How will ASEAN members cope with their climate change challenge?

Asia is uniquely placed to provide a blueprint for combating climate change, but the region's countries must work together for everyone’s benefit, says Asian Development Bank vice-president of operations Stephen Groff.

Last year was a historic year for climate change. While December’s Paris Agreement gave hope that countries could commit to reducing dangerous greenhouse gas (GHG) emissions, we also witnessed the hottest year in recorded history and a resurgent El Nino cycle that wreaked havoc on many ecosystems.

Asia and the Pacific was among the regions hardest hit by severe weather last year: deadly heat waves struck India and Pakistan; widespread drought affected harvests in Cambodia; Thailand was forced to ration water; Vietnam and the Philippines saw a reduction in fisheries; and Indonesia had the worst forest fires in a quarter century. This takes on special significance considering Asia and the Pacific is home to half of the world’s poor.

The link between poverty, economic development and climate change has never been stronger. Underlying this is the need for countries to work together to mitigate and adapt to climate change.

Economic consequences

Climate change is about much more than extreme weather. There are socio-economic dimensions of a changing climate that are important determinants of whether Asia can tackle poverty, develop clean cities, and continue to deliver improvements in quality of life. The poor are most vulnerable to food and water insecurity, are more likely to live in low-lying areas and often depend on climate-sensitive sectors, such as agriculture, for their livelihood.

To see the economic impact, consider Southeast Asia. A 2015 Asian Development Bank (ADB) study estimated that economic losses from climate change could be 60 per cent higher than 2009 estimates if rapid mitigation measures are not taken. This would result in 11 per cent lower gross domestic product (GDP) across the region by 2100.

In East Asia, with much higher GDP in aggregate and including the major industrial economies of Japan and Korea, the economic and social consequences of climate change are no less extreme. A 2013 ADB study estimated that 12 million people in 23 East Asian cities are at risk from rising sea levels, severe storms and more intense droughts caused by climate change. This could jeopardize $864 billion in assets.

“The link between poverty, economic development and climate change has never been stronger.”

Moreover, severe weather related to climate change will intensify, with one-in-20-year flooding predicted to occur as frequently as every four years by 2050. When combined with rising sea levels, this is expected to cause massive swaths of land to disappear, forcing millions to migrate, and wreaking havoc on infrastructure and agriculture. Since 1970, economic losses to East Asia from climate-related natural disasters have amounted to more than $340 billion.

But while the costs of climate change are high, it is increasingly clear that the net benefits from acting to stabilize the climate and impacts far exceed the net costs, in some cases up to 11 times greater. Direct benefits from less severe climate change include improved crop yields, as well as the effects of improved air quality and better transportation that come directly from steps to reduce emissions.

Low-carbon economies

The first step in tacking climate change is the need for a fundamental shift toward low-carbon economies across Asia. While the composition of each economy will largely determine where the largest reductions can be made, two of the biggest opportunities are to reduce deforestation and to ramp up the use of better technologies, especially carbon capture.

In Southeast Asia, one of the biggest opportunities will be to sharply reduce the rate of deforestation, which accounts for the majority of Southeast Asia’s current emissions. Averting deforestation represents the lowest cost opportunity for emissions reductions and could generate half of the cumulative regional mitigation through the mid-2030s.

Last year’s forest fires in Indonesia are a prime example of the impact of deforestation and the need for regional cooperation. In 2015, Indonesian fires were the largest in nearly 20 years, destroying three million hectares of land and causing an estimated $14 billion in losses related to agriculture, forest degradation, health, transportation and tourism. More alarming was the climate impact. Indonesia is already among the world’s biggest carbon emitters. Thanks to the fires, its daily average emissions in September and October were 10 times higher than normal.

Asian countries must also step up efforts to employ technology, such as carbon capture and sequestration (CCS) and energy efficiency technologies that improve and reduce power use, which is found to be the biggest source of long-term emissions reduction. Without changing existing energy use patterns, which include fast growing use of coal and oil, GHG emissions in Southeast Asia are likely to be 60 per cent higher in 2050 than in 2010.

CCS is one essential component of curbing GHG emissions and propelling countries in the region toward more sustainable economic growth. It is the only near-commercial technology available that can cut up to 90 per cent of emissions from coal-fired plants.

“While the costs of climate change are high, it is increasingly clear that the net benefits from acting to stabilize the climate and impacts far exceed the net costs.”

ADB estimates that from 2015 cumulative CO2 sequestration can reach 10-20 million metric tons (Mt) by 2020, 160 million by 2030, and 15 billion by 2050. In a country like China, without CCS the cost of meeting climate change goals would be about 25 per cent higher.

While CCS requires large upfront investments and has relatively high operating costs, it is already cost-competitive with other clean energy solutions such as wind or solar. Countries like China have already demonstrated that progress is possible. China has been busy building a CCS value chain through research and development activities linked to its nine pilot projects.

Significantly, China has done this while expanding the use of renewable and other low or no-carbon energy sources. Since 2005, it has reduced its energy intensity (energy consumed per unit of gross domestic product) by about 35 per cent. From near-zero capacity of wind and solar in 2005, China now has the world’s largest wind power and second largest solar capacities. This success is built on ambitious targets, supportive policies such as attractive feed-in tariffs, robust value chains, and large investments in infrastructure such as transmission grids.

Cooperation is key

In the context of the immense challenges countries face from climate change and the universal commitment to tackle it, regional cooperation has never been more important. The economic costs are too great, and the externalities of carbon emissions too widely shared for countries not to collaborate against this global challenge. Countries in East and Southeast Asia provide important reminders of why this collaboration is so important.

Regional cooperation holds great promise for tackling the problem of deforestation. Indonesia and Malaysia have agreed to establish the Council of Palm Oil Producing Countries, which will harmonize standards and promote environmentally sustainable production practices. This is important as together the two countries account for 85 per cent of the world palm oil market, one of the key causes of deforestation in Southeast Asia.

To build on this, consumers and markets also need to send signals to companies that directly or indirectly support slash-and-burn farming. The 2014 Indonesia Palm Oil Pledge – in which five major producers committed to more sustainable solutions that preclude deforestation, respect human and community rights, and deliver shareholder value – is a good model.

On the issue of technology, Asian countries can benefit from the experience of more developed countries, which have already implemented higher energy efficiency standards. Countries such as Australia, Canada, Norway, the United Kingdom and the United States together have about 14 large-scale CCS projects underway, and eight more under construction. Together, all 22 projects will be able to capture about 40 metric tons of emissions per year, and present excellent opportunities to share knowledge and lessons learned about applying the technology.

Another important way Asian economies can work together to reduce carbon emissions is to establish a regional carbon trading arrangement. If countries across the region were to form a regional emissions pool and trading scheme (ETS), ADB estimates that most countries could avoid the much higher cost of reducing domestic emissions by their own efforts.

In East Asia alone, the total savings from operating such a regional trading pool is estimated at about $330 billion a year in 2030, or 1.4 per cent of the projected total GDP of the countries in the sub-region. The estimated savings from regional trading are at least equivalent to 0.4 per cent of total estimated GDP from 2020 to 2050. The Paris Agreement has the potential to create demand for carbon permits and to put in place potential pathways towards international carbon markets.

“There is clear evidence now to show that the economic gains from working in unison are so large that this effort is clearly worthwhile.”

China’s experience with the ETS offers pointers for the rest of the region. Between 2013 and 2015, it piloted ETS in Guangdong and Hubei provinces, and in the cities of Beijing, Chongqing, Shanghai, Shenzhen and Tianjin. An estimated 42 million emissions allowances were traded during these pilots, which made China the world’s second largest carbon market after the EU. Building on the success of this pilot, China will launch a national ETS in 2017, targeting eight emission-intensive sectors: petrochemicals, chemicals, building materials, iron and steel, non-ferrous metals, paper making, power generation and domestic aviation.

The development and rollout of a regional ETS is feasible as a long term goal, but it will face huge challenges, including on harmonization and coordination issues relating to technical design, policy frameworks and regulation. The issue is how countries in the region, with technical and financial support from institutions like ADB, can overcome such barriers.

There are models of cooperation which developed in Europe and the U.S. that may be a useful starting point.

The EU Emissions Trading Scheme, for example, has been successful in leveraging investment in low carbon technologies, technology transfer and contributing to the flow of climate finance; as well as building climate policies and market-based mechanisms to estimate, monitor, verify and monetize emission reductions.

Asian countries could draw lessons from the ETS and develop a regional scheme that would facilitate efforts to channel resources and address climate-related priorities in the region. At the same time, national trading schemes, such as those that are underway in China, may be more easily linked to existing ETS in advanced countries, since such linking would not be constrained by geographical distance. Additional measures like flexible ‘caps’ or safety valves for allocation/auctions and appropriate setting of initial targets also need to be considered.

But ultimately, Asian countries will need to find their own ways of working together, while still working with international partners. There is clear evidence now to show that the economic gains from working in unison are so large that this effort is clearly worthwhile.

Trillion-dollar question

Against the clear challenges Asia faces in combatting climate change, there is cause for optimism. Perhaps the most striking feature of the Paris Agreement is its universality, in which all countries share the burden to tackle climate change, erasing the developed versus developing country dividing lines.

The big question for all countries in the region is the financing that will be made available to allow them to make the transition to a low-carbon future and climate-resilient development. In 2009, developed countries outlined their goal of providing a $100 billion flow annually by 2020.

Encouragingly, the COP21 conference in Paris reaffirmed this commitment, indicating a willingness to provide financing to the least developed countries, small island developing states and the most vulnerable countries. But a clear roadmap to reaching the $100 billion is still under discussion among major donors. One certainty is that governments cannot undertake this task by themselves. Traditional actors, such as national governments, donors and multi-lateral development banks will have to work together with the business community, private philanthropy and local governments to find creative solutions. For its part, the ADB has committed to doubling financing for climate change in the next five years, reaching $6 billion for mitigation and adaptation by 2020.

As the world’s economic growth engine, Asia is uniquely placed to provide a blueprint for combating climate change. The challenge is not the will, but rather the how – how this diverse set of countries can work together for everyone’s benefit.

Stephen Groff is vice president, operations, Asian Development Bank. This post is republished from the ADB blog.

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