Quality Education is needed for Green Growth (News and Research 269)

Investment in education quality is needed to enable green technological innovation and adaptation | Kevin Macdonald and Harry Anthony Patrinos

It is well documented that climate change can impact schooling outcomes. Not only can extreme weather events destroy or damage school buildings, extreme climatic conditions can also reverse schooling gains. Having higher-than-average temperatures is associated with fewer years of schooling. The longer that school is shut down due to extreme weather, the less likely it is that children will return. It is also likely that changes in temperature can lead to decreases in cognitive performance. At the same time, education can play an important role in adapting to and mitigating climate change. A robust education system can equip and empower people to deal with climate uncertainties. Adequate educational infrastructure in the short term can promote adaptation, but also can help equip learners with the skills, knowledge and attitudes needed to alter beliefs and behaviors.

Education as an enabler of green technological change

Another way that education may affect climate change is as an enabler of “green” innovation. The importance of skills and, subsequently, the role of education for innovation including the creation and adaptation of new technology are well established, and a number of studies have linked skills and human capital to the ability of firms to comply with environmental regulations and reduce pollution.

In a recent working paper, we study the link between education quality and carbon emissions through technological change using OECD data on employed individuals’ cognitive skills linked with their industries’ carbon emissions per unit of output from the European Union’s Air Emissions Accounts. Our findings from analyzing this data are consistent with production technology that is less reliant on emissions requiring workers, particularly those in managerial and professional occupations, having higher cognitive skills.  If greener technology requires more highly skilled workers, then the quality of education as the producer of skills in an economy plays a critical role in green technological change.

Carbon pricing has emerged as the most visible policy tool aimed at inducing green technological and has been subject to significant economic research.  For example, the research on carbon taxes generally predicts, in the absence of mitigating factors, several economic costs including reduced output and increased inequality resulting from the imposition of carbon taxes (though this has been challenged empirically). An additional consequence may be increased wage inequality between high and low skill workers if green technological change relies on higher skilled workers: a carbon tax may increase the demand for high skill workers relative to low skill workers. In this sense, green technological change may be skill-biased. Because skill acquisition is typically associated with individuals’ socioeconomic background, a carbon tax may increase the gap in future wages between wealthier and poorer children today. Increased inequality in addition to lost output is among the political barriers cited by commentators to countries’ pursuing carbon pricing.

In our study, we predicted how education quality interacts with carbon pricing’s effect on carbon emissions, output, and wage inequality, by estimating a general equilibrium, overlapping-generations model. We find that if education quality increased, a carbon tax would have a stronger impact on reducing carbon emissions and a less detrimental effect on output because a higher quality education system is better able to respond to the demand for higher skilled workers. Access to a higher quality education system for all would result in a carbon tax having a less detrimental effect on disparity in future wages between wealthier and poorer children today. While the economic costs of a carbon tax are typical for economic models used in the carbon tax literature, we demonstrate that education quality cam mitigate these economic costs and enhance the carbon benefits of a carbon tax.

For example, a series of simulations suggest that increases in school quality over time would reduce the impact of carbon taxes on wage inequality while reducing emissions and raising economic output. In the case of Poland, which experienced significant increases in PISA (OECD’s assessment of learning for 15-year-olds) scores increased substantially between 2000 and 2012. The implied increase in the elasticity of skill supply results in a marginal increase in carbon prices having a slightly larger effect on emissions reduction, a lower effect on reducing output, and a stronger effect on skills supply. The increase in education quality would imply a savings of 0.25 percent of GDP per year if carbon prices were increased to reduce emissions by 55 percent.

Carbon Co-Benefits of investing in education quality?

Quantifying carbon co-benefits has become increasingly mainstream in the evaluation of development projects. In the education sector, carbon co-benefits largely arise through the infrastructure component of investment projects. However, the reliance of green technology on higher cognitive skills demonstrated in our work indicates that investment projects which increase the quality of education would have significant carbon co-benefits through both the increase in cognitive skills of the workforce and through the ability of the economy to increase the supply of skills in response to carbon pricing. Carbon pricing is still relatively rare in low- and middle-income countries, but this is expected to change either directly through new carbon taxes or other pricing programs or indirectly through import requirements of high income or large middle-income countries.

The European Green Deal (EGD) is a growth strategy aimed at achieving carbon neutrality by 2050 in the EU by decoupling economic growth from natural resource use, where the transition within the EGD is based on the “no person and no place left behind” principle. The EGD lays out a prominent role for the education sector to help achieve the ambitious emissions reduction goals. New skills will be needed for future workers for “green” jobs. Our findings that cognitive skills associate with industries that are more efficient in terms of emissions per output, and subsequently the mitigating role of education quality, is consistent with greener technology requiring a higher level of skills than existing technology.

The policy implication of our work is that carbon pricing that is accompanied by improvements in education quality will result in better environmental and economic outcomes when carbon pricing is used to reduce emissions.

This blog was originally published on Let’s Talk Development: https://blogs.worldbank.org/developmenttalk/investment-education-quality-needed-enable-green-technological-innovation-and

Working Paper: Macdonald, Kevin Alan David and Harry Anthony Patrinos. 2021. Education Quality, Green Technology, and the Economic Impact of Carbon Pricing. Policy Research working paper, no. WPS 9808 Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/580021634238409921/Education-Quality-Green-Technology-and-the-Economic-Impact-of-Carbon-Pricing