How to support developing countries in energy transition

CAMBRIDGE — Barring the discovery of a substance like vibranium, the fictional metal in the Marvel Comics universe that can absorb and release large amounts of kinetic energy, the earth is set to experience a sharp rise in global temperatures by the end of this century. Given the severity of the crisis, it is remarkable how much of the debate in advanced economies is entirely inward-looking, without recognising that the real growth in carbon dioxide emissions is coming from emerging Asia. In fact, Asia already accounts for a higher share of global emissions than the United States and Europe combined.

Yes, there are many options for trying to reduce CO2 emissions. Many economists, including me, favour a global carbon tax, though some argue that the more politically digestible cap-and-trade formula can be virtually as effective. But this is pie in the sky for developing-country governments desperate to meet their people’s basic energy needs. In Africa, only 43 per cent of people have access to electricity, versus 87 per cent worldwide.

Europeans are to be commended for trying to lead by example, even as the US is led by a climate-change skeptic. Ignorant presidents aside, most serious researchers see the risk of catastrophic climate change as perhaps the greatest existential threat facing the world in the 21st century. The effects are already with us, whether record heat on the US West Coast and in Europe, epic flooding in Iowa, or the impact of climate risks on the price of home insurance, which is rising beyond the reach of many people. And today’s refugee problem is nothing compared to what the world faces as equatorial regions become too hot and too arid to sustain agriculture, and as the number of climate migrants explodes to perhaps a billion or more by the end of the century.

A broad range of problems are aggravating climate change, for example, the continuing intrusion of development into the Amazon rain forest, a natural carbon sink. But perhaps the most serious current problem, and by far the single biggest driver of recent emission growth, is continuing reliance on heavily polluting coal across emerging Asia. In rapidly growing China and India, coal accounts for over 60 per cent of electricity generation.

Even though both countries are investing heavily in renewables such as solar and wind power, their energy needs are simply growing too fast to cast aside widely available coal. Indeed, for all its investment in new technologies, emerging Asia is still building one new coal-fired power plant per week, on average.

What can the developed world do about it? Although there are many other issues that need to be addressed to achieve a sustainable carbon footprint, reducing coal usage, or deploying an economically viable carbon capture technology at scale, must be at the forefront of the fight to mitigate global warming.

Moral suasion will not be enough, given that advanced economies are responsible for the bulk of cumulative emissions and still have much higher per capita emissions. But it is hard to see how to reduce coal usage within the framework of existing multilateral aid institutions, which have limited expertise on climate issues and are pulled in different directions by their various constituencies. Instead, there is a strong case to create a highly focused World Carbon Bank, which would provide a vehicle for advanced economies to coordinate aid and technology transfer.

Admittedly, the political economy of such an institution would be extremely challenging. First, there is simply the problem of persuading rich-country taxpayers of the urgency of providing financing, and explaining how this would be very much in their self-interest, especially for their descendants. Second, any framework for helping emerging markets reduce reliance on coal will be vulnerable to gaming: For example, countries could exaggerate their intention to build new coal plants absent incentives not to do so. Third, even if we do get lucky and a great new low-carbon technology is discovered, say, a better approach to clean hydrogen energy or a miraculous new substance, the innovation might well come from the private sector, not the government. There is little serious discussion about how much the innovator should be paid for licensing rights if the technology is to be transferred for free to poor countries, or how it might be done.

Some argue that the political economy of simultaneously reducing emissions in advanced and developing economies is hopeless, and that it would be better to start investing in adaptation. The US military, for example, is readying itself for the threat. Back in 2013, the chief of the US Pacific forces, Admiral Samuel J. Locklear, listed long-term climate change as the biggest national-security threat. Given grave doubts about whether existing measures, such as the 2015 Paris climate agreement, are likely to do more than slightly slow down global warming, pragmatists are right to see preparing for the worst as a grim necessity.

No single institution can possibly solve the global warming problem by itself. But finding a fair way to wean Asia from coal without stalling its progress toward advanced-economy living standards is perhaps the most important and concrete problem the world faces today, one that requires a very focused solution such as a World Carbon Bank. Institutional innovation is rarely easy, but this is a problem for which there is no vibranium bullet.

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of “This Time is Different: Eight Centuries of Financial Folly”, his new book, “The Curse of Cash”, was released in August 2016. ©Project Syndicate, 2016. 
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