
necessary condition for the Porter Hypothesis to (Never and Kemp 2017, this volume). Examples
hold. This is known as the narrow Porter Hypoth- include information disclosure programmes or
esis. Economic instruments may support compli- programmes to encourage ISO 14001 certification
ance with environmental regulation by rewarding through training and advertising the benefits of
champions and punishing laggards within the certification. Empirical evidence supports this.
industry. One way to do so, is through a ‘feebate’, For instance, Powers et al. (2011) found that India’s
a differentiated tax and subsidy scheme around Green Rating Programme caused large pulp and
an emission target: Firms are taxed for pollution paper plants with the worst environmental perfor-
emissions above the target, and subsidised for mance in their study to reduce emissions of
emission units below it. Examples include the certain pollutants by 9 to 19 per cent. In the same
so-called ‘eco-bonus-malus’ scheme implemented vein, Garcia et al. (2007) estimated that Indone-
in France for vehicle CO2 emissions (d’Hault- sia’s PROPER programme reduced firms’ emis-
foeuille et al. 2014). Cars that emit more than the sions by one-third.
standard are taxed, while those emitting less are

5. INCREASE A SECTOR’S PRODUCTIVITY


THROUGH KNOWLEDGE SPILLOVERS
5.1. KNOWLEDGE SPILLOVERS AS A technologies become public knowledge when
MARKET FAILURE transferred to production processes, firms will
often not get the full return on their research
Green policies can create demand and may there- and development investments: Some, if not all,
fore provide incentives to invest in research and of the knowledge embodied in the invention also
development in this sector and may therefore becomes available to competitors who can fully
provide incentives to invest in research and or partly copy or improve the new technology.
development in this sector, fostering innovation These knowledge spillovers benefit the economy,
in environmentally sound technologies. These and society as a whole, whenever new technol-
may generate positive externalities among firms ogies are developed; yet they discourage indi-
in the research and development process. As vidual firms from investing in new technologies.
knowledge is by nature a public good, and new As a result, market forces underprovide research
Green Industrial Policy - Concept, Policies, Country Experiences

and development investment. Public policies suggests two particularities of the innovation
46 that foster investment in environmentally sound process in emerging economies. First, emerging
technologies should mitigate this market failure economy countries tend to specialise in adapting
for the benefit of all and assure that an optimal green technologies to local conditions. Second,
level of research and development investment is spillovers are likely to be greater within the coun-
provided, including for innovative firms. try itself than abroad, which is an argument for
increasing support to research and development in
emerging economy countries, as most of the gains
5.2. KNOWLEDGE SPILLOVERS FOSTERING
of innovation will benefit local constituents.
GREEN INNOVATION
Recent estimates suggest that knowledge spill- 5.3. POLICIES FOR GREEN INNOVATION
overs do also have significant positive effects
on green innovation. Dechezleprêtre et al. (2014) As we have seen in section 4, there is now ample
analyse knowledge spillovers in clean and dirty evidence that environmental regulation can stim-
technologies, based on patent citations. This infor- ulate innovation in green technologies. Moreover,
mation is part of the state-of-art patent applica- knowledge spillovers can lead to productivity-en-
tions: Innovators applying for a patent are required hancing innovation reinforcing the positive effect
to cite all previous innovations on which the new described by the Porter Hypothesis. Public policies
innovation is based. A citation indicates that the that increase the demand for green technologies
knowledge contained in the document has been do not only reduce pollution and the use of natural
useful to develop the innovation. For this reason, resources, they also foster innovation and there-
patent citation can be seen as a measure of knowl- fore growth.
edge spillovers. The 2014 study by Dechezleprêtre et
al. covers four technological fields: energy produc- Governments can promote innovation in green
tion, automobiles, fuel and lighting. Clean patents technologies in several ways. First, firms should
receive an average of 43 per cent more citations be rewarded for investing in research and devel-
than dirty patents, and are cited by more prominent opment, which means protecting their inventions
patents. These results suggest that public support with effective patents, thus mitigating the problem
to research and development would be more effec- of market failure as outlined in 5.1. Public author-
tive in boosting innovation and growth if they ities can support green innovations by granting
targeted green technologies. patents more easily, reducing transaction costs
for submitting new patents, and enforcing the
The positive effect of policy supporting research property rights of patents. This means facilitat-
and development is likely to hold primarily for ing patent monitoring and litigation through the
developed countries where most of the innova- judicial system. Another measure can also be to
tion occurs, including for green technologies. For facilitate technology transfers through licensing
instance, Lanjouw and Mody (1996) found that the agreements. Also, firms can be rewarded for invest-
US, Japan and Germany accounted for two-thirds ment in research and development by the provision
of climate mitigative or adaptive innovation. Yet of subsidies or tax cuts.
emerging economies increasingly produce a signif-
icant share of green innovations. In the sample they Second, since technological absorptive capacity
analysed, Dechezleprêtre et al. (2011) found that is seen by some authors as a determinant of a
18.5 per cent of the climate-oriented innovations country’s ability to innovate, governments should
patented from 2000 to 2005 originated in China, invest in education, technological training and
South Korea, Russia or Brazil. It is likely that emerg- knowledge dissemination infrastructure, includ-
ing economy countries will catch-up on green ing internet access. In emerging economies, these
innovation, triggered by domestic green policies, by factors can help foster innovation in green technol-
the demand for green technologies from developed ogies that are best suited to local conditions. In less
countries and by investment in carbon offsetting. developed countries, this can facilitate the transfer
of green but complex technologies in some sectors
Another important component of the geography such as the energy sector for wind and solar power.
of innovation is knowledge dissemination. Deche- As Vidican Auktor (2017, this volume) shows in her
zleprêtre et al. (2011) estimated the export of climate case study on renewable energy in Morocco, the
mitigative inventions by country. They found that country provides significant opportunities for the
emerging economy countries tend to export less localisation of certain products and services and
than developed countries: around 7 per cent for the creation of green jobs. Moreover, such invest-
China or for Brazil, as compared to 42 per cent for ments may be able to further attract CDM and
the United States or 56 per cent for Germany. This carbon offset projects.
Chapter 3
Gaining Competitive Advantage with Green Industrial Policy

6. SUMMARY AND CONCLUSION FOR GREEN GROWTH 47


Being environmentally sound does not need to might not be effective in the future. In the last
be detrimental to competiveness. A firm can years, the generous support for wind and solar
deploy several strategies to reduce its negative power through subsidies has been cut in many
effect on the environment, while at the same countries in Europe, with some countries like
time securing a competitive advantage in inter- Germany now switching from a feed-in tariff

PART 2
national markets. It can invest in environmental system that had long been considered successful
research and development, adopt cleaner tech- to a competitive bidding process. For a variety of
nologies, supply environmentally sound technol- reasons, CDM projects have become less attrac-
ogies and enhance its product’s environmental tive in recent years. The volume of carbon-off-
quality continually. Even if those strategies turn setting projects has fallen since 2012. In 2015, the
out to be costly, they can be profitable. Investment market experienced an excess supply of projects.
in cleaner technologies can lead to productivity The average price per ton of CO2 for all projects
improvements in the long run, which will then was US$ 3.3 in 2015, with a record US$ 0.1 for the
spread through knowledge spillovers. Carbon lowest valued projects (Hamrick and Goldstein
finance, such as investment in CDM and other 2016). However, the 2015 Paris Agreement might
carbon offsetting projects, now drives demand. reverse this trend. In Article 6, the Agreement
Renewable energy mandates contribute to this launches a new mechanism that aims at financ-
demand, through measures like feed-in tariffs ing carbon-offsetting projects in developing
and renewable portfolio standards. In response, countries through Internationally Transferred
firms that specialise in producing climate-ori- Mitigation Outcomes. Importantly, policy instru-
ented technologies are expanding, particularly in ments need to be well suited to the particular
emerging economies, through the installation of context in which they are employed and therefore
solar photovoltaic panels, wind turbines and other will require readjustments over time.
renewable energy sources. Finally, the growth of
organic farming and fair trade has created new Second, policies implemented for enhancing
opportunities in agriculture and the food industry profitable green growth should suit a country’s
in many developing countries. respective level of development. Less devel-
oped countries should prioritise improving their
Many public policies can help to secure a compet- technological absorptive capacity, simplifying
itive advantage with green business strategies. and standardising the accreditation process for
First, environmental policy instruments targeted carbon offsetting projects and building up a reli-
at fostering green innovation should be flexible. able supply of green, certified products for export.
This means implementing economic instruments Emerging economy countries can afford to subsi-
such as refunded emission taxes or tradable dise investment in green technologies to support
allowances rather than prescribing technologies their own industry. They should also strengthen
through specific regulation. Second, industrial their intellectual property rights to attract tech-
policy should make patenting and technological nological knowledge from foreign investors and
transfer easier and more effective. It should also encourage its transfer.
favour public support for environmental innova-
tion to mitigate underinvestment due to knowl- Finally, it is worth mentioning that protecting
edge spillovers. Third, technological absorption natural resources and reducing pollution enhance
capacity should be improved by investing in societal well-being through several channels that
education, technological training and infrastruc- can be indirectly beneficial to firms. Economic
tures, such as communication, transportation and activities rely on ecosystem services provided by
energy. Fourth, governments should work with forests, soils, rivers, lakes and oceans. Workers
non-government organizations and international are in better health and thus more productive if
organizations to facilitate environmental labelling they have access to clean water and air. All those
with transparent criteria and a reliable traceabil- indirect effects should be included in an accurate
ity of products throughout the supply chain. cost-benefit analysis of green policies.

To conclude, three issues deserve further


mentioning: First, public policies that have been
successful in the past in bringing green growth
Green Industrial Policy - Concept, Policies, Country Experiences

48
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Green Industrial Policy - Concept, Policies, Country Experiences

50

CHAPTER 4
ENHANCING JOB CREATION THROUGH
GREEN TRANSFORMATION

Michela Esposito, Alexander Haider, Daniel Samaan, Willi Semmler


Chapter 4
Enhancing Job Creation Through Green Transformation

1. INTRODUCTION 51
Over the last decades it has become clear that This chapter identifies and discusses opportu-
economic growth has to be environmentally nities and challenges for labour markets and
sustainable and socially inclusive. A production provides examples of policies and practices
mode is needed that is less reliant on fossil fuels that can help achieve an inclusive and employ-
and uses natural resources more efficiently (OECD ment-intensive green transition. Section 2

PART 2
2014; UNEP 2011). To this end, economies will have provides a systematic overview of how green
to go through a process of structural transforma- transformations may affect the quantity and qual-
tion. This process can be induced and guided by ity of employment. In section 3 we undertake an
green industrial policies. Such structural change attempt to define green jobs. Section 4 presents
towards an environmentally sustainable econ- empirical evidence on employment trends in
omy will have, and already has, considerable those labour market segments that can be attrib-
effects on labour markets and incomes (ILO 2011; uted relatively well to green sectors. Section 5
ILO and UNEP 2012). While green transformation introduces an overview of labour market and
poses challenges for certain polluting sectors and social policies that can facilitate a green transi-
related jobs, it also creates opportunities for new tion from a social point of view. The conclusion
jobs in other industries and may open the way for summarizes the key findings of this chapter.
more and better jobs in the future.

2. HOW GREEN TRANSFORMATIONS


AFFECT EMPLOYMENT
Industrial policies are commonly understood of natural resources such as heavy industries or
as government policies that attempt to strategi- fisheries and sectors with heavy polluters such as
cally strengthen the development and growth of fossil fuel-based energy production. These sectors
certain economic activities and that very often, will see the largest adjustments in employment,
but not necessarily, concern parts of the manu- while effects in other parts of the economy may
facturing sector. If industrial policies achieve not be as intense.
their goals, they lead to a structural transforma-
tion of the economy, or accelerate or decelerate Affected sectors will not necessarily be identical
an already ongoing transformation. During this across countries. Improving or preserving envi-
process, inevitably, new jobs and occupations ronmental quality covers a whole range of poten-
emerge while others disappear. The net employ- tial issues, ranging from pollution of air and water,
ment effect of such a transformation is the differ- global climate change, ocean degradation, waste
ence between new jobs created and old jobs lost. production, depletion of non-renewable resources,
unsustainable use of renewable resources, loss of
Green industrial policies, specifically, target biodiversity, to degradation of soil (ILO and UNEP
the improvement of environmental quality and 2012; ILC 2013). As countries face different environ-
contribute to environmental sustainability (Alten- mental challenges, the requirements of structural
burg and Rodrik 2017, this volume). Most envi- transformation vary, as do related employment
ronmental policies contain features of industrial challenges and outcomes. For example, green-
policies, as they provide incentives to accelerate house gas (GHG) emissions in Brazil arise largely
the development of certain sectors, sub-sectors from agriculture and forestry, whereas in Germany
and technologies and to phase out others. As a they mostly stem from electricity generation,
result, sectors with strong effects on the environ- manufacturing and the transport sector. The
ment, as well as workers and enterprises operat- German energy sector has traditionally used
ing in these sectors, will be more affected than more non-renewable resources such as coal, oil
others. The first step in understanding the effects and gas than Brazil, which traditionally relied on
of green industrial policies on labour markets and hydropower; and per capita water consumption
incomes is to identify the sectors that strongly for agricultural purposes is much higher in Brazil
affect the environment. These include sectors than in Germany. These brief examples show that
with activities directly aimed at the preserva- countries face very different challenges on their
tion or restoration of the environment such as paths towards an environmentally sustainable
for recycling, renewable energy, or eco-tour- future. Accordingly, workers and enterprises will
ism; sectors strongly relying on the utilisation be affected differently.
Green Industrial Policy - Concept, Policies, Country Experiences

When trying to measure the employment effects, Moreover, employment considerations should
52 various dimensions need to be taken into not only concern the number of jobs created or
account. On the one hand, there are jobs that lost, but also their quality, including governance
are newly created in greener sectors, industries and coordination mechanisms. This comprises
or enterprises as well as those that emerge due a whole range of themes relating to the world
to spillover effects in non-green sectors. Spill- of work. The International Labour Organization
over jobs in other sectors may emerge through (ILO) has developed a Decent Work Agenda that
supply chains into green sectors as indirect jobs, distinguishes four objectives that also address
through increased capacity of non-green sectors quality of employment (ILO 2017): promoting jobs
as improved competitiveness through higher by boosting investments, skills development, new
resource productivity, or through additional job creation and sustainable livelihood; guaran-
consumer demand resulting from newly created teeing rights at work; extending social protection
incomes as induced effects. On the other hand, by ensuring equal and safe working conditions
environmental policies may negatively affect for men and women, ensuring a balance between
labour absorption in polluting industries. For working hours and rest and access to healthcare;
example, successful development of a competitive and promoting social dialogue between employ-
renewable energy sector would most likely reduce ees and employers. The promotion of “sustained,
the number of jobs in the coal mining industry inclusive and sustainable economic growth, full
and along its supply chain. Estimating the over- and productive employment and decent work for
all impact of green industrial policies on the total all” has been included into Sustainable Develop-
number of jobs in the economy is therefore diffi- ment Goal 8 as part of the United Nations’ 2030
cult and poses some methodological challenges. Agenda for Sustainable Development that aims
to achieve economic, social and environmental
While net employment effects of a transition sustainability by 2030 (UN 2015).
are important and of high interest to policymak-
ers, the gross effects—the total numbers of jobs Many aspects of the world of work are regulated
created and lost in different segments of the by International Labour Standards issued by the
economy—are also essential from an employment ILO. The adherence to International Labour Stand-
policy perspective. The shift of jobs across enter- ards can help improve employment outcomes.
prises, industries, and sectors may entail adjust- A green transformation is successful, from the
ment costs for enterprises and workers. Additional perspective of green industrial policies and the
government policies may become necessary to ILO’s Decent Work Agenda, if the transition leads
support or even trigger these transitions. Shifting to less environmental damage by the economy,
employment patterns can also affect occupations, for example lower total GHG emissions per unit
defined as a category of jobs with main tasks and of gross domestic product, and to better employ-
duties that are characterized by a high degree of ment outcomes, in terms of more jobs, better job
similarity, and therefore have ramifications for the quality and better compliance with International
development of skills and re-training as well as Labour Standards.
adjustments of the education system (ILO 2012).

3. DEFINING GREEN JOBS


There is no generally agreed definition of green environmental performance, may fall behind
jobs. One challenge lies in defining when a sector, international standards over time and would no
and accordingly an employment or occupation in longer be considered green.
this sector, is green. Only a few economic sub-sec-
tors, such as the production of wind turbines or Furthermore, it should be considered that a green
solar panels, can be unambiguously classified as product or service can be produced through an
green industries. In most activities, boundaries environmentally unsustainable production
between green and non-green are blurred. When process such as a wind turbine built with inputs
an auto part is incorporated in an electric vehicle produced and transported in a CO2 intensive way;
it may be considered a green product, but when and a green production process can produce a
the same part is assembled into a conventional non-green product or service, such as produc-
car it would not be considered a green product. tion of petrol-powered cars with reduced water
An additional difficulty results from the fact that use. Hence, it is important to distinguish between
technology evolves. An industry that is green environmental impacts of production processes
today, in the sense that it has an above-average and outputs.
Chapter 4
Enhancing Job Creation Through Green Transformation

The definition of green jobs used by ILO includes be carried out for sale or for own consumption.
those in sectors that produce green goods The US Bureau of Labour Statistics uses a similar 53
and services as well as occupations in green definition. The European Commission’s statistics
processes that are environmentally favourable agency, Eurostat, uses Environmental Goods and
(ILO and UNEP 2012). In addition, the ILO green Services Sector (EGSS) categories (Eurostat 2009).
jobs definition includes the constraint that they According to its definition, EGSS categories are
must be decent jobs. The International Confer- goods and services produced for two general

PART 2
ence of Labour Statisticians (ICLS) proposed to purposes: environmental protection–preventing,
consider criteria that define jobs that belong to reducing and eliminating pollution and any other
the environmental sector as well as criteria that degradation of the environment; and resource
define decent jobs. The Conference proposal management–preserving and maintaining the
is meant to be consistent with the standards stock of natural resources and hence safeguard-
used in labour statistics, such as some sets of ing against depletion.
decent work indicators from the ILO, and with
the standards in environmental statistics, such The definition of green jobs to be used will
as the System of Environmental-Economic depend on its purpose. For example, to deter-
Accounting (SEEA), established by the United mine new skill requirements of new occupations
Nations (United Nations Statistics Division 2003; and new jobs, a narrow definition of green jobs in
UN 2012). Based on the latter, the ICLS defines environmentally related activities may be most
environmental activities as activities with the helpful; while an analysis of the social dimen-
aim of eliminating or diminishing pollution and sions of a green transition may require a broader
deterioration of the environment or of using focus on employment effects throughout the
natural resources more efficiently. These envi- economy. No matter which definition is applied,
ronmental activities can be the main activity of green jobs are in any case only a subset of the
an economic unit or an auxiliary one, and can overall employment effects that will arise during
a green transition.

4. EMPLOYMENT EFFECTS OF GREEN


TRANSFORMATIONS: WHAT DO WE KNOW?
Given the blurred boundaries between green and occupations and skills requirements. Third, there
non-green products and processes as well as are some estimates of the carbon-intensity of
the heterogeneity of environmental challenges economic activities, which allow us to assess
across countries, it is impossible to unambigu- which sectors are likely to experience the largest
ously quantify the overall employment impacts of labour market changes.
green transformation. However, some estimates
exist for parts of the green transformation. A few
4.1. EVIDENCE FROM OECD COUNTRIES
key studies have investigated the employment
effects of green industries at national levels. Due Employment estimates of the environmental
to different definitions used, these are not compa- sector have been conducted mostly within the
rable, but taken together they provide a fairly good EU. First attempts to estimate its size were under-
overview of trends. taken by the OECD and EU (OECD and Eurostat
1999). Ecotec (2001) was one of the first studies to
This review uses three types of information: First,
analyze the size of the sector within the EU for
there is evidence from OECD countries, including
the period 1994 to 1999. Over 2 million full-time
aggregate statistics on the Environmental Goods
equivalent green jobs existed in the EU in 1999,
and Service Sector as well as publications that
with approximately 1.5 million jobs in pollution
shed light on specific sub-sectors and on impacts
management and around 650,000 jobs in resource
of certain green policies on labour markets in
management. Employment growth rates in these
these countries. Second, there is documentation
activities were above economy-wide averages.
from a selected number of developing countries
The fraction of employment in the environmental
showing the employment gains at initial stages
sector over total paid employment was approxi-
of transformation as green industries emerge.
mately 1.3 per cent.
It should be noted that none of these sources
tracks job losses in polluting industries, spillover As the number of EU countries expanded, the
effects into non-green industries, or changing Ecotec report was updated by Ernst & Young in
Green Industrial Policy - Concept, Policies, Country Experiences

2006, showing that total employment increased EU-15 to 1.04 million jobs in the EU-25 over the
54 from 1.45 million jobs in the EU-15 of 1999 to same period (Ernst&Young 2006). A 2009 update
1.85 million in the EU-25 of 2004 in pollution analyzed green jobs through to EU-27, between
management activities while resource manage- 2000 and 2008 (Ecorys 2009) (Table 4.1).
ment activities increased from 0.6 million in the

Table 4.1: Employment estimates of green jobs in the European Union

Growth rate %
Activity Employment (2000) Employment (2008)
Average annual
Waste management 844,766 1,466,673 7.1
Water supply 417,763 703,758 6.7
Wastewater management 253,554 302,958 2.3
Recycled materials 229,286 512,337 10.6
Others 129,313 193,854 5.2
Renewable energy 49,756 167,283 16.4
Air pollution 22,600 19,067 -2.1
Biodiversity 39,667 49,196 2.7
Soil & Groundwater 14,882 18,412 2.7
Noise & Vibration 4,176 7,565 7.7
Total 2,005,764 3,441,102 7.0
Source: Ecorys (2009)

As the UN established the SEEA framework, the energy from renewable sources, the production
EU’s EGSS concept evolved to complement it. of wind and solar power stations and equipment,
Eurostat shows that across the EU the share of and installations for heat and energy savings.
EGSS in total value added grew by more than 50 Figure 4.1 shows the development of the EGSS in
per cent between 2000 and 2012, while employ- selected EU countries and the EU28 between 2005
ment grew from 2.785 million to more than 4.1 and 2013. The growth rate of jobs has been mostly
million in full-time equivalents during the same positive. According to Figure 4.2, the employ-
period, which corresponds to an average annual ment shares of the EGSS for the latest available
growth rate of about 3 per cent. The majority of year (2014) range from around 0.9 per cent of total
these new jobs were created in energy resource employment in Ireland up to 4 per cent in Austria
management, in particular the production of and Luxembourg.

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