7th October 2023, Skopje“Challenge of sustainability is to create a new global economy, new way of functioning, ecologically sustainable and economically efficient, giving all of us a possibility for better life”, Nobel Prize laureate Joseph Stiglitz said.  Two systemically important steps were undertaken last week, aimed at development of green economy in our country, in particular the adoption of the Law stipulating the establishment of Energy Efficiency Fund, and the issuance of the first green bonds as source for financing green projects.

Green economy is a system, the priorities of which are environmental sustainability, social justice and economic growth. Transition towards renewable energy sources, sustainable agriculture and food production, efficiency in managing resources, inclusive growth through social equality, innovations and environmental technologies, green finances and investments in sustainable projects and strengthening the climate resilience are green development goals. In particular, green economy is a resilient economy that provides a better quality of life for all citizens.


Green Fund and Bonds in Brief

Last week, upon proposal by the Ministry of Finance, the Parliament gave a “green light” to the establishment of the Energy Efficiency Fund (EEF). The Fund, by extending grants and favourable loans and issuing guarantees, will support energy efficiency and environment protection projects offered by both the public and the private sectors. The Fund will operate as an organizational unit within the Development Bank of the Republic of North Macedonia, and its establishment is part of the alignment with the EU Directives. Fund’s initial capital amounts to EUR 15 million, EUR 5 million provided by the World Bank under the Public Sector Energy Efficiency Project, coupled with the funds raised from the issuance of the green bonds in the amount of EUR 10 million. In future, the Fund will be plenished through new issues of green bonds and other sources of financing (development grants, loans and multiplying the initial capital). It is envisaged to be established next year, with its scope of operations to include the households starting 2025. Effects expected from the projects to be supported by the EEF are greater resilience to electricity price rising trend, safety and continuity of energy supply for the households and the businesses, as well as better living conditions, increased energy savings, reduced greenhouse gas emissions and protection of public health and general positive effect on the environment.

First auction of green bonds was held in the course of this week. They are government bonds intended for supporting the green projects in the country. Their maturity period is two years, with a coupon interest of 4.75%. Banks, financial institutions, even individuals, participated in the auction, with the demand therefor being almost three times the offered and purchased amount of Denar 600 million. As indicated, these funds will be allocated to the Energy Efficiency Fund, aimed at both accelerating the green growth by financing projects in the area of energy efficiency and environmental protection, as well as developing the capital market in the country by diversifying the offer with new instruments.

Finances are the bloodstream of the economy, hence introducing institutional mechanisms for mobilizing funds and financing green projects significantly contribute to the development of the green system. This is only part of the spectrum of measures and policies being undertaken and to be undertaken in the country to the end of greening the economy. Green growth is a component of the structural reforms, i.e. reforms envisaged to strengthen our economy and boost its potential, in the context of the EU integration and the development processes. Green investments, finances and regulations are part of several government strategies, paying regard thereby to the role of international financial institutions, country’s bilateral partners and private sector.


Up to 30% Decline of Global GDP as a Result of Climate Changes

Strengthening environmental awareness, as a starting point of the Green Agenda and the UN Sustainable Development Goals, commenced somewhere at the beginning of the 70s of the last century with the UN Scientific Conference in Stockholm, to the UN Earth Summit in Rio de Janeiro and the Kyoto Protocol in the 90s to the Paris Agreement in 2015 of the new era. Since than, world population has doubled in size (from 3.7 billion people in the 70s of the last century to more than 8 billion people in the 2020s), i.e. the world has become smaller, more polluted, with depleted resources and ever stronger effects of the climate changes.

Few years back, current IMF Managing Director, Kristalina Georgieva, gave a very interesting speech, indicating the size of the consequences from climate changes in the coming decades, unless we act. She took her than 9-year-old granddaughter as example, pointing out that by the time she would turned 20, she might be witness to climate change so profound that it would push an additional 100 million people into poverty. By the time she would turned 40, 140 million might become climate migrants due to deteriorated climate conditions, and if she lived to be 90, the planet might be 3–4° hotter and barely livable. This is a quite vivid insight of what might happen in the not-too-distant future, the future of our children and grandchildren, unless we undertake decisive actions.

IMF’s estimates are that climatic disasters cause large economic and ecological damages each year. Over the past decade alone, direct damages of such disasters are estimated to add up to around US$ 1.3 trillion (or around 0.2% of world GDP, per year). Various studies of relevant world organizations, agencies, Think-Tanks, give cataclysmic warnings about the effects of climate changes on the global economy. 2020 World Economic Forum characterized the climate changes as the worst threat to both the economy and the society. In an Oxford Economics study high emission scenario, a temperature rise of 2 degrees by the year 2050 would reduce global GDP by 2.5–7.5%. By the year 2100 in this case, the temperature would rise by 4 degrees, which could reduce the global GDP by 30% in the worst case.  Empiric analyses note the effects of the climate changes on inflation and economic growth through several channels, such as lower agricultural output and rising food prices, depressed labour productivity, decline in consumption and investments, transport, etc. Thereby, effects intensity will, to a large extent, depend on the structure and the development of the economy.


Economic Theory: the Lower the Development – the Lower the Awareness about Climate Threats

Economic theory is focused on the effects of the environment on the economy and the development. Thereby, I will touch upon several theories, for instance, the environmental Kuznets curve, showing an inverted U-shaped relationship between the income and the environment, i.e. in the early stages of economic development deterioration of the environment increases, but after a certain level of economic growth, the societies became more aware about the environment, and the policies and the technologies advance, also leading to environmental improvement. The sustainable development concept, on the other hand, emphasizes the need to balance between economic growth, social welfare and environmental protection, i.e. economic growth that meets the needs of the present without compromising the ability of future generations to meet their own needs is considered sustainable. Green growth theory is based on attaining economic growth, thereby minimizing the effects on the environment through investments in “clean” technologies, energy efficiency and sustainable practices. Ecological economics, as an interdisciplinary field, introduced ecological principles in the traditional economic models, while environmental valuation through cost-benefit analysis helps the policy makers to calculate the benefits and the savings arising from environment protection. Theories of sustainable transition and inclusive green growth are dedicated to the role of innovations, policies and investments in the transition to social and ecological sustainability.

Green growth, also known as sustainable or inclusive growth, is an economic development model providing for economic prosperity and environmental sustainability to cohabit, i.e. the idea being that economic growth should not be attained at the expense of the quality of the environment and the social wellbeing. Green growth is the answer to the global challenges, i.e. the climate changes, and it preserves the biodiversity, strengthens the resilience of the global economy and creates jobs.


Green Transition of the National Economy

Green transition of the national economy is one of the reforms included in the country’s Economic Reform Program, a strategic document which is part of our EU integration process. In its North Macedonia 2022 – 2024 ERP assessment, the European Commission indicates that our economy is energy intensive, and activities are to be carried out to promote renewable sources of energy and improve energy efficiency. Regulations in this area are strengthened through the new Energy Law and the Law on Energy Efficiency, which include measures for mitigating the climate changes mainly related to the energy sector. As a signatory country of global protocols and resolutions, our country regularly undertakes activities for reduction of greenhouse gas emissions and limiting the global warming, with a significant progress achieved in harmonizing the national legislation with the EU Acquis, in particular in establishing supervision and mechanisms for reporting greenhouse gas emissions. Some other observations regarding the environment are that partial progress is achieved in circular economy, i.e. recycling (North Macedonia currently generates 456 kg municipal waster per capita, being less than the EU average, which is 492kg per capita, however, certain increase thereof is noticed in the past decade).

Air quality is subject of discussion for quite some time now and, although it improved in the past decade, we are still an economy with one of the highest levels of air pollution in Europe, especially during the winter months. 2019 and 2020 Clean Area Plan has been adopted to address this problem, the main objectives of which are raising the public awareness about the need to improve the air quality and reduce PM emissions, primarily by introducing energy efficiency measures in the households and the public institutions. Yet another problem is the water supply and sewerage system and the need to build new wastewater treatment plants, including in the capital city.


Measures for Renewable Energy and Efficiency, Circular Economy, Quality Water and Air

Measures we identified in the 2023 – 2025 Economic Reform Program as necessary for the green transition are diversification of the energy supply sources, thereby increasing the share of renewables and accelerating the measures for energy efficiency improvement. Platform is also envisaged to be established to involve all stakeholders in the development of a circular economy, as well as improve the co-ordination between local and central authorities and strengthen the inter-sectoral cooperation for implementing further measures to increase air quality, as well as waste management measures. Measures are also foreseen for improving the wastewater treatment system by increasing the number of wastewater treatment plants and applying the water-user and polluter-pays principles for all water users and dischargers. Each of the respective measures covers large number of projects prepared in these three years. For instance, the measure for improvement of energy efficiency envisages the establishment of the Energy Efficiency Fund, as well as series of other projects, such as preparation of Inventory for Public Buildings’ Energy Performance and Strategy for Reconstruction of Buildings by 2030.



Smart Green Taxation

It is worth noting that climate economics emphasizes the economic justification to charge taxes on CO2 emissions so as to mitigate the climate changes. As a matter of fact, in addition to simulative measures for green transition through investments and subsidies, restrictive measures have also proven to be an important mechanism in achieving these goals.

One of the priorities envisaged in the Tax Reform Strategy is the green taxation, aimed at encouraging the taxpayers to change their polluting behavior and reduce their environmental impact. This priority’s primary goal is not to increase public revenues: green taxation is rather meant to set up a “smart” taxation, shifting taxation from labour towards pollution, yielding environmental, social and economic benefits. However, considering the current economic conditions at home and globally, this measure has been postponed for a certain period of time.

This topic is quite broad and many of its segments can be analyzed, such as financial sector, stability of banks and funds, social sphere, role of green technologies and innovations, integration from the point of view of climate changes, etc. Anyhow, it requires a holistic approach so as to achieve the desired outcome.


Last Generation Who Can Do Something About It …

I will emphasize that “We do not inherit the Earth from our ancestors, we borrow it from our children … ” and this is exactly how we should treat it. Doing green economy and achieving green development is not just numbers committed to paper, bur rather visibly better conditions of living for all citizens. We all breathe the same air, drink the same water and eat the same food, and as President Legarde said, “We are the first generation to feel the impact of climate change and the last generation who can do something about it”.


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