Asia’s Climate Emergency
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- Authors: ERA DABLA-NORRIS, MASAHIRO NOZAKI, JAMES DANIEL
- Published: September 2, 2021
The problem and regional exposure
- Temperatures are rising two times faster in Asia than the global average.
- By mid-century, rising waters will impact nearly a billion people in the Asia-Pacific region.
- Cities at risk include Mumbai, Dhaka, Bangkok, Ho Chi Minh City, Jakarta, and Shanghai; Indonesia is planning to move its capital, Jakarta, to the island of Borneo.
- For small Pacific island countries such as Kiribati, the Marshall Islands, and Tuvalu, rising sea levels pose an existential threat.
- The region produces about half of the world’s carbon dioxide (CO2) emissions and contains five of the largest greenhouse-gas-emitting countries.
- Coal-based power generation and carbon-intensive manufacturing (steel and cement, motor vehicles, agriculture, domestic cooking and heating) have resulted in dangerously high levels of particulate matter; Delhi, Dhaka, Ulaanbaatar, Kathmandu, Beijing, and Jakarta are among today’s 10 most polluted cities.
- In 2019, India experienced a severe heat wave leading to water scarcity; torrential rains in South Asia caused large-scale displacement; the Mekong Delta experienced unprecedented low water levels; Australia faced historic bushfires; and more than 25 tropical cyclones damaged Pacific and Indian Ocean coasts.
Mitigation tools and fiscal policy measures
- Carbon tax:
- A carbon tax can be an effective tool to reduce CO2 emissions.
- Example: Gradually introducing a carbon tax of $25 a ton over the next decade in Vietnam would help meet its Paris mitigation targets.
- Carbon revenues of about 1 percent of GDP could finance adaptation and mitigation plans or other social development needs.
- Coal tax:
- In China, India, and Mongolia, about 68–80 percent of emissions come from coal.
- A specific tax on coal produced or consumed at an equivalent carbon tax rate could be considered.
- India’s coal tax, introduced in 2010 and doubled in 2020, could be further strengthened.
- Implementing a coal tax equivalent to $25 a ton could save about three million lives by 2030 in China alone.
- Emissions trading systems and complementary measures:
- Emissions trading currently covers power generators and large industries and typically covers only about half of national emissions in most countries in the region (China and Korea, for example).
- Extending coverage to small-scale users would help.
- Complementary measures include feebates (sliding scale of fees or rebates by emission rates) and stricter regulations on air quality, fuel quality, and vehicle emission standards.
- Supporting green investment:
- Investments in clean public transportation, smart electricity grids to incorporate renewables, and retrofitting buildings to improve energy efficiency will complement mitigation efforts.
- Market-based incentives to promote access to green finance can ease financial constraints for firms.
Managing transition and distributional impacts
- Side-effects to manage: rising energy costs for households and firms, labor displacement, unequal regional impacts.
- Distributional outcomes of a carbon tax vary by country:
- Moderately regressive in China and Mongolia.
- Moderately progressive in India.
- Compensation and support measures:
- Use carbon revenue to finance transfers: In India, using revenue to finance a universal lump sum transfer (possibly using Aadhaar unique identification numbers) would leave 80 percent of households better-off and reduce inequality.
- In China, both a universal lump-sum transfer per person and a subsidy to rural households would reduce inequality.
- Support for displaced workers: extended unemployment benefits, training, and reemployment services.
- Public spending on clean public infrastructure can create new jobs in low-carbon sectors.
Adaptation needs, costs, and priorities
- Adaptation priorities: develop early warning systems, build resilient infrastructure, reduce exposure, ensure appropriate financing mechanisms, and decide what to protect versus relocate.
- Gaps in adaptive capacity are large for Pacific island countries (Vanuatu and Tonga) and developing economies (Bangladesh, Indonesia, the Philippines).
- Public investment needs for climate-proofing infrastructure are estimated to average 3.3 percent of GDP annually for the region.
- Country-specific costs:
- In Tonga, climate-related investment needs (of which adaptation investment accounts for a major part) are estimated at 14 percent of GDP annually for 10 years.
- Public investment needs are sizeable in Indonesia, Laos, and the Philippines because of their large existing stock of exposed assets.
- Investment returns and finance implications:
- Investing in adaptive infrastructure can unlock private capital, reduce disaster recovery spending and debt distress, and enable quicker economic rebounds.
- Financing adaptation will require revenue mobilization and spending prioritization and efficiency to ease growth-debt trade-offs.
- For the most vulnerable low-income and Pacific island countries with limited fiscal space, meeting adaptation needs will require concessional financing.
Exploiting synergies and leveraging recovery packages
- Fiscal packages to jump-start COVID-19 recovery should exploit synergies between infrastructure needs and opportunities for emissions reduction and adaptation.
- Innovation in climate-smart infrastructure and technologies (for example, carbon capture and storage) can help reduce mitigation costs.
- The region’s advantages: countries such as China and Japan are at the forefront of innovation—from electric vehicles to renewables—positioning the region to capitalize on scale and technology.
- More active promotion of green finance will help ensure more funds flow into low-carbon, climate-resilient investments.
- Examples of adaptation leadership: Japan, Singapore, and Thailand perform well in frameworks for identifying, assessing, and reducing natural disaster risks; measures include restoring mangroves, protecting coral reefs, and adopting national and local adaptation plans.
- For developing economies with large infrastructure needs (Vietnam and Indonesia), ensuring new infrastructure is climate-resilient (for example, roads with drainage or built on higher ground) is a relatively inexpensive way to reduce future risks.
Authors: ERA DABLA-NORRIS; MASAHIRO NOZAKI; JAMES DANIEL — Asia’s Climate Emergency, F&D Magazine, September 2021.
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