of electric power, and indeed reduce the cost of providing electric power to remote off-grid communities. Theoretically, however, the opposite effect is also possible, as research on “green” technologies could crowd out research focused on productivity-increasing technologies (Popp et al., 2009).

# **Box 1. Solar Panels – Distributed Power Generation**

Solar energy may soon replicate one of the most remarkable success stories of the last few decades, the growth of mobile phone use in developing countries. For countries with no land-lines, cellular phones have a great advantage. They require less capital investment and can be deployed faster. The extraordinary growth of mobile communications has provided a platform on which many other services are now carried, including mobile banking, access to market data and to medical advice. Today the conditions are ripe for a repeat of this distributed deployment of infrastructure, but in the field of power generation rather than communication. In that case, technological developments that have been promoted for environmental reasons may lead to technological change that increases the overall productivity of the economy (even if output is defined in a narrow sense). In this example, the impact of environmental policy on economic growth is captured by the term of Equation (2).

Solar power has many of the characteristics that allowed mobile phones to be deployed so fast. The cost has fallen dramatically in the past five years, from $8 per watt of capacity to about $1.70, leading to a levelized cost of electricity in the US of about 10-12 cents per kilowatt hour. [Power from wind or gas costs about 5-6 cents, from coal about 6-8 cents, per kilowatt hour. The retail price of power is around 15 cents.] There are little economics of scale to the deployment of solar power, and so little economic penalties to small-scale use, and in general it is deployed at the demand site *“off grid”+, obviating the need for power grids.

Solar power is therefore ideally suited to southern developing countries with high levels of solar radiation and no power infrastructure in place in rural areas: the total cost of deploying solar power in rural areas is less than that of conventional power stations plus a grid *which in the US costs about $3 million per mile+. Solar’s drawback is that is ceases when the sun sets, and so needs to be accompanied by batteries that can store power into the night.

Solar power is already available in some rural developing countries. In the Iquitos region of Peru, along the upper reaches of the Amazon, the provincial government and NGOs have combined to make solar panels, batteries and compact fluorescent bulbs available to households at less than the cost of fuel for the generators they were previously using for power. Electricity is now available at zero marginal cost, encouraging use, and with no environmental impact. In Bangladesh ex employee of the Grameen Bank runs Bright Green Energy, which sells solar panels and batteries, provides financing in conjunction with the IFC and local banks, and in conjunction with Grameen Technology Center trains women to install and service solar power sources.

The labor force link ( can work through the effect of environment on health. Better environmental policies can reduce atmospheric pollution in cities, reduce respiratory diseases, and increase labor effectiveness and reduce days lost due to illness. Graff Zivin and Neidell (2011) provide an example of this link between air pollution (in that case, ozone) and labor productivity in farms in California. Using a database of daily worker output, they find a surprisingly strong impact, with a 10 ppb decrease in ozone concentrations increasing worker productivity by 4.2 percent.

As an illustration of how environmental policies may increase capital and its productivity , one only has to think of mitigating climate change and the way in which this will prevent economic impacts 12