14 September 2021

Green New Deals – What does a sustainable recovery look like?

This article was written by Mark Beaufoy.

Aligning economic recovery from the COVID-19 pandemic with sustainability goals has been a focus in recent ‘Green New Deals’ developed in Europe and the US. In this article we ask what role Green New Deals play in a sustainable recovery from the COVID-19 pandemic globally, and assess whether they’ll influence the direction of change in Australia and Southeast Asia?

As the COVID-19 virus continues to evolve and extreme weather events increase in frequency, national governments face combined economic and environmental challenges.  There is immediate pressure to prioritise economic recovery from the pandemic’s ongoing impacts. The latest IPCC report underscores the urgent and ongoing requirement to improve responsiveness and resilience to climate-related natural disasters. Recognising the obvious limitations of mitigation measures to respond to such disasters and there is also increasing pressure to define a clear path for achieving the commitments of the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement (Paris Agreement). Specifically, “holding the increase in the global average temperature to well below 2̊C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5̊C above pre-industrial levels”.

Having committed to meeting the Paris Agreement commitments and setting of 2050 climate targets, governments face budget constraints, questions around political will and the necessity of political compromise, and competing policy priorities. This is particularly so following the pandemic. But the pandemic, continuing climate-related disasters, the United States’ direction under President Joe Biden is seeing these previously competing priorities of economic recovery,  sustainability and climate resilience converge into an expectation for a   ‘sustainable recovery’.

The European and US New Green Deals and variants of this in our region provide a ready framework, with the focus on promotion of climate resilient infrastructure, low emission technologies and leveraging public and private finance to invest in clean energy and infrastructure. These central tenets of those compacts are also critical (if less quoted) elements  of the Paris Agreement: “increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production… and making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

The Theory

The concept of a ‘green new deal’  articulated by economic theorist Jeremy Rifkin was based on the emergence of the concept and plans in Europe and then the Green New Deal resolution introduced into the US House of Representatives in February 2019. According to Rifkin, it involves a comprehensive range of measures and initiatives to speed the transition of the economy and society to a low-carbon, sustainable and resilient future and address climate change. These include: a range of reforms to taxes and subsidies; tax credits and incentives for investment in renewables and low carbon technologies; enhancing electricity network connections; incentivising uptake of electric vehicles and installation of charging stations; green infrastructure and green buildings; sustainable agriculture; upgrading resilience of existing infrastructure to severe weather events; improving climate change-related disaster preparedness; leveraging investment and lending for the new green deal economy; education, training and research and development focused on the new green deal economy; and development of standards, codes and regulations which support this transition.

The key components emerging in many of the green new deal-like plans in the US, Europe, Japan and South Korea are carbon emission reduction commitments (net zero by 2050); fast-tracking of infrastructure, particularly low emissions technology (in energy projects, waste and resource recovery and smart cities); leveraging public and private money for low emission technology projects; and supporting transition to a green economy. This is consistent with recent strategies adopted by Southeast Asian countries at their November 2020 meeting (outlined below) and in many of the Australian policy responses and budgetary commitments (however limited) to economic recovery from the pandemic.

Europe

The components of the EU Green New Deal agreed to by the European Commission includes three concrete actions: a Just Transition Mechanism to leverage public and private money, including via the European Investment Bank, to help those that are most affected by the move towards the green economy; delivery of a Sustainable Europe Investment Plan – mobilising €1trillion of investment for environmentally responsible projects; and a proposed European Climate Law to make the net zero by 2050 commitment legally binding.

At the heart of this proposed law is a recently-revealed plan for carbon border pricing, which would tax goods imported into the EU based on the emissions created during production, unless already taxed in the country of origin.

The United States

During the United States (US) election campaign, Joe Biden proposed policies similar to the EU Green Deal. As President, Biden has introduced a US$2 trillion clean energy and infrastructure plan. This includes the US electricity sector being entirely renewables-generated, and carbon pricing and border adjustment mechanisms. President Biden has re-joined the Paris Agreement and has set a national goal of net-zero emissions by 2050.

President Biden’s push to transform the US economy over the next ten years is supported by a US$1.7 trillion budget. Within the targets, he seeks to achieve a “carbon pollution-free” energy sector by 2030. In April 2021, Biden further announced fossil fuel subsidies will be replaced by clean energy incentives. There are also discussions currently that the US will no longer financially support oil and gas projects abroad and imports will be subject to a CO2 border adjustment.

China

Set in the context of China’s goal to become a global superpower by 2050, China’s 14th five-year plan sets two compulsory targets - a decrease of 18% for CO2 intensity and 13.5% reduction of CO2 energy intensity from 2021 to 2025. The plan also refers to China’s long-term emission goals and the plan introduced, but did not set, a CO2 cap. Xi Jinping also announced China’s new ambition to enhance its nationally determined contribution for 2030 under the Paris Agreement and to reach carbon neutrality by 2060.

The plan also seeks to increase the share of renewable energy consumption to 20% of the energy market by 2025. China’s growth and energy consumption leaves open the possibility for it being the biggest market for renewable energy, however, it also continues to be the largest consumer of coal. China continues to operate 3000 coal mines which combined is more than the US, the EU, Japan, Russia and India, and has more than 2000 under construction. In addition, there is discussion that Chinese emissions have not peaked as their economy is still growing and their growth is not disconnected to carbon emissions. Therefore, China’s ability to achieve carbon neutrality by 2060 may be ambitious, but demonstrates ambitious climate action and a target that China is committed to achieving.

Elsewhere in Asia

Japan and South Korea have both endorsed the net zero by 2050 target. Recent infrastructure investment in Southeast Asia potentially puts the region on the cusp of a Green New Deal. In a Disruptive Asia article ‘A Green Recovery can make Southeast Asia an Economic Powerhouse’, Megan Argyriou documents the leading position of China, Japan and South Korea in the development of low-carbon technologies and the growing opportunity in countries in the region including Vietnam, Indonesia and the Philippines.

The 37th Association of Southeast Asian Nations (ASEAN) Summit held in November 2020 adopted an ASEAN Comprehensive Recovery Framework and Implementation Plan (Framework). It includes five key strategies: (1) enhancing health systems; (2) strengthening human security; (3) maximising the potential of intra-ASEAN market and broader economic integration; (4) accelerating inclusive digital transformation; and (5) advancing towards a more sustainable and resilient future.

The Framework states: “This Broad Strategy emphasizes that a return to ‘business as usual’ is no longer be an option for ASEAN in the postpandemic world, and this paradigm shift will require ASEAN governments, businesses, and civil society to work collectively to enable systemic change needed by the region for a sustainable and resilient future.”

As part of the European Green Deal, the EU committed to developing stronger ‘green deal diplomacy’, focussed on convincing and supporting others to promote sustainable development. On 1 December 2020, the European Union and ASEAN upgraded their relations to a 'strategic partnership'. The areas of cooperation of the strategic partnership include climate change and biodiversity, clean energy transition, smart cities, healthy oceans and environmental protection.

Australia

The language of the green new deal has not as yet resonated in Australia, but there is growing recognition of the importance of sustainability and ESG (Environment, Social & Governance) objectives for businesses and the communities they serve. The Australian Climate Change Authority has released  publications which focus on the role of low-emission energy in economic recovery from the pandemic, for example, ‘Economic recovery, resilience and prosperity after the coronavirus’ released in July 2020.

However, in comparison to the US and European Green Deal movements, Australia’s development of climate policies to reduce greenhouse gases is poor. The Australian Government has not yet formally adopted a net zero by 2050 target, however all Australian States and Territories have committed to net zero emissions by 2050.

To meet Australia’s obligations under the Paris Agreement, Australia would need to reduce emissions by a minimum of 26% by 2030. The Government’s messaging has been to say it is focussed on ‘technology not targets’ – seeking to prioritise the means for achieving emissions reduction, ahead of setting objectives.

In the 2021-2022 Australian Federal Budget, the government will invest $1.2 billion to establish Australia at the forefront of low emission technology innovation and commercialism. This includes being able to fund the development of carbon capture technologies, supporting large industrial facilities to reduce energy consumption, support clean technology innovation and reduce costs and streamline the reporting requirements covered by the National Greenhouse and Energy Reporting Scheme.[1]

While Australia lags behind other developed nations in developing climate policies and mechanisms to harness them, Australia’s relative strength is its abundance of favourable renewable energy sources. These include hydropower, ocean renewable energy, wind energy, geothermal energy, solar and bioenergy. Investment in renewable energy has increased over recent years due to government policy incentives, elevated electricity prices and declining costs in renewable generation technology. The largest renewable energy is hydro with increasing use of wind farms. 

Conclusion

Climate mitigation and adaptation will be enormously expensive in the short-term, requiring trillions of dollars of investment in low-carbon and climate-resilient infrastructure. Governments cannot fund this transition. To bridge this gap in financial resources, the Paris Agreement expressly calls for mobilising private sector financing to support the enormous investments in green technologies and infrastructure that will be necessary to realise these sustainable transition and carbon emissions goals. ESG screening of investments and shareholder activism, and more recently climate change litigation, is influencing investment decisions. Sustainable finance (green loans and sustainability linked loans), corporate renewable power purchase agreements, green bonds (and the growing market of green, blue, climate, biodiversity, sustainability and social bonds) are playing a significant role in leveraging private capital. Multilateral development banks (such as the World Bank and Asian Development Bank) and the Clean Energy Finance Corporation in Australia, in conjunction with institutional investors such as superfunds, are catalysing private investment in a sustainable recovery.

Whether we like the terminology or not, the green new deal is coming to Australia and the region. The pace at which this occurs is likely to increase, as the USA, China and Europe’s carbon reduction strategies evolve and feed into negotiations on addressing climate change at the UNFCCC Conference of the Parties (COP26) in Glasgow, UK in November 2021. Australia and Southeast Asian countries are well placed to deliver on the ‘sustainable and resilient future’ strategy of the ASEAN Comprehensive Recovery Framework, leverage existing knowledge, technology and experience and cooperate to deliver a low carbon transition supporting economic recovery and future growth in the region.

 

[1] See Federal Government Budget 2021-2022

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