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The “greening” of the economy

Any definition of the 'green economy' is invariably based on the understanding that our prevailing economic paradigm is antiquated. A common understanding of the concept is the transformation of production and consumption processes and patterns, including economic, environmental and social values, in order to ensure a more sustainable use of natural resources with lower carbon emissions while at the same time stimulating growth based on the natural, human and economic investments.

Three major concerns are reflected: the need to tackle climate change, the desire to strengthen energy security, and the need to stimulate job-creation in many rural areas. Energy is a key component for development. One of the most pressing transitions that need to be made in order to move to a green economy is an end to fossil fuel usage throughout the economy and its replacement with a green alternative. Both sources and sinks are reaching their limits while demand continues to rise. One clear outcome of this is the rising price of oil and thus of other combustible fuels. The 20th century was "the era of cheap oil" but that is well and truly over with fossil fuel prices now several times higher than experienced at the turn of the century.

Another issue here is the need to create new jobs. Several OECD countries have identified 'green power' as a major rural development opportunity. Examples here include: Spain (solar and wind); England (off-shore wind and wave); Finland (forest-based cellulosic ethanol and wood co-generation). The impact that the transition towards a 'green economy' will have on labour markets should not however be underestimated, especially in rural areas.

The OECD regional focus

The OECD is gradually recognising that rural areas are potential producers of key services and products supporting national competitiveness. This is happening because rural areas are home to a large percentage of the OECD population. Issues such as globalisation, ageing, depopulation and climate change are all factors affecting the sustainability of rural communities.

The production of renewable energy in particular has become a key element in rural development while at the same time making an important potential contribution to the mitigation of climate change. The limited capacity to store and transport energy and the existence of nationwide electric grids in a number of OECD countries have resulted in the evolution of a decentralised system in which relatively small power plants produce energy for their surroundings. Improving technology has added to this so that some rural regions today are in addition able to produce renewable energy for export.

This process has been supported over the last decade through a number of successful examples of regional and local governments that have employed specific policies to encourage, enhance and increase the levels of energy supply arising from renewable resources, thus giving substance to the slogan 'green growth'.
During 2011 the OECD, in cooperation with a number of regional authorities, will conduct an analysis of different regional approaches to rural energy development. Nordregio charged with monitoring the involvement of four Nordic regions, Jämtland and Vester Norrland in Sweden, Region Sjælland in Denmark, North Karelia in Finland, and Troms Fylke in Norway.

In addition to providing general information on each of the regions in order to better understand the context of the various energy approaches used, an important element in the project is to highlight 'best practices' and inspiring new approaches in respect of green initiatives in relation to local energy production. Puglia, Extremadura, Quebec, Prince Edward Island, Scotland, Pentecôte, Frysland, the Netherlands, and Maine will also be studied. The first OECD mission, including participation from several of the involved regions, headed to the region of Puglia in southern Italy during spring 2011. Puglia is, traditionally, among the least wealthy regions in Italy. It is also however a region where the opportunity to contribute to 'green development' through the production of renewable energy sources has already been widely recognised.

Arctic perspectives

The concept of 'green development' is for many considered to be synonymous with development in the Arctic. Living in the Arctic once meant relying on local resources or simply perishing. The extent to which the Arctic is now ready to move further ahead along this path presents both a political and a practical challenge.??? The Arctic is also, like the rest of the world, increasingly dependent on imports, where distances and transport costs – primarily due to the amount of hydrocarbons used – are critical issues. The 'green economy' concept has therefore been introduced as a new focus for economic development in the Arctic.

A major problem here is the fact that the Arctic is among the most sparsely populated areas in the world, with significant problems in establishing energy-related infrastructures. Many of the energy systems used are therefore 'energy islands', which adds to the level of complexity in term of the introduction of several of the renewable resource options. Photovoltaic electricity may be an option during the summer months but in reality needs to be supplemented throughout most of the year. Access to wind-based energy may be abundant in some regions, but cannot act as a stand-alone system when the backbone of a continuous and uninterrupted energy supply is absent.

At the macro level the issue is one of net new jobs, as evidenced in a rise in the participation rate or a fall in the structural unemployment rate. To what extent will green power displace other jobs? Will green energy jobs displace jobs in the traditional power supply sector? If green power is more expensive how many jobs will be lost in the wider economy due to lower GDP? At the local level, the key question is to understand how many jobs are associated with each specific project. Certain jobs will be in Operation and Maintenance (O&M), while others will be in the construction of the required facilities. As a consequence, both temporary and long-term jobs will be created in the regions.

If employment creation is the overriding aim of the policy, a thorough assessment of employment effects should thus focus on (1) job multipliers, the backward and forward linkages green power can generate at the regional level, and (2) income effects. Power generation typically creates relatively few local jobs and has small local job multipliers. It is a capital-intensive activity and has few linkages to the local economy. This is especially true for those forms of renewable generation that rely on free energy inputs, like wind and sun.

Conversely, indirect job creation at the provincial/state or national level can be significant. For instance, a region can specialise in the production of component manufacturing for renewables. Finally, displacement effects at the national level can offset many of the green-power effect jobs.

These questions, however, do not detract from the fact that the Arctic and its wealth of renewable energy resources could provide important potentials for a green growth development.

Rasmus Ole Rasmussen

Senior Research Fellow