GREEN GROWTH TOWARDS A STRATEGY FOR URUGUAY This report is one of a series of five products generated within the framework of the Green Growth Technical Assistance in Uruguay, of the World Bank: Green Growth: Towards a strategy for Uruguay (Spanish/English) Market Opportunities for Green Upgrading and Innovation. Sustainability demand analysis for the beef, soy, dairy and tourism industries (Spanish/English) Water quality modeling and update of the action plan for water quality in the Santa Lucia River basin (Spanish) Natural capital accounts of Uruguay: an initial approach and considerations for institutionalization (Spanish) Policy instruments for the control of water pollution and GHG emission from agriculture diffuse sources. Review of international experiences and guidelines for their design for nutrient control in the Santa Lucia River basin (Uruguay) (Spanish) GREEN GROWTH TOWARDS A STRATEGY FOR URUGUAY Environment and Natural Resources Global Practice, World Bank 21st June, 2018 © 2018 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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License: Creative Commons Attribution CC BY 3.0 IGO. Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party- owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re- use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Contents Executive Summary 9 1. Introduction 13 1.1. Objective and structure of this report 13 1.2. The green growth technical assistance in a nutshell 14 2. What is green growth? 17 2.1. Definitions 17 2.2. Green growth across the world 19 3. Why is green growth relevant for Uruguay? 23 3.1. Building on experience while overcoming the challenges ahead 24 3.2. Harnessing opportunities: green growth as a driver of trade competitiveness 32 4. Towards a roadmap 39 4.1. The road ahead: insights from the technical assistance 39 4.2. Final remarks: building the institutions for green growth 51 References 53   Green Growth 3 Complementary Studies: Abstracts 1. Market Opportunities for Green Upgrading and Innovation. Sustainability demand analysis for the beef, soy, dairy and tourism industries 59 2. Modeling water quality and updating the action plan for water quality in the Santa Lucia River basin 63 3. Natural capital accounts of Uruguay: an initial approach and considerations for institutionalization 67 4. Policy instruments for the control of water pollution and GHG emission from agriculture diffuse sources. Review of international experiences and guidelines for their design for nutrient control in the Santa Lucia River basin (Uruguay) 69 Figures Figure 1. Rough estimate of the share of Uruguay’s tourism and top four goods exports relative to the total value of goods and services exported, for 2016. 24 Figure 2. Wealth and GDP growth, 1995-2014 (comparing Uruguay to its peers in Latin America and the Caribbean and in the world). 25 Figure 3. Forest and agricultural land growth, 1995-2014. (comparing Uruguay to its peers in Latin America and the Caribbean and in the world). 25 Figure 4. Sustainable beef market attractiveness by region. 35 Figure 5. Soymeal consumption in Europe for 2016 and 2021. 36 Figure 6. Global milk market by type for 2016 and 2021. 36 Figure 7. Illustrative use of Strategic Environmental and Economic Accounts to show the contribution of the environment to the agricultural sector (upper panel) and the impacts of the agricultural sector to the environment (lower panel) for 2015. 41 Figure 8. Simulation of pollutant loads in the Santa Lucia River with the Aquatool model. 43 Figure 9. Conceptual framework for the integration of watershed nutrient modelling activities in a green growth program. 44 Figure 10. Scheme for priority setting. 45 Figure 11. Priority setting applied to green upgrading in agriculture. 46 Tables Table 1. Characterization of the Income Tax on Economic Activities (IRAE) and Tax on the Sale of Agricultural Goods (IMEBA) for agricultural producers. 48 Boxes Box 1. Recent technical assistance support by the World Bank. 15 Box 2. Tourism as part of green growth. 33 Box 3. International experience in the use of policy instruments for non-point sources pollution in agriculture. 49 4 Green Growth Acronyms ANII National Agency of Research and Innovation APEJ Asian-Pacific excluding Japan BCU Banco Central del Uruguay CAGR Compound Annual Growth Rate DACC Development and Adaptation to Climate Change (World Bank Project) DINAGUA National Water Directorate DINAMA National Directorate of the Environment DNE National Directorate of Energy EU European Union FAO Food & Agriculture Organization of the United Nations GDP Gross Domestic Product GEF Global Environmental Facility GHG Greenhouse Gases GM Genetically Modified GSTC Global Sustainable Tourism Council IDB Inter-American Development Bank IMEBA Tax on the Transfer of Agricultural Goods INAC National Meat Institute INIA National Institute of Agricultural Research INUMET Uruguayan Institute of Meteorology Green Growth 5 IRAE Income Tax on Economics Activities JICA Japan International Cooperation Agency MEF Ministry of Economics and Finance MGAP Ministry of Livestock, Agriculture and Fisheries MIEM Ministry of Industry, Energy and Mining MTOP Ministry of Transport and Public Works MVOTMA Ministry of Housing, Land Use Planning and Environment NDC Nationally Determined Contributions Non-GM Non-genetically modified organisms OECD Organization for Economic Co-operation and Development OPP Office of Planning and Budget OSE National Water Supply and Sanitation Company REDD+ Reducing Emissions from Deforestation and forest Degradation, plus the sustainable management of forests, and the conservation and enhancement of forest carbon stocks SNAACC National Secretariat of Environment, Water and Climate Change SNIA National System for Agricultural Information SNIG National System of Cattle Information STI Sustainable Travel International UdelaR University of the Republic UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change URSEA Regulatory Unit of Water and Energy Services US United States of America VAT Valued Added Tax 6 Green Growth Acknowledgements This report was written under the leadership of Valerie Hickey, Manager of the Global Practice of Environment and Natural Resources, and Jesko Hentschel, Country Director, by a team led by Gianni Ruta, Alberto Criscuolo and Remi Trier, and composed by Melissa Castera Errea and Juan-Pablo Castañeda. The work was carried out in close collaboration with the technical staff of the National Secretariat for Environment, Water and Climate Change, the Ministry of Housing, Territorial Planning and the Environment, the Ministry of Livestock, Agriculture and Fisheries and the Ministry of Economy and Finance of Uruguay. The contributions of Paul Martin, Carole Megevand, Matilde Bordón, and Valeria Bolla are gratefully acknowledged. In addition, the support of Heber Tito Galvez and Maria Beatriz García is recognized with gratitude. Finally, the suggestions and recommendations provided by the reviewers are greatly appreciated: Martin Raiser, Etienne Raffi Kechichian, Svetlana Edmeades, Marianne Fay and Catalina Ramirez. Green Growth 7 8 Green Growth Executive Summary G reen growth aims to reconcile time, preserve the asset base on which such economic growth and environmental growth depends. It is based on the findings of sustainability. Although there are many a technical assistance financed by the World definitions of green growth, one aspect that Bank that took place between August 2016 and is common to all the revised definitions is the March 2018, as well as Uruguay’s experience possibility of generating new opportunities for in environmental sustainability policies, the growth and inclusion, as well as avoiding the costs collection of international evidence, with an of environmental degradation and the irreversible example of countries like Colombia and Korea, loss of options for future development. Economic and the World Bank’s experience with Uruguay growth and environmental sustainability can during the last decade. This report is fed and be perceived as conflicting objectives but this complemented by four other reports, each is misleading. A green growth approach to focused on one of the four key lines of work development reconciles these policy objectives by developed under the technical assistance: (i) enabling the country to harness its natural capital Market opportunities for green upgrading and for growth and by using growth as an incentive innovation; (ii) Water quality modeling and to nurture their natural asset base. Green growth updating of the action plan for water quality in is about marrying environmental objectives with the Santa Lucia River basin; (iii) Natural capital productivity objectives, job creation, technology accounts for Uruguay: an initial approach and adoption, and higher value added. The considerations for institutionalization; (iv) Policy transmission channels between green and growth instruments to control water pollution and the will, however, vary from one country to the other. emission of greenhouse gases (GHG) from diffuse sources of agriculture. This report provides a roadmap to boost green growth in Uruguay. The purpose of the proposed This report proposes an operational definition roadmap is to promote growth and, at the same for Uruguay. Natural capital plays a key role in Green Growth 9 promoting the country’s export-oriented growth extreme variability of water resources availability model. Uruguay has already engaged in a throughout the year. This affects not only the sustainable growth trajectory for key economic production but also the availability of drinking sectors (such as agriculture, tourism, forest water for human consumption. In the future, the management, energy), but needs to define country’s ambition to increase its agricultural a green growth strategy to tackle emerging production along with its small geographical environmental challenges. In that sense, green size will require greater efforts in sustainable growth can be seen as a strategic framework and intensification. A green growth approach allows a set of tools to take advantage of natural capital addressing this type of challenges through a and avoid environmental irreversibilities to sustain system of data collection, information analysis and inclusive growth. The technical assistance served decision making that integrates various sectors as a space to identify information tools and and seeks to prioritize actions that have tangible policy options to comprehensively harmonize short-term benefits and avoid high remediation the objectives of growth and environmental costs in the future. sustainability. In addition to addressing some of these Uruguay is not new to green growth. During the challenges, green growth would also help last decade, the country developed the concept promote Uruguay’s competitiveness in global of sustainable intensification in agriculture and value chains that offer higher markups for more is implementing an innovative policy of soil sustainable products. Focusing on a selected protection by enforcing mandatory management number of value chains, the technical assistance plans for the preservation of soils and waters found that there are important growth prospects with agricultural purposes and the recovery of and attractive price margins in the niches of eroded soils. Uruguay implemented a monitoring sustainable beef, non-genetically modified (non- system for phytosanitary products, and also has GM) soy, organic milk powder and adventure a traceability program in the production of beef tourism. In general, the analysis showed that there and other agricultural products. The country is strong global demand for the green products also developed an irrigation strategy and its analyzed, which is expected to grow between corresponding action plan that aims to promote 6 percent (sustainable meat) and 40 percent the development of a climate-smart agricultural (adventure tourism) per year over the next five sector. These examples testify not only to years. It is expected that this demand brings Uruguay’s efforts to promote environmental along higher margins compared to conventional sustainability but also to the need to stimulate products. Greener products can help diversify economic growth. exports towards niches of higher added value, while favoring investments in capacities and However, going forward, the country will be promoting the adoption of new technologies and called to tackle some challenges, for which practices, and contributing to the improvement of a green growth lens may be important. Soil the management of the natural resource base of erosion, phosphorus and nitrogen pollution, growth sectors. pesticide management, and greenhouse gas emissions represent some of the recurring By factoring in Uruguay’s current growth themes in the country’s decision-making trajectory, this report translates Uruguay’s process. The management of water quality strategic goals into a five-step actionable represents a particularly important challenge. roadmap to promote green growth. A first step In spite of the abundance in the annual average is to identify the possible ways in which green precipitation, Uruguay suffers naturally from an growth policies can boost Uruguay’s growth, e.g. 10 Green Growth by contributing to more efficient use of natural welfare. The technical assistance identified a resources, or by serving as an economic stimulus number of untapped opportunities for designing and create employment. economic incentives to control non-point source pollution in agriculture. Finally, a green growth As a second step, recognize that green growth strategy should establish the mechanism for policies do have environmental benefits, identify evaluating and adjusting green growth policies. the timing and geographic scale of such benefits, and identify the risks of irreversibilities that Continuing along the green growth path will they can help avert. The water quality modeling require institutions and political leadership. tool piloted during the technical assistance In this sense, the creation of the National represents a highly valuable information tool to Environmental System, with the National evaluate environmental performance of different Secretariat of Environment, Water and Climate policy measures and development scenarios Change (SNAACC) and the National Cabinet of in the Santa Lucia River watershed. A third step Environment, along with the long-lasting efforts of is to define criteria to prioritize possible green key line ministries such as the Ministry of Livestock, growth policies. As an example, priorities can be Agriculture and Fisheries (MGAP) and the set across two dimensions: (i) synergies between Ministry in charge of the environment (MVOTMA), different types of benefits (e.g. local / short term); have been critical milestones in Uruguay’s efforts (ii) urgency of action. With priorities set, a fourth towards sustainable development. As a national step consists of defining the policy instruments green growth strategy takes form, anchoring the that could help achieve environmental objectives vision to a solid institutional framework will be key while promoting sustained growth and social for the very sustainability of this vision. Green Growth 11 12 Green Growth Chapter 1 Introduction Objective and structure of World Bank’s involvement on these topics over the last decade. this report B The report is structured in three sections, each ased on the insights of a World Bank- one answering a key question: financed green growth technical assistance, this report provides the (a) What is green growth and what could it poten- elements of a roadmap for implementing green tially mean for Uruguay? Previous experiences growth in Uruguay. It sets forth the key building have demonstrated that green growth is not blocks and principles to develop a strategy that defined in the same way by countries as there combines the objectives of sustaining the growth is no all-encompassing outright definition. already underway in Uruguay with environmental Here, a definition of green growth is suggest- sustainability that will maintain the asset base on ed for Uruguay building on its existing initia- which that growth depends. As the report shows, tives. green growth is of utmost relevance to Uruguay, (b) Why is green growth relevant for Uruguay? since the country’s successful growth model is Uruguay has set ambitious goals, which will rooted in the country’s rich asset base. In this put more stress on its natural base, for the context, environmental – or green – policies need coming years. At the same time, this techni- not exist exclusively to protect the environment: cal assistance envisages several opportunities they can in fact be a driving force for growth and that Uruguay could exploit. This report marries development. The report builds on the findings of challenges to these potential opportunities. the deliverables produced through the technical (c) How could Uruguay move forward on imple- assistance that was carried out between August menting green growth? There is not a single 2016 and March 2018; Uruguay’s experience on recipe for green growth; instead, by factoring sustainability; international knowledge; and the in Uruguay’s current growth trajectory, this re- Green Growth 13 port translates Uruguay’s strategic goals into be scaled up to other parts of the country. an actionable roadmap. • Natural Capital Accounts for Uruguay: An Initial Approach and Considerations for In- stitutionalization: this line of work aimed at strengthening local capacities and generating The green growth technical a tool to enable decision-makers to account assistance in a nutshell for nature’s role in the economy and human well-being by integrating monetary variables Before proceeding, it is useful to provide an of national accounts with physical variables of overview of the technical assistance efforts capital accounts natural. Focus was given to provided over the past 20 months. The technical the agricultural and forestry sector at the na- assistance was a joint effort between the World tional level and on the quantity and quality of Bank and the Government of Uruguay to identify water for the Santa Lucia River basin. programs, policies and institutional arrangements • Policy Instruments to Control Water Pollution to support the country’s growth model while and Green House Gas (GHG) Emissions from promoting the sustainable and efficient use of Diffuse Sources of Agricultural Activity: This environmental services and natural resources. line of work aimed at generating knowledge about economic instruments to mitigate pol- The technical assistance output is composed lution, in line with other initiatives that analyze of five reports, including this document. To this type of instruments that have been devel- achieve the technical assistance’s goal, four lines oped in the country. Economic instruments of work were developed to create knowledge, have the advantage, compared to other poli- build counterpart capacity, and develop policy cy instruments such as command-and-control dialogue. The outputs of each line of work are regulations, of promoting efficiency. Focus- summarized here: ing on a special type of problem, non-point source pollution1 in agriculture, the work re- • Market Opportunities for Green Upgrading viewed the international experience on the and Innovation: by conducting a demand application of economic instruments, brought analysis of green international market trends together experts and analyzed options for pol- and prices, this line of work identified the low- icy design in Uruguay. hanging-fruit for green upgrading in key in- ternational value chains. The work focused on The technical assistance benefitted from a beef, dairy, soy and tourism industries. highly collaborative effort between Uruguayan • Water Quality Modelling and Updating of partners and the World Bank. This effort builds the Action Plan for Water Quality in the San- on several prior initiatives (Box 1). The Uruguayan ta Lucia River Basin: this line of work aimed at partners involved included representatives from strengthening local capacities and generating the National Secretary of Environment, Water a water quality management tool to support and Climate Change (SNAACC), the Ministry decision-making processes, and at elaborat- of Economics and Finance (MEF), the Ministry ing a roadmap to improve measures for water of Livestock, Agriculture and Fisheries (MGAP), pollution control. The technical assistance fo- the Ministry of Housing, Territorial Planning and cused on a critical pollution hotspot and im- the Environment (MVOTMA), and the Office portant water supply source: the Santa Lucia of Planning and Budget (OPP). The project River watershed. Lessons from this effort can also counted with the collaboration of the 1  In this document, diffuse and non-point sources are used interchangeably. 14 Green Growth Box 1. Recent technical assistance support by the World Bank. The green growth technical assistance builds on a strong set of analytic efforts that took place in recent years. These include, among others, the programmatic approach “Water for Uruguay” and the technical assistance “Low emissions growth options for Uruguay”. Water for Uruguay aimed at informing Government’s formulation and design of future policies and investments programs in the rural and urban water use and management domains. It built cross-sectorial intervention in water related sectors on climate change resilience and integrated water resources management and development. The agencies involved included MGAP, DINAMA and DINAGUA of MVOTMA, OSE, the Regulatory Unit of Water and Energy Services (URSEA), and the Uruguayan Institute of Meteorology (INUMET). Cross-linkages between these agencies where created through the implementation of activities, including: the development of an irrigation strategy and the revision support of an irrigation bill to promote Climate-Smart Water Agriculture Management; the development of a dam-safety legal framework; the promotion of industrial pollution control; the piloting of an Integrated Urban Water Management methodology; and the strengthening of institutional capacity to support low emissions growth options. The objective of the technical assistance on Low emissions growth options for Uruguay was to identify opportunities for low-cost reductions in emissions from the agriculture, energy, transport and waste management sectors. The study was specifically tailored to highlight ways in which Uruguay can maintain its growth path, specifically in the agriculture sector, while at the same time reducing the overall emission intensity. This initiative counted on the support of several Uruguayan government counterparts, which included the Climate Change Division of DINAMA, MGAP, Ministry of Transport and Public Works (MTOP) and National Directorate of Energy (DNE) to ensure that the study took into consideration all stakeholders in government and civil society. academia, the Central Bank of Uruguay (BCU), The work on water modelling in the Santa Lucia the National Institute of Statistics (INE) and the River watershed, fostered the creation of two national water supply and sanitation company working groups. One of these dealt with the (OSE). The leadership role played by SNAACC development of the water modelling tool with as a coordinating entity facilitated interactions the participation of MGAP, SNAACC, and the among actors and catalyzed results. National Environmental Directorate (DINAMA) and the National Water Directorate (DINAGUA) The technical assistance strengthened dialogue divisions of MVOTMA. The other one dealt with and collaboration across ministries and between the creation of the roadmap to update the Action the Government and the non-government Plan for water protection in the Santa Lucia River stakeholders. For example, the work on market watershed and counted with an even broader opportunities relied on inputs from counterparts inter-institutional involvement: MVOTMA to identify the potential low-hanging fruit that (DINAMA and DINAGUA), MGAP, SNAACC, OSE, could leverage Uruguay’s export performance. academia (University of the Republic), MEF and Green Growth 15 the National Institute of Agricultural Research from MEF, MGAP, MVOTMA, MIEM, OPP, among (INIA). The work on economic instruments others. The work on natural capital accounts benefitted from a rich discussion on the political was realized through the hands-on involvement feasibility and practicality of implementing of staff from SNAACC, MVOTMA, and MGAP. certain policy instruments. This discussion saw Government experts gathered data and built the participation of academia, international pilot accounts for agriculture, which includes organizations and government officials, namely also forestry, and water. 16 Green Growth Chapter 2 What is green growth? Definitions Growth” (OECD, 2011), provides the following G definition: reen growth as seen by the OECD. “Green growth means fostering economic growth The meeting of the OECD Council and development while ensuring that natural as- of Ministers in June, 2009, issued sets continue to provide the resources and envi- a Declaration on Green Growth in which the ronmental services on which our well-being relies. Council recognized that economic recovery and To do this it must catalyze investment and inno- sustainable economic growth are key challenges vation which will underpin sustained growth and facing all countries, and that well-targeted policy give rise to new economic opportunities” (OECD, instruments can be used to encourage green 2011, p.4). investment to contribute simultaneously to economic recovery in the short-term, and help The UN definition. The Rio+20 United Nations build a green economy in the long-term. The Conference on Sustainable Development in 2012 Declaration also noted that for countries to move established the Global Green Growth Institute towards sustainable low-carbon economies, (GGGI) as an international organization dedicated international co-operation will be crucial in to supporting and promoting strong, inclusive areas such as the development and diffusion and sustainable economic growth in developing of clean technologies, and the development countries and emerging economies. The GGGI of an international market for environmental has defined Green Growth in the following terms: goods and services, and called on the OECD to develop a Green Growth Strategy in order to “In contrast to conventional development models achieve economic recovery and environmentally that rely on the unsustainable depletion and de- and socially sustainable economic growth. This struction of natural resources, green growth is a strategy, published in 2011 “Towards Green coordinated advancement of economic growth, Green Growth 17 environmental sustainability, poverty reduction flecting local contexts and preferences—but all and social inclusion driven by the sustainable de- countries, rich and poor, have opportunities to velopment and use of global resources” (United make their growth greener and more inclusive Nations in Republic of Korea, 2012). without slowing it. The World Bank approach to green growth and Common and recurring features. An aspect that practical considerations. In the May 2012 report is common to all definitions is the idea that green “Inclusive Green Growth”, the World Bank defined growth is not just about avoiding the negative Green Growth as “growth that is efficient in its use (environmental) externalities of growth, including of natural resources, clean in that it minimizes locking in unsustainable practices, but also about pollution and environmental impacts, and resilient unveiling opportunities. Economic growth and in that it accounts for natural hazards and the environmental sustainability can be perceived as role of environmental management and natural conflicting objectives. This is misleading. A green capital in preventing physical disasters. And this growth approach to development reconciles growth needs to be inclusive” (World Bank, 2012). these policy objectives by enabling the country to In its key messages, the report emphasized that: harness its natural capital for growth and by using growth as an incentive to nurture their asset base. • Greening growth is necessary, efficient, and af- The appeal of the green growth concept is both fordable. It is critical to achieving sustainable strategic and analytical (Bowen & Fankhauser, development and mostly amounts to good 2011). From a strategic point of view, green growth growth policies: necessary to avoid environ- allows environmental protection to be cast as a mental degradation and natural resources question of opportunity and reward, rather than depletion, endangering people’s welfare; a costly restraint. From an analytic point of view, efficient by improving the efficiency of the green growth is about marrying environmental processes of investing in and using up of as- objectives with productivity objectives, job sets; affordable by reducing the cost of clean- creation, technology adoption, and higher value up, recovery and inputs needed to generate added. The transmission channels between green well-being. and growth will, however, vary from one country • Obstacles to greening growth are political to the other. and behavioral inertia and a lack of financing instruments—not always the cost of green poli- Towards a meaningful definition for Uruguay. cies. Green growth for Uruguay could be seen as the • Green growth should focus on what needs to strategic lens and the set of tools to harness natural be done in the next five to 10 years to avoid capital and avoid environmental irreversibilities getting locked into unsustainable paths and to sustain inclusive growth. Uruguay has already to generate immediate, local benefits. Green engaged in a sustainable trajectory for growth growth reveals opportunities for growth also for key economic sectors, but it needs to define in the medium and long term. a green growth strategy to tackle emerging • The way forward requires a blend of econom- challenges. At the same time, adopting a green ics, political science, and social psychology— growth trajectory is not static. Through the smart solutions to tackle political economy technical assistance, green growth has emerged constraints, overcome deeply entrenched as an overarching framework to think about behaviors and social norms, and develop the development. A framework to enable the country needed financing tools. to achieve robust growth without locking itself into • There is no single green growth model. Green unsustainable patterns and to constantly readjust growth strategies will vary across countries, re- its growth strategy to find new opportunities amid 18 Green Growth changing threats. Rather than developing a theory time incomes (GNI per capita) rose from about of green growth, the technical assistance served US$130 in 1965 to over US$27,600 in 2016. as a space to identify practical tools and policy options to reconcile the objectives of growth Korea is also a country actively implementing a and environmental sustainability. The result has green growth paradigm. Policy-makers in Korea been to provide decision makers and the society sought transformation, not marginal adjustment, as a whole with an instrument to help sustain of the economy, which relies heavily on energy- adaptively a green growth strategy in Uruguay. intensive industries (which doubled its GHG during the 1990s) and massive energy imports (which account for two-thirds of imports). In pursuing green growth, they are combined Green growth across the three complementary and mutually reinforcing world objectives: responding to the economic crisis, reducing the country’s energy dependency, The concept of green growth has its origins and rebalancing the economy toward green in the Asia and Pacific Region. At the Fifth sectors over the long term in a search for greater Ministerial Conference on Environment and resilience and competitiveness. Development held in March 2005 in Seoul, 52 Governments and other stakeholders from Korea’s US$31 billion stimulus package, Asia and the Pacific agreed to move beyond adopted in 2009, was the greenest of any the sustainable development rhetoric and country, with 80 percent of all funds going pursue a path of “green growth”. In 2008, partly toward environment-friendly projects. in response to the global financial crisis, the Investments initially targeted infrastructure as Republic of Korea adopted low carbon green a short-term response to the crisis. Projects growth as the country’s new development vision, included the development of renewable energy which was followed shortly after by the release in sources, energy-efficient buildings, and low- 2009 of their National Strategy for Green Growth carbon vehicles; the expansion of railways; and (Republic of Korea, 2009b) and Five-Year Plan the management of water and waste. Most of for Green Growth (Republic of Korea, 2009a), the green investment funded three initiatives: which were accompanied by the enactment of river restoration, expansion of mass transit and a Framework Act on Low Carbon Green Growth. railroads, and energy conservation in villages Korea has since been instrumental in promoting and schools. Together the three initiatives were the concept more broadly, including through the estimated to create 500,000 jobs. OECD. Today a large number of countries have taken up the concept and adapted it to their Korea’s motivations for implementing green development challenges, and have adopted growth transcend the 2008 global economic green growth strategies in one way or another. crisis. Well before the crisis, the country was rethinking its growth model, which it recognized Korea as unsustainable given the upward trend in energy prices. Faced with high energy prices Korea provides an excellent example of a and rising concerns over climate change, it country that has dealt successfully with rapid announced a new long-term energy strategy in urbanization and harnessed remarkable August 2008. This strategy aims to reduce energy economic growth. Korea’s urbanization rate intensity by 46 percent and increase the share increased from less than 30 percent in the early of renewable energy in total primary energy 1960s to 82 percent in 2010 while at the same from 2.4 percent in 2007 to 11 percent by 2030. Green Growth 19 The government also established mandatory excessive drainage, groundwater extraction, reporting of carbon emissions by all carbon- and and overfishing. Droughts, salinization, extreme energy-intensive industries. temperatures, and changes in growing seasons and floods, compounded by sub-standard Vietnam housing in exposed areas and a lack of assets to buffer shocks, strongly impact the livelihoods of Thirty years of rapid and inclusive economic poor rural and urban households. Over the past growth have raised Vietnam’s status to that 25 years, extreme weather events have resulted of a lower-middle-income country, creating in 0.4 to 1.7 percent of GDP annual loss. By 2050, opportunities for people and businesses. Its a 1–3 percent loss in real GDP is predicted from GDP growth per capita has averaged 5.5 percent climate change impacts. a year since 1990, yielding per capita gross national income (GNI) of US$1,980 in 2015. Vietnam has stepped up its efforts to re-orient Growth has been inclusive: incomes have risen development towards green growth. The across the income distribution, while growth in National Climate Change Strategy and Vietnam inequality has declined. Growth has bolstered Green Growth Strategy lay out a vision not just shared prosperity and achieved strong gains in to address a set of specific climate risks and poverty reduction: the percentage of people opportunities to reduce waste and pollution, but living in extreme poverty (US$1.9 per day) stands to re-orient the whole economy towards a more at less than 3 percent today. Key social indicators sustainable mode of planning, incentives and have improved substantially: the population is development, which aims to position Vietnam better educated, has a higher life expectancy as a modern competitive economy with high and a lower maternal mortality ratio than that of quality of life, and as a responsible member of most countries at a similar income level. Access the international community, on par with other to basic infrastructure including electricity, clean major economies. The climate change strategy water, and modern sanitation has also risen identifies the need for action on a range of threats drastically, from less than half to more than 75 (e.g. disaster risk management, food and water percent of the population. Despite rapid and security, sea level rise) as well as opportunities significant reductions in poverty over the last for emissions reductions (e.g. renewable energy, decades, significant pockets remain, particularly energy efficiency, resource-efficient agriculture, in vulnerable coastal areas and the Mekong and waste reduction and management). It River and Red River deltas where populations also stresses its foundations in an ecological are highly exposed to impacts associated with approach, particularly the importance of forests, climate change, including sea level rise. improving capacity across state, private and public entities, and achievement of a range of The effects of climate change on Vietnam’s broad socio-economic objectives, including development achievements and future growth food security, energy security, poverty reduction, objectives require strengthened resilience gender equality, social security, public health and planning and financing to stem impacts, livelihoods. The green growth agenda is almost particularly among the poor who are often entirely contained within that of the climate disproportionately affected. Vietnam does and change strategy as it focuses on sustainable use will increasingly experience significant impacts of natural capital, improving the efficiency of the from climate change, largely attributed to high resources used and reducing waste. However, and increasing exposure to gradual-onset the emphasis is not on managing risks, but rather impacts. Climate risks to coastal economies are on improving the quality of economic growth aggravated by the loss of mangrove forests, and therefore living standards through a healthy 20 Green Growth environment, and increasing competitiveness path. Pressures on natural resources exerted by and sustainability. It also recognizes even more industry—notably extractives, extensive livestock centrally, the reliance on the public and private farming, urbanization, and motorization—have companies to change the patterns of consumption created levels of environmental degradation that and investment. impose significant and rising economic costs. Deforestation, land degradation, and soil erosion Colombia result in annual economic losses estimated to be around 0.7 percent of GDP, and occur primarily Colombia’s dependence on its unique in areas of agricultural expansion, illegal mining, endowment of natural wealth underscores the and drug-related activities. Extensive agricultural urgency to ensure green economic growth. The production occupies 35 million hectares of country has a diverse geography with a variety of land, of which only 15 million are suited for such landscapes and ecosystems, and considerable purposes. Deforestation is poised to worsen in renewable and non-renewable resources. Hosting the absence of controls in many post-conflict close to 10 percent of the planet’s biodiversity, areas and important watershed ecosystems. Colombia ranks second among countries with the greatest biodiversity in the world (Convention on The country has become a global green growth Biological Diversity, n.d.). It ranks seventh in the champion in recent years. Green growth has world in terms of area covered by tropical forests emerged as a model of growth that ensures the (FAO, 2015); natural forests cover more than protection of the country’s natural capital base, half the country’s mainland area. These assets prevents externalities associated to the costs of constitute a comparative advantage to develop its degradation, contributes to competitiveness, nature based economic sectors such as tourism, and reduces the impacts of natural disasters pharmaceuticals, cosmetics and agribusiness. and climate change. Colombia adhered to the In monetary terms, natural capital represents 15 OECD Green Growth Declaration in 2012 and is percent of the country’s total wealth. GDP share committed to decrease GHG emissions by up to of income from natural resources2 shows an 30 percent by 2030 in its Nationally Determined increasing trend: from 0.51 percent in 1970 to Contributions (NDC). In addition, it has committed a maximum of 9.28 percent in 2011. However, to restore one million hectares of degraded land, Colombia is extremely vulnerable to extreme to reach zero net deforestation in the Amazon by weather events such as El Niño and La Niña that 2020 and to achieve the Sustainable Development result in floods (and landslides) and droughts; with Goals (SDGs). The 2016 Peace Agreement severe socio-economic impacts, that affect the with the FARC explicitly targets environmental poor more severely. These events are expected sustainability by indicating that development to increase in frequency and intensity with climate during the post-conflict period should guarantee change, and their impacts are being exacerbated socio-environmental sustainability and should by the degradation of ecosystems. Moreover, the not expand the agricultural frontier. A carbon tax renewable portion of Colombia’s natural capital aimed to discourage fossil fuel consumption has has diminished over time. also been established. Latest in this series of efforts, in February 2017, the Government launched the Key economic sectors—notably transport, Green Growth Mission to prepare the analytical energy, industry, and agriculture—contribute underpinnings that will serve as a base to develop to environmental degradation in Colombia, a long term national green growth policy. The pointing to the need for a greener growth policy was approved in July 2018. 2  The sum of the total value of oil, natural gas, coal, mineral and forest assets. Green Growth 21 22 Green Growth Chapter 3 Why is green growth relevant for Uruguay? G reen growth is of strategic relevance to assets provide the resources and environmental Uruguay, first of all because the country’s services on which the economy is based. successful growth model is rooted in the country’s rich natural asset base. Rapid growth in Uruguay stands out as an economy that is Uruguay has been associated with an increasingly building wealth as it grows, and which is important role of trade in the economy. Over the investing in its natural capital base. Key to period 2005-2015, exports averaged 26 percent sustainable development is the concept of capital of GDP (World Bank, 2015), while imports and accumulation. While GDP provides a measure exports combined represented 53 percent of of how much an economy produces each year, GDP in 2014 (World Bank, 2015), with Uruguay capital – or wealth – provides a measure of the expanding its presence in the world markets more assets on which production relies. GDP, taken rapidly than its neighbors, Brazil and Argentina. alone, can be misleading as GDP can grow by Rapid export growth has been accompanied selling out assets (e.g. by depleting forests, by job creation. Currently, about 30 percent of soil or mineral deposits). Recent estimates of jobs are linked to the export sector (World Bank, total wealth (World Bank, 2018) i.e. the sum of 2015). Underlying this success, is the country’s rich produced, natural and human capital) show that natural asset base, namely its fertile land, its water Uruguay has increased its total capital by nearly 4 resource abundance, timber wealth and tourism percent per year between 1995 and 2014 (Figure potential. As shown in Figure 1, Uruguayan exports 2). As such, it stands above regional peers such as depend heavily on renewable natural resources Argentina (around 2 percent), Brazil (around 2.5 and environmental services. With tourism, percent) and Colombia (around 3 percent). More agricultural and forest products constituting the in general, the figure shows that GDP growth is top five export sectors, together accounting for positively correlated with total wealth growth: around 50 percent of the total value of exports, fast growing countries tend to accumulate it is clearly important to ensure that natural wealth faster. While there can be variability, the Green Growth 23 Figure 1. Rough estimate of the share of Uruguay’s tourism and top four goods exports relative to the total value of goods and services exported, for 2016. 18 16 14 12 Share percent 10 8 6 4 2 0 Tourism Beef Soy Wood Dairy Source: own elaboration with data from Uruguay XXI and Uruguay XXI, 2017b. chart seems to suggest that the path to long Uruguay is already on the path to green growth. term growth is characterized by accumulation of A MGAP’s report published in 2017 reports the produced, natural and human capital. Looking progress made by adopting since 2010 an “agro- more closely at natural capital (Figure 3), it is smart” approach for Uruguay as a platform for possible to see different development models competitive and innovative economic growth across the quadrants of the chart. Some countries and development (MGAP, 2017b). This approach have been converting forest land capital into involved the creation of several public policies agricultural land capital (e.g. Malaysia, Nicaragua, around six strategic axes which include the Ecuador, Argentina), others have depleted both promotion of production intensification that is (e.g. Jamaica, Colombia and Venezuela). Uruguay sustainable, and climate change adaptation and has been investing both in its agricultural land, its cobenefits. with a 5 percent growth per year between 1995 and 2014, and its forest capital, with a 4 percent But MGAP has set an ambitious goal: almost growth over the same period. In this sense, the doubling the number of people fed by country stands out compared to peers. Uruguayan products from 28 million to 50 million consumers worldwide. With only 3.5 million people in the country, exports account for the largest portion of food production. Producing Building on experience while food for 50 million people is a major challenge overcoming the challenges for a country with only 16.4 million hectares of agricultural land. In particular, there are four key ahead issues as Uruguay aims at sustaining this increase of agricultural production: (i) a sustainable use Several initiatives have been launched and of natural resources (especially soil, water, forest implemented in the agriculture sector showing and biodiversity); (ii) an increasing attention 24 Green Growth Figure 2. Wealth and GDP growth, 1995-2014 (comparing Uruguay to its peers in Latin America and the Caribbean and in the world). 7 Annual average total wealth growth (%) 6 Peru Chile Malasia Ecuador 5 Panama Costa Rica Nicaragua Dominican R. Uruguay Korea 4 Guatemala Honduras Polonia Venezuela Colombia 3 LAC Bolivia Haiti Brazil Argentina Belize 2 OECD Mexico 1 Jamaica 0 0 1 2 3 4 5 6 7 Annual average GDP growth(%) Source: authors calculations based on data from World Bank, 2018. Figure 3. Forest and agricultural land wealth growth, 1995-2014 (comparing Uruguay to its peers in Latin America and the Caribbean and in the world). 5 Virtuous 4 Uruguay Annual average forest capital growth (%) 3 Dominican R. 2 Chile 1 Costa Rica Polonia Korea Mexico Panama Haiti 0 Brazil -4 -2 0 OECD 2 Peru 4 6 8 10 12 BoliviaArgentina Venezuela Belize Ecuador Jamaica -1 Colombia Guatemala Nicaragua LAC Malasya -2 Honduras Depleting away -3 Switching Annual average agricultural land capital growth(%) Source: authors calculations based on data from World Bank, 2018. Green Growth 25 to emerging public health-environmental Sustainable use of agricultural soil concerns; (iii) an enhancement of agriculture resilience, especially to climatic variability; and Uruguay is implementing an innovative soil (iv) the achievement of commitments related to protection policy by enforcing mandatory Land the climate mitigation agenda. Several of these Use and Management Plans for the recovery of points are discussed in the following paragraphs. agricultural eroded soils. Since 2013, farmers The discussion starts from the key achievements engaged on crop cultivations3 are legally to date and continues by laying out the future required to submit their land use plans, which challenges. cannot exceed soil erosion thresholds, along with evidence of crop rotation. Since 2017, this Uruguay’s trajectory requirement applies to any farmer cultivating over 50 hectares of arable land. The plans and Sustainable intensification as a the evidence presented are inspected by the response to the need for sustainable Government in a first stage through remote use of natural resources sensing technology (to detect crops without a plan of use), and then with field inspections Over the last decade, the MGAP developed for final control. By October 2017, 12,493 plans the concept of sustainable intensification had been presented, covering 1.88 million in agriculture. The concept of sustainable hectares and 96 percent of all crop producers intensification involves, among others, the following over 100 hectares. To date, Soil Management dimensions: sustainable soil management, Plans have proven, through meticulous data incorporation of water in the production systems collection and the preparation of hundreds of under a sustainable vision (quality and quantity), soil use and management plans, that Uruguay’s sustainable management of grazing areas, agriculture generates high levels of production responsible use of pesticides, traceability and food with less erosion potential for agriculture. It is innocuity for food consumers. expected that erosion will be reduced by 80 percent (MGAP, 2017b) and that this reduction The development of comprehensive information will have a series of positive impacts in addition systems such as the National System for to the conservation of soils itself, such as the Agricultural Information (SNIA) are at the core reduction of carbon emission and the reduction of improving nature resources management. of nutrient transport and contamination to water While still under construction, the SNIA will bodies (such as in the Santa Lucia River basin). enable to trace the impacts on soil, water and It also has been demonstrated Uruguay’s vast forests associated with agricultural production. capacity for implementing planning approaches It will also support the enforcement of policies with high degrees of success, largely due to (soil, traceability, certification, etc.) and so will be the country’s size, homogeneity, capacity for a promising tool to support the access to green data collection and for developing innovative markets. The SNIA will integrate all the distinct tools. The compliance of the policy has been information modules of the MGAP, such as the supported by a geo-referenced module existing traceability system for livestock and (Sistema de Gestión de los Planes de Usos) for the existing system of agrochemical use, and the management and remote monitoring of the upcoming Soil Information System, which said plans with the purpose of integrating it into is currently under construction, and the Soil the SNIA. Management Plan System, among others. 3  Meaning agriculture activities excluding natural grazing areas and artificial pastures. 26 Green Growth Sustainable management of natural production systems (mostly grains and forage) is biomes not expected to increase dramatically the water consumption (as the water requirements for Uruguay has been implementing institutional supplementary irrigation is very low compared changes and projects to promote sustainable to rice, for example). It is also expected that the management of grazing areas and forests. incorporation of modern techniques of irrigation The grazing areas (Campos Naturales) are the in the cropping systems will reinforce the policy predominant landscape in Uruguay (70 percent of soil preservation and the mitigation agenda of agricultural land). They have a key role in by: (i) securing a better soil coverage; (ii) allowing agricultural production as a food source, and a wider spectrum of crop diversification (by also provide several ecosystem services (carbon removing the potential bottleneck of water deficit dioxide absorption, generation of soil, provision for crops with higher water requirements); and (iii) of clean water, recycling of nutrients, provision of contributing to the reduction of GHG emission. genetic material, climate regulation, pollination). Lastly, this strategy also involves reinforcing Created in 2012, a new roundtable (Mesa de coordination between MGAP and MVOTMA. Campos Naturales) aims at establishing plans to harmonize production with conservation of In the Santa Lucia River basin, the 2013 severe resources natural, and increase meat productivity water degradation event triggered national with reduction of GHG emission per unit of authorities to take immediate action to reduce output. In addition, the Reducing Emissions water pollution and ensure water source from Deforestation and Forest Degradation protection. In 2013, soon after the eutrophication (REDD+) Readiness Grant4, is intended to set episode in the watershed, MVOTMA launched an up the institutional capacity and strategy to action plan – titled Action Plan for the protection of manage forests in a sustainable way for long-term environmental quality and potable water sources. economic growth; to support the livelihoods of This plan, generally known as “11 Measures”, local, rural and forest dependent communities; included eleven actions to be implemented and to ensure that its important natural heritage step-wise, such as the reduction of untreated is conserved. discharges from sewage and industries, the identification and protection of highly sensitive Sustainable use of water resources areas for water supply, the enforcement of the Land Use and Management Plan regulation on Uruguay also developed an irrigation strategy farmers, and the ban of new establishments for and related action plan in collaboration with intensive livestock production, such as feedlots, the World Bank under the Water for Uruguay in a defined area. As of today, a number of these Technical Assistance. This strategy aims at actions have already been implemented while promoting development of climate-smart others are still under implementation. agriculture, with water solutions for irrigation being a key aspect to increase farmers’ resilience As part of the “11 measures” Action Plan, the to climate variability and extreme events avoiding MGAP promoted the Sustainable Dairy Plan asymmetry with other water-related sectors, (“Plan de Lecheria Sostenible” in Spanish) that including environmental uses. The incorporation aims at reducing soil degradation and water of supplementary irrigation into the main pollution in sensitive areas. This Plan entails the 4  The Global REDD+ initiative, supported by the Forest Carbon Partnership Facility (World Bank acting as the Trustee), became operational in 2008 to assist countries in establishing the key pillars of REDD+ readiness: (i) developing their national reference scenarios for emissions from deforestation and forest degradation; (ii) adopting and complementing national strategies for reducing deforestation and forest degradation; and (iii) designing national measuring, reporting, and verification systems for REDD+. Green Growth 27 extension of the Land Use and Management Plans, enabled the upgrade of the meat to the stricter organic and chemical fertilizers use plan and US Department of Agriculture labeling “Never waste management plans to dairy establishments Ever 3”, which guarantees that the animals never in the environmentally sensitive Santa Lucia River received hormones, antibiotics and proteins watershed. This initiative also provides financial of animal origin, from his birth to the animal support for small and medium dairy farmers for slaughter, which allow Uruguay to strengthen its the design and execution of solutions to reduce position on the market of high quality meat. nutrients export into water sources, including both technical assistance and financial investments. Traceability is also effective for some agricultural products such as honey, citrus, wine and poultry Increasing attention to emerging products. In the production of honey and bee public environmental health products, traceability aims to identify the product concerns along the productive chain, geo-referencing of apiaries and application of pesticides. Sustainable management of pesticides The information obtained allows identifying possible problems, their origin and cause, in The MGAP recently implemented a monitoring order to establish corrective measures. In fruit system for phytosanitary products. The recently and vegetable production, recent legislation launched Satellite Monitoring System for the Use already establishes the future traceability of fruits of Phytosanitary Products monitors and controls and vegetables. Another chain that advanced the use of pesticides (including application by in traceability is the poultry, which covers the tractors and/or planes) in real time via satellite activities and actors linked to the production of information in field crops. This system contributes eggs and meat. to mitigate impacts on population living around agricultural areas and monitor the use of Enhancement of agriculture’s pesticides in agriculture. resilience Certification, traceability and food The Development and Adaptation to Climate innocuity for consumers Change (DACC5) Project contributes to increase farmers’ resilience to climate change. It provides One hundred percent traceability in beef technical and financial assistance to reduce the production is a tool for Uruguay to enter exclusive climatic vulnerability of medium- and small- sized and higher value markets. Uruguay has in place farmers and to increase the long-term sustainability a national informational scheme (the National of the agricultural and livestock production System of Information for Livestock, or SNIG) that (MGAP, n.d.). The project provided grants for the tracks and provides information on the history, promotion of farmers-led irrigation (individual) from birth to retail, of each cut of meat that is and collective small-scale irrigation schemes. exported or domestically consumed (Fernández- The DACC also supports the implementation of Arias et al., 2015). This scheme was established a parametric drought insurance index to reduce to solve a foot-and-mouth disease sanitary crisis, the impact of environmental shocks on livestock and in turn, helped position the Uruguayan beef producers (MGAP, n.d.). In 2015, the MGAP as of superior quality and facilitated Uruguay’s initiated a 3-year long pilot to test the feasibility access to high end markets, particularly in the US of this scheme in increasing farmers’ resilience and the EU, and to international certification. It to climate risks (MGAP, 2015). Under this pilot, 5  Financed through a World Bank loan, a GEF grant, by the Government and by the private sector. 28 Green Growth 178 ranchers benefitted from having insurance coverage during three dry seasons. The goal Challenges ahead of the recently approved Additional Financing of DACC project is to extend this pilot to 400 Sustainable use of natural resources ranchers. The country’s small geographic size implies that Contribution to the climate increases in production can only come through mitigation agenda intensification. Limited by land availability, Uruguay’s land use portfolio underwent a Co-benefits of Uruguay’s soil conservation transformative process during the last decade, in initiatives include climate change mitigation. order to increase production and take advantage Uruguay is a global leader in its efforts to of the favorable international market. The sector enhance its environmental performance while experienced a sharp intensification of production, producing high value goods and contributing understood as the increase of production per to the fight against climate change. In this unit of land. From 2003, soy triggered the crop line, several initiatives that Uruguay has laid rotation plan, increasing tenfold the land annually out already generate co-benefits for climate used for crop plantations in only eight years (e.g. change mitigation and adaptation. The Soil Use soybean crops increased tenfold in this eight-year and Management Plans are estimated to have period from only 80,000 hectares, and in 2016 already contributed to an annual soil carbon they represented around 1,200,000 hectares). sequestration of about 2 million tons (World The reduction of pastures and increasing grains Bank, 2015). availability favored the implementation of intensive livestock practices, such as feed-lots, The study “Low emissions growth options and dairy production intensification (Préchac for Uruguay” found some low-cost, high- et al., 2010). Over the period 2005-2012, milk impact opportunities for reducing carbon production almost doubled (OECD & ECLAC, emissions that could be carried out without 2014) thanks to a sharp increase in milk production compromising development or growth. The productivity of annual 3.4 percent over the last study (World Bank, 2014) analyses policies decade (OECD & ECLAC, 2014). Similarly, the and instruments across the agriculture, energy, rise in feedlot establishments contributed to an waste management and transport sectors, increase in livestock productivity, with an annual accounting for costs and benefits, both from rate of 3.1 percent over the last decade (OECD & the angles of investors and society. The study ECLAC, 2014). shows that the agriculture (including forestry) sector has potentially the highest contribution This model of growth can come at a cost and to decrease the GHG emissions: expansion of a special type of risk, particularly relevant to commercial forestry and preservation of native Uruguay, is agriculture’s potential impacts forest, changing practices for livestock diet, on ecosystems. Over the past years, Uruguay better management of grasslands, increase in had to engage in effectively managing a irrigated area, and provision of water and shade rising number of environmental risks. The for livestock are the most efficient low-carbon intensification, the rapid growth of the cultivated interventions (LCI) to reduce GHG emission. areas and the other transformation of the sector abovementioned may exacerbated emerging environmental risks: (i) soil erosion; (ii) overuse of water from the increase of water demand for Green Growth 29 supplementary irrigation; and (iii) increased use is not possible to issue new water rights for direct of fertilizers and agrochemicals. Great advances outlets. Development of storage capacity (dams), have been achieved for (i) (cf. section 3.1.1.), but improvement of water efficiency and reduction pressing challenges still remain for (ii) and (iii) as in water losses are then crucial to sustain growth discussed below. in the water-related sectors, including irrigated agriculture. Sustainable use of water resources In Uruguay, agricultural intensification in Despite the abundance in yearly average, recent years resulted in a sharp increase in the Uruguay suffers naturally from an extreme application of nutrients that can affect water variability of water resources availability. The quality. In the last 20 years, changes in Uruguay’s average annual rainfall is 1,240 mm with extreme productive structure, the adoption of new crop variation in water availability that goes from -63 varieties and intensive production practices, led percent to +65 percent. December to March to a sharp increase in the use of pesticides and is the period with most current water deficit for fertilizers, which are major sources of nutrients. agriculture and conflicts may arise to satisfy the Since not all of the fertilizers load applied is needs of the farmers in the irrigation sector, other taken up by target plants, the rest stays in the users and water for the environment. soil, of which part is then flushed out by irrigation systems or precipitation to other land areas or to To reduce production vulnerability to this seasonal water bodies. In this way, fertilizers contribute to variability, irrigated agriculture expanded from nutrient pollution in water. Uruguay’s imports of 52,000 hectares in 1970 to 205,000 hectares pesticides and fertilizers for the period 1997 to in 2010 (MGAP, 2017b) but, in the last years, 2005 increased by 350 percent (Chiappe, et al., further irrigation development has been limited 2008). This growing trend continued in recent to the development of supplementary irrigation, years: fertilizers use in absolute terms practically particularly for soy crops. Like almost everywhere doubled over 2005-2014 (FAOSTAT), although in the world, the irrigation sub-sector is the main per unit of area, the increase was below 30 percent water user. The average volume of water used during the period 2004-2014 (Indexmundi, n.d.). is 4,856 Mm3 per year of which the main water uses are for irrigation (86 percent) and domestic By now, there are already signs of stress related consumption (11 percent), while industrial use (3 to water quality in two important watersheds percent), and others (cattle and recreational) lie in Uruguay (Santa Lucia River and Laguna del on the other end of the spectrum (DINAGUA- Sauce). In 2011, JICA-DINAMA reported high MVOTMA, 2011; FAO, 2010) The main irrigated levels of water pollution in the Santa Lucia River crop is rice (160,000 ha, according to FAO) but watershed6, Uruguay’s major source of water the country is facing a growing development supply. Aligned to this warning, in 2013, nutrient of supplemental irrigation for soy beans and pollution levels in the Santa Lucia River triggered pasture. About 50 percent of the volume an eutrophication event7, which resulted into non- withdrawn comes from direct outlets on rivers. potable water in consumers’ water taps. In 2015, a However, irrigation development is now limited in similar event occurred in one of the most touristic most of the river basins of the country, in which it destinations of Uruguay, affecting the potable 6  The Santa Lucia River watershed is located in the southern portion of Uruguay, and it extends over a total area of 13,480 km2. 7  Plants need nutrients to grow, benefiting ecosystems in normal conditions. Eutrophication is when nutrient pollution, typically phosphorus and nitrogen, in water bodies triggers an explosive growth of algae (algal blooms). These algal blooms can be toxic to humans and animals and they can significantly reduce or even deplete oxygen in water, stressing or killing aquatic life. And they can disturb aquatic ecosystems by reducing diversity, affecting fish reproduction. 30 Green Growth water service sourced by the Laguna del Sauce. purification processes in recent years. In addition, These events are strongly interlinked with the pesticide residues in water bodies can also affect agriculture sector, as it has been the major source aquatic life. of nutrient pollution from non-point sources in the Santa Lucia river (UdelaR, 2013) and also in Furthermore, pesticides can spur weeds and the Laguna del Sauce (MVOTMA, 2017a). pests resistance, in turn demanding an increase in the product’s application rates. Some countries In the Santa Lucia River basin, excessive levels are already facing this issue (the so-called of nutrients have been identified in the river, pesticides treadmill). For example, in the US, it has with phosphorus being the most pressing. Data been estimated that about 34 million hectares of collected over 2005-2014 in the two major water farmland are infested with glyphosate resistant dams - Paso Severino and Canelón Grande - weeds (Dow AgroScience, 2015). Similarly, shows phosphorus levels ranging from 20-110 in Brazil, numerous weeds have developed ug/L, significantly overpassing the legal threshold resistance to glyphosate (Cerdeira et al., 2007; of 25 ug/L (Miralles & Trier, 2018). In 2013, high Cerdeira et al., 2011), and resistant weeds are phosphorus levels in water dams generated also spreading quickly around the county (Vieira the eutrophication event abovementioned, Godoy et al., 2015). The increase in pesticide deteriorating water quality and consequently use through intensification of production can affecting negatively drinking water taste and exacerbate the environmental issues mentioned odor. Studies affirmed that agricultural-related before. For instance, weeds resistance forces non-point sources are the main driver of nutrients farmers to adopt heavy tillage, which triggers emissions in the Santa Lucia River watershed phenomena of soil erosion. (JICA- MVOTMA, 2010; UdelaR, 2013). Enhancement of agriculture’s Increasing attention to emerging resilience public health and environmental concerns While the recent efforts mentioned earlier are an important step in the right direction, climate Sustainable management of pesticides variability has adversely affected the Uruguayan agri-food sector in the past, and expected The increase in pesticides use is a rising climate changes will exacerbate these impacts. environmental-health concerns and demands According the PLANAGUA (MVOTMA, 2017b) a sustainable management approach. and based on climate scenarios for the next 50 Intensification of production also brought along years, the country is likely to face an increase a remarkable increase in pesticide use in Uruguay in temperature (around 0.5 degrees Celsius in (Caon, 2013). Between 1991 and 2011, the total 2020, and up to 2.5 degrees Celsius in 2050), in volume of pesticides used in Uruguay increased total annual precipitation, and in frequency and almost tenfold (FAOSTAT, 2017). Pesticides intensity of extreme weather events (droughts have been associated with economic losses and floods). Potential impacts associated with in tomato production, bees’ death and with these increases include: (i) reduction in land severe economic and significant market losses productivity of commercial farms by 62 percent in honey production (Perez, 2017; RAPAL, 2017; of the current level and 54 percent below the La Diaria, 2017). At a more regional scale, OSE current level for small family-owned farms (by has identified toxic pesticide-related residues in 2020), mainly associated with temperature waterways, necessitating the further diversion of increases; (ii) damages to public infrastructure, resources for preventative investments in water reduced agricultural production and rural Green Growth 31 livelihood impacts, and challenges to maintaining intensification, would help reduce GHG emissions healthy and sustainable urban ecosystems, due globally by preventing deforestation for food to increased flooding,8 which in urban settings is production in other parts of the world (World Bank, magnified by inadequate storm water systems; 2014). However, Uruguay recently pledged to and (iii) drought events that are more severe and reduce total emission intensity of carbon dioxide, intense, which in the past have been associated methane and nitrous oxide per unit of GDP by with significant agricultural losses9, and in the 2025 by 24, 57 and 48 percent respectively (First future could also lead to negative consequences Nationally Determined Contribution (NDC) of for energy production (due to the highly Uruguay, 2017). Particularly, the two latter add hydropower-dependent electricity sector) (World on even more pressure to reduce emissions per Bank, 2015). These and other climate related production unit. challenges threaten to magnify existing issues (that is, mainly those associated with water quality and storm-water runoff). Harnessing opportunities: Contribution to the climate green growth as a driver of mitigation agenda trade competitiveness The agriculture sector continues to be the largest contributor to national GHG emissions, posing Green growth is not only a lens through which a great challenge to reduce emissions while sustainability challenges can be tackled, it also increasing production (World Bank, 2015). The represents an opportunity as it can contribute national GHG emissions of Uruguay are very to the country’s already successful export-led small in global terms (0.05 percent). Even so, growth model. GDP growth is driven by exports in the agriculture sector accounts for 80.2 percent Uruguay. Exports are in turn rooted in the country’s of national GHG emissions10 and practically all rich asset base. Currently, about 30 percent of methane and nitrous oxide emissions (93 percent jobs are linked to the export sector, which is in and 98 percent, respectively) (Uruguay’s First NDC, turn highly dependent on soils, forests, water 2017). The major contributors to GHG emissions and landscapes. As mentioned above, Uruguay in the agriculture sector are crops cultivation, has already made important strides in green livestock, forestry and rice cultivation (World Bank, growth, particularly through the implementation 2014). There is a tendency towards intensification, of forward looking environmental policies and by increasing intensity of land management and programs, and has already used sustainable production practices and by achieving higher practices as a key driver of trade competitiveness. productivity. Given these anticipated trends, Greater integration in global (and regional) World Bank (2014) projected that total emissions value chains, and specifically the identification from agriculture would increase through 2035, of higher-value-added activities in sustainable but emissions per production unit would decline segments, will be a critical priority as the country’s in many cases. This aggregated production from limited size prevents it from benefitting from large economies of scale. 8  Over the past decade, Uruguay has already experienced an increase in the frequency and intensity of floods. This is a particular concern in urban settings, where 92 percent of the Uruguayan population lives. Flooding in 2007, for example, was the worst recorded in the past 50 years, having affected more than 100,000 people. The Government of Uruguay esti- mates that economic losses (mainly infrastructure damages and crop losses) totaled approximately US$ 20 million. 9  For example, the 2008/2009 drought resulted in direct losses to the agricultural sector of over US$ 340 million, the equivalent of 2 percent of GDP; and estimated indirect losses of up about US$ 1 billion. 10  Which is in relative terms more than in average worldwide, where agriculture sector contributes to 13 percent of the GHG emission and Land Use for 11 percent. 32 Green Growth Box 2. Tourism as part of green growth. A worldwide sustainable tourism1 market is emerging and is associated with higher consumer willingness to pay. A relatively new market segment, adventure tourism2, is expected to outperform growth in other tourism segments, with a 7 percent share of global market in 2015, likely to increase to 37 percent by 2020. Annual growth is expected to reach 40 percent over 2016-2021. Moreover, adventure travelers are higher-spending tourists with a spending estimated at US$3,000 per person. In similar fashion, ecotourism3 had the highest level of client demand overall for travel activities in 2017, followed by cultural, environmentally sustainable, and hiking activities. In Uruguay, tourism represents a significant and growing share of the GDP, expected to increase from 9 percent in 2016 to 11 percent in 2027 (World Travel & Tourism Council, 2017). When benchmarked against some of its competitors4, Uruguay is not benefiting from the potential positive outcomes of protected areas and the Uruguay brand is not as recognizable for nature- related tourism as the rest of countries analyzed. As a predominantly “sun and beach” destination, Uruguay could analyze tapping on unexploited sustainable offering and so capture a greater share of the global adventure tourism and ecotourism markets in the coming years. Uruguay could seek support in organizations that help promote sustainable practices in tourist destinations, such as the Sustainable Travel International (STI) and the Global Sustainable Tourism Council (GSTC). Sustainable tourism can also help diversify the tourism source markets in Uruguay, which are highly concentrated with about 80 percent of all foreign tourists coming from neighboring countries. 1  Sustainable tourism is the term used to describe all kinds of tourism that is environmentally, socially, and eco- nomically sound. 2  Adventure tourism is defined by the Adventure Travel Trade Association as “travel that is inclusive of at least three elements: physical activity, cultural immersion, and natural environment”. 3  Ecotourism is defined by The International Ecotourism Society (2015) as “responsible travel to natural areas that conserves the environment and improves the welfare of local people”. 4  Argentina, Chile, Colombia, Costa Rica, Ecuador, Peru were selected as competitors for comparative analysis. Focusing on a selected number of value chains, & Cuomo, 2018)11. Work under the technical the green growth technical assistance found assistance focused on a selected number of that there are important growth prospects value chains of Uruguay’s key export products and attractive price margins in the niches of (beef, milk, soy). Preliminary analysis was done sustainable beef, non-genetically modified (non- for sustainable tourism as well but available GM) soy, and organic milk powder (Criscuolo information could not allow an in-depth review 11  “Green” and “sustainable” beef refers to the several classification labels (naturally raised, organic, grass-fed) that are also used to identify quality attributes. Labels can go from less to more environmental-friendly practices, thus implying less or more stringent requirements. In terms of green soy, this report specifically addresses the potential of non-geneti- cally modified soybeans, as they bring long term environmental benefits by using fewer agrochemicals (herbicides), and promoted integrated conservation agriculture (i.e. minimum tillage). In terms of dairy, this report focuses on organic dairy, due to the significant economic premiums associated with organic labels and requires no agrochemicals, no antibiotics supplied to the animals, animals eating feed that better suit their nature. Green Growth 33 (Box 2). The selection of the green segments Sustainable beef analyzed was demand-driven, taking into account their large share of exports and their reliance There is significant potential in the global on natural assets. Other products on which sustainable beef market, which has shown future research could focus and which would be increasing value added. The global sustainable important under a green growth lens include beef market has shown a significant increase in “under responsible production” soy markets, value, driven by growing prices and is forecast sustainable forestry, clean energy, information to grow at 6 percent per year in value and 4 and communication technologies, among others. percent per year in volume to 2021. Conversely, Overall, the analysis showed that there is a strong the global beef market volume is expected to demand for the green products analyzed, which grow at around 1 percent per year. This growth is expected to grow between around 6 percent has been driven by a rising consumer attention (sustainable beef) and around 40 percent to the environment, health concerns from (adventure tourism) per year in the next five years. certain production practices and animal welfare. Such demand is expected to pay higher markups Regionally, North America and Western Europe when compared to conventional products. are expected to experience the largest growth Greener products may help to diversify exports in value between 2016 and 2021 for sustainable into higher value-added niches, at the same beef, capturing 70 percent of the market in 2021 time favoring investments in skills and boosting and 74 percent of the added growth (Figure the adoption of new technologies and practices, 4)13. Rapid urbanization and increasing health while contributing to improve the management concerns of the younger population in China are of the natural resource base of growth sectors. expected to lead market demand, estimated at 7 percent per year in value. Demand for green export products is mainly driven by changes in consumers’ preferences. The US market appears particularly attractive In global terms, evidence suggests that green considering market size, growth, import volumes commodities can provide access to more and prices. Compared to the EU, the US has a attractive markets and are associated with higher larger share of beef imports, including 75-80 willingness to pay from consumers. Forecasts percent of the total value of US grass-beef sales, and recent trends of growth in sustainable more generous import allowances and higher food markets are promising. These growing prices. In the US, grass-fed and organic grass- markets are partially fueled by consumers fed beef are the fastest growing segments, preferring ‘healthier’12 food and appreciating respectively at 43 and 183 percent per year in environmentally-friendly production practices. value, and 37 and 211 percent per year in volume In addition, a growing share of consumers in between 2011 and 2016. Estimates of the grass- several countries show a propensity to buy from fed market place the overall value at US$1 billion companies that are aware of their environmental in direct sales, and US$4 billion in total sales, impacts. including retail and food service operators. The markup over conventional beef stands at 71 percent for grass-fed beef and at 63 percent for organic beef. However, producers do not capture 12  It is important to clarify that in this report the term ‘healthy’ refers to consumer preference, which could be based on reasons that are not necessarily scientific. 13  Figure 4 shows market volume on the y axis, market growth on the x axis and future market size as the bubble size. 34 Green Growth Figure 4. Sustainable beef market attractiveness by region.15 800 North 600 America Thousands Metric Tons Western 400 Europe Latin America 200 APEJ Europa Oriental Middle East Africa Japan 0 0% 1% 2% 3% 4% 5% 6% 7% Compound Annual Growth Rate, percent Source: Criscuolo & Cuomo, 2018. financial gains associated with these prices due weeds develop a resistance to pesticides such to a fragmented and inefficient value chain.14 as glyphosate. In addition, cultivation of non- The fragmentation of the value chain presents an GM soybean, when minimum tillage and other opportunity for larger and integrated sustainable conservation agricultural practices are in place beef production systems, able to market their (i.e., sound rotations, cover crops, reasonable product at a 20 to 30 percent markup. and balanced use of herbicides) can reduce soil erosion and guarantee soil protection. Non-GM soy The technical assistance found that current In spite of the lack of consensus on the demand in the EU for non-GMO soy is unmet matter, non-GM soy could be perceived as and estimates that the soymeal equivalent environmentally sustainable and, as such, consumption will reach roughly 10 million metric be part of a broader green growth strategy. tons by 2021 (Figure 5).15 Non-GMO soymeal International literature review (Gomiero & equivalent consumption is expected to grow at Flammini, 2017) found that non-GM soy could a pace of around 12 percent per year, compared use fewer pesticides than conventional soy by to the conventional market which is expected to increasing the effectiveness of crop management experience a relatively low growth at 1 percent and by adopting alternative agro-ecological per year. This growth is driven by the livestock practices. Perry et al. (2016) confirm this finding industry, in an attempt to capture the increased specifically for the US. When GM soy is initially awareness of consumers in the EU about GMOs- used, one observes a reduction in herbicide use. free products using positive, non-GMO labels But over time the use of chemicals increases instituted in several member countries for animal because farmers have to add new chemicals as products reared on non-GMO feed. In 2014, 14  For example, the processing costs for small-scale businesses, reprinting 81 percent of sales, range from twice to four to six times as much as those of conventional beef producers. 15  Soymeal equivalent indicates the combination of soybeans and soymeal (which is around 80 percent of soybeans in weight). Green Growth 35 Figure 5. Soymeal consumption in Europe for 2016 and 2021. CAGR (16-21) 40 3% 35 36 12% 30 30 25 no - GM Million metric tons no - GM 20 15 1% Conventional Conventional 10 5 0 2016 2021 Source: Criscuolo & Cuomo, 2018. Figure 6. Global milk market by type for 2016 and 2021. CAGR (16-21) 450 4% 384 400 Organic 10% 350 320 Billions of dollars 300 Organic 250 200 Conventional 3% 150 Conventional 100 50 0 2016 2021 Source: Criscuolo & Cuomo, 2018. non-GMO soy offered markup ranging between for health and traditional use of soymilk and 20 and 31 percent according to the certifiers flour in the diet. and the country where it is traded, compared to between 5 and 15 percent in 2012. China is the Organic diary largest market for non-GM soy food in Asia (35 percent), and is expected to maintain its share in Organic dairy is expected to show three times a growing market until 2021, driven by negative the growth of conventional dairy market, at perception of genetically modified organisms 10.4 percent per year, up to 2021 and expected 36 Green Growth to reach US$30.5 billion by 2021 (Figure 6).16 global organic milk powder is also strong, with Among organic products, the largest and fastest an expected market growth of 5 percent per year, growing product segments are milk and yoghurt, expected to reach US$2.2 billion and around expected to grow between 11 and 12 percent 134 thousand metric ton by 2021. Organic whole per year, and represent 90 percent of the market milk powder dominated the market in 2016 with by 2021. Recognition of higher nutritional value, around 54 percent of the market followed by product diversification, and environmental skimmed milk powder (around 26 percent) and concerns are supporting this market growth. buttermilk and whey (around 20 percent). The Within the organic dairy sector, organic milk largest markets were Europe and North America, powder strikes as particularly attractive because which accounted for 73 percent of the global of its high price at US$16 thousand per metric market, while regional demand in Latin America ton, compared to US$3 thousand per metric ton is small (US$75 million) and production is geared of conventional milk powder. The demand for towards exports. 16  Conversely, the conventional dairy market was estimated at around US$300 billion in 2016 and expected to reach US$353 billion by 2021. Green Growth 37 38 Green Growth Chapter 4 Towards a roadmap The road ahead: insights not be treated in isolation. For example, a plan to protect family farmers in the Santa Lucia from the technical assistance River basin in the face of an immediate financial H crisis may be a short-term step to promote ow should Uruguay design a green environmentally sustainable development, for growth strategy that fits the country’s example by directing small farmer support broader development vision? Previous towards soil and water conservation investments sections provided definitions of green growth in one of the most critical watersheds in the (section 2) and how relevant the concept can country. A green growth strategy should provide be for Uruguay, in particular when it comes a common sense of direction for all relevant to harnessing the country’s land and natural stakeholders, and must be designed with a resources comparative advantage (section 3). sustainable lens in mind, before one can evaluate Section 3.1 showed that Uruguay has already interventions’ outcomes. implemented a series of actions that are conducive to green growth. Drawing on the First step: Identify the growth insights of the technical assistance, this last sub- drivers of green growth section aims at proposing a roadmap for the design of a national green growth strategy17. The Environmental – or green – policies need not be analysis and examples focus on the agricultural exclusively to protect the environment: they sector and the management of natural resources. can in fact be a driving force for growth and Sectorial development projects and policies, development. A starting point for the design regardless of their green attributes, must be of the strategy is to identify which current and framed within a comprehensive approach and potential green policies can be contributors to 17  The roadmap is based on the World Bank team’s insights from the technical assistance and on World Bank (2012), and does not arise from an explicit national consultation process. Green Growth 39 higher economic outputs. World Bank (2012) compared to high income countries, and thus highlights that environmental policies can a complete picture of the relationship between contribute to growth through four channels: this sector and natural capital, is relevant for (i) inputs, i.e. increasing production factors; public policy. As a way to better illustrate, the (ii) efficiency, i.e. reducing wasteful use national level pilot on Agriculture-Environmental of inputs; (iii) stimulus, i.e. stimulating the account, developed during the technical economy during recessions; (iv) innovation, assistance (Castañeda & Castera, 2018), provides i.e. accelerating the adoption of technologies. preliminary back of the envelope information Some of these are directly relevant to Uruguay on the uses of natural resource inputs and on and are illustrated. the negative effects of production. Figure 718 shows that cereal and sylvicultural production Policies to increase the availability of water put much pressure on water resources (over during dry periods are an example of 80 percent of total withdrawals), while cattle interventions that promote increases in factors production intensively draws on land reflected of production. As noted in section 3, despite not only in terms of spatial use (close to 80 the water abundance when measured in yearly percent of total land use), but also in terms of average, Uruguay suffers naturally from an soil losses (more than 70 percent of total losses). extreme variability of the resource’s availability. Comparisons between economic sectors allow December to March is the period with most to understand how decisions in one sector can current water deficit for agriculture and conflicts affect the performance of other sectors, not only may arise to satisfy the needs of the farmers in in economic terms but also in relation to their the irrigation sector, other users and water for impacts on the environment. the environment. In addition, water deficit can also be amplified because of a changing climate. Another example of the efficiency channel is As such, policies that support water saving and related to sustainable beef production. The investments in water storage – while taking into implementation of sustainable practices in account trade-offs and competing uses – are beef production could increase productivity by policies that boost the availability of a critical improving animal growth, reproductivity rate factor of production and hence allow increases and health. Work by FAO suggests that the in output. “implementation of recommended sustainable practices could help reduce GHG emission Green policies also contribute to growth by in Uruguay by up to 43 percent and increase increasing efficiency in the use of production production in live weight terms by up to 200 factors or by mitigating negative externalities. percent” (FAO & New Zealand Agricultural Again, water use efficiency is a particular case in Greenhouse Gas Research Centre, 2017). point. More efficient use of water, allows to push These practices differ accordingly to livestock agricultural production to its maximum potential. operational systems, and could be complemented Natural capital accounting can be a key tool to with forage and manure management practices track efficiency in the use of production factors. to increase the reduction on Uruguay’s GHG The contribution of the agricultural sector to emission (detailed information can be found in the economy in Uruguay is relatively high as Criscuolo & Cuomo, 2018). 18  Owing to data gaps, these numbers are still very rough. In the future, more reliable data and a higher level of disaggre- gation of the economic activities would enhance the accuracy and comprehensiveness of these conclusions. For example, it is known from initial estimates that rice requires almost 100 per cent of the water required to produce cereals and oilseeds, so relevant information is lost when adding all the cereals in a single group. In any case, as the accounts portfolio is broad- ened, comparisons with all sectors of the economy will allow a better understanding of how decisions in one sector can affect the performance of other sectors, not only in economic matters but also in their relationship with the environment. 40 Green Growth Figure 7. Illustrative use of Strategic Environmental and Economic Accounts to show the contribution of the environment to the agricultural sector (upper panel) and the impacts of the agricultural sector to the environment (lower panel) for 2015. 80 70 Percentage of the total 60 50 40 30 20 10 0 Crops in general, Vegetables and Unprocessed Products from animal Wood and including cereals, legumes, including milk and dairy husbandry except other forestry rice and other crops fruit tree products products unprocessed milk products Energy Land Water Added value 80 70 Percentage of the total 60 50 40 30 20 10 0 Crops in general, Vegetables and Unprocessed Products from animal Wood and including cereals, legumes, including milk and dairy husbandry except other forestry rice and other crops fruit tree products products unprocessed milk products Soil Solid waste Losses during production Added value Source: Castañeda & Castera, 2018. Note: The graphs are expressed as a percentage of the total for each variable, for the five sectors. The five sectors respond to the classification of economic activities of the Central Bank of Uruguay. Losses during production are those that occur during harvest or extraction, for example, the wood that remains in the forest. Solid waste includes all those waste generated by the productive activity, including organic and inorganic waste. Green Growth 41 Second step: Identify environ- used was Aquatool, developed by the University mental benefits and lock-in risks of Valencia (Spain), and is applicable for medium and long-term environmental management While environmental policies can contribute and planning, with a monthly temporal step. to growth, they certainly contribute to By feeding the model with field data - physical, environmental quality and possibly to avoid hydraulic-hydrological and water quality- the irreversibility. Having taken into account the model estimates water quality parameters in ‘growth’ dimension of green growth, the next geographic locations – or nodes – predefined by step is to focus on environmental objectives for the modeler (Figure 8). Using pre-existing field welfare improvements that exclude “grow dirty, data, the Santa Lucia River watershed model clean up later” options. It is important to identify was adjusted to reproduce how the watershed which environmental policies have the greatest operates, resulting in reliable prediction and the impact on the economy, and on the welfare of the ability to simulate scenarios with different land population with an eye towards disadvantaged uses and water quality. groups. For example, water quality is certainly an important aspect of the quality of life of the The water quality modeling tool represents a population in urban centers and improvements highly valuable information tool to evaluate in the quality of surface water can reduce costs environmental performance of different policy of treatment by OSE and thus have a reduced measures and climate scenarios. The modeling impact on the national budget and / or in the costs tool meets previously unsatisfied needs of paid by potable water users or taxpayers. It is also analysts and decision-makers and can be used important to identify potential irreversibilities for numerous purposes, such as identifying and and weigh in the possible costs. For example, quantifying impacts from existing interventions committing large areas of agricultural land to within the watershed (where, when, how, and genetically modified crops could be extremely an evaluation of the impact on environmental costly, in the future, if the country decides to enter quality); assessing the potential impacts of new new markets for non-GMO products at a later activities for granting installation or operation stage. permits; tracking and evaluating the efficiency of the measures implemented through the Building a solid information base is key to “11 Measures” Action Plan (identifying success identify the environmental policies most stories and better practices); and analyzing the important to welfare. In order to improve the impacts and benefits of the implementation of understanding of the interlinkages between infrastructure (both gray or natural). Furthermore, land use activities and water pollution in the the model is apt to forecast the Santa Lucia River Santa Lucia River watershed, the green growth watershed‘s response under different hypothetical technical assistance supported the design and scenarios, which could include changes in the land implementation of a water quality modeling tool use and practices, and changes in hydrological for nutrient pollution (Miralles & Trier, 2018). The patterns due to climate change. It could also implementation of the water quality modeling be used to identify combinations of productive tool contemplated the characteristics of water systems in the watershed that would target quality issues in the Santa Lucia River watershed specific environmental goals, e.g. to meet water (important contribution of diffuse pollution); quality standards, to minimize GHG emissions, technical capacities in national institutions among others. (MVOTMA, MGAP, SNAACC and academia); and the so-far developed informational and modeling Integrating the water quality tool in decision tools available globally. The software package making can contribute to identify synergies 42 Green Growth Figure 8. Simulation of pollutant loads in the Santa Lucia River with the Aquatool model. Santa Lucia River Modeling: BRAZIL Environmental management scheme of the Santa Lucia River watershed implemented for water quality modeling using Aquatool Level (m) Outlets * River section length (m) * The outlets are named using the format aSLX, where X represents a number Source: Miralles & Trier, 2018. between various sectoral efforts. For instance, matters, would demand maintenance, software an effort is being carried out by MGAP and the updates and inserting more field data. As a result, School of Agronomy of the University of the the tool would be elevated as a sustainable Republic, which aims at developing a modeling resource to support decision-makers. Figure 9 tool to quantify phosphorus export from soil. illustrates an example of how the water modeling Once finalized, simulations could be performed tool could contribute to inform decisions under a with the water quality tool, after adjusting soil green growth approach. parameters in the model, to better understand the interlinkages between the loss of phosphorus Third step: Prioritize intervention in the soil and phosphorus levels in water. areas Similarly, the water quality model could estimate the impact that the implementation of the The next step in delineating a green growth Sustainable Dairy Plan effort, under the DACC strategy is to identify the criteria to prioritize the project, would have on the Santa Lucia River sectors and areas of intervention. The identification watershed system. In turn, the integration of of criteria for the prioritization exercise must take the water quality modeling tool in operational into account dimensions such as urgency and risks Green Growth 43 Figure 9. Conceptual framework for the integration of watershed nutrient modelling activities in a green growth program. The conceptual framework shows the elements for the country to achieve the development of a series of water quality modeling tools (1), both at the planning level (monthly time step) and at the level of environmental management (daily time step) and of response to hydrological or pollution events (subdaily time step). This suite of water quality models would require outputs of economic models (2) (for example, water demand) as inputs. These economic models would be the ones used by institutions in the country for planning and management of economic activities. In turn, the water quality models would provide information that could be used to feed the economic models. In addition, the suite of water quality models would serve as a platform to integrate and analyze data from field measurements and remote sensing data (4). These datasets would be collected by different institutions in the country through monitoring activities, conducting data analysis and using visualization tools (3). This framework integrates coherently the country’s data and model activities, and enables that each activity to interact with the others. In this way, this framework maximizes the exchange and update of the information used to make decisions, strengthening the country’s green growth strategy. Universities MVOTMA, MGAP, INUMET MVOTMA, MGAP (4) Integration of field (3) Data analisys and visualization and remote sensing data Tools for visualization of Characterizacion of pollution scenarios, e.g., land use, Economy sources using various types of data climate, socio-economic Identification of responses and Identification of sources of field uncertainties to increase data and remote sensing data management system robustness Development of artificial Green Data and model outputs integration intelligence algorithms Growth to the environmental observatory (e.g., machine learning) MEF, MVOTMA, Water Soil MVOTMA, MGAP, MGAP, OPP OSE, universities (2) Economics, Supply Chain (1) Water Quality Modeling Suite and Trade Models Identification of variables Modeling of hydrological for the analysis of alternatives events and/or pollution and tradeoffs (e.g., SWAT, SWMM) Modeling tools: environmental Environmental Management accounts, fiscal instruments (e.g., SWAT, SWMM) Co-development with several Planning Models actors, participatory process (e.g., Aquatool) Source: Miralles & Trier, 2018. 44 Green Growth of irreversibility, and the possibility of generating or with limited impact locally (negative values). tangible benefits locally and in the short term. Priority should be given to activities that avoid Some decisions made today may have long-term lock-ins (and are thus urgent) and which provide implications. For example, doubling or tripling immediate and local benefits (economic, financial, the capacity of OSE for the treatment of drinking environmental, health-related, social) by creating water could mean increases in public debt and synergies. These are found in the top-right higher taxes in the future. On the other hand, quadrant of the diagram. Lowest priority should some decisions may have immediate benefits be given to actions that are less urgent and whose and have controlled costs, or higher net benefits. benefits occur in the longer-term and which do For example, the establishment of plantations in not impact the local economy directly (bottom- key riparian zones could generate hydrological right quadrant). It is important to note that the benefits and at the same time be feasible with categorization of the actions here included, is only limited resources. The recommendation is case dependent, depending on country’s context, then to prioritize actions that generate immediate political agenda and income level. tangible benefits, which in turn can help the green growth agenda gain momentum, and help avoid Prioritization can happen at different scales, irreversible and potentially harmful decisions. even within specific sectors or themes. For example, the markets opportunity study Priorities can be set across two dimensions: (i) (Criscuolo & Cuomo, 2018) allows to identify synergies between different types of benefits priorities for the specific case of green upgrading (e.g. local / short term); (ii) urgency of action. of a number of value chains such as sustainable Figure 10 shows a possible framework, adapted beef, organic diary and non-GM soy (Figure 11). from World Bank (2012). The figure categorizes Scaling up the efforts to promote exports of actions into four types. The positive section of sustainable beef, could be a priority. Uruguayan the vertical axis contains the activities that need production methods are already consistent with to be done urgently, to avoid getting locked into existing labels and some certifications have been unsustainable paths. The negative section contains approved (e.g. Never Ever 3). This means that actions that can wait. Along the horizontal axis the benefits of actions can be materialized in the one can find actions/policies that provide high short term and the country can avoid investing local and short-term benefits (positive values) in technologies than can be costly to reverse and those that provide benefits in the longer term in the future. A potential action Uruguay could Figure 10. Scheme for priority setting. Urgent (high risk of irreversibility) Urgent (high risk of irreversibility) and Low local and short-term benefits and High local and short-term benefits Can wait (low risk of irreversibility) Can wait (low risk of irreversibility) and Low local and short-term benefits and High local and short-term benefits Source: own elaboration from World Bank, 2012. Green Growth 45 Figure 11. Priority setting applied to green upgrading in agriculture. Low local and short-term benefits High local and short-term benefits Scale up sustainable beef Urgent (high risk of irreversibility) -- production and exports. -- Can wait (low risk of irreversibility) Develop organic diary industry. Source: own elaboration from World Bank, 2012. explore is to enlarge and integrate its sustainable including all petroleum derivatives and all types beef production systems. Finally, organic diary of fossil gas that are used for energy purposes, could represent a priority for future action. provided they are used for combustion. As an Organic production requirements are extensive economic instrument, by generating an additional and time consuming (i.e. 2-3 years of transition cost on fuels, the tax seeks to reduce carbon for pastures). This said, the overall production dioxide emissions generated by its use while could be adjusted without significant obstacles promoting a transition to alternative sources of considering the “Never Ever 3” policy. Regarding energy. non-GMO soy production, it could represent a second-order priority. Most of soy in Uruguay If the mitigation of non-point source pollution today is GMO. So, in spite of the potential need from agriculture were to be a priority in Uruguay, to avoid the side effect of pesticide dependence, the next step would be to consider the design significant changes in production and logistics of appropriate policy instruments. This case has would be necessary, alongside the need to been extensively analyzed in the green growth develop a certification agency. However, further technical assistance (Piaggio et al., 2018). Non- analysis should be conducted to better decide its point pollution can originate in vast territories prioritization level for Uruguay. and from multiple agents’ actions. Pollution loads will depend on the complex interaction of many Fourth step: Design policies variables such as geographic location, climate, soil and topography. Moreover, effects can be The next step is to identify the types of cumulative. As a result, emissions from specific policy instruments that could help achieve farmers are very hard – or prohibitively costly – to environmental objectives while promoting monitor, and the regulator is often able to only sustained growth and social welfare. Fiscal policy identify the aggregate effect. Furthermore, when and economic incentives can play a key role in other sources are present, the segregation of this regard. Colombia has approved a carbon the contributions between these and non-point tax in December 2016 with the explicit objective pollution is extremely challenging. In order to of fulfilling the commitments acquired with the overcome these challenges, the design of the ratification of the Paris Climate Agreement. The economic instrument should count with the tax is a levy on the carbon content of fossil fuels, engagement of all involved stakeholders and 46 Green Growth reliable technical information, and may rely on information on each agent’s ability to comply with indirect indicators of emissions. the regulation and apply regulations selectively. It is inefficient to ask producers to reduce emissions Different policy instruments can be used to to a certain standard if this comes at prohibitive reduce non-point source pollution, spanning costs, risking the shutdown of the productive from pure command and control regulatory activity. At the same time, it is inefficient to set light measures to mandatory economic instruments targets for everyone as society will pay the social and voluntary mechanisms. Policy instruments cost of pollution while there may be producers can be classified in four categories: (i) that can meet more ambitious pollution reduction instruments that use existing markets (e.g. targets. However, producer specific abatement emission taxes, input subsidies); (ii) instruments cost curves are difficult to estimate. Economic that create markets (e.g. tradable emission instruments, both those that use existing markets permits); (iii) regulations19 (e.g. standards, and those that create new markets, overcome prohibitions, zoning); (iv) voluntary agreements this difficulty by letting each producer decide that include social participation (e.g. education whether they prefer to cut emissions or pay the programs, conservation payments, information). pollution price explicitly or implicitly established All categories of instruments aim at changing by the policy. Yet, they also need to be carefully behaviors, but they act through different designed and this technical assistance sheds light mechanisms. The first two aim at changing the on this by looking at the international experience relative prices that agents face when making on economic instruments and drawing some production decisions. Regulations, on the other lessons for Uruguay. end are based on prohibitions and control. Voluntary agreements are non-binding and as The technical assistance identified a number of such, environmental quality targets are not the untapped opportunities for designing economic prerogative of the regulator but also depend incentives to control non-point source pollution on the level of participation. These instruments in agriculture. Generally, the removal of fiscal or are usually not mutually exclusive but tax benefits that cause negative externalities over complementary. For example, taxes (instruments other agents or the environment usually results that use existing markets) need to be inserted in an increase in social welfare as the loss of the in a legal framework, as this framework includes agents that no longer receive the subsidy are regulations on minimum standards and the non- smaller than the social benefits of the avoided compliance of the regulations are sanctioned externality. Several tax benefits on fertilizers use by fines. Thus, a combination of the instruments are in place in Uruguay. These tax benefits could should be put in practice to reach the desirable be indirectly and unintentionally contributing to environmental targets. Box 3 presents a nutrient pollution. Table 1 elaborates on these synthesis of landmark international experiences benefits, which refer to two different tax systems and lessons learned in the design of policies for – Income Tax on Economic Activities (IRAE; reducing non-point nutrient pollution. generally large producers) and Tax on the Sale of Agricultural Goods (IMEBA; generally small Reducing pollution at the least cost to society is producers). An option that could be explored is the paramount and economic incentives can help elimination of the refund and credits associated achieve this goal. For command and control with the procurement of phosphate fertilizers instruments to be implemented at the least by IMEBA and IRAE taxpayers, or direct these possible cost, the regulator should ideally have funds to practices associated with lower nutrient 19  The regulations category includes command and control instruments, which refer to the case in which regulators com- mand polluters to adopt certain practices or measures to control pollution. Green Growth 47 Table 1. Characterization of the Income Tax on Economic Activities (IRAE) and Tax on the Sale of Agricultural Goods (IMEBA) for agricultural producers. IRAE IMEBA Who? The taxpayer may choose to pay IRAE or IMEBA, except in the following cases in which IRAE must always be taxed: • Annual billing > 2: Index Units ($UY 7: until June 2017) • >1500 ha. CONEAT index 100 at the beginning of the year • Income from sales of fixed assets and “productive associations” • Holdings that adopted the legal form of Public Limited Companies or Limited Partnerships for Shares • Permanent establishments of non-resident entities, Investment Funds and Trusts Rate 25 percent of net tax income Fees vary according to the product sold, between 0.1 and 2.5 percent Acquisition of phosphate 40 percent of the purchase of Receives a credit equivalent to fertilizers phosphate fertilizers is computed 12 percent of the purchases of as investment, receiving the phosphate fertilizers (Art. 24 Law corresponding exemptions in the Nº 18,341 of 2008) income statement Agricultural services VAT exemption Acquisition of registered VAT exemption on registered fertilizers, as well as various goods and fertilizers packaging related to the application and storage of fertilizers (Art. 39 Decree 39/990) Import of registered fertilizers VAT exemption on registered fertilizers Costs included in Tax filing They can compute some costs, such as purchasing seed, or advisors’ fees (advisory services for environmental management may be included) for a value of 1.5 times. Source: prepared based on interviews with experts from DGI, MGAP (Office of Agricultural Planning and Policy (OPyPA) and MVOTMA (DINAMA); Piaggio et al., 2018. exports. Moreover, the current value added tax A further opportunity for the design of incentives (IVA for its acronym in Spanish) exemption for to control pollution in agriculture is provided by agricultural services could be modified so as to the ambitious Sustainable Dairy Plans program. only apply to strictly sustainable practices for The program could be improved with the the application of fertilizers (e.g. placement) and establishment of a market for tradable emissions the acquisition of machinery for the adoption permits. The incentive could importantly of these practices could be included under promote the sharing of information on fertilizers existing subsidies programs (e.g. P + L). Similarly, use by farmers. Currently, the Sustainable Dairy the ongoing IVA tax exemption on registered Plans include the submission from farmers of a fertilizers could be differentiated according to fertilization plan for dairy production, so some their potential damage and the practice used for instruments could be aggregated to gather their application. information about individual contribution to 48 Green Growth Box 3. International experience in the use of policy instruments for non-point sources pollution in agriculture. The polluter-pays principle is not ubiquitously used in policy instruments for non-point pollution but some important exemptions are noteworthy. The “polluter pays” principle is applied to make the firm or agent responsible for producing the pollution also responsible for paying the damage caused to the environment. However, globally, the wide use of voluntary instruments suggests the prevalence of an approach that leaves the role of clean up to the State. Some countries in the EU have good examples of the application of the polluter-pays principle, including the ones that put a price on agricultural inputs. The Netherlands charged a tax on excess nitrogen and phosphorus in soil, establishing thresholds and an increasing block tariff system. Norway charged a pesticide tax that was estimated based on the toxicity of the input and the proximity of its application to sensitive areas. With respect to taxes based on active principle in fertilizers, several countries have implemented them, currently being Denmark the only country that continues to apply this type of tax. With respect to instruments that create markets for non-point source pollution, the nutrient cap- and-trade markets of Lago Taupo in New Zealand and of Netherlands are particularly notable. The power of marketable permits is that it allows firms to buy emission permits when their pollution abatement costs are relatively high and it allows firms that invest in cleaner technologies to earn money by selling their surplus permits. The program established in Lago Taupo aims at reducing nitrogen pollution from agriculture by 20 percent by 2020. In 2010, the regional government launched a cap-and-trade market, calculating the farmers’ emission permits from their nitrogen management plans. This market is complemented with environmental protection actions. Progress achieved so far suggests that the target will be successfully met (Kerr et al., 2015). Similarly, the Netherlands aimed at managing animal manure through a mechanism of market transactions to reduce pollution from animal waste deposited in soil. Permits were associated with fertilizer production and quotas could only be traded between regions with shortages to regions with excess nutrients in soil. This system was based on the expected phosphate content in manure (from the type of animal and other factors). Even though this system was removed, it could be replicated elsewhere as a useful tool to solve the problem of nutrient pollution in highly intensive animal production areas (Shortle, 2012). Important lessons learned to implement successful economic instruments to manage diffuse pollution from agriculture include: (i) build a consensus between the regulator and the producers, on the basis that society at large benefits from the reform; (ii) develop instruments gradually, as a learning by doing process and with the active participation of producers; (iii) provide producers the access to information so they understand how their actions can affect pollution levels in the environment; and (iv) foresee substitute technologies available to farmers in the design of new economic instruments to avoid producers bearing the full cost of the policy and getting out of business. Green Growth 49 nutrient pollution. One option to improve Fifth step: Monitor and evaluate the current situation is the establishment of a deposit/refund scheme on the use of fertilizers Finally, a green growth strategy should establish and livestock feed. A tax would be applied ex- the mechanism for evaluating and adjusting ante on these inputs and it would be returned green growth policies. A successful strategy must after the submission of information about actual be both clear and flexible, and its provisions must nutrient exports. The information collected balance feasibility and ambition. The relationship through this scheme could be an input for the between the economy and environmental design of an economic instrument, for instance, quality is governed by complex interactions. a market for animal manure quota as the one Our understanding of this relationship is likely used in Netherlands (described in Box 3). This to evolve thanks to technological progress, market would allow the trade of rights between environmental information and, particularly in manure producers and agricultural farmers. the case of Uruguay, the evolution of consumer Another option could be the implementation, preferences at the international level. The creation for example, on a watershed scale, of a cap-and- of an information system for environmental trade system for the application of fertilizers, management, emphasized by SNAACC in several limiting the total amount of nutrients inputs. of the meetings during the technical assistance, The case of Lake Taupo, New Zealand, which the establishment of environmental quality applies to nitrogen is noteworthy. The trading monitoring systems and the implementation of a scheme in Lake Taupo is complemented with natural capital accounting are key to allow a green a conservation fund to mitigate pollution. growth strategy to be updated as the knowledge Special consideration should be given to the base evolves. mechanisms for assigning emission permits and to align relevant actors. An example of adaptive planning is the process by which Uruguay is designing a second- Even though the recommendations provided generation plan for the Santa Lucia River through the technical assistance have a strong Basin. This has been a key contribution of the focus on nutrient pollution, some of them could green growth technical assistance, which has be used to strengthen ongoing efforts related to piggybacked on the water quality modelling broader environmental issues. For example, some tool described above. The plan outlines of the recommendations presented above can be sequential activities that are instrumental for the used to contribute to Uruguay’s climate change identification and selection of future scenarios targets. For instance, cap-and-trade systems that Uruguay should move forward to. These could be adapted to the case of GHG emissions. activities are expected to be finalized by June Similarly, the implementation of tradable fertilizer 2018 and include: the definition of thresholds on quotas, such as the one implemented in the nutrient loads for the Santa Lucia River watershed Netherlands, in the Santa Lucia River watershed (water quality indicators to be monitored, and could be analyzed. This quota system would frequency and location for collection of data); the enable permit transactions between fertilizer simulation of the measures included in the “11 producers (for example, dairy establishments) Measures” Action Plan promulgated by MVOTMA and fertilizer consumers, including crops farmers. to evaluate the impacts/benefits associated Each one of these instruments would contribute with each one of the measures; the analysis and to foster Uruguay’s green growth path while simulation of additional measures that could safeguarding the country’s food production potentially contribute to improve water quality; objectives. and the identification and selection of those that are to be the most impactful ones for the recovery 50 Green Growth of water quality in the Santa Lucia River. The water reduction of the methane and nitrous oxide quality modeling tool will be instrumental for emissions intensities of beef per production unit, the implementation of these activities and the for carbon sequestration principally through findings obtained will provide rich information for afforestation and keep the organic carbon in the elaboration of the new Plan. soil, and for the reduction of carbon dioxide emissions intensity particularly for the energy and transport sector. Up to date, Uruguay has already achieved substantial progress in the Final remarks: building the areas of electricity generation and afforestation. institutions for green growth Continuing along this path will require Uruguay’s path towards green growth has institutions and political leadership. In this already begun. At the national policy level, sense, the creation of the SNAACC has Uruguay today enforces one of the most been a critical milestone in Uruguay’s efforts advanced soil protection regimes for arable land towards sustainable development. Created in the world. In 1982, Uruguay passed a Soil and in 2015 through law 19.335/2015 and its Water Conservation Law (Law Nº 15.239) that regulatory decree 172/2016, SNAACC plays a established the background and technical rules key role in natural resources management by for the preservation of soils and waters with improving interministerial coordination and agricultural purposes and the recovery of eroded promoting more sustainable natural resources soils. In light of this law, and of the promulgation management. SNAACC is directly attached to of the 2015 budget law (Law Nº 19.355), soil use the Presidency and is responsible for articulating and management plans became a requirement and coordinating public and private institutions for any farmer cultivating over 100 hectares of and organizations for the design of public arable land if owned and over 50 hectares if policies related to the environment, water rented. By October 2017, 12,493 plans have resources and climate change. SNAACC is part been presented, covering 1.88 million hectares of the National Environment System (SNA, from and 96 percent of all crop producers over 100 the Spanish acronym). In addition, under the hectares. In addition, Uruguay has set action purview of the Environment Cabinet, it manages plans for the protection of environmental and and monitors inter-ministerial agreements drinking water sources in strategic watersheds related to environmental policies and it provides (MVOTMA, 2013; MVOTMA, 2015). At the technical and operational support to ministries international level, Uruguay’s First Nationally and other public entities. As a national green Determined Contribution (NDC) to the UN growth strategy takes form, anchoring the vision Framework Convention on Climate Change to a solid institutional framework will be key for (UNFCCC) includes targets and actions for the the very sustainability of this vision. Green Growth 51 52 Green Growth References Bowen, A., & Fankhauser, S. (2011). The green glyphosate-resistant soybean in Brazil. J. growth narrative: Paradigm shift or just spin? Environ. Science and Health Part B, 42: 539– Global Environmental Change, 21(4), 1157- 549 1159. doi:10.1016/j.gloenvcha.2011.07.007 Chiappe, M., Carambula, M., Fernandez, E. Caon, L. (2013). Land management style and soil (2008). El campo uruguayo: una mirada desde erosion in the western area of Uruguay: local la sociología rural. Montevideo, Uruguay: farmers vs. foreign investors. 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DACC Desarrollo y Adaptación al Targeting the global market for organic Cambio Climático Préstamo Banco Mundial powdered milk: how would the limitation on 8099-UY, La República Oriental del Uruguay. the use of synthetic fertilizers affect nutrient [Spanish] Available at: http://www.mgap.gub. runoff from dairy production in Uruguay? uy/ Food and Agriculture Organization of the Miralles, F., Trier, R. (2018). Modelaje de calidad United Nations. de agua y actualización del plan de acción Indexmundi. (n.d.). Uruguay – Fertlilizer para calidad de agua en la cuenca del río 54 Green Growth Santa Lucía. Technical Report produced colmenas-agrotoxico.html under the Uruguay Green Growth Technical Perry, E. D., Ciliberto, F., Hennessy, D. A., & Assistance. World Bank, Washington, DC. Moschini, G. (2016). Genetically engineered License: Creative Commons Attribution CC crops and pesticide use in US maize and BY 3.0 IGO. [Spanish] soybeans. Science advances, 2(8), e1600850. MVOTMA. (2013). 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Market opportunities for green upgrading and innovation Criscuolo & Cuomo, 2018 Sustainability demand analysis for the beef, soy, dairy and tourism industries U ruguay is emerging as a green growth These sectors were chosen because of their large champion worldwide. The country’s share of exports (over 50 percent of total value successful growth model is rooted in the in 2014) and their intensive use of Uruguay’s country’s rich natural asset base. Currently, about natural assets. Greener products may help to 30 percent of jobs are linked to the export sector, diversify exports into higher value-added niches, which is in turn highly dependent on soils, forests, at the same time favoring investments in skills and water and landscapes. Uruguay has already made boosting the adoption of new technologies and important strides in green growth, particularly practices. through the implementation of forward looking environmental policies and programs, and has This analysis is based on a literature review of already used sustainable practices as a key driver specialized publications on beef, soybean, dairy, of trade competitiveness. Greater integration in and sustainable tourism, consultations with relevant global (and regional) value chains, and specifically industry specialists, and compilation of available the identification of higher-value-added activities data sources, including the commissioning of in sustainable segments, will be a critical priority two technical market reports on sustainable beef as the country’s limited size prevents it from and organic milk powder, as well as three reports benefitting from large economies of scale. of the Food and Agriculture Organization of the United Nations on the environmental benefits of The report presents a demand analysis of these “green” commodities. green international market segments of key conventional Uruguayan exports (beef, dairy, The report touches upon “green” and soy and tourism) from an economic perspective. “sustainable” beef, which refers to several labels Green Growth 59 (naturally raised, organic, grass-fed) that are US$11.5 billion (10 million metric tons) for soy, also used to identify quality attributes and can US$ 3.7 trillion for sustainable tourism, along with go from less to more environmental-friendly higher markups and environmental benefits when practices, thus implying less or more stringent compared to conventional products. requirements. The report digs deep in the differences between these labels. In terms of In addition to the economic benefits of a green green soy, the report specifically addresses the growth international integration strategy, potential of non-genetically modified soybeans, there are important environmental co-benefits as they bring long term environmental benefits associated with the sustainable production and by using fewer agrochemicals (herbicides), and processing practices of “green” value chains. promote integrated conservation agriculture (i.e. For example, the introduction of sustainable minimum tillage). In terms of dairy, this report practices for beef could help reduce greenhouse focuses on organic dairy, due to the significant gasses emission in Uruguay by up to 43 percent economic premiums associated with organic and increase production in live weight terms by labels and requires no agrochemicals, no up to 200 percent20. Similarly, the introduction antibiotics supplied to the animals, animals eating of non-GM soy associated with sustainable crop feed that better suit their nature. The analysis and soil management practices can lead to a of these markets, in terms of geography, puts significant reduction of the use of pesticides emphasis on Uruguay’s key export destinations, and herbicides21. Organic cattle production, as such as the European Union, Unites States and part of the organic dairy value chain, represents Asia, including China. Sustainable tourism is a farming practice able to preserve soil health, an approach to management of tourism and while reducing environmental pollution from involves several types of tourism. Focus is given nutrient runoff and from potentially polluting to adventure tourism and ecotourism. compounds, such as pesticides, and minimizing antibiotics resistance amongst cattle22. The report finds that there are important growth prospects and attractive price margins in the Overall, this report sheds light on strong demand segments of sustainable beef, non-genetically niches that could provide new opportunities to modified (non-GM) soy, and organic dairy, and Uruguay and provides recommendations for a potential to strengthen Uruguay’s international further work. Among the four sectors analyzed, offer of sustainable tourism. The analysis sustainable beef is a low hanging fruit that shows that there is a strong demand for these further analysis could focus on. Uruguayan beef green products, expected to grow between 6 production methods are already consistent with (sustainable beef) and 40 (adventure tourism) per existing labels and the country has already been cent per year in the next five years (11 per cent certified by some high-standards certifications for organic dairy, 16 per cent for non-GM soy). (e.g. Never Ever 3 - cattle that have not received The forecasts value wise (volume wise) for 2021 antibiotics, hormones or proteins of animal origin), are: US$11.2 billion (1.8 million metric tons) for thus further certification could be explored to sustainable beef, US$31 billion for organic dairy, adopt an export “Organic+” strategy to the US. 20  Food and Agriculture Organization of the United Nations; New Zealand Agricultural Greenhouse Gas Research Centre. (2017). Low-carbon development of the beef cattle sector in Uruguay, reducing enteric methane for food security and liveli- hoods. Rome: Food and Agriculture Organization of the United Nations; the Ministry of Livestock, Agriculture and Fisheries, Uruguay; the New Zealand Government and the Climate and Clean Air Coalition. 21  Gomiero, T., & Flammini, A. (2017a. unpublished). Targeting the global market for organic powdered milk: how would the limitation on the use of synthetic fertilizers affect nutrient runoff from dairy production in Uruguay? Food and Agriculture Organization of the United Nations. 22  Gomiero, T., & Flammini, A. (2017b. unpublished). Uruguay green growth: targeting non-GMO soya. Food & Agricul- ture Organization of the United Nations. 60 Green Growth This strategy could involve, for high quality cuts, a production practices in production efficiency combination of environmentally-friendly farming is analyzed. To fully take advantage of growing practices that promote low greenhouse gasses opportunities in the tourism market, a different emission with organic and grass-fed certifications. strategy to pursue a more niche and differentiated For non-premium cuts, producers could explore market beyond improving the existing offerings, the opportunity to provide both sustainability and particularly centered on “beach and sun”, is quality assurance to food service industries at a needed. Uruguay already has the potential assets premium compared to conventional beef. to attract more tourists sensitive to sustainability issues. However, regarding the fourth sector In addition, Uruguay could potentially look at analyzed, soy, preliminary results indicate that attractive segments in the other sectors analyzed, shifting soy production in Uruguay to non-GM particularly in the organic dairy and sustainable would present significant costs in terms of logistics tourism markets. Uruguay could explore the and production practices. All these compelling organic milk powder niche to take advantage findings should be complemented with a further of a 5-times markup compared to conventional supply-side and gap analysis, which will help milk powder. Organic production requirements formulating actionable recommendations for are extensive and time consuming (i.e. 2-3 years Uruguayan firms to be able to compete in the of transition for pastures), but overall production identified green market segments. could be adjusted without significant obstacles considering Uruguay already fulfills the Never The full study is available at the following link: Ever 3 requirements. The implications of organic www.worldbank.org/uy Green Growth 61 62 Green Growth 2. Modeling water quality and updating the action plan for water quality in the Santa Lucia River basin Miralles & Trier, 2018 T he Santa Lucia River basin is one of the waterways. In 2013, a severe eutrophication most important river systems in Uruguay, event affected the provision of drinking water to due to its ecological features, its location consumers, driving authorities to implement an and its diverse uses. Among other traits, it is the Action Plan for the protection of the environment source that supplies drinking water to more than and drinking water sources (Action Plan for half of the national population, including the the Protection of Environmental Quality and metropolitan area of Montevideo and nearby Availability of Drinking Water Sources in the cities, as well as being an irrigation source for Santa Lucia River Basin). The complexity of the the most water-intensive agroindustry area in the Santa Lucia River basin system is associated with country. environmental variability (annual climate, climatic cycles, changes in production systems) and the Due to the importance of this basin, the coexistence of very diverse water uses. This Government of Uruguay, through the National complexity requires that water quality assessment, Secretariat of Environment, Water and Climate as well as the study of system’s response to Change (SNAACC), the Ministry of Housing, different impacts, to be based on a long-term Territorial Planning and Environment (MVOTMA), vision and on a multi-institutional approach. and the Ministry of Livestock, Agriculture and Fisheries (MGAP), among others, has underwent In this context, the general objective of this efforts to determine the watershed’s environmental study is to strengthen ongoing initiatives in condition, evaluating the environmental impacts Uruguay to address the problem of water already occurring in the basin, and advancing pollution by nutrients in the Santa Lucia River on the estimation of the responses that the basin basin, by promoting the consolidation and the could give under different scenarios. Particularly, sustainability of decision support tools relevant the improvement of water quality has been at to the basin’s environmental performance, and the core of these efforts, driven by a significant by learning from international experiences in deterioration of the water quality of the basin’s nutrient management modeling at the watershed Green Growth 63 scale. Methodologically, the activities developed to design a water quality modeling strategy as part of this study were founded on dialogue (nutrients) for the Santa Lucia River basin that and collaboration between the technical team of could operate at different temporal and spatial the World Bank and several institutional technical scales, and that could be flexible and scalable teams of the Government of Uruguay. enough to extend it to other basins in the country; (iii) learn from international experiences in Specifically, this study contributed to the creation nutrient management modeling at the watershed of institutional capacities in the country for the level and analyze the feasibility of incorporating development of quantitative tools to support remote sensing as a water quality data source nutrient management decision-making in the for simulation models that could potentially be Santa Lucia River basin, and the initiation of the developed in the country. implementation of one of these tools. Additionally, this study involved the creation of a comprehensive As a result, a reliable water quality modeling tool roadmap for environmental quality protection, in was obtained for the Santa Lucia River, being order to promote further progress beyond the cornerstone for the generation of information technical assistance timeframe. The roadmap’s and for the support of the Action Plan updating ultimate goal is to lay the foundations to ensure process to improve the water quality in the the continuity of a management framework that basin. This tool, fed with inputs such as physical, involves modeling activities and water quality hydrological (flows) and pollutant loads (from data sources in Uruguay. This framework should diffuse sources and segregated by sub-basins) be: integrative – combining optimally models field data, at entry data points, estimates water and data -, flexible - allowing a wide variety of quality levels at points of interest. By using already modifications without causing disruptions - and available field data, the model of the Santa Lucia scalable - extendible to other areas of the country River basin was adjusted to reproduce how -, as has been agreed with several institutions in the system operates, resulting in a tool that can the country. This roadmap also includes specific reliably simulate different scenarios of land use actions for the update of the Action Plan (2G and water quality. Plan), which is a high priority for the Government of Uruguay. The results emerged from this study Finally, the roadmap includes recommendations will serve as inputs to the 2G Plan. for the development of a nutrient modeling strategy in the Santa Lucia River basin in the The tasks related to water quality modeling in the short (6 months) and medium term (2 years). Santa Lucia River basin focused on developing This roadmap aims to contribute to a better a quantitative tool that generates objective and understanding on nutrients sources and to help transparent information to support decision Uruguay’s government agencies identify the making in the basin by the different government appropriate tools and strategies to provide the agencies. For this, a work plan for the development necessary information to support decision-making of a simulation model of water quality in the Santa regarding the prioritization and monitoring Lucia river basin was convened and executed, of actions to mitigate impacts on watershed’s which followed the following steps: (i) conduct water quality. The roadmap consists of several a detailed review of the modelling tools used components (some of which were initiated during by the National Directorate of the Environment the technical assistance): recommendations on (Aquatool platform) and their datasets; (ii) create a data management and work structure, a roadmap working group with the participation of technical for the elaboration of the 2G Plan, a roadmap for teams from different government institutions water quality modeling of the watershed, and (SNAACC, MVOTMA, MGAP) and universities, additional insights to support the sustainability 64 Green Growth of the modeling tool for water quality decision- water quality modeling in watersheds, and making at the watershed level. Regarding the proposed roadmap promotes further the roadmap for water quality modelling, its progress in this direction. Important aspects purpose is to generate a system for water to consider are the need to identify barriers in quality modeling that will enable the analysis the implementation and the continuity of this of the system’s responses to different actions effort in the Santa Lucia River basin and in other and conditions in the basin such as: identify watersheds in the country, and to deploy the use the impacts of interventions within the basin; of the modeling tool at different government predict environmental performance of potential action levels. In this way, the achievements of initiatives to evaluate their approval by regulatory this technical assistance will be sustained and agencies; monitor the implementation of the improved through training, model’s maintenance, Action Plan’s individual measures, identify best software and data updates, and through the practices, and determine the response capacity of incorporation of an adaptive planning approach the basin’s water bodies; simulate scenarios, for to the operations of the institutions in Uruguay example, pollutant load reduction, and changes involved in the improvement of water quality in in infrastructure (gray and natural). the Santa Lucia River basin. Through this study, noteworthy progress was The full study is available at the following link: made on the development of a strategy for www.worldbank.org/uy Green Growth 65 66 Green Growth 3. Natural capital accounts of Uruguay: an initial approach and considerations for institutionalization Castañeda & Castera, 2018 U ruguay’s efforts to incorporate elements local capacities that could continue this effort in of green growth into public policy the future and of introducing relevant institutions decisions have been channeled to the methodologies available to implement the through various actions, particularly through the NCA. implementation of innovative environmental policies and programs. As part of these actions, The use and application of approaches involving a technical assistance was carried out between NCA in public policies and private decisions has the Government of Uruguay and the World spread throughout the world in recent years, Bank during 2017-2018, with the objective of particularly to inform on sustainable natural supporting policy dialogue to identify green resources management. This approach goes growth pathways that could be incorporated beyond economic conventional indicators, such to ongoing discussions and efforts. One of as the Gross Domestic Product (GDP), by factoring the objectives of the Uruguay Green Growth in physical and monetary aspects of variables technical assistance was the development of case that are not considered or that are not explicitly studies to identify the feasibility of implementing revealed in conventional economic statistics, such natural capital accounting (NCA), a methodology as the contribution of ecosystems. The System intended to help understand the state and trends of Environmental and Economic Accounting of natural capital and its relationship with the (SCAE), recognized by the international statistical economy. More specifically, the objective was to community, is the analytical framework to carry evaluate if NCA could be included in the statistics out the NCA. The SCAE is a satellite system of that are periodically disclosed by the country the System of National Accounts (SNA). It helps through the development of two pilot exercises: understand the contribution of natural assets, (i) environmental-agricultural account at the including ecosystems, to economic growth, and, national level and (ii) water account for the Santa at the same time, enables the examination of the Lucia River basin. The development of these pilot impacts of the economy on natural capital. The exercises also had the purpose of developing SEEA has also been widely used as an integrating Green Growth 67 framework to provide information to promote the wastewater discharged into the waterways and sustain green growth. in the Santa Lucia River basin, and soybean production is the one that exerts the greatest As for the environmental-agricultural accounting pressure on them with a contribution of 2,296 pilot exercise, some preliminary estimates were kg of nitrogen per 1 million Uruguayan pesos obtained to understand the contribution of of GVA, followed by barley with 2,167, corn and natural capital to the Uruguayan economy and wheat with 694, and corn and sorghum with 576 the impacts of the economy on its natural capital. Kg of nitrogen per 1 million Uruguayan pesos The results showed that some economic activities of GVA. Regarding phosphorous intensity in the such as cereal production and forestry exert more waterways in the Santa Lucia River basin, results pressure on water resources, while livestock uses showed that soybean production generates a higher proportion of land in relation to other the greatest pressure, with a value of 613 Kg agricultural activities and contributes substantially of phosphorus per 1 million Uruguayan pesos to soil losses (more than 70 percent of the of GVA, followed by corn and sorghum with losses of all agricultural activities). The account 154, barley with 103 and wheat with 33 Kg of includes the economic activities of agriculture, phosphorus per 1 million Uruguayan pesos of livestock and forestry in accordance with the GVA. definitions and classifications of the Central Bank of Uruguay, which are based on the group A of These pilot exercises for Uruguay, although the International Standard Industrial Classification preliminary and incipient, show that natural (ISIC). In general terms, in Uruguay these activities capital accounts are a quantitative tool of are called agricultural activities. feasible application to support public policies in Uruguay, including those that target Regarding the water account for the Santa Lucia green growth objectives. The pilot exercises River basin, it involved the collection of data demonstrate the feasibility of developing and related to water physical flows and pollutants implementing accounts at different levels: loads discharged into the water bodies. By national (agricultural and forestry sector) combining this data to the information provided and subnational (basin). The combination of by national accounts, intensity indicators were environmental and economic information estimated, such as water use intensity per unit of can have multiple benefits such as: (i) Having gross value added (GVA) generated. For the four the ability to compare performance across agricultural products considered in the exercise, geographic areas, sectors and companies, (ii) results showed that the activity with the highest Being possible to use data from different spatial water use intensity is barley with 1,032 m3 per scales and to integrate this information in a 1,000 Uruguayan pesos of GVA, followed by consistent manner; and (iii) Moving towards an soybeans with 512 m3 per 1,000 pesos Uruguayan accounting framework that could be integrated VAB, corn and sorghum with 331 m3, and wheat to statistical frameworks of other sectors, such with 128 m3. as health and education. With respects to water quality, results suggest The full study is available at the following link: that nitrogen represents a high proportion of www.worldbank.org/uy 68 Green Growth 4. Policy instruments for the control of water pollution and GHG emission from agriculture diffuse sources Piaggio, Alpízar, Guzmán, & Ruta, 2018 Review of international experiences and guidelines for their design for nutrient control in the Santa Lucia River basin (Uruguay) I n recent years, Uruguay has been subjected practices and extensive crops. In addition, as to the consequences of diffuse pollution from of 2013, the Action Plan for water protection in the agriculture sector. Policy instruments can the Santa Lucia River basin is established, which be designed to change the behavior of actors includes setting standards and regulations to that generate polluting emissions. Agricultural reduce agricultural pollution from diffuse sources. pollution from diffuse sources is caused by multiple agents, depends on climatic and The objectives of this study are: i) to analyze environmental variables, and the impacts can be current policy instruments related to agriculture cumulative. As a consequence, it is very difficult and its environmental performance; and ii) (or extremely expensive) to quantify and monitor generate recommendations on new policy individual emissions from agricultural producers. instruments or modifications to current policy instruments to be explored by decision In Uruguay, the control of diffuse pollution from makers. For this purpose, the study presents a agricultural activities has been approached, classification of policy instruments for the control in general terms, through voluntary technical of diffuse pollution from agricultural sources assistance programs that promote cleaner from the point of view of economic efficiency, production practices. However, since 2013 the and a review of international experiences in the regulation of land cover management has been implementation of these instruments. This work is extended nationwide. This regulation involves the based on the results collected through interviews submission of Land Use and Management Plans with policymakers and discussion activities, and (PUMS) from farmers with land under irrigation on an extensive literature review. It does not Green Growth 69 intend to propose a definitive solution, but rather sector, and taxes’ ineffectiveness to reduce the use to generate elements to promote dialogue and to of fertilizers. The latter may be a consequence of help improve existing instruments. the lack of substitutes for these inputs. Thus, one of the conclusions of the study is the importance In general, policy instruments can be classified of designing tax policies along with alternatives to into four broad categories23: i) instruments based replace the inputs or practices that are intended on existing markets (e.g. taxes or subsidies on to be discouraged, in order to effectively move emissions or inputs correlated with them), ii) the producers towards less harmful practices that do creation of markets (e.g. through the creation of not affect their economic benefit. tradable emission credits, or tradable permits), iii) regulation (e.g. standards and prohibitions), and Finally, this study analyses emissions markets iv) voluntary agreements incorporating citizen related to the improvement of water quality. The participation (e.g. payments for conservation, active - and promising - case that involves a water information, etc.). quality market to control diffuse pollution from agriculture, is the case of Lake Taupo, in New Based on the analysis of international experiences, Zealand. This case is thoroughly studied: different mechanisms are identified to quantify pollution from agricultural activities: i) emissions 1. Establish a comprehensive modeling frame- proxies, such as estimates of soil loss and of work for the design of policies to promote the fertilizers in water bodies, ii) specific indicators articulation of multidisciplinary information. of producer contribution, such as the amount 2. Deepen the analysis of the emission mitigation of polluting inputs; and iii) concentrations in the options available to Uruguayan producers. environment, that is, aggregated measures at a 3. Set realistic goals and agree in a participatory relevant scale (e.g. river basin). way on the causes and possible solutions for which the policies will be designed. Regarding policy instruments based on existing 4. Review existing tax schemes and redirect them markets, in the European Union there are some in such a way that they continue promoting cases in which the tax base is determined by the production while helping to achieve environ- potential hazard of fertilizers and pesticides, and mental quality objectives. The report presents by the expected estimated from fertilizers and opportunities to be explored to redirect these pesticides use records. Netherlands charged a taxes to mitigate nutrients yields from diffuse tax on the excess of phosphorus and nitrogen sources of agriculture. in the soil, establishing thresholds and a block 5. Design new policy instruments that comple- tariff system. On the other hand, Norway applies ment existing instruments, helping them to taxes on the use of pesticides, and are estimated gain efficiency. Two examples of these are de- according to product toxicity and to their potential posit schemes to complement an existing pro- damage for each site. Similarly, Denmark applies gram, and fertilizer use markets. In addition, taxes to fertilizers’ active principles, being the the implementation of incentive schemes for only country that still maintains taxes on the use the restoration and conservation of riparian ar- of fertilizers. eas could be explored. 6. Understand in detail farmers’ decision-making Several European Union countries removed the process regarding land use, fertilizers use, and application of taxes on the use of fertilizers. This the response of producers to different incen- is mainly due to lobbying from the agricultural tives, both economic and non-economic. 23  Sterner, T., & Coria, J. (2012). Policy Instruments for Environmental and Natural Resource Management. Journal of Chem- ical Information and Modeling (2nd ed., Vol. 53). New York: RFF Press. https://doi.org/10.1017/CBO9781107415324.004 70 Green Growth 7. Understand barriers to technology adoption The full study is available at the following link: and participation in policy programs, including www.worldbank.org/uy transaction costs, barriers to information ac- cess, absence and structure of markets, among others. Green Growth 71 The World Bank 1818 H Street, NW, Washington, DC 20433, USA. www.worldbank.org