OECD countries committed themselves to sustain- able development at the Rio ”œEarth Summit” in 1992. This commitment was reinforced on the 10- year anniversary of that landmark event, at the World Summit on Sustainable Development this year. Assessments indicate that progress made over the last decade towards sustainable development have been limited, and many seri- ous challenges remain.

True, OECD countries have experienced strong eco- nomic growth and major progress in advancing their struc- tural reform agenda in the decade just concluded. Driven by technological progress and globalization, we have seen emerging the elements of a ”œnew economy,” with promises of a permanent shift in the growth trajectory of our economies and of higher gains in the living standard of our citizens. Most OECD citizens today enjoy better education, health and social conditions than previous generations ever did. There have also been some environmental improve- ments, thanks to some progress in decoupling pollutants and natural resource use from economic growth. As a result, emissions and concentrations of some of the most damag- ing air pollutants have been reduced, our per-capita consumption of freshwater resources has fallen, and the cover- age of forest areas in OECD countries has increased.

But, for all this progress, many of the challenges that we identified in Rio are still here today. And dealing with them is becoming more difficult the more action is delayed. A number of environmental problems are worsening at alarm- ing rates, as identified in the OECD Environmental Outlook. One of the most serious threats remains our changing cli- mate, under pressure from the continued release of human- induced greenhouse gas (GHG) emissions. Progress in reduc- ing extreme poverty worldwide has also been disappointing. Despite a reduction in the share of world population living in extreme poverty in the 1990s, over 1 billion individuals, one-sixth of the world’s population, continue to live on less than US$1 per day. Many of the poorest countries are left at the margin of the globalization process, unable to share the economic benefits of open markets, technology transfers and private investments. How can we engage these coun- tries in actions to address global environmental problems when they cannot satisfy the most basic human needs? How can OECD countries””which, with less than a fifth of the world population, account for over 80 percent of total GDP and close to 60 percent of total energy use”” show leadership in moving forward the sustain- able development agenda?

The challenges implicit in all of these ques- tions are formidable. But a range of concrete measures may allow us to make progress. Many of the policies and practices that could make the difference in terms of sustainability have been with us for years, but they have not been applied with the right level of ambition and consistency. Taken individually, none of these measures is likely to make the difference. But as a whole they can move our economies away from a development path that is leaving future generations with insufficient resources and capabilities to sustain their own well-being.

OECD countries have successfully applied a range of regulatory instruments to reduce pollution and natural resource use in recent decades. But these instruments have become less effective, and more costly, as our attention has shifted from environmental degradation that is caused by large and well-identified pollution sources, to smaller and more diffuse ones. The challenge is to change the set of incentives facing millions of individual producers and consumers, so that they take due consideration of the damage they impose to the environment in their daily decisions. In many cases, what this requires is a greater and more consistent use of economic instruments.

These economic instruments are well known, and include taxing fuels according to their carbon content, using tradable permit schemes (e.g. for fish catches, air pollutants and water use) and targeting subsidies to the achievement of environmental improvements and income support to low-income households rather than supporting output levels. Despite evidence that they work, however, the use of economic instruments remains limited. For example, large exemptions are often provided for environmental or energy taxes to the most polluting or energy-intensive industries, significantly reducing the effectiveness of these instruments. The OECD/EU Database on Environmentally Related Taxes [www.oecd.org/env/tax-database] records over 1,000 such exemptions. Even in countries where economic instruments are used, they are seldom based on an explicit assessment of external costs. As a result, most OECD countries impose no or small taxes on coal and coke, as compared to higher taxation on cleaner alternatives such as natural gas; and impose higher taxes on petrol than on diesel, despite the second being more polluting. Similarly, progress in reducing environmentally harmful subsides has been slow, particularly in the sectors of agriculture, energy and fisheries. Support to OECD production continues to cost OECD consumers and taxpayers over US$1 bil- lion per day. In the energy sector, OECD country subsidies amount to over US$20 billion per year, a third of which support coal production.

Science and technology are key drivers for sustainable development, but also more gen- erally for economic growth, wealth creation and social well-being. Scientific and technological advances have led to dramatic increases in life expectancy; improved our understanding of the functioning of the earth life-supporting system; and helped to focus attention on emerging problems requiring immediate attention, such as climate change. Today new technologies are making it possible to recover more ore from mining waste, purify wastewater to a higher standard, and reduce pollution from burning fossil fuels.

Governments can support science and tech- nology aimed at securing sustainability through a variety of channels. First, and most important, governments can stimulate the development and adoption of cleaner technologies by the private sector by ensuring that environmental externali- ties are fully reflected in production costs. But they can also intervene in more direct ways, while avoiding risks of locking industry into a sub-optimal technology path or of using technol- ogy instruments as a means to provide domestic firms a first-mover advantage over competitors. Measures include public funding of basic research; greater efforts towards understanding the nature of a range of environmental thresh- olds beyond which we risk facing irreversible effects for human well-being; encouraging part- nership between government, industry and aca- demia in technology research and development; and trying out cleaner technologies in protected market niches. Governments also need to strengthen their capacity to deal with possible unintended effects of technological change, for example, through regular communication with experts, greater openness to societal concerns about new technologies, and building capacity to assess technologies.

Uncoordinated environmental, sectoral and economic policies often work at cross-pur- poses and even contradict each other. For exam- ple, policies to reduce GHG emissions for envi- ronmental purposes coexist with policies aimed at stimulating domestic production and use of carbon-rich coal, while measures to reduce agri- cultural-related water pollution coincide with policies that encourage these same activities. These policy inconsistencies arise because of the absence of mechanisms that force policy-makers to take into account the impact of their policies beyond their own narrow area.

Several OECD countries have experimented with a variety of instruments to improve policy coherence and integration. Specific instruments include use of environmental impact assess- ments, economic impact assessments, and risk assessments and analyses. Other tools include inter-ministerial committees on environmental issues in Norway and Belgium, environmental assessment of the budget in Denmark, and autonomous commissioners charged with pro- moting integration of federal policies in Canada. Several countries are also using indicators to monitor progress in policies, inform the public about results, and increase accountability of pol- icy decisions. The OECD is currently developing a set of criteria to monitor progress in policy inte- gration, citizens’ involvement and in developing longer-term capacities in government, all crucial elements for achieving sustainability.

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While most of the measures described above are not new, their implementation has been lagging. Because the benefits of policy reforms are more widely spread than the losses, the losers tend to have disproportionate political influence. These obstacles to reforms can be for- midable, as witnessed by the reactions through- out much of Europe and North America to the hikes in energy prices in the winter of 2001. Similarly, the continuing resistance to the reform of economically inefficient and environmentally damaging subsidies (for example, in the agricul- ture sector) has slowed the reform process to a standstill in most OECD countries.

But can we overcome these obstacles and build more successful coalitions for sustainable development? I believe we can. Success requires gaining the support of the broad public, those who stand to gain from the reforms, by better communicating the costs of current policies and the benefits of policy reforms. It also requires addressing the concerns of the people and com- munities that stand to lose the most from the reforms. This may require upgrading the capacity of the general social protection system to respond to new demands. And finally, it will require addressing firms’ concerns about loss of competitiveness.

Many of the most urgent threats to sustain- able development are global, and tackling them will require greater co-operation and part- nerships between countries. Either the actions of an individual country will not be enough to achieve sustainability, or the consequences of continued deterioration will spill beyond nation- al borders. Structural changes in our economies, which are shifting some pollution-intensive activities towards less developed countries”” mainly, those produced by standard technologies and where labour costs are important””also underscore the importance of international measures to effectively tackle many of these glob- al threats. However, huge disparities in the eco- nomic and social conditions among countries are powerful obstacles to agreement on shared goals and to co-ordination of policy responses.

The planetary perspective of sustainable development underscores the importance for OECD countries to contribute concretely to rais- ing living standards in developing countries. Tariff and non-tariff barriers, which dispropor- tionately affect developing countries, particularly the least developed, can be reduced. OECD coun- try subsidies and trade barriers are estimated to result in a lost potential income of US$43 billion a year for developing countries. This is just less than the amount transferred from OECD to developing countries through official develop- ment assistance (ODA).

Private foreign direct investment (FDI) has come to play an increasingly important role for developing countries. In 1992, flows of FDI from developed to developing countries totalled US$36 billion; by the end of the decade they approached US$120 billion. FDI are important drivers for development in the host country and can lead to the transfer of better technology and management practices, and stimulate additional domestic investment. However, only a small share of total FDI from OECD countries goes to developing ones, and these mostly benefit a small group of coun- tries with rich natural resources and large domes- tic markets. OECD countries can help developing countries to leverage these private resources by helping them to establish the governance struc- tures needed to attract private investment and the policies to cope with their effects, including sound environmental policies.

Despite the increased volume of foreign investment, development aid remains critically important for many of the poorest developing countries in particular, often accounting for up to 20 percent of their national income. ODA con- tinues to provide an important source of funding for basic services that directly contribute to sus- tainable development””such as health, educa- tion, and environmental protection. Despite commitments by most OECD countries to increase the levels of ODA to 0.7 percent of gross national income, only three had achieved this by 2000. The outcome of the Monterrey Conference on Financing for Development is an important signal of the willingness of OECD countries to strengthen their ODA efforts. Beyond ODA levels, there is large scope to raise its effectiveness. Important steps include ensuring local ownership in the formulation of national poverty reduction strategies and ”œuntying” development aid. Scope also exists to increase the synergies between aid and trade. To this effect, many OECD countries have started programs to help developing countries build their trade capacities, enhance trade performance and participate effectively in the rule-making and institutional mechanisms that shape the global economy.

While all these measures will contribute to development, concerns are sometimes raised as to the effects of higher economic growth in developing countries on sustainability. The most effective way of ensuring that development and sustainability objectives are mutually supportive is to accompany economic growth with meas- ures to enhance the quality of environmental and social policies, and the effectiveness of pub- lic institutions responsible for enforcing regula- tions. Important synergies also exist among poli- cies. Many of the policies to achieve economic growth can also deliver environmental benefits, e.g., climate benefits from improvements in energy efficiency or environmental benefits from reform of trade-distorting subsidies. More specific interventions are also important, such as integrating adaptation responses to climate change into ongoing development priorities and assistance, as well as building the capacity of developing countries to take advantage of the Clean Development Mechanism of the Kyoto Protocol. Also important is the strengthening of mechanisms such as the Global Environmental Facility, which provides grants and concessional loans to assist developing countries to address climate change, among other global environmental problems.

Sustainable development is a broad concept, with large potential ramifications. But this should not distract us from the need to retain a focused policy agenda, with emphasis on those areas where policies can make a difference, and where the scope for synergies between the actions of different countries is most important.

The OECD is committed to contribute to the efforts of its member countries towards sustainable development. Many of the policy recommendations presented above were endorsed at an OECD meeting between ministers of finance and of environment in May 2001. This meeting, which concluded a major three-year project on sustainable development undertaken by the OECD, was the first joint meeting between finance and environment ministers ever to take place. As a follow-up to their discussion, minis- ters asked the Organisation to continue its work on sustainable development to support their policies. The Organisation contributed to the recent World Summit on Sustainable Development (WSSD) and is looking at how it can help to implement the results of this Summit. Work is ongoing on sustainable development indicators and their use in the OECD peer review processes. Analytical and policy work is focusing on options for overcoming obstacles to reform, including increased use of environmental taxes and reform of subsidies, policy coherence and integration, and the social aspects of sustainable development. With this new work well underway, sustainable development is today one of the strate- gic pillars of the OECD agenda.

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