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Responding to Crisis with Smart and Sustainable Investment

By Ryan Weber

The Europe 2020 Strategy promotes smart, sustainable and inclusive growth, and pledges the development of a 'Resource Efficient Europe'. As a result of Europe's headline development strategy, European energy policy has been overhauled and Cohesion Policy is about to enter a new six-year funding period with an emphasis on the importance of climate change and the environment. Quickly responding, The Nordic Prime Ministers have tabbed green growth as a top priority for Nordic cooperation. So the question becomes, what will all of this mean for Europe on the ground? What about Nordic regions? And not least, how can green growth respond to current development challenges by simultaneously delivering growth and inclusiveness?

Beginning in October 2008, the largest global stock indexes experienced a shattering collapse that initiated a global recession. A year later, COP failed to deliver a global climate agreement to enact binding measures to keep climate change at a sustainable level. But at the interface of these global issues, Green Growth has emerged as a main policy discourse in Europe. Since March 2010, Green Growth has been at the heart of Europe 2020 – the EU's growth strategy to exit the economic crisis.

But the reality is that things haven't improved very much. Unilateral wage cuts in excess of 10% have taken place in a number of southern European countries while rising unemployment, spiraling fiscal deficit and low growth plague various nations. We all know the precarious situation Greece faces; and there is concern in Spain, Ireland, the U.K and France. In fact, any country in the EMF is undoubtedly concerned.

Demographically, we are ageing in Europe, a trend that is especially prevalent in rural areas where traditional engines of growth are being superseded by service-based urban economies. As a result, many of these rural, remote and isolated regions face a double threat of low growth and a perceived lack of opportunity for a return to prosperity. As shown, this trend is characteristic of a high share of rural places in the Nordic region. Relatively low employment levels are compounded by outmigration and stagnating growth.

As UNEP highlights in their report Towards a Green Economy, a majority of these causes are fundamentally rooted in the same feature: the gross misallocation of capital – towards investment in property, structured financial assets with volatile derivatives and fossil fuels. Regarding the latter, it has been clear for decades that current rates of resource consumption are unsustainable, especially regarding energy inputs. Not only are they the largest contributor of human induced climate change, but reserves of oil resources, natural gas and coal are anything but limitless. Yet the brown economy continues to rely on these resources to achieve financial growth; growth that is viewed as sustainable as long as the exploitation of natural resources is replaced by at least an 'equivalent' financial return. But what does 'equivalent' mean? It's an impossible question to answer, but it certainly doesn't include the environmental externalities of its natural resource dependency.

Thus, green growth in Europe, and especially in the Nordic Region, emerges at the intersection of three interrelated perspectives: the volatility of our growth-at-all-costs economic model that leaves us with gaping disconnects between growth prospects for different types of regions; the understanding that this model relies on resources that not only pollute the environment, but are becoming increasingly scarce; and the underlying demographic trends that characterize the disproportionate spatiality of socio-economic growth. Current and future well-being is at risk both in society as a whole and in particular types of regions. In response, green growth aims to use the conditions of our current development crisis as a catalyst for a transition to greener growth.

So then, what is greener growth?

Understanding green growth is first and foremost about recognizing its context; why it is currently being promoted and what conditions make it necessary. In light of this, green growth has to be about more responsible, realistic, well-founded and place-based actions that promote a growth economy that operates within the limits of our natural environment. Although skeptics might argue that we must first deal with our most pressing challenges in the wake of the crisis, it's not about using these current challenges as an excuse to postpone action. Just the opposite, green growth uses these challenges as opportunities for its own implementation.

The OECD's pioneering publication Towards Green Growth defines green growth as "...fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. To do this, it must catalyse investment and innovation which will underpin sustained growth and give rise to new economic opportunities."

Both the UN and OECD make it clear that green growth is not meant to replace sustainable development. Rather, they recognize that achieving sustainability rests almost entirely on getting the economy right. Therefore, its aim is principally the same as sustainable development, but green growth focuses on conceptual, policy and monitoring bases that lead to innovation and investment in new, greener sources of economic growth.

And how do we achieve it?

Immeasurable spatial, social, economic and environmental contexts dictate how green growth will evolve. No one-size-fits-all solution will solve the challenges that different areas are facing. Instead, it will rely on territorially relevant and complimentary policy provisions coming from the complete range of institutional scales. These will integrate decision making from all governance spheres; public and private, from the global to the regional, municipal and all the way down to individual citizens. Yet regardless of where, or who, decides what, green growth will rely on a balance of policies to promote existing good practices, phase out counter-productive activities, and place priority on new growth opportunities.

With these aims in mind, a number of core initiatives will spearhead growth through green job creation and the promotion of territorial competitive advantages. Using the Nordic Region as an example, selected 'Keys to Green Growth' help explain the types of issues that will need to be prioritized:

  • The Nordic Region needs to build on its existing strengths of green innovation and social responsibility for the environment. But if green growth continues to gain traction in other countries, it will require that the Nordic region expand its green economy to at least an equivalent degree to maintain its position as a global pioneer. With the help of progressive policy incentives, innovation must continue to push the limits of technology. Bold new technologies should be promoted so that the Nordic market is increasingly exposed to potential green solutions at an early stage of their development.
  • Long-term policy perspectives promoting capital-intensive investments are needed to provide the infrastructure for prosperity within a greener economy. For instance, the need for a truly connected smart energy grid for the Nordic region is already understood and the technology is currently in place as a demonstration project on the island of Gotland. It provides full energy production and consumption flexibility, which promotes small scale renewable energy production alongside increased consumer control over consumption characteristics. It will go hand-in-hand with a liberalization and consolidation of energy markets (a central goal of current EU energy policy). This again highlights the importance of Nordic cooperation to create economies of scale for the development, testing and deployment of green technologies.
  • The OECD's Green Growth Strategy highlights buildings as one of 11 key sectors that will drive a transition to green growth. Not only are buildings one of the main contributors to Green House Gas (GHG) emissions, but due to the fact that 40% of final energy consumption takes place in houses, offices, shops and other buildings, the European Commission's 2011 Energy Efficiency Plan states that buildings provide the greatest energy saving potential. This potential will be accompanied by the availability of an array of jobs that can be transitioned into 'green employment opportunities'. Given the paramount trend of urbanization in the Nordic region, the importance of green building from a cross-sectoral perspective and lifestyle perspective, it is envisioned that overcoming constraints with effective policy and proactive local planning solutions will be critical for achieving green growth in the Nordic region.
  •  The role of rural areas will be particularly important as they continue their search for economic opportunities in light of current trends. For instance, complementing traditional economic activities such as forestry and agriculture with bioenergy production and the development of wind power could mean the difference for regions at the threshold of economic viability. But a great deal of responsibility rests on local and regional policy makers for activating territorial potentials through proactive accounting and the mobilization of relevant actors for these cross-sectoral opportunities to be mainstreamed in reality. This is a shortfall of current agricultural policy in Europe, which in many cases causes stagnation in rural areas through its lack of vision for new and innovation development opportunities.

These initial examples not only highlight that green growth will involve interventions across a wide range of sectors, but they allude to the need for policy, planning and research to continue to push beyond rigid sectoral perspectives that have largely defined existing policy frameworks. This means that green growth requires better understandings of territorial development potentials and new development synergies. This can only be achieved through place-based planning and policy perspectives that can recognize and account for these evolving local and regional green growth opportunities more efficiently.

Back to Nordregio News Issue 1, 2012