Towards the Green Economy – economic effects of the transition to a more efficient world

The challenges of climate change led to the claim to decarbonize economic activities. Most recently, the Stern Report (2006) and AR4 of the IPCC (2007) showed that the seeming dichotomy between economic growth and environmental protection can be bridged and that climate change mitigation is an economic opportunity and contributes to growth. Thus, UNEP 2011, OECD 2011, ILO 2012 coined the terms Green Economy, Green Growth and Green Jobs. Resource efficiency is an important pillar of a greener economy. It comprises energy efficiency and contributes to climate change mitigation, and (raw) material efficiency; thus contributing to the protection of water, soil, landscape and biodiversity as well. While efficiency increases autonomously due to price pressures, technological change and innovation, additional incentives are needed for a better internalization of the respective external effects such as pollution, emissions, destruction of wildlife and landscapes etc. Policies for the increase of resource efficiency therefore include price instruments such as fees on the use of certain raw materials as inputs. Additionally, grants to home owners to increase the energy efficiency in buildings, standards and labels are used. The objective of this contribution is to show the economic effects of selected resource policies on an aggregate and a sector specific level. A special focus lies on employment effects from the transition to a green, i.e. more resource efficient economy. The analysis is based upon simulation results obtained with the macroeconometric model PANTA RHEI. PANTA RHEI has a macroeconometric simulation and forecasting model at its core, which consistently describes the annual inter-industry flows between the 59 sectors, their contributions to personal consumption, government, equipment investment, construction, inventory investment, exports as well as prices, wages, output, imports, employment, labor compensation, profits, taxes, etc. for each sector as well as for the total economy. In the behavioral equations decision routines are modeled that are not explicitly based on optimization behavior of agents, but are founded on bounded rationality. The parameters in all equations in PANTA RHEI are estimated econometrically from time series data. Producer prices are the result of mark-up calculations of firms. Output decisions do not stem from an optimization process but follow observable historic developments, including observed inefficiencies. Employment is determined from the production volume and the real wage rate in each sector, which in return depends on labor productivities and prices. To examine the economic effects of additional efficiency measures in Germany our analysis applies PANTA RHEI to two scenarios: a business as usual scenario and a scenario with increased resource efficiency. Both scenarios are implemented in the macro-econometric model PANTA RHEI. The respective differences in economic indicators, such as employment, GDP etc. can then be attributed to the effort for increased efficiency in the scenario, since all other factors are held equal. Changes in volumes and prices are fully accounted for. The simulation model runs until 2030. The scenario includes different aspects of resource efficiency, such as energy efficiency in buildings, supported by a grant; energy efficiency and decrease of material inputs in industry supported by a consultancy program, energy efficiency in public buildings, supported by grants, subsidies for efficient appliances for low income households and a tax on building materials. The simulation yields positive results for both the economy and the environment. The advantageous development in the scenario with increased efficiency shows in additional GDP (0.6% in 2020; 0.4% in 2030). The construction sector gets different signals: increased efficiency in buildings means additional insulation and more activity in construction and the materials’ tax makes construction more expensive and lowers the said activities. The net effect in construction is positive growth, which is negative for the environment, but not as negative as without the tax. Energy productivity increases as does resource productivity in general. GHG emissions decrease as a consequence of increased energy efficiency and decreasing demand for energy. The growth effect increases demand and leads to a small (not overcompensating) rebound effect. Employment in most sectors increases. The construction sector sees an increase in employment by more than 3% compared to the reference scenario. The mining and quarrying sector, however, sees a lower level of employment compared to the reference.