The Green Economic Transformation
Green industry set for growth
Issue: Apr 2010
Renewable energy sector – a new economic growth engine.
Before the Intergovernmental Panel on Climate Change (IPCC) published its first ever assessment report on rising global temperatures in 1990, the issue of climate change had not been a major issue of concern for many people around the world. However, increasingly frequent reports about melting polar ice caps, freakish natural disasters and changes in weather patterns in recent years have helped to raise awareness (and anxiety) on climate change.
Set against the backdrop of heightened awareness and expectations, the Copenhagen Summit last December ended in disappointment with only a non-binding agreement by the end of the talks. Despite the lack of a binding global pact on climate change, the potentially massive economic opportunities have not escaped the radar of governments around the world. With or without a binding global pact, greater consumer awareness and desire for ‘green’ products and services will accelerate the growth of a multi-billion dollar ‘green’ industry. For example, the global carbon industry was worth about US$63 billion in 2007.
From alternative energy to sustainable resources, billions of dollars have been poured into research and prototyping of new ‘green’ technology. Singapore, for example, has identified alternative energy as a major growth industry with significant economic potential. Singapore’s aim is to be a global hub where clean energy products are developed, made and exported overseas. By 2015, the clean energy industry in Singapore is expected to contribute US$1.2 billion to Singapore’s gross domestic product (GDP) and provide 7,000 jobs.
Ironically, the Great Recession of 2008 has provided an opportunity – and indeed the impetus – for countries to increase their investments in green sectors as a way of mitigating the economic downturn. Many major economies have set aside a significant portion of their fiscal stimulus packages for investments to lower their carbon emissions. Besides directly boosting economies through investments, green spending also presents substantial economic multipliers and other spillover benefits through job creation. A case in point would be the US fiscal stimulus, the green component of which was estimated to have helped create or support more than 60,000 jobs last year.
Green investments – Asia takes the lead
Looking at the composition of the recent government stimulus packages across the world, Asia is leading the charge in green investments. As a reflection of Asia’s growing influence in the global economy, green stimulus by Asian economies is expected to account for 65% of the global total. In absolute terms, China’s fiscal package stands out for the sheer scale of its commitment, with US$218 billion budgeted for green investments. Korea and Japan have also planned to spend sizable amounts on greening their economies by pledging to spend US$60 billion and US$43 billion respectively.
Although plans for green investments have been encouraging in terms of their size and coverage of sectors, much of these green investments have been hampered by the lack of promptness in policy implementation and disbursement of funds. However, things are set to pick up this year as an estimated 45% of green fiscal commitments (on top of 16% disbursed last year) should work its way into many economies in the remainder of the year. This would bring the total of green investments since last year to US$318billion, with a strong focus on environment infrastructure such as rail, power grids and energy efficiency improvements.
Future Directions for a Greener Future
Perhaps the increased awareness and action leading up to the Copenhagen Summit have led to overly optimistic expectations for a major breakthrough during the landmark event. Rather than see the event as an end in itself, it would be more practical to view the Summit as a stepping-stone for more concerted action going forward.
Putting a price on emissions incentives the use of renewable energy sources to fight climate change.
After all, the world has come a long way in recognizing the threat of climate change and has progressively taken measures like the Kyoto Protocol and the European carbon trading system to try and mitigate the problem. Going forward, it is certain that the momentum for fighting climate change would accelerate as countries continue to roll out new green measures.
In a move that would complement Europe’s carbon trading market, the US has plans for a carbon cap-and-trade system that aims to put a lid on carbon emissions. Such a proposal would incentivise the use of renewable energy sources by putting a price on emissions and reduce the use of fossil fuels in the process. Currently, many developing countries are home to a growing number of emissions reduction projects that supply carbon credits to those trading schemes. China is also in the midst of developing its own carbon standard that is dubbed the ‘Panda Standard’ as the basis for a voluntary carbon market run by the China Beijing Environmental Exchange. These developments will hopefully encourage more countries to pursue a more environmentally sustainable model of growth.
Although the amount of green investments spent (or to be disbursed this year) still falls short of what most experts consider to be necessary (with rough estimates being put at US$750 billion or 1% of global GDP) to tackle climate change, it at least serves as a good starting point for further developments in the future. Beyond these figures embedded in the crisis packages or budgets, it is evident that many countries are giving more consideration for ways to evolve into low-carbon economies.
Besides the efforts of governments and international organisations, big corporations have increasingly contributed to the cause of mitigating climate change. As a responsible corporate citizen, CapitaLand has stepped up its efforts in promoting environmental sustainability since 2006. Some of the initiatives include the implementation of environmental best practices across all of the company’s properties based on the Environmental Management System (EMS), staff training to raise awareness on environmental issues and the launch of the “Building a Greener Future” programme to raise awareness of environmental issues in the public sphere.
Securing the future of our environment
The future course of climate change is not the sole responsibility of multinational agencies. The success of climate change control will depend on the concerted actions of all stakeholders, from multinational agencies and national governments to corporate entities and the individual consumers. Everyone has to play her part to secure the future of our environment.
Article contributed by Terence Yap of the CapitaLand Economics Unit