East Asia has shown us how economies can grow at a pace unparalleled in human history. What made it happen? Key ingredients included high savings rates and a willingness to invest them for the long term in people and infrastructure, leaders who kept their eyes on the long-term transformation of the economy, and a lot of serious attention to how investors respond to incentives.
But aren’t these some of the same ingredients we’ll need to make growth green?
This was one of the topics we discussed this week at the first Annual Conference on East Asian Development in Singapore organized by the Bank’s East Asia Pacific region and Singapore’s Institute for Policy Studies. This brought together senior policymakers and academics from throughout the region. Is it possible that the Region that brought us growth, could also be the leader in making that growth green?
But first, just how green has East Asia’s growth been so far? To over-simplify, the region has made pretty good progress in reducing the environmental damage per unit of output, but this hasn’t been able to keep up with the astonishing growth of the output. So, real GDP is up by near 400% since 1990, while energy use is up by 150%, sulfur dioxide emissions up by about 60%, and carbon dioxide up by nearly 200%.
This is a lot better than it might have been – but the environment is still getting worse at a serious rate. And this says nothing about water stress, loss of biodiversity and a host of other issues. (On a positive note, particulate emissions are down by 50%, and lead in fuel has almost disappeared).
Does East Asia need to lower its growth to ensure that the environment doesn’t deteriorate further? No, but it will require the same degree of commitment and long term focus that inspired the strong growth in the first place – but this time by internalizing environmental costs.
An important recent publication by the World Bank – Winds of Change – examines two scenarios for East Asia. The first shows a continuation of environmental progress at the same rate as for the past few years. The picture is grim. Air pollution and CO2 will double in the next two decades. East Asia will contribute hugely to climate change and hurt its own citizens, since the region is the most vulnerable in the world to climate change. In the process, the region would severely compromise its energy security as almost all its major countries become highly dependent on imported energy.
A second scenario shows a very different future. By 2030, CO2 would be 40% less and declining absolutely, while the local environmental damage cost would be half of that in the first scenario. Half of the gain would come from energy efficiency. This wouldn’t be cheap. Additional net investment of US$80 billion per year (0.7% of the region’s GDP) would be required in energy efficiency (which would account for half of the gains) and in renewable energy, but these would mainly pay for themselves. Subsidized funding of about US$25 billion per year is estimated to be necessary, and loan capital for those investments that would recoup their investment. Remember also that subsidies on fossil fuels in the region amount to US$60 billion per year. Shifting those consumption subsidies to investment subsidies in energy efficiency and renewable energy (RE) would go a long way.
What are the prospects for this kind of transformation? Better than they have ever been. Costs of RE technology have been falling, fueled in large part by China’s own RE investment (US$50 billion last year) and the attractions of “first mover” profits to the region. Plans for action on renewables now exist on the books in all of the major countries in the region, with feed-in tariff schemes and other market-based measures either already running or planned for introduction in the coming year. One senses that there may be emerging a stock of leaders, who rightly see it in their countries’ own interests to forge a new form of low emissions growth.
Seeing this transition through, sooner rather than later, would be a great gift from East Asia to the world. Whether and when it will happen will depend on the leadership and effort within East Asia. But industrial countries – through their finance and the depth of their own commitments to reduce emissions – can increase the probability that it will happen.