By reducing the costs of environmental protection, technological change is important for promoting green growth. This entails both the creation of new technologies and more widespread deployment of existing green technologies. This paper reviews the literature on environmentally friendly technological change, with a focus on lessons relevant to developing countries. It begins with a discussion of the data available for measuring the various steps of technological change. It continues with a discussion of sources of environmental innovation. Given that most innovation is concentrated in a few rich countries, this leads to a discussion of the remaining role for lower-income countries, followed by a discussion of technology transfer. Because of the importance of market failures, the paper discusses the role of both technology policy and environmental policy for promoting environmentally friendly technological change. The review concludes with a discussion of what environmental economists can learn from other fields.
The developing world is experiencing substantial environmental change, and climate change is likely to accelerate these processes in the coming decades. Due to their relatively high dependence on environmental capital for their livelihoods, and to their limited resources for mitigation and investment in adaptation, the poor are likely to suffer most. Economic growth is essential for any large-scale poverty reduction.
Much of the rural poor -- who are growing in number -- are concentrated in ecologically fragile and remote areas. The key ecological scarcity problem facing such poor households is a vicious cycle of declining livelihoods, increased ecological degradation and loss of resource commons, and declining ecosystem services on which the poor depend. In addition, developing economies with high concentrations of their populations on fragile lands and in remote areas not only display high rates of rural poverty, but also are some of the poorest countries in the world today. Policies to eradicate poverty therefore need to be targeted at the poor where they live, especially the rural poor clustered in fragile environments and remote areas.
A green growth agenda requires policy makers, from local to supranational levels, to examine and influence behavior that impacts economic, social, and environmental outcomes on multiple scales. Behavioral and social change, in addition or conjunction with technological change, is thus a crucial component of any green growth strategy. A better understanding of how and why people consume, preserve, or exploit resources or otherwise make choices that collectively impact the environment has important and far-reaching consequences for the predictive accuracy of more sophisticated models, both of future states of the world and of the likely impact of different growth strategies and potential risk management strategies. The prevailing characterization of human decision making in policy circles is a rational economic one. Reliance on the assumptions of rational choice excludes from consideration a wide range of factors that affect how people make decisions and therefore need to be considered in predictions of human reactions to environmental conditions or proposed policy initiatives.
Green growth policies confront firms and workers with adjustments that may create welfare costs for different segments of the population and cause reductions in near-term actual versus potential gross domestic product. There is little evidence on the cost of adjustment to climate change measures, and only limited evidence for more general environmental policies, especially in developing countries. Therefore, this paper canvasses the research on adjustment costs to trade policies to draw analogies and highlight differences compared with the potential impacts of green growth policies. Trade policies affect prices and work directly on technology choice. In the presence of adjustment costs, firms may experience impacts on wages, employment, and incentives to adopt alternative technologies. Both types of trade policy impacts may be amplified by technology availability and credit constraints. Many green growth policies are likely to work via the same mechanisms, that is, taxes on emissions or changes in technology requirements. However, trade liberalization is typically seen as offering higher total incomes, albeit with winners and losers.
This paper studies the reality and the potential for green industrial policy. It provides a summary of the green industrial policies, broadly understood, for five countries. It then considers the relation between green industrial policies and trade disputes, emphasizing the Brazil-United States dispute involving ethanol and the broader United States-China dispute. The theory of public policy provides many lessons for green industrial policy. The authors highlight four of these lessons, involving the Green Paradox, the choice of quantities versus prices with endogenous investment, the coordination issues arising from emissions control, and the ability of green industrial policies to promote cooperation in reducing a global public bad like carbon emissions.