Asia-Pacific, the Gigantic Domino of Climate Change

IMF Blog, March 25, 2021

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Asia-Pacific contains the world’s biggest population and the fastest-growing part of the global economy.
The region accounts for the largest share of emissions globally, producing about half the world’s carbon dioxide.
China and India are identified as the first and third-largest emitters respectively, with the US second.
The region is the most exposed to extreme weather events and includes some of the smallest and most vulnerable countries as well as many leaders in green technology.
The authors and date: Vitor Gaspar, Chang Yong Rhee, March 25, 2021.

The COVID-19 recovery presents an opportunity to direct recovery spending into stimulating sustainable jobs and growth.
Green investment is described as generally more labor-intensive than regular investment, providing near-term extra spending and jobs while strengthening long-term sustainability and resilience.
Suggested public investments and policies to accelerate transitions include:
- investing in renewable energy;
- retrofitting buildings;
- upgrading the electricity grid;
- facilitating electric cars;
- incentivizing research;
- upgrading infrastructure projects and developing coastal protection where adaptation is the priority.
The IMF’s role: integrating climate into annual country economic assessments and scaling up capacity development for government officials.

Carbon taxes are presented as a highly effective but underused tool in the region.
Key numeric findings and targets:
- A gradually introduced and relatively modest carbon tax of $25 per ton would achieve the region’s aggregate Paris Agreement target.
- Models suggest that $50-100 per ton is required globally to keep warming below 2 degrees.
Targeted fuel approaches:
- Targeting the most polluting fuels (notably coal in China, India, and Mongolia) could be very effective.
- Reducing coal use also reduces air pollution, which could save some 3 million lives in China alone by 2030.
Compensation and distributional policy:
- Households, workers, and firms adversely affected by higher energy prices need to be identified and compensated.
- Compensation approaches include targeted benefits or universal transfers.
- Examples of revenue use: China could use carbon tax revenues to increase its minimum guaranteed income scheme, finance green investment, or reduce other taxes.
Complementary instruments and policies:
- Expanding emissions trading systems to include more sectors.
- Financial incentives for less-polluting alternatives (e.g., electric vehicles).
- Stricter air quality regulations to support decarbonization.

Even with mitigation, historic emissions mean some warming is inevitable; adaptation is urgent.
Rising sea levels could directly affect a billion people by mid-century, potentially submerging many cities and wiping out entire nations.
Priority adaptation actions for vulnerable countries:
- protect infrastructure;
- make water resources more resilient;
- adapt dryland agriculture;
- restore mangroves;
- improve early warning systems for natural disasters.
Scale of public investment needed:
- Adaptation requires stepping up public investment, on average by about 3 percent of GDP annually.
- For the smallest and least-polluting countries, costs are higher in GDP terms.
- Example: a recent IMF/World Bank assessment concluded that Tonga would have to spend $67 million a year in climate adaptation for 10 years — equal to 14 percent of its GDP — highlighting the need for greater international support.

Three priority areas of recommended action:
- More carbon taxes, with compensation mechanisms for affected groups.
- Increase adaptability through stepped-up public investment and targeted adaptation measures.
- Use COVID-19 recovery spending to accelerate greener investments and technology transfer, and expand multilateral climate funds.
The overarching warning and opportunity:
- Asia-Pacific is framed as a “gigantic domino” whose actions will determine global climate outcomes.
- The pandemic recovery phase is presented as the timely opportunity to secure a better 2055.

Source: Asia-Pacific, the Gigantic Domino of Climate Change — IMF blog post by Vitor Gaspar and Chang Yong Rhee, March 25, 2021.