Markets for environmentally related products

A well-managed transition to a greener economy is at the heart of the green growth model. It involves a shift to cleaner products and production processes, substitution of dirty inputs for cleaner ones, and a shift to consumption patterns with lower environmental footprints such as the sharing economy. They also comprise increased reuse, repairing and recycling, and overall moderation of consumption – particularly of resource-intensive goods and services.

Achieving this transition cost-efficiently requires considerable strengthening of green taxation and incentivising innovation across the economy. This can be achieved by facilitating market entry and exit, by encouraging an efficient reallocation of labour across sectors and by “greening” of the capital markets. These steps will help direct markets towards greener outcomes in a cost-efficient manner and open-up new opportunities for exports and employment.

Progress towards green growth can be assessed by examining the transformation in economic sectors and shifts from traditional business activities to cleaner alternatives. This chapter discusses markets for environmentally related products. In particular, it examines the opportunities these products can generate across all sectors of the economy (employment, value added and trade). The discussion then turns to a specific subset of these activities – known as the environmental goods and services (EGS) sector. The main purpose of this sector is environmental protection and natural resource management.

Main trends and recent developments

A few industries account for the bulk of pollution, generating little value added and few jobs

The ten most carbon-intensive industries account for 83% of all CO2 emissions. However, they account for only 28% of employment and 21% of value added, on average, in the EU28 (Figure 13.1). Employment and value added shares of the most polluting industries are generally higher in countries with lower GDP per capita. The concentration of industries is even higher for some of the other pollutants (methane, fine particulates, nitrogen dioxide). Thus, in the absence of optimal policies spanning all sectors of the economy, targeting mitigation efforts on the worst polluters can reduce emissions substantially.

Figure 13.1. Several industries account for the bulk of pollution, generating little value added and few jobs
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Note: This graph shows the cumulative distribution curves. It depicts the contribution of each sector to total emissions of CO2, CH4, PM2.5 and NOx, complemented by sectoral shares of employment and value added. The sectors are sorted in descending order by their share of CO2 emissions. For example, in 2013 crop and animal production contributed more than 50% of overall methane emissions in the European Union. At the same time, this sector represents only 5% of employment and 2% of value added.

Source: Eurostat (2016a), “Air emissions accounts by NACE Rev. 2 activity”; Eurostat (2016b), “National accounts aggregates by industry (up to NACE A*64)”; Eurostat (2016c), “National accounts employment data by industry (up to NACE A*64)”.

 http://dx.doi.org/10.1787/888933484849

Figure 13.2. Trade in environmentally related products is rising
OECD and G20
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Note: Bubble size shows the change in the share of greener trade. Green (white) bubbles indicate an increase (decrease).

Source: OECD calculations using UN Comtrade (October 2016) and the CLEG list (see Annex 1 in Sauvage, 2014).

 http://dx.doi.org/10.1787/888933484855

Box 13.1. The labour market effects of climate change policies

Recent OECD work suggests that ambitious climate change mitigation policies could be good for jobs as well as the environment. Simulation results from the OECD’s ENV-Linkages general equilibrium model show that a well-designed emissions trading system could sharply reduce GHG emissions. At the same time, it could allow GDP to keep growing (although at a slightly lower rate). The key is mobility. Workers need to move easily from sectors where employment would drop, notably fossil-fuel industries, to sectors with increasingly more jobs such as renewable energy industries. Countries exporting fossil-based energies would be most affected.

OECD modelling indicates that the impact of GHG mitigation policy on GDP growth is small when the labour market adjusts smoothly to employment opportunities and losses. However, costs rise significantly when workers in declining sectors become unemployable elsewhere due to an incapacity to change and lack of flexibility in labour markets. Environmental policy could be combined with measures to help workers take advantage of new opportunities. One way would be to use revenues from carbon taxes to reduce taxes on labour income. This can generate a “double-dividend” by delivering both lower GHG emissions and higher employment.

Figure 13.3. Changes in employment implied by ambitious climate change mitigation policies
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Note: Simulations refer to the OECD area. Simulated impacts in 2030 of GHG mitigation policy are shown as deviations from the business-as-usual (BAU) baseline scenario. They assume no new mitigation policy measures are implemented, and take no account of the impact of resulting environmental damages on economic activity and well-being. Based on the OECD ENV-Linkages model (for more details, see: www.oecd.org/environment/indicators-modelling-outlooks/modelling.htm).

Source: OECD (2012), OECD Employment Outlook 2012.

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There are signs that international trade might be slowly “greening”

Available data signal a steady increase in the share of environmentally related products in international trade in the OECD area. They also point to a gradual improvement in the trade balance of such products of BRIICS economies (Brazil, Russian Federation, India, Indonesia, People’s Republic of China and South Africa) (Figure 13.2).

Over 2002-15, the importance of environmentally related products in trade increased in more than 20 countries (especially Korea, Norway and Ireland). At the same time, these counties have tightened environmental policies and regulations. This approach has stimulated demand at home and abroad for goods and services in relation to pollution prevention and abatement.

Overall, OECD countries remain net exporters of environmentally related products. Meanwhile, countries have achieved positive economic growth. This suggests that trade in environmentally related products can be accompanied by improvements in economic performance.

The environmental goods and services (EGS) sector

The EGS sector is modest, but is a growing share of the economy

Availability of comparable international data on the EGS sector is limited and allows only for a partial analysis. For instance, sewerage, waste management and remediation activities account for 0.5% of total employment and generate 0.7% of total value added in the European Union. The share is lower in Canada and a few other countries for which data are available (Figure 13.4).

Figure 13.4. Sewerage, waste management and remediation generate more employment and value added
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Note: Sewerage, waste management and remediation activities (ISIC Rev. 4, 37-39).

Source: OECD (2016a), “Aggregate national accounts, SNA 2008 (or SNA 1993): population and employment by main activity”, OECD National Accounts Statistics (database); OECD (2016b), “Aggregate national accounts, SNA 2008 (or SNA 1993): gross domestic product”, OECD National Accounts Statistics (database).

 http://dx.doi.org/10.1787/888933484870

An estimated 4 million (in full-time equivalent) are employed in environmental protection activities and in water and energy management, an increase of 49% since 2000 (Figure 13.5). The driver for this increase is the growing importance of waste management and energy-related activities (especially renewable energy generation and installations for heat and energy savings). Over 2000-13, the contribution of the EGS sector to GDP in terms of gross value added has grown from 1.5% to about 2.2% in the EU. This is a conservative estimate since not all resource management activities are covered.

Figure 13.5. Environmental goods and services in Europe (EU28) increased employment and value added
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Note: Panels A and B follow the Statistical Classification of Economic Activities in the European Community (NACE) rev.2. Panels C and D follow the Classification of Environmental Protection Activities (CEPA) 2000 and the Classification of Resource Management Activities (CReMA) 2008. Data on value added is expressed in EUR at current prices.

Source: Eurostat (2016d), “Employment in the environmental goods and services sector”; Eurostat (2016e), “Production, value added and exports in the environmental goods and services sector”; Eurostat (2016f), “Production, value added and employment by industry groups in the environmental goods and services sector”.

 http://dx.doi.org/10.1787/888933484886

Measurability and interpretation

OECD economies are transforming. However, it remains challenging to measure the extent and the pace of this change, and the associated economic opportunities, in an internationally harmonised manner.

There are conceptual and statistical difficulties in measuring the “greening” of the economy. These relate to the inherently integrated nature of the phenomenon and lack of sufficiently detailed industry and product classification systems.

The indicators presented in this chapter relate to “greening” of the economy (across all sectors):

  • Trade in environmentally related products, that is, products that integrate environmental considerations, independently of whether environmental protection is their primary purpose (e.g. energy efficient appliances). The indicator is based on a preliminary list of environmentally related products (the CLEG list, see Sauvage, 2014) that assembles harmonised system (HS) codes drawn from: i) the World Trade Organization (WTO) Friends list; ii) the Asia Pacific Economic Co-operation (APEC) list; and iii) the OECD-PEGS list (a climate-related list designed for the Toronto meeting of the G20). Work is on-going to further refine this CLEG list, in connection with plurilateral negotiations to forge an Environmental Goods Agreement (EGA).

  • The most comprehensive assessment can be currently conducted by linking data from national accounts with the SEEA accounts on air emissions, by industry. This allows assessing the extent of the transformation of industries (in terms of emission abatement) in relation to their economic outcomes (value added, exports) and the associated employment.

  • Ideally, even more detailed breakdown would be needed on the extent of environmentally sustainable practices (and the related employment and value added) within industries. This could cover renewable energy generation, sustainable forestry and sustainable fisheries (e.g. with international certification) and organic agriculture. It could also analyse sustainable transport (e.g. electric vehicles), cleaner manufacturing, greening of the service industry (e.g. eco-tourism, certified energy-efficient office buildings). However, internationally comparable data of this type remain extremely scarce.

A subset of the indicators relates specifically to the EGS sector:

  • Employment and value added in selected environmental protection activities for selected countries, expressed as a percentage of total; sewerage, waste management and remediation (ISIC Rev.4 industries 37-39).

  • Employment and value added in the EGS sector in the European Union, drawing on Eurostat’s definition of EGS, broken down by NACE industries and CEPA/CREMA activities.

These indicators provide only a partial picture of activities relevant for green growth. Not all indicators reflect an internationally agreed classification.

EGS include specific services, connected products and adapted goods, but their definition and measurement scope varies across and within countries. Further efforts are needed to generate internationally comparable data on EGS (turn-over, value added, exports, employment, etc.) in accordance with the recommendations of the Central Framework of the UN System of Environmental Economic Accounting (SEEA). See also Glossary.

Sources

Eurostat (2016a), “Air emissions accounts by NACE Rev. 2 activity”, Environment database, http://ec.europa.eu/eurostat/data/database (accessed on 29 November 2016).

Eurostat (2016b), “National accounts aggregates by industry (up to NACE A*64)”, National accounts (ESA2010) database, http://ec.europa.eu/eurostat/data/database (accessed on 29 November 2016).

Eurostat (2016c), “National accounts employment data by industry (up to NACE A*64)”, National accounts (ESA2010) database, http://ec.europa.eu/eurostat/data/database (accessed on 29 November 2016).

Eurostat (2016d), “Employment in the environmental goods and services sector”, Environment database, http://ec.europa.eu/eurostat/data/database (accessed on 23 November 2016).

Eurostat (2016e), “Production, value added and exports in the environmental goods and services sector”, Environment database, http://ec.europa.eu/eurostat/data/database (accessed on 23 November 2016).

Eurostat (2016f), “Production, value added and employment by industry groups in the environmental goods and services sector”, Environment database, http://ec.europa.eu/eurostat/data/database (accessed on 23 November 2016).

OECD (2017), “Green growth indicators”, OECD Environment Statistics (database), http://dx.doi.org/10.1787/data-00665-en (accessed in March 2017).

OECD (2016a), “Aggregate national accounts, SNA 2008 (or SNA 1993): population and employment by main activity”, OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/data-00003-en. (accessed on 31 January 2017)

OECD (2016b), “Aggregate national accounts, SNA 2008 (or SNA 1993): gross domestic product”, OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/data-00001-en (accessed on 31 January 2017).

OECD (2012), OECD Employment Outlook 2012, OECD Publishing, Paris, http://dx.doi.org/10.1787/empl_outlook-2012-en.

Sauvage, J. (2014), “The Stringency of Environmental Regulations and Trade in Environmental Goods”, OECD Trade and Environment Working Papers, No. 2014/03, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jxrjn7xsnmq-en.

UN (2016), “United Nations Commodity Trade Statistics Database”, www.comtrade.un.org (accessed in October 2016).

Further reading

Eurostat (2016), Environmental Goods and Services Sector Accounts – Handbook, 2016 edition.

Bruvoll, A. et al. (2012), Measuring Green Jobs? An evaluation of definitions and statistics for green activities, TemaNord 2012:534, Nordic Council of Ministers, Copenhagen, www.norden.org/en/publications/publikationer/2012-534.

OECD (n.d.), “Greening Jobs and Skills”, webpage: www.oecd.org/employment/greeningjobsandskills.htm.

United Nations, System of Environmental-Economic Accounting 2012 – Central Framework, http://unstats.un.org/unsd/envaccounting/seeaRev/SEEA_CF_Final_en.pdf.