DEVELOPING ASIA needs to consider carbon pricing systems if it hopes to meet its climate goals, the Asian Development Bank (ADB) said.

“Without carbon pricing, we won’t be able to reduce emissions with the speed and skill needed to meet the Paris Agreement goal,” ADB economist Manisha Pradhananga said in a briefing on Thursday.

“What we find is that several countries will benefit from selling their carbon permits. Overall, the region is a small carbon importer,” she added.

Asia is one of the most highly vulnerable regions to climate change.

“Climate change will increase the spread of vector-borne and waterborne diseases, and deaths due to cardiovascular stress. Climate change under a high emissions scenario could impose gross domestic product (GDP) losses of 24% in the whole of developing Asia, 35% in India, 30% in Southeast Asia, and 24% in the rest of South Asia by 2100,” according to the Asian Development Outlook 2023 Thematic report by the ADB.

Developing Asia’s share of global greenhouse gas emissions doubled from 22% in 1990 to 44% in 2019 and is expected to remain at this level until mid-century under current policies, the ADB said.

ADB economist David Raitzer said developing Asia risks large losses if climate change is not addressed.

“Growth in the region has relied heavily on emission-intensive activities, with the emission intensity of GDP currently 41% higher than the rest of the world. Developing Asia is starting its decarbonization at relatively low-income levels and faces large development needs,” according to the report.

He also noted that carbon pricing is the only policy that “ensures that mitigation effort is allocated efficiently.”

“A carbon price measure ensures that abatement occurs where it is least costly, whereas command and control regulations have no mechanism to assure that they target the lowest-cost opportunities to decarbonize. Subsidies similarly have no market to guide their targeting, have some degree of fungibility, and often lead to deadweight welfare losses,” the report said.

“Carbon pricing is critical to achieving a net zero world at attainable cost. The inability of markets to account for the full social, economic, and environmental cost of greenhouse gas emissions remains the fundamental market failure that has led to carbon-intensive growth and climate change,” it added.

The ADB estimates that a carbon price of $70 per ton of carbon dioxide equivalent by 2030 and $153 by 2050 will “trigger a transition to low-carbon growth and achieve global net zero.”

“Ambitious mitigation can be attained without carbon pricing, but the cost would be higher as carbon pricing is more efficient. Although progress is being made in the adoption of carbon prices, barriers often prevent prices from affecting investment and consumption decisions in developing Asia,” the ADB said.

“If the region’s economies do not proactively adopt carbon pricing, they risk being subjected to carbon border adjustment tariffs and other measures that could put trade at a disadvantage,” it added.

The ADB also cited how carbon trade can “help to smooth the distribution of costs among countries.”

“The modeled scenarios find that developing Asia will have both major carbon exporters and carbon importers if the world were to gradually transition to equal per capita emission quotas under the net zero scenarios,” it said.

“At the aggregate level, the modeling finds that developing Asia will be a slight potential importer of carbon offsets from the rest of the world under a contraction and convergence scenario over the entire century, so some policy costs are compensation to other regions. At the same time, revenues from exports of offsets turn aggregate costs negative for South Asia and help reduce costs in Indonesia and the rest of Southeast Asia,” it added.

Mr. Raitzer noted that the Philippines could be a carbon exporter.

“The Philippines is extremely climate vulnerable. It’s coming from a low level of baseline emissions, it would be a potential carbon exporter,” he said.

“The Philippines has expanded the share of coal in electricity generation. We don’t find (coal expansion) preferable because of the declining cost of other energy sources. If there were an agreement, the Philippines would come out as a carbon exporter and that would offset much of the cost,” he added. — Luisa Maria Jacinta C. Jocson

THE growth of developing Asian economies is expected to firm to 4.8% this year, outperforming many regions with inflation “contained” and “relatively low,” the Asian Development Bank (ADB) said.

“The economic growth of developing Asia in 2022 was 4.2%, down from 7.2% in 2021. This year, the ADB predicts it at around 4.8%. Growth went down from two years ago, but compared to other parts of the world, the growth rate is relatively high and inflation rate is contained and relatively low,” ADB President Masatsugu Asakawa said in a livestreamed briefing on Thursday.

The ADB maintained its 6% growth forecast for the Philippines this year, on the lower end of the government’s 6-7% target.

“I would say that developing Asia has been growing at a very robust and steady pace, although we have to bear in mind a couple of risks involved,” he added.

Mr. Asakawa said that high inflation in advanced economies like the US and Europe have forced institutions there to raise borrowing costs.

“The Federal Reserve has started to slow the pace of interest rate hikes, but it’s not clear yet if those advanced economies will end up with a successful soft-landing scenario or falling into a recession due to inflationary pressures,” he added.

The Fed raised its funds rate by 475 bps since March 2022, bringing the policy rate to 4.75-5%.

This has also caused central banks in Asia to raise rates to keep in step with the Fed, which will threaten growth momentum, Mr. Asakawa said.

The Bangko Sentral ng Pilipinas has raised borrowing costs by 425 basis points (bps) since May, bringing the key policy rate to 6.25%.

On the other hand, Mr. Asakawa said that the reopening of China will also help drive growth in the region.

“This is good news for commodity exporting countries and also countries with close ties with China in terms of the supply chain network and tourism,” he said.

However, he noted that a stronger-than-expected Chinese recovery also poses risks in the form of inflation, via stronger demand for commodities.

Meanwhile, Mr. Asakawa also noted how the climate crisis could impede growth.

“This region is one of the most vulnerable against natural disasters. Our fight against climate change will be won or lost in this region,” he said.

The ADB increased its target for cumulative climate financing to $100 billion from $80 billion from 2019 to 2030.

He said that the bank is working on another climate financing instrument, the Innovative Finance Facility for Climate in Asia and Pacific.

“It’s an instrument to increase ADB’s climate financing by utilizing a guarantee mechanism which means if ever a borrowing country fails to repay its debt to the ADB, donor countries as a guarantor will pay the ADB on its behalf,” he said.

“We also declare to be a climate bank for the Asia and the Pacific,” he added. — Luisa Maria Jacinta C. Jocson