EAF editors
Achieving net zero carbon emissions globally was never going to be
easy. It’s been made that much harder and more costly by US
President-elect Donald Trump’s promises to withdraw from the Paris
Agreement, ramp up US production of carbon fuels and cut American access
to low-cost renewable goods and inputs to renewable energy production
even further through imposts on foreign trade.
The task of cutting emissions requires reducing the carbon footprint
in consumption (for example, via increased use of electric vehicles) as
well as in inputs into production (via the sourcing of electricity, the
processing of metals and materials manufacture).
Improving energy efficiency is a high priority in reducing the costs
of decarbonisation and is best achieved through international trade in
the whole range of consumer and producer goods and inputs (such as
electric vehicles, solar panels, wind turbines, processed lithium, iron
and other minerals) that are necessary to achieve it. Using the strong
complementarity in the new energy goods production and supply chains
between China and other economies around the world is thus crucial to
reducing the costs of the global energy transition.
The energy transition requires a massive transformation in production
and consumption around the world over the next few decades. At the
heart of that is the electrification of industrial economies with
renewable power.
This industrial transformation will need vastly improved access to
climate finance, ensuring both that existing funds are properly
allocated and that they are utilised in a way that does not undermine
climate goals. The global climate finance landscape is growing rapidly,
with large amounts of financing now coming from China, but funding
amounts are still insufficient to fulfil the Paris Agreement objectives.
There’s a huge gap estimated at US$5 trillion annually in both public and private sustainable financing over the coming decades.
Investment incentives need to align with climate goals. The efficacy
of financial markets can be strengthened by harmonising sustainable
finance taxonomies across jurisdictions and improving corporate
disclosures and data sharing. China and the European Union have worked
together on green finance definitions, publishing the Common Ground
Taxonomy Table. Singapore has now signed on to an extension of this
arrangement, the Multi-Jurisdiction Common Ground Taxonomy.
In this week’s lead article, noting the failure of COP29 to fill the
public sustainable finance gap, Yiping Huang proposes that China
initiate a Green Marshall Plan to step into the breach, elevating its
contribution to investment in a zero carbon future and creating a
facility for delivering its new energy technologies to the developing
world.
‘China has emerged as an industry leader in the green energy sector
over the past few decades, especially in the production of electric
vehicles, lithium batteries, wind turbines and solar panels,’ Huang
notes.
China is also an acknowledged leader in green development. Its vast
supplies and low cost of green energy products are valuable resources
for the world’s energy transition. ‘Just like the United States’
Marshall Plan after the Second World War, China can help green
development in the Global South by providing both technological
assistance and financial support’, he suggests.
The proposed Green Marshall Plan is designed to achieve two immediate goals.
The first is to facilitate the developing world’s energy transition,
says Huang. While developed nations currently lack both the willingness
and capability to lead global green development, China has advanced
technology and vast production capacity that can help.
The second is to stabilise China’s domestic economy. The United
States and European Union are raising barriers against Chinese green
energy products entering their markets. This could exacerbate China’s
domestic overcapacity problem and weaken economic growth if China does
not find new markets for its green energy products.
A Chinese Green Marshall Plan initiative could be helpful on two
counts: it would add to the pool of funds for green investment in the
developing world; properly conceived and carefully executed, it would
also help to push back against the intensification of American
protectionism and additional costs it imposes upon energy transition, at
least beyond those to the United States itself.
To succeed, in the latter purpose in particular however, it would
have to be grounded in a multilateral endeavour with sign-on from other
partners, like Europe, in its execution, and be facilitated with the
help of multilateral financial institutions such as the International
Monetary Fund.
Funding under a program of the kind that Huang envisions would be a
hybrid package consisting of commercial investment, policy lending and
government aid. It would also have to be commercially viable — the
increasingly low-cost green energy products produced by China make this a
goal that is achievable. In addition to aid provided by governments,
especially those of developed nations, national policy banks and
multinational institutions would provide low-interest long-term lending
to countries in the developing world. It would need to facilitate
market-based investment to support the energy transition. All this
requires a framework of international arrangements and agreed-upon
standards that the multilateral institutions are best placed to
facilitate.
A China-backed Green Marshall Plan could play a valuable role not
only in supporting global green development and stabilising Chinese
economic growth. It could also serve as a pillar around which to
re-group the multilateral trade and investment regime.
The EAF Editorial Board is located in the Crawford School of
Public Policy, College of Asia and the Pacific, The Australian National
University.
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