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Development Account Projects

Supporting governments in the transition to low-carbon growth and human development using economy-wide models

Background:

The outbreak of the global financial crisis and mounting evidence of man-made global warming and its consequences indicate that sustainable development is the only way forward. Continuation along previously trodden economic growth pathways would further exacerbate the pressures exerted on the world’s resources and natural environment, which would approach limits where livelihoods will no longer be sustainable. Business as usual is not an option. Even with no recovery in economic growth, depletion and pollution of the planet’s natural environment would still continue because of existing consumption patterns and production methods. Yet, more economic growth, food production and modern energy generation are needed to help address still widespread poverty and hunger. Hence, there is an urgent need to find new development pathways that would ensure environmental sustainability and reverse ecological destruction, while providing, now and in the future, a decent livelihood for all of humankind.

With the outcome of the Rio+20 Conference and when laying out the contours of the Post-2015 UN Development Agenda, member States are to agree to take on that challenge. Specifically, countries will have to find ways to transit to low-carbon economic growth while tackling employment deficits and poverty and other human development gaps at the same time. How this is to be done will strongly depend on country-specific conditions. In all circumstances, however, it will require unprecedented strong policy coherence across macroeconomic, industrial, social, labour market and environmental policies.

The adoption of low-carbon growth and human development strategies will put enormous demands on developing countries’ resources, capacities and skills. It will require aligning investment and spending decisions with financing sources, short-term growth promotion with long-term strategic decisions regarding sector development and technology choice, including the energy, transport and agriculture sectors. Such choices, in turn, will need to be aligned with broader development policies, including those aiming at improving education and health, stimulating job creation, enhancing skills in the labour market, strengthening productivity growth throughout the economy, and ensuring food security and universal access to drinking water and basic sanitation. Policy makers will need to carefully assess the policy options available to them.

In pursuing the energy transformation towards substantially lowering energy intensity and carbon emissions, policy makers will have to carefully weigh the adaptability of the technological options available to them for scaling up alternative sources of renewable energy generation, assess the effectiveness of the policy instruments that provide incentives for the use of renewable energy and greater energy efficiency, while at the same time finding ways to provide affordable access to clean energy for the poor. These involve decisions of non-marginal, transformative change in existing production, consumption patterns and infrastructure. As analysed in depth in the World Economic and Social Surveys of 2009 and 2011, low-carbon growth and human development strategies will require sizeable upfront investments. Making such investments while trying to fulfil other developmental objectives may create macroeconomic trade-offs, as it will put pressure on government budgets, external balances, and debt sustainability. It may also create economic and social repercussions as price levels, wages, and employment change. These multiple and complex effects will need to be carefully assessed to ensure virtuous sustainable development outcomes.  Policy coherence is thus of fundamental importance in the transition to low-carbon growth and human development pathways.

A number of developing countries have adopted or are in the process of adopting measures to reduce emissions. Potential benefits, costs, and economy-wide trade-offs need to be considered to inform both the design and evaluation of measures aiming to low-carbon growth and human development. However, there are gaps in countries’ capacity to formulate policies and establish legal and regulatory frameworks to smooth the transition to a low-carbon economy. There are also gaps in the capacity of countries to acquire the necessary skills and expertise that will enable them to build and take advantage of integrated energy and economic modelling for policy formulation.

This project will start by building an economy-wide model to be made available to countries and be used to support countries filling the gaps identified above. The model will allow for a rigorous consideration of the challenges of simultaneously pursuing low-carbon growth, macro-economic balances, and human development. The project will support countries to adapt the model to their economies, will train government officials in model-data handling and the modelling of simulation scenarios, and assist policy makers to formulate robust and realistic policy scenarios, and advise on the best interpretation of its results.

This project will cover two countries. Final selection of countries will be based on countries’ commitment to low-carbon growth and human development, the mix of mitigation measures countries are confronting and considering to tackle, data availability, and an assessment of the capacity gaps and engagement to fill-them up. We have had a series of discussions with Bangladesh and Bolivia, who both have strong interest in the project, and its very likely that we implement the project in these two countries. If any of these two countries do not finally participate in the project, an alternative list of beneficiary countries that fit the selection criteria includes Colombia, Costa Rica and Ecuador, in Latina America; Benin, Botswana, Ethiopia, Kenya, Senegal, and Zambia, in Africa

Objective:

To increase capacities of developing countries to make well informed decisions to pursue low-carbon growth and human development based on economy-wide models.

Expected accomplishments:

  • An economy-wide model adapted to coherently design and assess low-carbon emissions, macro-economic and human development models.
  • Improved national capacities to integrate data and apply economy-wide modelling to assess trade-off and synergies for more coherent low-carbon growth, macro-economic and human development policies.
  • Enhanced capacities of decision-makers in the two pilot countries to design policies towards more coherent low-carbon growth and human development, taking advantage of economy-wide modelling.

Implementation status:

In progress.