Flexible Incentives for

Inclusive and Green Growth

The views expressed in this paper/presentation are the views of the author(s) and do not necessarily reflect the views or policies of
the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee the
source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or
view presented, nor does it make any representation concerning the same.

Venkatachalam Anbumozhi
Asian Development Bank Institute
Armin Bauer
Asian Development Bank
 Outline

Features
 Why green development is important to
achieve inclusive growth?

Issues
 What drives green enterprises & jobs in a
low carbon society?

Perspective
 How to accelerate green growth that is
inclusive through fiscal polices?
Population Pyramid by Income Group

Source: The World Bank. Data for the year 2009 (http://data.worldbank.org/income-level/NOC
accessed 16 Nov 2010)
Inconvenient Truth : Asia’s share in working poor is
high

Source: ILO, UNEP 2008

Energy Access and Human Development
are interrelated
 Developed ≡ Energy Consumption
(kWh/cap/day)

Country Final Excluding TPES % HH from

industry biomass

US 167.07 137.26 246.62 7.6*

Germany 98.09 76.05 134.84 7.6*
China 29.19 16.41 45.63 65
India 10.87 7.74 16.25 79
Nigeria 20.85 18.59 23.13 96
Colombia 16.86 11.93 21.13 27
Bangladesh 4.11 3.49 5.13 72
Energy Share of HH Expenditure
 carbon dioxide emissions (ton CO2 per capita) and GDP (PPP US$ per capita) in selected Asia-Pacific countries
Carbon dioxide (CO2) emissions per capita (ton per capita)

20.00

18.00
Australia

16.00

14.00

12.00
South Korea, Replublic
of
10.00
Singapure
New Zealand Japan
8.00

Malaysia
6.00 Mongolia
Hong Kong (China)
PRC
4.00
Thailand
Source: The World Bank Development Indicators and IEA electricity access database
2.00
Indonesia
Sri Lanka
0.00
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,00
GDP (PPP US$ per capita)
 Redefining development, sustainability and
Poverty

 In Vietnam, 19% of urban borrowers living

above $2 a day use their loan for investment
rather than consumption, 55% of rural
borrowers living less than a $ a day
invest in business
 What is Low Carbon Green
Development?

 Using less energy, improving the efficiency

with which energy is used and moving to low
or zero carbon energy sources.
 Protecting and promoting natural resources
that store pollutants (such as forests, rivers
and land).
 Designing, disseminating and deploying low or
zero green technologies and business models.
 Policies and incentives that discourage carbon
intensive practices and behaviors.
Low carbon green development

High
growth

Green life Green

style economy

Consumption Production

Economic
Self-
equilibrium
reliance

No
growth
Path to Low Carbon Green Growth
Green Products and Services for Low
Income Households through PURA

Developing Eco- Providing Smart

friendly Products Services

energy
food health finance
sanitation
construction textile & apparel
footwear

Production
Knowledge and
Infrastructure and
education
good governance

Create Local Wealth and Make Profit

 Green Enterprises spans many industry
verticals, covering nearly dozen segments

 Energy Supply
- renewable, waste cogeneration
 Agriculture
- Water efficiency, organic farming, carbon sequestration
 Forestry
- Avoided deforestation, eco-system services
 Manufacturing
- Pollution control, energy efficiency, cleaner production
 Transport
- Fuel efficient vehicles, public transit
 Building
- Retrofitting, energy efficient appliances, zero emission
 Green Enterprise Models for Low
Income Households
 The low income households present as latent market for
environmental goods and services. Active engagement of them is
critical element for inclusive and sustainable growth, as
entrepreneurship activities for these market create choices for them
and foster competition among outside service providers. These
characteristics of green market economy new to low income
households, can facilitate dramatic change.
 Low income households, as a market provides new growth
opportunity for outside business and forum for innovation in
developing green products and clean services in a cost effective way.
Old and tired solutions can not create.
 The green market for low income households must become an
integral part of the work of the private sector. For big companies,
they must become part of firms core business; they can not merely
be relegated to the realm of corporate social responsibility initiatives.
Successfully creating green markets with low income households
involves changes in the functioning of large companies as they need
sustained resource allocation and senior management attention
 Strategies Adopted for Inclusive and Low Carbon
Development
in India

Enterprise
Development

Reduction Efficient Improved community

in GHG waste water management
emissions management systems
System

Tapping Tapping 3R
solar energy Improve Rainwate Water
d waste principle r quality
potentia from s for
l biowaste collectio harvestin improveme
n industrie g nt
s s structure

Identification of Development of Information &

Alternate Energy Waste Processing Awareness
Sources System Building
 Environmental Technologies, Small Industries and
Business Evolved
Solar lanterns Eco-products

Namakkal
Vermi-culture industry
Solar driers

Bio-gas plants Waste Collection Waste gasifier

Solar water treatment
Micro-Service Enterprises Evolved in Namakkal

No. of Solar technology servi

No. of sample respondent un

Total investment (Rupees)

 Changing perspectives of low income households by business and policy
makers in India

From To
The low income households are They represent a market.
a problem for development The private sector can and
should participate
effectively in this process
Low income households are They are active
wards of the state consumers/entrepreneurs
Low income household does not Creative bundling of low
appreciate low carbon green carbon products and
technologies. Old technology services with a local flavor
solutions are appropriate

Follow the urban rich model of Selectively leap-frog

development
Carbon efficiency in a known Innovation to develop a low
model or zero carbon model
Focus ion resource constraints Focus on creativity and
 Japan - Maniwa: Initial Actors in the Inter-firm Eco
Network
Maniwa Forestry
Association

Power Central Elec.

Timber waste Energy Production 150 man days
Generation Power co
From firms (Maniwa Bio-energy
48,000 Pellet (1.8t/d)
In the cluster Co. Ltd 4.5 million Yen Pellet boiler
kW Pellet stove
Heat
58,000 t CO2
Horticulture
Public facilities
Factories
Meiken Kogyo Concrete Products Wooden inter
Co. Ltd Material Production (Landes Co. Ltd) Locking blocks
(Maniwa Bio-material Co. Ltd)
Pet Industry Products Cat sand
(BMD Co. Ltd)

Ethanol E3 Fuel
(Mitsui Co. Ltd)
 Maniwa: Production Structure & Eco-products

Wood Chips Lignin Refined

Powder
Resources Barks Cellulose Lignin Lignin products

Plaster Concrete products

Polylactic acid Bio-plastic products

Power
Generation Ethanol Fuel

Binder Naplus products

Electricity & Molding
Heat
Carbonization Eco-carbon products

(Source: Maniwa Municipality) RDF Power generation

 Employment shifts in the Maniwa

 Additional jobs – as in the manufacturing of low carbon and

pollution control devices added to the existing production
process.

 Substitution of jobs – as in shifting from fossil fuels to

renewable or, waste incineration to recycling

 Elimination of jobs – as when landfills are banned and

plastic packaging materials are discouraged.

 Redefining of jobs as green – electricians (as energy

auditors), forestors (as eco-system providers)
 Urban – Rural Fringe Area

U
ea

rb
r
A

an
ral Bio-resources Industrial resources

A
u

re
R

a
Clu
Biomass Refinery Industrial sector

s te
Agrl. waste waste
complex

red
Forestry waste

act
ity

iv
Animal waste
tiv
Municipal waste

ity
ac
Fishery waste
ed
ter
us

Eco-service
Cl

Energy crops Complexi Bio-degradable

industrial products

Composting

Organic Recyclable livelihood

practices Bio-materials
Renewable Energy
Complex Eco-value added
Eco-value added
consumer products
Rural products
Renewable
energy use Use of renewable
 Why there is a Gap in Business
Performance?
100 % Degree of Envi. Integerity

Absolute Gap

Strategic Gap

Tactical Gap

Current.
performance
0%

May
(Adapted from Jose) 2,
201
0
(Regus, 2010)
 Making Financial Services work for
Poor

 Commercial Banks
poor households and new green enterprises are
bankable; regulatory Pressure?
 Microfinance Institution
capacity to reach poor with wide range of support
services in cooperation with NGOs
 State owned Development Finance Institutions
Refinance facilities to extend credit to SMEs
 Capital Markets
Stock and bond markets, MFI raise funds
 Post offices and other Networks
potential to reach poor for financial inclusion

Need more efforts to market their services

Access to formal financial services (percentage of households)
 Rationale for Govt. Subsidies and
Incentives

 Green companies and products produce positive

externalities that are not factored in to either the production
or purchasing decisions. If, for example, a greener
production process lessens carbon emissions, then an
incentive equal to the value of those externalities could be
given to the producer. Similarly, on the consumer side, if the
use of the good produces positive externalities that are not
captured by the user, then the price of the good can be
subsidized or provided a tax break.

 If non-green companies or products generate negative

externalities but no tax or disincentive is levied, then
governments could either tax those firms, or give incentives
to the green firms.
Flexible Incentives for Inclusive and Green
Growth
Subsidies and
Tax benefits

Improve the access:

-Energy services
- Water supply and
sanitation
- Social infrastructures

Local Eco-business
development: Remove market
- Target constrains:
product&service - Access to credit
development - Pool resources
- Bottom-up innovation

Shaping life style

choices:
- Consumer education
- Demonstration effects
 Types of Subsidies & Incentive
Schemes

(A) On Budget Subsidies

- Direct transfer of funds

- Govt. provide goods & services
- Intermediaries provide the services, charged
to govt
 Types of Subsidies and Incentive Systems
(b) Off Budget Subsidies
 Tax exemption and rebates
 Income or price support
 Tax credit: Govt revenues dues are foregone
or not collected
 Preferential market access
 Accelerated depreciation allowance
 Regulatory support: Eg. Feed in tariff
 Implicit subsidies resulting from the provision
of infrastructure.
Car sale 2009 in Japan

Japan Automobile Dealers Association

How rural China reduced poverty
 Integrated Incentive systems can help to
build lead clean energy industries: PRC
Case

 Land subsidy (1/3rd of official price) by Local

governments – -reduced company’s cost.
 State Banks lend money at very low interest
rate for export.
 Local government rebate for the interest.
 Speedy approval process by the start up
companies.
 Currency market support to keep the price
low.
 Export ban on raw material.
 Monetary incentives Schemes for
environmental management in Indonesia

Fiscal Financing Market

Instruments Instruments Instruments

Subsidies Soft Loans Technological

Implemented

Procurements
Tax
Exemptions Grants Deposit Refunds
User Taxes Alternatives Performance
sources of Bonds
Royalties fund
Performance
User Taxes Bonds
Reduced Loan
Alternatives

Product Taxes Interests Bulk Purchasing

Environmental Deposit Refunds
Emission Taxes
Fund
No Compliance
Tax Differentiations Financing Fees
Guarantees
Tax Exemptions
Source: Dhewanthi, 2009
 Economic and Environmental indicators for Major Asian
Economies (BAU scenario)
Country GDP (2009) i
Growth Forecast Fiscal Debt (2009) Ratio Debt/GDP Net Primary Energy GHG emissions
(2015) i * ii Imports iii projections, reference
scenario

(US$ per capita) (%) (US$ per capita) (% of total cons. per (evolution from 2005-
capita) 20)

Australia 45,586 42.18% 8,023 17.60% -117.58% 114% iv

Brunei Darussalam 26,299 21.61% 0 0.00% -623.66% n/a

Canada 39,668 47.52% 29,910 75.40% -56.87% 88%iv
Chile 9,525 74.34% 581 6.10% 74.06% 188%v
Hong Kong, China 29,827 36.72% 11,155 37.40% 99.81% n/a
Indonesia 2,329 117.31% 638 27.40% -72.89% 144%vi
Japan 39,731 22.18% 75,211 189.30% 82.77% 89%iv
Malaysia 6,897 63.15% 3,704 53.70% -26.49% 143%vii
Mexico 8,135 59.76% 3,067 37.70% -32.91% 110%vi
New Zealand 27,261 33.51% 6,052 22.20% 23.62% 125%iv
Papua New Guinea 1,247 36.22% 377 30.20% -31.94% n/a
People’s Republic of 3,678 92.24% 622 16.90% 8.42% 163%iv
China

Peru 4,356 54.37% 1,080 24.80% 23.59% n/a

The Philippines 1,746 56.24% 1,025 58.70% 45.42% 223%viii
Republic of Korea 17,074 66.52% 4,012 23.50% 81.75% 115%iv
Russia 8,694 148.99% 548 6.30% -79.33% 110%iv
Singapore 37,291 41.45% 42,176 113.10% 100.00% 242%ix
Chinese Taipei 16,391 68.59% 5,327 32.50% 88.88% n/a
Thailand 3,940 62.11% 1,808 45.90% 44.68% 160%x
The United States 46,381 28.01% 24,535 52.90% 30.01% 98%iv
Viet Nam 1,060
Sources: (i) IMF, 2010; 94.52%
(ii) CIA, 2009; (iii) IEA, 2007569
, ); (iv) EIA,53.70%
2010a; (v) 2020-36.98% 295%
BAU Projection, and (vi)
xi
2020
BAU Projection.
Pervasive energy subsidies and fiscal debt
in selected Asian Countries
Viet Nam
Fiscal Debt

Taiwan, China Subsidies

Thailand

Malaysia

Indonesia

PRC

Russia

0.0 100.0 200.0 300.0 400.0

US$bl

Sources: IEA, 2009 and CIA, 2009

Can Tax Incentives alone accelerate Green Business in Asian

economies?
Financing Green Enterprises through EFR
Green
Finance

Incentives for inclusive

green growth

Tradable Labellin
Tax
Subsidies Credit permit g
incentives

Environmental
Revenue Environmental
mobilization
production
fiscal policy
policy

Pollution emission Removal Pervasive

charges subsidies

Funds from Green Funds from

government Funds market

International
FDI
donors
Environmental Fiscal Policy Reforms

 Adopting Environmental fiscal reform (EFR),

the range of taxation and pricing measures
which can raise fiscal revenues while
furthering environmental goals (OECD, 2005)
 The exact design of the policy measure
obviously depends on the prevailing economic,
social, institutional and political situation in the
countries (EEA, 2005)
 But in effect tax shifting programmes are
based on the principle of ‘revenue neutrality’,
meaning that the increase in the tax revenues
generated by environmental taxes is offset by
the reduction of other taxes or charges
 Estimated revenues from taxes on energy
products from carbon taxes
Country Predicted fiscal Direct Investments Carbon taxes revenue in Planned use of carbon
revenue from in green % of total direct taxes fiscal revenue
carbon taxes infrastructure or Investments in green
R&D (vi) infrastructure and R&D

US$ bn US$ bn %

Australia 9.3 (i) 7.9 (vii) 117.7%* -

PRC 0.5-2.1 (ii) 31.0 (viii) 1.6-6.8% Finance emissions
reductions and
environmentally-friendly
industries and companies

Japan 4.2 (iii) 18.8 (ix) 22.3% Subsidize GHG mitigation

measures
Korea 7.9 (iv) 13.7 (x) 57.7% Reduce corporate and
income taxes
Substitute current
transportation taxes

Taipei, 7.3 (v) n/a Subsidize low income

China families and public
transportation
Sources: (i) The Greens, 2010 (ii) (Wang et al, 2010) (iii) GoJ. 2005, (iv) KIPF, 2010 (v) CIER, 2010 (vi)
OCDE, 2009 (vii) National Energy Efficiency Initiative (viii) Investments in environmental areas, (ix)
Investment to support the Low-carbon revolution, (x) Investments in green transport, in waste recycling
and biomass power facilities, eco-energy towns, and incentives to secure alternative water sources.
 Conclusions and Recommendations

 New macro-economic framework is required; to provide basic

services to low income households in a cost effective and low
carbon sustainable way.
 New business models are essential; to achieve sustainable win-win
scenarios, where the poor actively participates, and the enterprises
providing services to them gain profits.

 Strategies for achieving inclusive low carbon development

- Flexible redistributive and transformative public expenditures to
break the bottlenecks of inclusive and green growth;

- Flexible subsidies and financial sector development for increasing

the rate of job creation from green enterprises.

- Broad based fiscal reforms for inclusive and green growth; to design
appropriate mechanisms for shifting the burden of taxation from
incomes onto resource consumption and emission reduction for
augmenting inclusive and green growth.
 Reach us at:

Venkatachalam ANBUMOZHI
Asian Development Bank Institute (ADBI)
Kasumigaseki Building 8F
3-2-5 Kasumigaseki, Chiyoda ku
Tokyo 100-6008, Japan

Tel : 81-3-3593-5508 | Fax : 81-3-3593-5587

Email : vanbumozhi@adbi.org | Website : www.adbi.org

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