Southeast Asia Needs a Strong Vision on Climate-Resilient Economy

A recent high-level report published by the London School of Economics and Political Science suggests that tackling climate change will require significant investments and innovations to bring about economic transformation. Emerging markets and developing countries (excluding China) can meet half of their climate financing needs through domestic means, but a complete transformation requires external financing of up to US$1 trillion per year by 2030. 

In Southeast Asia, regional attempts to promote greener economies are underway. ASEAN member states and the Asian Development Bank have, for example, established the ASEAN Catalytic Green Finance Facility (ACGF) in 2019 to boost green infrastructure investments. ASEAN also collaborates with major powers – including the U.S., the E.U. and China – to increase green investments in the region.

While green finance and investments are essential, transitioning to climate-resilient economies in Southeast Asia requires fundamental rethinking in at least three principal areas: measuring economic development, tackling economic inequality, and reforming global economic governance.

Despite its inability to capture people’s well-being and ecological sustainability, gross domestic product (GDP) is widely used as the authoritative measure of economic growth. For instance, an economic activity that pollutes is counted as a positive in GDP while its environmental costs are ignored. There is an ongoing attempt, led by the UN, to revise how GDP is calculated. This process will be finalised in 2025 but, in the meantime, Southeast Asian countries should stop equating GDP growth with “development” and start complementing the use of GDP with other indicators that consider social well-being and sustainability, such as the UNDP’s Planetary Pressures-Adjusted Human Development Index (PHDI) and the Genuine Progress Indicator (GPI). Moving beyond GDP does not necessarily mean that Southeast Asians will have to sacrifice their material well-being, since greening the economies can potentially create jobs and provide opportunities for technological “leapfrogging”, such as by using electric instead of fossil fuel-based vehicles.

Moving beyond GDP does not necessarily mean that Southeast Asians will have to sacrifice their material well-being, since greening the economies can potentially create jobs and provide opportunities for technological “leapfrogging”.

The pursuit of economic growth has, so far, come at a huge cost to the environment, and also led to a high level of global economic inequality – an issue that is deeply intertwined with energy consumption, climate change and justice. According to the World Inequality Report 2022, the wealthiest one per cent of the world’s population, which captured 38 per cent of all additional wealth accumulated between 1995 and 2021, are responsible for 17 per cent of total greenhouse gas emissions. In contrast, the bottom 50 per cent of the world’s population, which captured only two per cent of all additional wealth accumulated during the same period, will be severely affected by global warming despite contributing very little to greenhouse gas emissions. 

Reducing economic inequality at national and global levels will greatly support transitions to climate-resilient economies. One study suggests that a world with a fairly high level of inequality will need at least twice the energy consumption to provide universal decent living in 2050, compared to an egalitarian world where advanced technologies are accessible globally. Another study suggests that, due to currently high levels of inequality, providing universal basic access to energy, water, food and infrastructure will impose additional burden on the world’s natural resources by 2-26 per cent. 

The widening rich-poor gap, worsened by the Covid-19 pandemic, is one of the major development challenges facing ASEAN countries. Climate change also exacerbates inequality. Therefore, member states should prioritise inequality reduction in their national development plans – whether by using redistribution or “pre-distribution” policies.

ASEAN countries should also explore reforms of global economic governance that can help to lessen economic gaps between countries as well as encourage stronger climate action. The United Nations Conference on Trade and Development (UNCTAD) has suggested, for example, that reforms of global financial, trade and intellectual property governance are needed to provide developing countries with greater access to low-cost climate finance and green technologies. Some progress has been made, such as the establishment of the Resilient and Sustainability Trust (RST) at the International Monetary Fund (IMF) to provide long-term climate finance for developing countries, but more needs to be done. 

As Dani Rodrik from the Harvard Kennedy School has argued, global trade rules should not be used to constrain any country’s decarbonisation efforts or their green industrial policies. Nevertheless, “green” policies in some countries may hinder efforts in other countries. According to an UNCTAD study, the E.U.’s plan for a Carbon Border Adjustment Mechanism (CBAM) will reduce less than 0.1 per cent of global carbon emissions. However, it will increase the incomes of developed countries by US$2.5 billion at the expense of developing countries, whose incomes from exporting goods in carbon-intensive sectors will decrease by US$5.9 billion.

The E.U.’s CBAM is expected to have minor effects on Southeast Asian countries, but governments should keep a close eye on its future developments. Southeast Asian governments should also be wary of Investor-State Dispute Settlement (ISDS) provisions in trade and investment agreements, which may enable fossil fuel companies to claim compensations from governments that try to phase-out investments in fossil fuels. Southeast Asian countries have been subjected to relatively few ISDS claims compared to other regions, but ISDS might potentially obstruct rapid transitions to climate-resilient economies in the future.

Promoting green investments is a step in the right direction, but Southeast Asia should go further. In this era of climate emergency, Southeast Asians should at least question whether GDP is an adequate indicator of economic progress, and whether current levels of inequality and global economic governance are hindering green transitions. Progressive economic thinking, such as literature on post-growth economies, can also be used as inspirations to build socially just and climate-resilient economies in Southeast Asia.

2023/26