Managing The Transition To A Low-Carbon Economy: Perspectives, Policies, and Practices From Asia

Perspectives, Policies, and Practices from Asia
Asia must be at the center of the global

fight against climate change. It is the
worlds most populous region, with high
economic growth, a rising share of global
greenhouse gas emissions, and the most
vulnerability to climate risks. Its current
resource- and emission-intensive growth
pattern is not sustainable. This study
recognizes low-carbon green growth
as an imperativenot an optionfor
developing Asia.
Asia has already started to move toward
low-carbon green growth. Many emerging
economies have started to use sustainable
development to bring competitiveness to
their industries and to serve growing green
technology markets.
The aim of this study is to share the
experiences of developed Asian economies
and the lessons they have learned. The book
assesses the low-carbon and green policies
and practices taken by developed Asian
countries, identifies gaps, and examines
new opportunities for low-carbon
green growth.
Asian Development Bank

6 ADB Avenue
Mandaluyong, 1550 Metro Manila
Philippines
Tel: +632 632 4444
adbpubs@adb.org
www.adb.org
About the Asian Development Bank

ADBs vision is an Asia and Pacific region free
of poverty. Its mission is to help its developing
member countries reduce poverty and improve
the quality of life of their people. Despite the
regions many successes, it remains home
to the majority of the worlds poor. ADB
is committed to reducing poverty through
inclusive economic growth, environmentally
sustainable growth, and regional integration.
Based in Manila, ADB is owned by 67 members,
including 48 from the region.
Its main instruments for helping its developing
member countries are policy dialogue, loans,
equity investments, guarantees, grants, and
technical assistance.
About the Asian Development Bank Institute
Managing the Transition to a Low-Carbon Economy
Managing the Transition

to a Low-Carbon Economy
Perspectives, Policies, and Practices
from Asia
ADBI, located in Tokyo, is the think tank

of ADB. Its mission is to identify effective
development strategies and improve
development management in ADBs
developing member countries. ADBI has an
extensive network of partners in the Asia and
Pacific region and globally. ADBIs activities
are aligned with ADBs strategic focus, which
includes poverty reduction and inclusive
economic growth, the environment, regional
cooperation and integration, infrastructure
development, middle-income countries, and
private sector development and operations.
Asian Development Bank Institute

Kasumigaseki Building 8F
3-2-5 Kasumigaseki, Chiyoda-ku
Tokyo 100-6008
Japan
Tel: +813 3593 5500
adbipubs@adbi.org
www.adbi.org
Editors
Venkatachalam Anbumozhi
Masahiro Kawai
Bindu N. Lohani

from Asia
Editors
Bindu N. Lohani
2015 Asian Development Bank Institute

All rights reserved. Published in 2015.
Printed in Japan.
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through a totally chlorine-free process.
ISBN 978-4-89974-057-5 (Print)
ISBN 978-4-89974-058-2 (PDF)
The views in this publication do not necessarily reflect the views and policies of the
Asian Development Bank Institute (ADBI), its Advisory Council, ADBs Board or
Governors, or the governments of ADB members.
ADBI does not guarantee the accuracy of the data included in this publication and
accepts no responsibility for any consequence of their use. ADBI uses proper ADB
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By making any designation of or reference to a particular territory or geographic
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Users are restricted from reselling, redistributing, or creating derivative works without
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Tokyo 100-6008, Japan
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Contents
List of Figures, Tables, and Boxes
Forewordxi
Preface
xii
Contributorsxvii
Abbreviationsxxii
PART I: Concepts and Measurements of
Low-Carbon Green Growth
Chapter 1: Pro-Growth, Pro-Job, Pro-Poor, Pro-Environment
Emil Salim
Chapter 2: Toward a Low-Carbon Asia: Challenges

of Economic Development
Venkatachalam Anbumozhi and Masahiro Kawai
11
Chapter 3: Green Growth and Equity in the Context

of Climate Change
Jeffrey D. Sachs and Shiv Someshwar
45
Chapter 4: Evaluation of Current Pledges, Actions,

and Strategies
Stephen Howes and Paul Wyrwoll
85
PART II: Driving Forces and Incentives of

Chapter 5: Co-benefit Technologies, Green Jobs,
and National Innovation Systems
Sivanappan Kumar, Naga Srujana Goteti,
and Prathamesh Savargaonkar
149
iii
ivContents
Chapter 6: Societal Innovations and Lifestyle Choices

as a Low-Carbon Development Strategy
Brahmanand Mohanty, Martin Scherfler,
and Vikram Devatha
175
Chapter 7: Reforms for Private Finance toward Green Growth

in Asia
Takashi Hongo and Venkatachalam Anbumozhi
251
Chapter 8: Flexible Incentives for Low-Carbon Inclusive Growth
Venkatachalam Anbumozhi and Armin Bauer
279
PART III: Regional Cooperation for Managing

the Transition
Chapter 9: Climate Finance and the Role of International
Cooperation
Tomonori Sudo
309
Chapter 10: Regional Cooperation toward a Green Asia: Trade

and Investment
Kaliappa Kalirajan
335
Chapter 11: Narrowing the Gaps through Regional Cooperation:

Institutions and Governance Systems
Heinrich Wyes
355
APPENDIX
Low-Carbon Green Growth in Asia: Policies and Practices381
Figures, Tables,
and Boxes
Figures
2.1
2.2
2.3
2.4
2.5
2.6
Carbon Emissions of Selected Asian Economies

Changes in Carbon Intensity, Realized and Projected
Energy Use, Emissions, and Economic Growth
Decoupling of Economic Growth and Emissions in Japan
Emission Reduction Potential for Major Emitters
Geographical Distribution of CDM Projects
and Sectoral Distribution in the PRC
2.7 Revenues from Environmental Tax
3.1 Estimates of the Global Damage of Climate Change
3.2 Equivalent Annual Cost of Climate Change in Africa
3.3 Mean Impact of Climate Change on Southeast Asian
Countries and at the Global Scale
3.4 Adaptation Cost Estimates Based on Various Methodologies
3.5 Total Annual Cost of Adaptation for the National Center
for Atmospheric Research (NCAR) Scenario, by Region
and Decade
3.6 Costs from Stabilizing Long-Run GHG Concentration
at 550 ppm Across Regions
3.7 Colorado Water Compact of 1922
13
14
16
18
21
24
29
55
56
56
57
58
60
68
4.1 Projected Energy Demand in the PRC, India, and Other

Non-OECD Asia
89
4.2 Energy Import Dependency in Emerging Asia
90
4.3 Domestic Coal Reserves in Developing Asia Are Limited
and/or Depleting Rapidly
91
4.4 World Energy Prices: Volatile and Rising
92
4.5 Global Emissions Projections: The Gap between Planned
and Required Action
104
4.6 Mitigation in Developing Economies Only Will Be Insufficient 105
4.7 The Additional Transformation Required for Emissions
Profiles across Asia
111
v
viFigures, Tables, and Boxes
4.8 The Additional Transformation Required in the Power

Generation Mix across Asia
4.9 Global Emissions Reductions by Source
4.10 The Additional Transformation Required for Energy
Demand Profiles across Asia
4.11 The Innovation Chain for a New Mitigation Technology
4.12 The PRCs Future: Low Energy Prices or High Energy
Efficiency? Cross-Comparison of Electricity Prices, Gasoline
Prices, and Energy Intensity
4.13 The Ratio of Investment to GDP for Developing Asia
and the Average for OECD Economies
5.1 Technology Promotion and Innovation Policy Framework
in Asia and the Pacific
6.1 Population Growth for World Regions, 19502050
6.2 Proportion of Urban Population, 19502050
6.3 Annual Per Capita Electricity Consumption, 2007
and 2030
6.4 Cars per 1,000 Population, 2014
6.5 Lifecycle Energy Use
6.6 Municipal Waste
6.7 Projected Impact of Climate Change
6.8 Income and Happiness in the United States
6.9 Share of the Worlds Private Consumption
6.10 Annual Energy Performance of a Net Energy Positive
House in India, 2014
6.11 Creating and Satisfying Demand for Green and Fair Products
7.1 Financial Flows to Developing Countries
7.2 Banks Outstanding Loans to Asia and the Pacific
7.3 Changes in Carbon Price
7.4 Carbon Market after 2014
7.5 Structure of a Green Credit Line
7.6 CO2 Reduction: Case of Performance-Based Incentive
7.7 Carbon Market and Performance-Based Incentive System
7.8 Green Climate Fund and Its Performance-Based
Incentive System
7.9 Feed-in Tariff (FIT), Green Certificate Market,
and Viability Gap Fund
7.10 Forest Eco Fund
7.11 Transformation of Money Market
113
114
114
117
124
137
168
177
178
181
182
183
184
186
187
189
206
220
254
255
259
263
264
267
268
269
272
273
274
Figures, Tables, and Boxes vii
8.1 Carbon Dioxide Emissions and Gross Domestic Product

per Capita in Selected Economies of Asia and the Pacific
8.2 Pervasive Energy Subsidies and Fiscal Debt in Selected
Asian Economies
9.1 Climate Change Related Aid, 20082013
9.2 Share of Foreign Direct Investment Flows into Asian
Developing Economies, 2013
9.3 Share of Climate Change Official Development Assistance
Flow into Asian Developing Countries, 2013
9.4 Allocation of Climate Change ODA Flow into Asian
Developing Countries
9.5 Breakdown of Amount Disbursed in Asia and the Pacific
and Contribution from Each Fund
9.6 Sources of Climate Change Finance
9.7 Grouping of Developing Asian Countries
9.8 Financial Flows to Developing Countries
9.9 The Co-benefit Approach
9.10 Role of International Cooperation
9.11 Potential Framework of a Climate Change Finance
Facility in Asia
10.1 Mean Inefficiency in Export Flows in LCGS across
Emerging Asian Countries
281
292
311
315
315
316
317
319
321
324
325
328
330
348
11.1 Institutional Framework of ASEAN for Environmental Issues 364

11.2 Structure of ASEAN Legislation on Environmental Issues
365
Tables
1.1 Changing Gini Coefficient in Asia, 19872012
2.1 Carbon Dependency of Global and Regional Economies

15
2.2 Impact of Subsidies on Economic Growth and Emissions
in Selected Economies in 2011
28
2.3 Energy-Related CO2 Emissions in ASEAN, the PRC, and India 31
2.4 Public-Private Partnership Mechanisms for the EconomyWide Uptake of Low-Carbon Technologies
34
2.5 Surplus Savings in Selected Asian Countries
38
viiiFigures, Tables, and Boxes
3.1 Estimated Global Macroeconomic Cost Estimates of

Mitigation Scenarios in 2030 and 2050
3.2 Incremental Mitigation Costs and Associated Financing
Requirements for a 2C Trajectory: What Will Be Needed
in Developing Countries by 2030?
3.3 Climate Change Financing
3.4 New and AdditionalFast Start Funds, 20102012
3.5 Illustration of Proposed Green Fund Assessment Rates
3.6 Potential Green Fund Revenues Based on CO2 Levy
59
61
64
66
78
78
4.1 Economic and Social indicators for Developing Asia in Context 86

4.2 Summary of Indicators for Carbon Dioxide Emissions
and Energy
87
4.3 Summary Statistics for Air Pollution, Deforestation,
and Land Degradation
96
4.4 Climate Change Mitigation Targets for Major
Asian Economies
103
4.5 Classification of Climate Change Mitigation Instruments
116
4.6 Technology-Based Climate Change Mitigation Policies
in the PRC, India, Indonesia, Thailand, and Viet Nam
122
4.7 Status of Carbon Pricing in Developing Asia
125
4.8 Revenue from $20 Carbon Price and Government Revenue
as a Proportion of GDP in Developed and Developing Asia,
2009126
5.1 Standard and Abstract Co-Benefits Available from LowCarbon Technologies
152
5.2 Estimated Job Creation Co-Benefits from Low-Carbon
Technologies155
5.3 Case-Based Health Co-Benefits from Low-Carbon Measures 156
5.4 Case Study Matrix for Co-Benefits Evaluation
and Quantification
158
6.1
6.2
6.3
6.4
6.5
Lifestyle Changes and Associated Factors for Food

Lifestyle Changes and Associated Factors for Water
Lifestyle Changes and Associated Factors for Energy
Lifestyle Changes and Associated Factors for Travel
Lifestyle Changes and Associated Factors for Buildings
and Construction
6.6 Lifestyle Changes and Associated Factors for Waste
6.7 Behavioral Changes and Associated Factors for Communities
193
196
199
204
208
210
219
Figures, Tables, and Boxes ix
7.1 Estimation of Global Investment Cost Requirements

to Combat Climate Change
7.2 Options for Low-Carbon Financing
7.3 Comparison of Clean Development Mechanism and JBICMonitoring Reporting and Verification (J-MRV) Systems
7.4 Portfolio of the Green Credit Line
8.1 Tiers of Development Structure
8.2 Total Primary Energy Supply, Share of Renewable Energy,
Electricity Consumption, and Electrification Rates of
Selected Countries in Asia and the Pacific
8.3 Different Subsidy Models Proposed by Refocus, 2001
8.4 Changing Perceptions of Business and Policy Makers in India
8.5 Summary of the Potential Benefits of the Clean Energy
Investment Program for Low-Income Households in
the United States
8.6 Estimates of Relative Subsidies to Energy Sources
8.7 Components of Government Spending, Emissions,
and Public Debt
8.8 Double EmploymentEnvironment Dividend: Practice
in Europe during the 1990s
9.1 Estimated Volume of Mitigation and Adaptation Finance
9.2 Gaps between Expectation and Reality on Climate
Change Finance
10.1 Estimates of Determinants of Total Exports of LCGS
across Countries
10.2 Potential Exports of LCGS under Different Scenarios

253
260
265
266
282
285
287
289
290
293
296
298
311
318
342
344
Boxes
2.1
2.2
2.3
2.4
How Japan Achieved Decoupling

Tokyos Cap-and-Trade Program
Social Safety Net and Energy Subsidy Reforms in Indonesia
An Example of Long-Term Investment: The Norwegian
Pension Fund
4.1 Energy Efficiency in Developing Asia: A Principal Concern

for Economic Growth, Local Environmental Sustainability,
and Climate Change
4.2 Hydropower and Hydraulic Fracturing: Green Growth?
19
26
31
36
93
99
xFigures, Tables, and Boxes
4.3 Modeling of Alternative Scenarios in the World Energy

Outlook 2011
4.4 Deforestation and Land-Use Change in Indonesia
4.5 Increasing the Efficiency of Coal-Fired Power Generation
106
109
112
5.1 Cooking Stoves in India

156
5.2 Energy Generation Systems in the Peoples Republic of China
Reduce Dependence on Fossil Fuels
157
5.3 Projects Based on a Co-Benefits Approach
170
6.1 Lifestyle Choices: Food and Diet
6.2 Lifestyle Choices: Energy
6.3 Lifestyle Choices: Travel
6.4 What Makes Buildings Green?
6.5 Lifestyle Choices: Buildings and Habitat
6.6 Lifestyle Choices: Waste
6.7 Mitigating the Urban Heat Island Effect
6.8 Behavioral Changes at the Community Level
6.9 Green Initiatives by Companies
6.10 Policy Actions for the Food Sector
6.11 Policy Actions for the Water Sector
6.12 Policy Actions for the Electricity Sector
6.13 Policy Actions for the Transport Sector
6.14 Policy Actions for the Construction Sector
6.15 Policy Actions for Urban Planning
6.16 Policy Actions for the Waste Sector
6.17 Policy Actions for Awareness Campaigns
191
198
203
205
207
209
215
218
220
226
227
230
231
233
234
235
237
9.1 Principles of the Paris Declaration on Aid Effectiveness

9.2 Climate Change Program Loan
322
326
Foreword
Climate change is one of the most pressing developmental challenges of our
time. While the literature on tackling climate change and accelerating lowcarbon green growth is vast, little attention has been devoted to current and
future low-carbon green growth in developing countries, especially in the
Asia and Pacific region.
The Asian Development Bank Institute in Tokyo and the Asian
Development Bank in Manila have teamed up with 18 regional think tanks
to begin to fill this gap. The papers in this volume were presented at two
conferences attended by leading experts on climate change mitigation. The
meetings addressed how emerging economies can position themselves
to maximize the potential for regional cooperation and to develop new
international climate regimes.
This book uses the notion of transition to provide a fresh perspective
on moving to long-term low-carbon and sustainable growth. The analysis
is undertaken at three levels. A general discussion of low-carbon green
growth is followed by an analysis of national and subnational policy actions
toward a low-carbon economy. The final part covers the cross-cutting
themes of technology, finance, and regional cooperation that will be needed
to accelerate the transition.
We are confident that this book will contribute to policy development
and academic understanding in an area where new insights and coordinated
policy actions are badly needed. This book is also intended to serve as a
catalyst for further collaborative research.
We hope this book will help countries in Asia and the Pacific scale
up their actions and implement robust institutional frameworks for
accelerating low-carbon green growth, and to manage their resources
sustainably for the long-term development of their people.
Bindu N. Lohani
Former Vice-President
(Knowledge Management
and Sustainable Development)
Masahiro Kawai
Former Dean and CEO
xi
Preface
Venkatachalam Anbumozhi, Masahiro Kawai,
and Bindu Lohani
Asias economic success over the past 5 decades has been coupled with
remarkable achievements in reducing poverty and improving the quality
of life. But the regions economic growth has also resulted in a significant
increase in global warming greenhouse gas emissions. Asias share of
worldwide emissions increased from 8.7% in 1973 to 28% in 2010, and
is expected to increase to 40% by 2030 if present industrial production
and energy consumption growth rates continue. Asia needs to switch to a
less polluting pattern of production and consumption while maintaining
the growth and social development it requires.
Energy consumption, the burning of fossil fuels in particular, is
the main source of human-induced greenhouse gas emissionsthe
main cause of climate change. But energy is also a fuel for growth,
particularly for the rapidly developing economies of Asia. The challenge
for developing Asia is to maintain economic growth while reducing the
carbon content of energy and increasing the efficiency of resource use.
The way in which Asia manages its future developmental activities in a
low-carbon resource-efficient way is critically important, as the world
increasingly looks to Asia for its growth. Asia can also be a model for
measures to mitigate climate change.
Low-Carbon Green Growth in Asia

In 2013, the Asian Development Bank and the Asian Development Bank
Institute in close collaboration with 18 regional think tanks published
Low-Carbon Green Growth in Asia: Policies and Practices.
This volume took the approach that many of the policies Asia
needs to move toward low-carbon growth are already known. Pricing,
including carbon taxes, tradable emission permits, incentives for climatefriendly technology innovations, standards, and regulationsall of these
xii
Prefacexiii
instruments are helping emerging economies to tackle climate change

and accelerate green growth. However, an effective economic strategy to
deal with climate change is not only about identifying the best tools; above
all it is about combining and deploying the various available instruments
in a coherent way. Low-Carbon Green Growth in Asia demonstrated that
Asia has already started doing this to meet individual developmental
needs while still achieving the overall objective of ambitious emission
reductions. While these policies are replicable and can be scaled up,
better regional cooperation is clearly needed. A summary of the book is
available in the appendix.
About This Book: Managing the Transition

The papers in this volume form a companion book. They were presented
and discussed at two workshops on Climate Change and Green Asia held
in Beijing and New Delhi in 2011. The two workshops:

assessed the scope and merits of current pledges, programs, and

strategies for climate change mitigation; and
provided strategic directions to reduce greenhouse gas
emissions without adversely affecting economic growth.
This volume of edited papers focuses on the importance of adopting

a broad approach to climate mitigation that extends across all sectors of
the economy and involves all levels of government. The issues that cut
across sectors are technology, finance, and regional cooperation.
The book has three parts: (1) concepts and measurement of lowcarbon green growth, (2) driving forces and incentives of low-carbon
green growth, and (3) regional cooperation for managing the transition.
Concepts and Measurement of Low-Carbon

Green Growth
Part 1 provides an overview of the opportunities low-carbon green
growth offers and a critical analysis of various ambitious attempts in
Asia to achieve a fundamental change in energy demand and supply.
The papers are united by a belief that addressing climate change and
accelerating inclusive growth is an endogenous feature of economic
xivPreface
systems and that therefore technological change needs to be induced by

economic policies. The papers provide a fresh perspective on realizing
fundamental changes in Asias economies and societies and offers
innovative views on the role and content of public policies.
The three papers in this part also provide empirical analyses of
countrywide actions in the Peoples Republic of China, India, Indonesia,
Thailand, Singapore, and Viet Nam, focusing on energy supply, energy
efficiency, transport, waste management, and agricultural land use.
These are crucial sectors, as they determine the overall trend in
emissions reductions. Many of the models of policy reforms and sectoral
case studies are potentially of global importance as they are replicable
and scalable. One conclusion is that the level of progress across Asia
differs widely and the potential for it to grow is high if successful efforts
are scaled up and replicated. These papers also critically evaluate
organizational structures, pledges and mandates, budgets, human
resources, and technical skills.
Incentives and Driving Forces of Low-Carbon

Green Growth
The lifestyle choices of individuals and technologies that are available
to them will shape markets and emissions. Part 2 analyzes and compares
actions taken at the local level and identifies and assesses driving
forces at national and local levels. Urban contributions to carbon
emissions depend on the size and structure of the economy. Public
private partnership programs offer a long-term sustainable approach to
improving low-carbon initiatives, enhancing the value of public assets,
and making better use of public resources. In developed countries, such
initiatives can be found in waste management, transport, and public
buildings, among others. In the context of lifestyle responses to climate
change, two types of behavior are especially relevant for emerging
economies. The first is efficiencythe substitution of more energyefficient appliances, motor vehicles, or other devices for less efficient
ones. The second is the curtailment of resource use. In both cases,
policies need to enable and reward low-carbon lifestyles.
If implemented in the right way, innovations in low-carbon
technologies and green services will become key drivers of growth,
competitiveness, and employment. The chapters on technology
examine co-benefit technologies (offering social, economic, and local
environmental benefits) from a regional perspective, demonstrating that
such benefits can be achieved effectively with the appropriate technical,
Prefacexv
financial, and institutional support. Investment in climate change

mitigation results in many broad societal and sustainable development
benefits in the fields of environment, health, economic and social
welfare, as well as energy security. While developed countries expect
technology to be transferred through business-to-business transactions,
developing countries anticipate that governments will play a major
role. Although some developing countries see intellectual property
rights as hindering access to technologies, they need not necessarily
affect technology transfer transactions. National innovation systems,
through policy interventions, can also facilitate technology transfer.
Factors that have engaged the private sector to tackle climate change
include the growing market demand for renewable energy, an increasing
focus on higher energy efficiency, and a greater role for the carbon
market. However, private sector participation in low-carbon green
growth initiatives is hindered by limited financing options and access
to technology in developing countries, biased supply chain dependence
on imports, limited partnerships between the public and the private
sectors, a lack of capacity, regulatory uncertainty, and the absence of a
long-term price signal for the carbon market.
This part also discusses how to unlock public, private, and
international finance to accelerate low-carbon green growth. It assesses
how the cap-and-trade scheme, a market-based approach, shall be
used to controlcarbon emissions by providingeconomicincentivesfor
achieving emissions reductions, thus lowering overall costs. A carbon
tax can boost energy security, stimulate economic growth, increase
fiscal revenues, and at the same time tackle climate change. If and
when it is combined with revenue neutrality in budget formulations,
the introduction of a carbon tax can also generate indirect benefits by
decreasing corporate and household income taxes and can support
environmentally friendly projects. To maximize private sector
participation, policy actions that facilitate public finance are highly
recommended. Case studies are used to illustrate these points.
The public sector plays a crucial role in mobilizing climate
change, but private capital is also essential to meet the huge demand
in developing countries. Market-based mechanisms such as the Clean
Development Mechanism are important to attract investment to the
carbon market. The Clean Development Mechanism also speeds up
technology transfer through joint projects between firms in developed
and developing countries. To use public and private financial resources
efficiently, a well-designed measurement, reporting, and verification
system is essential.
xviPreface
Regional Cooperation for Managing the

Transition
Part 3 focuses on how to seize the opportunities that lie across
national boundariesboth market-based opportunities such as trade
and investment flows in low-carbon green products and services, and
nonmarket opportunities for regional collective action ( joint research,
finance mobilization, policy networking, and knowledge sharing).
The need for a system of measurement, reporting, and verification
as a policy management tool for understanding the impact of these
strategies is emphasized. Strategies must be embedded in economic
policies, regulations, and new investment programs. They cannot be an
afterthought, but must be an integral part of the national development
strategy. There is great potential to develop a regime that is regional in
focus but has an international perspective. Regional governance systems
and national institutional frameworks to accelerate green growth such
as the South Asian Association for Regional Cooperation, the AsiaPacific Economic Co-operation, and the Association of Southeast Asian
Nations already exist and can be used more extensively. The region has
seen strengthened cooperation, especially in policies on forests, energy,
and water.
The contributors to this volume illustrate that a balance between
economic growth and social and environmental costs is possible.
Notwithstanding the generally positive framework available, the Asian
way of designing low-carbon green growth policies also highlights the
untapped potential that can be accelerated through regional cooperation
by mobilizing knowledge, technology, and finance.
We are grateful to all the project participants who not only shared
their ideas, but were also willing to spend many months in writing up
their chapters so their ideas can be presented in an easily accessible
way. Special thanks are due to the steering committee and working
group members, discussants at the conferences, and reviewers of the
papers, who offered challenging and sometimes provocative thoughts
that helped us to shape our own ideas.
In particular, we would like to thank Xianbin Yao, Director General
of the Pacific Department, ADB and Naoyuki Yoshino, Dean of ADBI for
championing the study and inspiring support.
Contributors
Venkatachalam Anbumozhi is senior economist at the Economic
Research Institute for ASEAN and the East Asia (ERIA). Previously
he worked at the Asian Development Bank Institute in Tokyo. He
received his doctorate from the University of Tokyo, where he also
subsequently taught resource management, international cooperation,
and development finance. He has written books, research articles, and
project reports on natural resource management, climate-friendly
infrastructure design, and private sector participation in green growth.
He was a member of the APEC Expert Panel on Green Climate Finance
and the ASEAN panel for promoting climate-resilient growth.
Armin Bauer is a principal economist in the ADB poverty reduction
and inclusive growth team. Previously he worked for the German
development cooperation organizations KfW and GTZ. He holds a PhD
in development economics and a masters degree in public policy and
administration.
Vikram Devatha has 12 years of experience in business and managing
general administration for a multinational company based in India.
He is currently engaged in project management and renewable
energy research studies with Auroville Consulting. He has a degree in
International Business and Economics from the Queensland University
of Technology in Australia.
Naga Srujana Goteti obtained her master of engineering in energy at
the Asian Institute of Technology (AIT), Thailand. She has worked in
the IT industry and as a research associate at AIT contributing to the
study on indicators for low-carbon green growth.
Takashi Hongo is a senior fellow at the Mitsui Global Strategic Studies
Institute, where he has been involved in projects and policy measures on
climate change, water security, and bio diversity. Previously he worked
for the Japan Bank for International Cooperation and designed projects
on power, energy, and mineral resources, among others. He has written
numerous articles and is a member of the Board of Directors of the
International Emission Trading Association, Private Sector Advisory
xvii
xviiiContributors
Committee for Global Green Growth Institute, and Technical Evaluation

Committee of the New Energy and Industrial Technology Development
Organization in Japan.
Stephen Howes is a professor of economics at the Crawford School
of Public Policy at the Australian National University. He is director
of the international and development economics teaching program
at the Crawford School, and also director of the Development Policy
Centre. Previously he was chief economist at the Australian Agency
for International Development and worked for the World Bank, in
Washington and Delhi. In 2008, he worked on the Garnaut Review
on climate change. He received his masters in economics from the
Australian National University, and his PhD from the London School of
Economics.
Kaliappa Kalirajan is a professor of applied economics and a policy
analyst at the Crawford School, Australian National University.
Previously he was professor of international economics at the
Foundation for Advanced Studies on International Development and
the National Graduate Institute for Policy Studies in Tokyo and worked
at the Australia South Asia Research Centre at the Australian National
University. His main areas of interest include macroeconomic and trade
policies and reform, poverty reduction, and sources of growth. He has
published numerous books. He received masters degrees from Madurai
University and his PhD from the Australian National University.
Masahiro Kawai is a professor of economics at the University of Tokyo.
He was previously dean of the Asian Development Bank Institute and
head of the ADB Office of Regional Economic Integration. He has also
served as deputy vice minister of finance for international affairs of
Japans Ministry of Finance and chief economist for the World Banks
East Asia and the Pacific region. He was a consultant at the Board
of Governors of the Federal Reserve System and the International
Monetary Fund and special research advisor at the Institute of Fiscal
and Monetary Policy in Japans Ministry of Finance. He has a PhD in
economics from Stanford University.
Sivanappan Kumar obtained his PhD from Institut National
Polytechnique du Toulouse, France, and is a professor at the Asian
Institute of Technology, Thailand. He specializes in renewable energy
resources and technologies, climate change and greenhouse gas
mitigation, and energy and sustainable development. He has published
extensively.
Contributorsxix
Bindu N. Lohani is the former Asian Development Bank (ADB) vicepresident for knowledge management and sustainable development.
Previously he was the director general of the ADB Regional and
Sustainable Development Department and the chief compliance officer
and special advisor to the president on clean energy and environment.
Before joining ADB, he worked for the Government of Nepal and the
Asian Institute of Technology. He holds a PhD in engineering. He is
an elected member of the US National Academy of Engineering and a
diplomat of the American Academy of Environmental Engineers and
Fellow of the American Association for the Advancement of Science
Council.
Brahmanand Mohanty is the regional adviser for Asia for the French
Environment and Energy Management Agency. He is a visiting faculty
at the School of Environment, Resources and Development of the Asian
Institute of Technology. He obtained his PhD in energy from the Institut
National Polytechnique, France in 1985. He has undertaken professional
assignments for about a dozen of bilateral and multilateral funding
agencies in about 20 countries in and outside Asia. He is the author/coauthor of a number of journal/conference articles and books on topics
related to energy technology, efficiency and management, sustainable
urban energy, energy, and the environment.
Jeffrey D. Sachs is the director of The Earth Institute, Quetelet
Professor of Sustainable Development, and professor of health policy
and management at Columbia University. He is a special advisor to
United Nations Secretary-General Ban Ki-moon on the Millennium
Development Goals, having held the same position under former
Secretary-General Kofi Annan. He is the director of the UN Sustainable
Development Solutions Network, co-founder and chief strategist of the
Millennium Promise Alliance, and director of the Millennium Villages
Project. He is also one of the Secretary-Generals MDG Advocates,
and a Commissioner of the ITU/UNESCO Broadband Commission for
Development. He has authored three New York Times bestsellers in the
past seven years: The End of Poverty (2005), Common Wealth: Economics
for a Crowded Planet (2008), and The Price of Civilization (2011). His
most recent books are To Move the World: JFKs Quest for Peace (2013)
and The Age of Sustainable Development (2015).
Emil Samil is the advisor for environment and sustainable development
issues of the Advisory Council to the President of Indonesia. He has
held a number of governmental positions, including minister of state
for population and the environment, minister of state for development
xxContributors
supervision and the environment, minister of communication, minister

of state for the improvement of the state apparatus, vice chairman of
the National Development Planning Agency, chairman of the technical
team of the Council for Economic Stability and a member of the
Gotong Royong Parliament, member of the team of advisers to the
Minister of Manpower, and member of the team of economic advisers
to the President. He graduated from the Faculty of Economics of the
University of Indonesia, and received his PhD degree in economics from
the University of California, Berkeley.
Prathamesh Savargaonkar obtained his masters in business
administration from the Asian Institute of Technology in Thailand. He
was a research associate at AIT and contributed to a study on indicators
for low carbon green growth.
Martin Scherfler is a co-founder of Auroville Consulting. A sociologist
and researcher, he has wide experience in coordinating educational
programs in the area of sustainability. He is currently engaged in project
management related to efficient and sustainable use of energy, water
and engages in urban farming initiatives. He holds a masters degree in
sociology from the University of Vienna.
Shiv Someshwaris research faculty at Columbia University in New York.
At the Earth Institute, he is also director of climate policy at the Center
on Globalization and Sustainable Development, and senior advisor of
the Sustainable Development Solutions Network. An expert in climate
and development policy, he has led numerous multidisciplinary efforts
to build resilience to climate risks in developing countries. He advises
governments on identifying and implementing climate and sustainable
development action priorities, and served as an advisor to the Bureau
of Crisis Prevention and Recovery for the United Nations Development
Programme to integrate climate adaptation and disaster risk reduction
efforts. Previously, he was at the Rockefeller Foundation and at the
World Bank. He received his PhD in environment and public policy
from the University of California, Los Angeles, and was a MacArthur
Bell fellow at Harvard University.
Tomonori Sudo is senior research fellow of the Japan International
Cooperation Agency Research Institute. His work focuses on
development cooperation and effective financial mechanisms
addressing environment and climate change issues. He is a member
of the Environment and Development Cooperation Network of the
Organisation for Economic Co-operation and Development (OECD)
Contributorsxxi
Development Assistance Committee. He was seconded to the African

Development Bank to promote private sector development in Africa.
He received his BA from Osaka University, his MSc in from University
College London, and his PhD from Waseda University.
Heinrich Wyes is deputy executive director of the Central Asian Regional
Environment Centre (CAREC). Previously, he worked for the United
Nations Environment Programme, the World Health Organization,
the Consultative Group on International Agricultural Research, and
as a spokesperson of the German Ministry of Environment. Currently
he lectures at the GermanKazakh University in Almaty. He holds a
masters degree in geology and has conducted postgraduate studies in
system analysis and macroeconomics. In 2011, Mr. Wyes won the Swiss
ReSource Award for innovative ideas on watershed management.
Paul Wyrwoll is a PhD candidate at Australian National University. He
is an environmental and resource economist whose research focuses
on the integration of environmental water flows into hydropower
operations. He is the general manager of the Food, Energy, Environment
and Water (FE2W) Network and the managing editor of the Global
Water Forum.
Abbreviations
ADB
ADBI
APEC
Asia-Pacific Economic Cooperation
ASEAN
Association of Southeast Asian Nations
CDM
Clean Development Mechanism
CFL
compact fluorescent lamp
CO2
carbon dioxide
ETS
emissions trading scheme
EU
European Union
FDI
foreign direct investment
FFV
fuel flexible vehicles
FIT
feed-in tariff
GCF
Green Climate Fund
GDP
gross domestic product
GEF
Global Environment Facility
GHG
greenhouse gas
IEA
International Energy Agency
IPCC
Intergovernmental Panel on Climate Change
JBIC
Japan Bank for International Cooperation
kg
kilogram
LCGS
low-carbon goods and services
LDC
least developed country
LDCF
Least Developed Country Fund
m3
cubic meter
xxii
Abbreviations xxiii
MDG
Millennium Development Goal
MRV
measurement, reporting, and verification
mtoe
million tons of oil equivalent
ODA
official development assistance
OECD Organisation for Economic Co-operation and

Development
PPP
publicprivate partnership
PRC
Peoples Republic of China
R&D
research and development
REDD Reducing Emissions from Deforestation and Forest

Degradation
SAARC
South Asian Association for Regional Cooperation
SMEs
small and medium-sized enterprises
UNDP
United Nations Development Programme
UNEP
United Nations Environment Programme
UNESCAP United Nations Economic and Social Commission for Asia

and the Pacific
UNFCC United Nations Framework Convention on Climate
Change
US
United States
PART I
Concepts and Measurements of

Chapter 1
Pro-Growth,
Pro-Job, Pro-Poor,
Pro-Environment
Emil Salim
1.1 Introduction
While the United States and many European economies experienced
low growth, high unemployment, and high current account deficits
for several years after the global financial crisis of 2008, the Peoples
Republic of China and most Association of Southeast Asian Nations
(ASEAN) economies recovered more quickly. This is in line with the
Asian Development Banks projection of an Asian Century, in which
Asian gross domestic product (GDP) per capita in purchasing power
parity terms will rise significantly from $6,700 in 2010 to $40,800 in
2050. The same report projects that Asias share of global output will
increase from 27.7% in 2010 to 52.3% in 2050. By mid-century, Asia will
become the major driving force of global growth (ADB 2011).
If this is to happen, Asia as a whole has to combat poverty eradication
and increasing inequality, while countries with wide social, ethnic,
cultural, religious, and racial divisions have to forge social cohesion
in unifying their nation. During the last decade, income inequality in
countries like Indonesia has increased (National Statistical Bureau of
Indonesia 2011). For example, the Gini coefficient, a measure of the
income distribution of a countrys residents, increased to 35% in 2012
as a result of unbalanced growth. The same can be observed in other
emerging economies of the region (Table 1.1).
Economic disparities between Asian countries have also widened,
creating different levels of economic development with each country
pursuing different policies to meet its own specific trade and investments
interests with industrialized countries.
3
4Managing the Transition to a Low-Carbon Economy
Table 1.1: Changing Gini Coefficient in Asia, 19872012

Country
Cambodia
1987
1994
38.28
2004
2009
35.53
34.67
2012
31.82 (2011)
PRC
29.85
Rural
29.45
33.84 35.85 (2005) 39.40 (2008)
38.50 (2011)
Urban
20.2
29.22 34.80 (2005) 35.15 (2008)
35.56 (2011)
India
31.88 30.82 (1993)
33.38
33.9
Rural
30.13 28.59 (1993)
30.46
29.96
31.12 (2011)
Urban
35.57
37.59
39.28
39.05 (2011)
Indonesia
29.27
29.19 (1993) 34.01 (2005) 35.57 (2010)
Rural
27.73
25.97 (1993)
31.45
34.02
Urban
32.78
35.34 (1993) 39.93 (2005)
38.13
42.15
30.43 (1992) 32.47 (2002) 35.46 (2007)
36.22
Lao PDR
Malaysia
34.34 (1993)
37.91
46.21
40.63 (1988)
42.89 44.04 (2006)
42.98
43.03
Thailand
43.84 (1988)
43.47 42.35 (2006) 39.37 (2010)
47.65 (1992)
Philippines
Viet Nam
47.04
35.5 (1993) 42.48 (2005) 42.63 (2008) 42.06 (2010)
35.68 (1992)
35.81 39.25 (2010)
35.62
= not available, Lao PDR = Lao Peoples Democratic Republic, PRC = Peoples Republic of China.
Note: All data are based on consumption, except for Malaysia where they are based on income.
Source: World Bank PovcalNet. http://iresearch.worldbank.org/PovcalNet/index.htm?0.
While the economic model of developed countries with its

emphasis on a single linear track of growth has raised material wealth
to unprecedented levels, the impact on social equity and poverty
eradication has been negative. Most disturbing of all, these models
have wrecked the equilibrium of ecological systems, eroding biological
diversity, endangering the sustainability of natures life support system,
and leading to global warming and climate change.
It is time to abandon this creative destruction approach to
development and explore avenues of growth that are more in line with
so-called Asian values, which hold that the meaning of development
has three dimensions: material wealth creation in economic terms,
enhancing social cohesion in social terms, and preserving ecological
equilibrium in environmental terms.
However, Asia is already confronted with the grim reality that
the air is heavily polluted by greenhouse gas emissions caused by
the burning of fossil fuels, which has wide repercussions for global
warming and climate change. This will have serious consequences,
Pro-Growth, Pro-Job, Pro-Poor, Pro-Environment 5
including changing monsoon patterns, which will have negative impacts

on food production. Sea levels are expected to rise and floods will hit
coastal populations. Weather-related diseases will particularly affect
the vulnerable poor. Asia needs to pursue a development path that
conserves precious natural life-supporting systems, preserves biological
diversity, controls greenhouse gas emissions, and strives for ecological
sustainability. Many theoretical models have been developed since the
concept of sustainable development was launched at the Rio Summit,
Brazil, June 1992. It is now time to put these into practice and to explore
policies that can meet the challenge of climate change.
1.2 Indonesian Triple Track Development

Based on countries economic performance since 1970, the Asian
Development Bank has classified the regions 49 economies into three
groups based on economic performance: (i) high-income developed
economies,1 (ii) fast-growing converging economies,2 and (iii) slowor modest-growth aspiring countries.3
From these three groupings, the fast-growing converging
countries today produce 52% of Asias GDP and comprise 77% of its
population. Indonesia belongs in this category and its efforts to pursuing
sustainable development are worth examining.
1.2.1Setting the Overall Targets of Sustainable

Development
Since 2004, the Indonesian government has pursued a Pro-Growth,
Pro-Job, Pro-Poor and Pro-Environment agenda. It aims to increase
the 5% growth rate in 2004 to 7% in 2014, reduce open unemployment
from 9.9% (2004) to 5% (2014), reduce the percentage of the population
living below the poverty line from 16.7% (2004) to below 10% (2014), and
Brunei Darussalam; Hong Kong, China; Japan; Republic of Korea; Macau, China;
Singapore; and Taipei,China.
Armenia; Azerbaijan; Cambodia; Peoples Republic of China; Georgia; India;
Indonesia; Kazakhstan; Malaysia; Thailand; and Viet Nam.
Afghanistan; Bangladesh; Bhutan; Cook Islands; Democratic Peoples Republic
of Korea; Fiji; Iran; Kiribati; Kyrgyz Republic; Lao Peoples Democratic Republic
(Lao PDR); Maldives; Marshall Islands; Federated States of Micronesia; Mongolia;
Myanmar; Nauru; Nepal; Pakistan; Palau; Papua New Guinea; Philippines; Samoa;
Solomon Islands; Sri Lanka; Tajikistan; Timor-Leste; Tonga; Turkmenistan; Tuvalu;
Uzbekistan; and Vanuatu.
cut greenhouse gas emissions by 26% from their 2000 levels (assuming
business-as-usual) and by 41% (assuming aid) by 2020.
Since the 1950s, Indonesian development has mainly taken place
in the western part of Indonesia on the islands of Java, Sumatera, and
Bali, which have fertile soil and oil resources. This has stimulated
infrastructure development and attracted migrants from all parts
of Indonesia. As a result, today roughly 80% of Indonesian GDP is
produced by Java and Sumatera, which are the home for 80% of the 250
million Indonesian people. The rest of the Indonesian GDP is produced
by the islands of Borneo, Celebes, Nusa Tenggara, Moluccas, and Papua.
The distance between west and eastern Indonesia is the same as that
from London to Mecca.
To cope with this unequal distribution of growth, Indonesia is
complementing its macromodel with a subnational regional development
model. The country is to be divided into six major corridors as locations
for major growth centers in each main island, to be linked with other
transportation and communication networks covering the whole
country. This subnational regional development model approach is
necessary not only to achieve growth targets, but also to reach the poor
scattered across numerous islands and to improve social cohesion among
Indonesias diverse and widely distributed ethnic, racial, cultural, and
religious groups. This approach will also help identify unique natural
resources with the potential to be developed.
1.2.2Get the Macromodel in Place

To ensure growth that unifies the nation, a solid Indonesian
macromodel based on prudent fiscal and monetary policies needs to
be established. This model should have the following major principles:
(i) a controlled inflation rate, (ii) a national budget with a deficit below 3%
of GDP, (iii) a manageable sovereign debt to GDP ratio, (iv) a reduction
in government subsidies, (v) an increase in the allocation of incentive
funds to provincial and district governments, (vi) an allocation of 20%
of the development budget for education, (vii) an annual increase in
the proportion of the development budget against routine budget,
and (viii) foreign reserves that are more than the value of 6 months imports.
1.2.3Planning through the Market

With these macromodel policies set, the next step is to devise a system
of planning through the market. Although the market operates freely,
the government can guide development through the budget using the
market. The budget is the governments main lever to obtain social and
environmental objectives. The second is state enterprises. In a country

with backlogs in infrastructure development, most economic players
are eager to carry out infrastructure development. Through a tripartite
arrangement of (i) public state enterprises, (ii) private enterprises,
and (iii) government partnership, infrastructure development can
be combined with the creation of special development zones. The
development budget can be used to leverage publicprivate partnership
to promote economic development that stimulates job creation and
poverty eradication while raising the value added of unique natural
resources in outlying areas over the whole country.
1.2.4Unique Resource Enrichment

Indonesias unique tropical resources can give the country a competitive
edge. Rattan is a plant that is widely used for furniture and housing.
Many fruits, herbs, and microorganisms that live in the forests are
ingredients for products in the pharmacy, cosmetic, horticulture, and
food industries. Deep-sea fish contain omega-3 and squalene with
health-giving properties. The key notion is that resource development
leads to economic benefits through a combination of using societys
local wisdom and creatively applying innovative science and technology.
1.2.5Local Wisdom as Source of Innovation

As a tropical country, Indonesia has rich natural resources and a wealth
of local wisdom. Rural communities have survived for centuries by living
from nature. This can be tapped and transferred into viable models,
tools, food, medicine, and other products and enriched through science
and technology. However, many local communities are left behind not
only in their exclusion from science and technology, but also because
they suffer from severe poverty.
1.2.6The Many Faces of Poverty

A 2008 survey on the conditions of 76,000 Indonesian villages by
the Central Bureau of Statistics revealed that poverty was due to the
following causes:
(i)
a lack of basic means of connectivity, such as roads, harbors,

vehicles, ships, and telecommunications;
(ii) a lack of basic facilities for human capability development,
such as educational and health facilities, schools, and reading
materials to enhance a persons maximum capacity;
(iii) the absence of financial facilities, such as banks, cooperatives,

and credit unions to enable them to join the financial flow;
(iv) poor human settlement facilities, such as housing, drinking
water, sanitation, and electricity to enable them to live a decent
and healthy humane life; and
(v) proper access to human security, law protection, and
government services to enable them to live as rightful citizens.
These five basic requirements for a civilized life need to be addressed
in development plans, policies, and projects.
1.2.7The Cluster Approach

There are, however, other features of poverty that require special efforts.
The Indonesian government has devised four pro-poor programs
organized in clusters as a package of activities to combat poverty.
(i)
Cluster Program I is aimed at meeting the special needs of

the individual poor. It includes distributing food, providing
scholarships, building health facilities, and cash transfers.
(ii) Cluster Program II is focused on empowering the poor as a
group by funding cooperative actions by the poor.
(iii) Cluster Program III aims at institutional development, such as
creating credit unions run for and by the poor.
(iv) Cluster Program IV is devoted to developing infrastructure
that is reachable by the poor, such as affordable clean drinking
water, low-cost housing, cheap transport, affordable electricity,
and special programs for poor fishermen and slum dwellers.
The government fully finances these cluster programs. It also
provides incentives to companies so they can provide corporate social
responsibility facilities.
These are not stand-alone programs, but form part of a triple
approach of economic, social, and environmental development.
1.2.8Promoting Low-Carbon Growth

The need to reduce greenhouse gas emissions is an integral part of
these programs. Indonesia has set a target of reducing greenhouse gas
emissions by 26%41% from 2000 levels by 2020.
The Ministry of the Environment has assessed Indonesias
greenhouse gas emissions to total 1.34 million tons of carbon dioxide
(CO2) equivalent. This is made up of CO2 (80.5%), methane (12.5%), and
nitrous oxide (2%). The main contributing economic sectors were land
use change and forestry, followed by energy, peat-fire-related missions,
waste, agriculture, and industry (BAPPENAS 2013). The ministry has
indicated the need for a well prepared resource use spatial plan, with
clear reasoning on what resources to conserve and what to exploit,
where to operate, and benchmarks that combine economic goals with
social and greenhouse gas reduction programs.
1.2.9Intersector Matrix Tracing with Stakeholders

An intersector synchronization of Indonesias development plan can
be scientifically worked out using a dynamic general equilibrium
model. This should be complemented by a simple three-factor matrix,
consisting of economic growth, social development, and environmental
conservation. The intensity of the interdependency with relevant
stakeholders can then be traced.
For example, economic growth has an impact on GDP (economic
factor), jobs (social factor), and CO2 emissions (environmental factor).
Social development affects growth through education, health, capacity
building, and poverty eradication (social factor) and local wisdom
for resource enrichment (environmental factor). Environmental
conservation has an impact on growth through resource efficiency
(economic factor), provision of resources for job creation (social
factor), and sustaining life support system (environmental factor). The
interdependency between the economic, social, and environmental
factors highlights the need to arrive at a working arrangement in
implementing sustainable development.
1.3 Projecting the Future

Sustainable development is a long-term process taking at least 20 years.
There is a need to explore the limits of currently available usable natural
resources. How long will they last, how can the maximum productivity
of the current known resources, such as land, water, clean air, and livable
space, be raised to support the ever increasing global population? Is the
era of unlimited consumption coming to an end? Is it feasible to end
poverty in growing Asia?
There may be no one solution. Asian nations are not growing at the
same speed or in the same direction but moving in waves of variable
quality. Low-income nations can learn from and avoid the mistakes made
by the middle-income nations, who can also learn from the experiences
of the high-income economies.
It is in this context that this book provides valuable insight into Asia
2050, on the lessons learned. This would enable all Asian countries to
strive to meet the challenges of living sustainably on our planet.
References
Asian Development Bank. 2011. Asia 2050: Realizing the Asian Century.
Manila.
Government of Indonesia, BAPPENAS. 2013. National Agency for
Economic Planning. Jakarta.
Government of Indonesia, National Statistical Bureau. 2011. Monthly
Report of Social Economic Data. Jakarta.
Chapter 2
Toward a Low-Carbon
Asia: Challenges
of Economic
Development
Venkatachalam Anbumozhi and Masahiro Kawai
2.1Introduction
Our society stands at a major crossroads. The Fourth and Fifth
Assessment Reports of the Intergovernmental Panel on Climate Change
(IPCC) stated unequivocally that the atmospheric system was warming
and that the carbon dependency of the world economy was the cause.
Even the most conservative prediction of future climate change foresees
that the average global temperature at the end of this century will rise by
1.8oC 6.0oC from the average at the end of the 20th century (IPCC 2007).
However, recent climate studies (ADB 2009, 2012, 2013a) suggest that
both the IPCC reports significantly underestimate the potential severity
of global warming, primarily because developing Asian countries like
the Peoples Republic of China (PRC) and India have experienced a
huge upsurge in electric power generation, almost all of it fired by fossil
fuels. This is confirmed by other studies about the negative impacts of
increased greenhouse gases (GHGs) on the climate; there is an urgent
need for concentrated international efforts to curtail global emissions
of GHGs.
A number of studies indicate that the current pattern of carbonintensive economic development is unsustainable and that global warming
has the potential to derail many social advances (UNEP 2008; UNDP
2009; MGI 2013). An increase in temperature has the potential to disrupt
rainfall patterns, cause sea levels to rise, and produce significant changes
11
in agricultural production. Other expected impacts include changes in

crop yields, modifications to shipping lines, glacier melt, biodiversity loss,
and an increase in diseases because of vector mutations. These events
have the capacity to destroy lives, force vulnerable people to migrate,
and contribute to food and water shortages. About 40 million people
are exposed to coastal flooding events and by the 2050s the population
exposed could rise to 150 million (Nicholls et al. 2007). Collectively, these
climate challenges will severely constrain the ability of developing Asia
to sustain its recent economic prosperity. The Stern Review (Stern 2006),
IPCC reports, and ADB studies have all confirmed that not only is the cost
of action far smaller than the cost of inaction, but even the most aggressive
action on climate change would have an almost imperceptible impact on
the anticipated 150% growth of the world economy by 2050. The Stern
Review argued that reductions of 75% or more from the 2000 level of
global emissions would be required by 2050.
It is imperative that countries in Asia take actions to build a climateresilient low-carbon society over the coming years. A low-carbon
society can be defined as one that makes an equitable contribution from
all sections of the economy, toward the global effort to stabilize the
atmospheric carbon dioxide (CO2) and other GHGs at a level that will
avoid dangerous climate change, through deep cuts in global emissions
(Skea and Nishioka 2008). Patterns of consumption and behavior that
are consistent with low levels of GHG emissions need to be adopted.
The premise of this chapter is that such an approach would generate
both environmental and economic benefits. It analyzes the key operating
principles that are necessary for all economies to achieve the objectives
of a low-carbon society. It assesses the various policy challenges faced by
Asian developing economies in realizing a low-carbon society, and how
the international community can help various barriers to be overcome.
2.2Cumulative Emissions and Carbon

Dependency in Asia
The critical objective of a low-carbon society is to reduce global GHG
emissions. In 2010, the main CO2 emitters were advanced industrialized
economies (e.g., the United States, members of the European Union,
and Japan) and fast growing emerging economies (e.g., the PRC, India,
Russian Federation, Brazil, and Indonesia). Together the top emitters
accounted for over 70% of the worlds total GHG emissions. However, as
shown in Figure 2.1, over the last three decades of sustained economic
growth and industrial development, emissions by Asias major emerging
economies rose by over 25%, and by even more in the PRC. Asia currently
Toward a Low-Carbon Asia: Challenges of Economic Development13
Figure 2.1: Carbon Emissions of Selected Asian Economies

(Mt CO2-e)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1980
1990
2000
Japan
India
PRC
2010
Republic of Korea
450
400
350
300
250
200
150
100
50
0
1980
1985
1990
Indonesia
1995
Philippines
Malaysia
Taipei,China
2000
Thailand
PRC= Peoples Republic of China.

Source: US Energy Information Administration (2013).
2005
2010
Singapore
Viet Nam
consumes around 2,655 million tons of oil equivalent (mtoe) of energy

per year, accounting for 27% of the worlds total energy consumption.
Energy use is the source of about 80% of GHG emissions in Asia, and
its share of worldwide emissions increased from 8.7% in 1973 to 26.4%
in 2009 (EIA 2013). This is expected to increase to 28% by 2015, 30% by
2030, and 57% by 2050, if the current rate of economic growth continues
(OECD 2011).
Because CO2 alone accounts for nearly 73% of the worlds GHG
emissions, and together with other global warming gases for over 90% of
total emissions, the CO2 equivalent measure of GHG emissions is a good
approximation of the overall carbon dependency of economic activities.
This dependency is characterized by carbon intensity, measured by
carbon emissions related to GDP. From 1990 to 2010, all the top 10
carbon-emitting countries reduced their carbon intensity, with the
largest decrease occurring in the PRC and India (Figure 2.2). The rest of
the world, however, reduced carbon intensity only modestly, by around
14%. Overall, the global decline in the carbon intensity was about 20%.
Figure 2.2: Changes in Carbon Intensity, Realized and Projected

(tons of CO2 per 2005 $ 000)
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
US
Europe
PRC
PRC = Peoples Republic of China, US = United States.

Source: OECD, Environmental Outlook (2011).
South Asia
Japan
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
0.00
Although carbon intensity is declining, the absolute levels of

carbon emissions have risen at an alarming pace (Table 2.1). Emissions
are projected to rise by more than 55% over the next 3040 years, as
economies continue to consume fossil energy, populations continue
to expand, emerging economies keep growing, and poorer economies
continue to develop. Overall de-carbonization of emerging and developing
economies cannot be achieved unless concrete stabilization efforts are
made. Several projections indicate that increases in carbon emissions for
most economies will continue until 2030. Accelerating economic growth
in emerging economies like the PRC and India will contribute to both the
rising demand for and the combustion of fossil fuels such as coal, which
will eventually increase CO2 emissions. At the end of 2050, these two
countries will account for nearly 40% of world emissions (IEA 2012). By
that time, a carbon-dependent Asia will produce close to 60% more CO2
from energy combustion than it did in 2010. Growth in carbon emissions
will occur in the high-income industrialized economies as well, but by
only 17% compared with today. The carbon emissions of the US, Europe,
and Japan may fall while a large increase in carbon emissions is likely to
come from developing Asia (IEA 2012).
Table 2.1: Carbon Dependency of Global and Regional Economies
2010
World Carbon
CO2
Emission Share Intensity
(Gt)
(%)
(kg/$)
CO2
(Gt)
2050
Total Growth
(20102050)
World Carbon
Share Intensity
(%)
(kg/$)
CO2
(%)
Carbon
Intensity
(%)
US
7.12
17.0
0.60
8.15
14.6
0.24
27.34
60.0
EU28
4.72
13.1
0.50
6.10
10.9
0.26
29.23
48.0
Japan
1.40
3.9
0.35
1.56
2.8
0.26
11.42
25.7
PRC
7.49
20.87
2.76
10.95
19.7
0.78
78.92
71.7
South
Asia
2.16
6.1
2.6
5.68
10.2
0.96
162.96
63.1
World
35.88
100.0
1.01
55.67
100.0
0.49
55.16
51.48
CO2 = carbon dioxide, EU = European Union, Gt = gigaton, kg = kilogram, PRC = Peoples Republic of
China, US = United States.
Notes: (i) The EU28 includes all 28 members of the European Union. In 2010, the top three emitters in
the EU were Germany (9777.4 million tons of CO2 equivalent), the United Kingdom (639.8 million tons),
and Italy (565.7 million tons).
(ii) South Asia includes Bangladesh, India, Pakistan, Nepal, and Sri Lanka. In 2005, India was the major
emitter with 1,147 million tons.
(iii) Data from International Energy Agency (IEA) projections for CO2 from energy sources, which excludes land use as a source of GHG emissions. In 2010, CO2 consisted of 72.5% of total GHG emissions.
Source: International Energy Agency (2011).
Per capita energy use and emissions are very low in developing Asia,
compared with those in developed economies (Figure 2.3). However, by
2050 carbon emissions will more than double in the developing world,
led by substantial increases in Brazil, Russian Federation, India, and the
PRC, the BRICs (Wilson and Purusothaman 2003). By then, emissions
from developing countries will account for most global emissions.
Figure 2.3: Energy Use, Emissions, and Economic Growth
CO2 emissions per capita (metric tons)
25
US
20
Australia
15
Russian Federation
GermanyIreland
10
Japan
UK
Greece
Rep. of Korea
PRC Malaysia
Mexico
France
Thailand Brazil
India
0
5000 10000 15000 20000 25000 30000 35000 40000 45000

GDP per capita (PPP, 1997$)
PRC = Peoples Republic of China, UK = United Kingdom, US = United States.

Source: World Bank (2006).
In the business-as-usual scenario, rapid economic growth led by

manufacturing in carbon-dependent Asia will continue to contribute to
greater carbon emissions. Asias economic activity has been dominated
by manufacturing, which accounts for 36%42% of total energy
consumption in many countries. Heavy industries like chemicals and
petrochemicals, iron and steel, cement, and paper and pulp account for
60%75% of energy consumption in large economies like the PRC and
India (IEA 2007; MGI 2013). For example, the iron and steel industry
consumes about 19% of total energy and produces about 25% of direct
CO2 emissions in India (Anbumozhi 2007). In Asia, a substantial
amount of energy is wasted by inefficient production processes,
obsolete technologies, and low-quality raw materials. To reduce carbon

dependency in developing Asia, and the world in general, significant
efforts are needed to improve energy efficiency, avoid energy wastage,
and develop non-carbon sources of energy. These steps need to be taken
to establish a low-carbon society.
2.3Building Blocks of a Low-Carbon Society

A low-carbon society can reduce carbon emissions and at the same time
boost economic and environmental gains. Achieving the goal of a lowcarbon society should be based on the following operating principles:

decoupling of economic growth from carbon emissions;

providing co-benefit options; and
achieving energy security, including affordable energy services
to the poor.
2.3.1Decoupling of Economic Growth from Energy Use

The decoupling of economic growth from carbon emissions is the
main plank of a low-carbon society. Decoupling means that the rate of
economic growth is faster than the rate of increase in carbon emissions
(Ockwell 2006). The relationship between economic growth and sulfur
oxide (SOx) and CO2 emissions in Japan is an example of decoupling
(Figure 2.4). To overcome serious environmental challenges and cope
with oil price shocks, in 1970s Japan introduced pollution control
measures and advanced the development and introduction of energysaving, efficient manufacturing processes. The high price of oil played
a significant role in facilitating these innovations. In the case of SOx
emissions, Japan achieved a high-level of decoupling as result of
deploying new green technologies.
To create a low-carbon society that ensures compatibility between
environmental conservation and economic growth and development,
the current model of economic developmentin which economic
growth is always accompanied by increased consumption of fossil
fuelneeds to be transformed by decoupling economic growth from
CO2 emissions. Box 2.1 shows that, by adopting comprehensive energy
efficiency measures, Japan was successful in decoupling its economic
growth and energy use, so that growth in industrial output was offset by
a decrease in energy intensity and an improvement in energy efficiency.
Japanese energy efficiency improvement programs also produced longlasting improvements to industrial processes, new product designs, and
Figure 2.4: Decoupling of Economic Growth and Emissions in Japan

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1980
1985
1990
GDP
1995
Sox emissions
2000
2005
Sox emissions per GDP
3
2.5
2
1.5
1
0.5
0
1970
1975
GDP
1980
1985
1990
CO2 emissions per GDP
1995
2000
2005
CO2 emissions
Source: Ministry of the Environment, Japan (2009).
business models that save energy without reducing levels and quality of
service. The high price of oil and energy in the 1970s and the early 1980s
forced such fundamental changes.
2.3.2Co-benefit Options
A co-benefit is an activity that delivers several benefits at the same
time. Here it refers to the needs of developing countries to continue
Box 2.1: How Japan Achieved Decoupling

The oil price hikes of the 1970s led Japan to focus on energy saving, resulting
in an energy conservation law enacted in 1979. This energy conservation
law stipulates the need to (i) identify energy intensive sectors; (ii) appoint
licensed energy managers for energy-intensive industries; and (iii) buy
and use products that meet mandatory energy performance standards. In
1999, Japan adopted the Top Runner Programme to push manufacturers
to meet energy-efficiency standards by identifying the production process
with the highest efficiency in the market at the time of standards setting
and by evaluating the potential for further efficiency improvement. This
ensured that target values were set at high levels. Amended six times, the
law includes a variety of fiscal incentives, such as tax exemptions, special
depreciation allowances, and soft loans to promote energy conservation
by designated industrial sectors. A reduction of 1% per year in energy
consumption by all designated factories was one of the main goals of the
new law. The law also introduced special tax measures such as a rebate
equal to 7% of the purchase price of high-efficiency equipment and loan
support for energy efficient investments by industry. The government
offered a low interest rate loan of 2.2% to industry for up to half the
cost of such equipment for a period of 130 years, to get adopted. Since
the enactment of the law in 1979, emissions from industries have been
reduced from 52,423 million tons carbon dioxide equivalent per year
(tCO2e/yr) in 1997 to 49,851 million tCO2e/yr in 2003, despite the fact that
Japans economy continued to grow. Today Japan is a leader in energy
conservation and has developed an industrial system that continuously
improves its energy efficiency. Importantly, the industrial structure
of Japan has also changed over the last three decades, as more energyintensive sectors have shifted overseas for economic reasons.
Source: Sugiyama and Oshita (2006).
economic development in an environmentally sustainable way and to

reduce emissions for the purpose of climate change mitigation. Despite
the rising awareness of climate change, developing Asia in general
tends to place the highest priority on growth and development, and a
relatively low priority on mitigating global warming. Domestic concerns
are more important than global concerns for most developing countries.
However, an increasing number of developing countries have begun to
consider as important domestic priorities the preservation of the natural
environment, a reduction in pollution, and protection of the safety and
health of people. Rapid industrialization, spectacular economic growth,
and deforestation have created air, water, and soil pollution and damaged
the natural environment. As a result, policy makers have been forced to
respond by taking corrective measures.
These corrective measuresincluding anti-pollution measures

to contain air pollutants (such as particulate matter (PM) 2.5) and
reforestation measuresdo have positive impacts in reducing carbon and
other GHG emissions, demonstrating that measures that fulfill domestic
objectives of pursuing environmentally sustainable development can
contribute to the global objective of mitigating global warming. This cobenefit approach to arresting carbon emissions, which addresses local
environmental and health concerns, is an effective way to reduce carbon
emissions (Kawai 2009). For example, a comprehensive environmental
improvement project in Guiyang, PRC, reported that the projects
retrofitting of equipment and introduction of anti-pollution measures
have not only drastically reduced SOx and NOx emissions but also CO2
emissions by 1,076,400 tons (UNEP 2009).
2.3.3Energy Security and Poverty

A low-carbon society is not just about reducing GHG emissions. An
increasing number of studies (Ausubel et al. 2008; Singh et al. 2009;
Hultman 2013) have emphasized the importance of adopting a lowcarbon developmental pathway as a means of enhancing energy security
at the national level. The risk of disruptions to imported energy supplies,
mainly oil, has been growing in recent years and will continue to grow in
coming years, given the continued demand for fossil fuels and concerns
on energy security by carbon-intensive economies such as the PRC,
India, and Indonesia. Import dependency on fossil fuels is reaching
100% for small island countries and about 75% of energy consumption
in the most vibrant economies of the region, such as the PRC, India,
Indonesia, Philippines, Thailand, and Viet Nam. This energy insecurity
problem may be exacerbated by a decline in the production of oil in a
few major-exporting countries. Moving toward a low-carbon society
will shield Asian economies from the risk of future disruptions to the
global fossil fuel supply (IPCIC 2010).
A low-carbon society also requires effective use of locally available
renewable resources, with significant implications for Asias poor. An
estimated 1 billion people in the Asia and Pacific region remain without
access to electricity. Millions of those with access often pay high prices for
erratic and unreliable services. The energy poor include 1.8 billion people
living on less than $2 per day and relying on traditional biomass fuels for
cooking and heating (Lohani 2008). These two factorsextreme poverty
and low human development limit the capacity of poor people to adapt
to rising energy costs and increasing climate risks. Moving toward a lowcarbon society is not only necessary to address mounting concerns about
energy security; it is also a socioeconomic imperative for improving the
human development prospects of marginalized people and communities.
2.4Key Challenges and Issues Facing a

Low-Carbon Society
Establishing a low-carbon society poses a number of policy challenges
and difficulties for emerging and low-income economies. Many studies
indicate that significant potential for emission reductions exists in all
economies in the order of 25%27% per sector (ADBADBI 2013, IEA
2013; World Bank 2010), of which only a fraction has been achieved so far.
Figure 2.5 depicts the reduction potential available for major economies.
Chemicals, iron and steel, and cement are among the major industrial
sectors that can reduce CO2 emissions in a significant way. Rising use
of fossil fuels in these sectors and transport, buildings, and agriculture
will continue to drive up emissions. Total final energy consumption will
grow at an average annual rate of 2.4% through 2035. The manufacturing
sector and industrial units remain the largest end-users, with demand
growing just over 80%. Strong growth in the vehicle fleet will push up
energy demand by 77% in the transport sector. Building sector energy
consumption will also rise substantially (IEA 2013).
Figure 2.5: Emission Reduction Potential for Major Emitters

12
10
8
6
4
2
0
2005
US
2015
PRC
Russian Federation
2030
Japan

Source: International Energy Agency, World Energy Outlook (2012).
India
The carbon intensity of developing Asia remains 1.44 times greater

than that of the G7 industrialized countries. The opportunities available
for a low-carbon society have remained largely unexploited because of
scientific, economic, and geopolitical uncertainties about:

domestic and international access to financial resources;

the nature, timing, and extent of local biophysical impacts as a
result of climate response;
the development and costs of new technologies that will reduce
reliance on carbon-intensive processes; and
the level of ambition and the likelihood of international
cooperation to reduce carbon emissions
2.4.1Access to Finance
A low-carbon society needs clean technologies, green production,
sustainable consumption systems, and a huge amount of capital. Asian
economies aiming to reach a target of 20% of total supply from clean
energy sources by 2020 would require an investment of almost $1
trillion by 2030 (IPCC 2007). Similarly, if all developing countries are
committed to the International Action Programme (IAP), which aims
to strengthen the international effort by member countries to increase
new energy resources, an additional 120 GW of renewable energy
capacity will be needed by 2030, necessitating an additional $10 billion
per year in investment (World Bank 2009). The IEA has estimated that
$20 trillion worldwide is required by 2030. Of this, more than 60%
will have to be invested in developing Asia. Funding for renewable
energy supplies currently constitutes a fraction of official development
assistance (ODA) programs. Sufficient financing may be available from
the private capital markets, but only if developing economies can provide
a business-friendly regulatory framework for investment, favorable
market incentives and conditions, and reduced uncertainty about longterm carbon prices.
2.4.2Availability of Technology
In addition to the financing gap, there is also a substantial technological
and innovation gap for Asian economies in developing and adopting
clean low-carbon technologies (Anbumozhi 2008; Khor 2009; Imura et
al. 2012) that facilitate a low-carbon society. Most developing countries
in Asiawith the exception of the PRC and Indiaspend little on
research and development (R&D) on low-carbon technologies and have
a chronic shortage of competent scientists, engineers, and managers
with the skills needed to develop and apply low-carbon technologies.
Instead, these countries rely on imported technologies and skills

originating in developed countries. The transfer of new technologies
and entrepreneurial skills facilitates the establishment of an indigenous
technological capacity that enables long-term adaptation of green
technologies and future innovations. But most developing economies
in Asia lack even the minimum capacity to utilize advanced foreign
technologies fully.
2.4.3Enabling Market Mechanisms:

Clean Development Mechanism
The Clean Development Mechanism (CDM) is an important marketbased mechanism for achieving a low-carbon society in a developing
country. Since its inception in the late 1990s, the CDM has enabled
the financing and transfer of low-carbon technologies in developing
countries and created a global market place for carbon trading.
The current CDM system suffers from several problems. First,
the distribution of CDM projects is skewed toward a handful of large
emerging economies such as the PRC, India, and Indonesia. Such
projects are virtually absent in small and medium-sized low-income
countries (Figure 2.6). Second, most of the certified emission reduction
(CER) credits earned by 2012, when the Kyoto Protocol expired, were
from large-scale energy projects, such as grid-connected renewable
energy systems and methane capturing. The difficulty of applying
CDM to the transport sector and to energy conservation projects limits
the economy-wide spread of the mechanism. Third, there is growing
investment uncertainty over the future of CDM and the global carbon
market post-2012. This uncertainty has arisen from the lack of an
international consensus to date on the post-Kyoto regime. Fourth, the
satisfaction of the strict additionality criteria of the mechanism by
the United Nations CDM board has been one of the major obstacles in
developing viable projects. To many, the CDM is a winwin solution for
all countries as it provides developed countries with low-cost abatement
opportunities and a way to engage emerging economies in mitigation
efforts by providing them with funding for low-carbon technologies.
CDM can maximize its potential, if all these concerns are addressed.
Nevertheless, countries such as Japan are not participating in the
second commitment period of the Kyoto Protocol which started in
2013 and thus are not allowed to trade their carbon emission credits
internationally. The balance between the demand and supply of credits
is severely affected and the carbon price is falling drastically. This may
result in a large decline in the future expected number of CDM projects
approved and CERs earned.
Figure 2.6: Geographical Distribution of Clean Development

Mechanism Projects and Sectoral Distribution of Projects in the
Peoples Republic of China
CDM
PRC
India
Brazil
Rep. of Korea
Mexico
Argentina
Chile
Indonesia
Malaysia
Others
Distribution
HFC Reduction
N20 Reduction
Methane recovery and utilization

Waste gas
Hydro
Wind
Biomass
Fuelswitch
Biogas
Others
CDM = Clean Development Mechanism, HFC = hydrofluorocarbon.

Source: UNFCCC (2012).
Japan has proposed a new approach called the joint crediting

mechanism (JCM)/bilateral offset credit mechanism (BOCM). In order
to contribute to global actions for emission reductions and removals
by sinks, JCM/BOCM provides opportunities for both developed and
developing countries, to meet their emission reduction targets by

flexibly and quickly facilitating the diffusion of low-carbon technologies,
products, systems, services, and infrastructures, and by carrying out
measurement, reporting, and verification (MRV) of these reduction
effects. Despite the potential benefits and simplicity of this approach,
issues relating to the MRV accounting rules, implications for carbon
markets, and the overall integrity of the United Nations Framework
Convention on Climate Change (UNFCCC) process mean that its
implications need to be examined carefully.
2.4.4Cap and Trade Program for Low-Carbon Cities

Unstoppable urbanization means that cities in developing Asia will see
a rapid expansion and increasing investment over the next few decades.
The impact of buildings will therefore be key to efforts to build lowcarbon cities. The building sector is the fastest growing contributor to
Asian emissions. The introduction of market-based instruments such as
tradable permits can address the economic invisibility of emissions and
is being increasingly used to reduce emissions (Box 2.2).
As opposed to carbon taxes (which set a price for emissions at a high
level and then allow the market to determine the level of emissions), cap
and trade systems first establish an overall target level of emissions and
then let the open market determine the price. The Tokyo Cap-and-Trade
Program did not emerge overnight. Its forerunner, the Tokyo Carbon
and Reduction Reporting Program, which was launched in 2002 and
revised in 2005, laid the groundwork for the cap-and-trade scheme. It
required large facilities with high levels of CO2 emissions to report their
emission profiles to the authorities and 3-year plans to reduce emissions.
Emission reductions were voluntary, but the 2005 revision added a
rating and web-based public reporting system that gave the Tokyo
government greater powers to issue guidance and to make reductions
mandatory. The new mandatory reporting program heightened the
awareness of facility owners and managers about their own energy
performance and the need for energy conservation. Based on data
received, the government prepared benchmark performance criteria in
each building category, such as offices and residential properties. This
type of feedback was effective in promoting emission reductions. The
Cap-and-Trade Program uses a similar approach: the Tokyo government
accumulates data and experience and builds relationships with facility
managers, particularly for the setting of fair and effective emission caps
and emission allowances.
Box 2.2: Tokyos Cap-and-Trade Program

The Tokyo Cap-and-Trade Program, launched on 1 April 2010, is the worlds
first urban cap-and-trade program. It aims to reduce CO2 emissions from
urban facilities, focusing on end users of energy. The Tokyo Metropolitan
Government sets a cap at the city level on emissions from large commercial
and industrial buildings. The owners of these buildings are required to
meet their emission reduction targets through onsite energy efficiency
measures or through emission trading. The program covers large CO2
emitting facilities that consume 1,500 kiloliters of energy or more per
year. The program applies to about 1,300 facilities. Total emissions from
targeted facilities account for 40% of all CO2 emissions from commercial
and industrial sectors in the Tokyo area. The cap was set at 6% below
base-year emissions for the first compliance period (20102014), based
on Tokyos emission reduction goal for 2020. During this period, facilities
were required to reduce their total CO2 emissions by 6% (office buildings
with other facilities by 8%) from their base-year emissions. They are
allowed to select the average of any three consecutive years from 2002 to
2007 to define their own base-year emissions, a flexible and fair approach
based on their differing business conditions. A facility that has already
achieved high-energy efficiency can be certified as a top-level facility.
For such a facility, the reduction target is reduced to between half and
three quarters, depending on a detailed review. To achieve their required
reductions, in addition to the introduction of energy-efficiency measures
and renewable energy use at the site of covered facility, each facility can
purchase excess reductions from other facilities as well as four types
of offset credits: emission reductions credits from small and mediumsized facilities, renewable energy credits, emission reductions credits for
areas outside Tokyo, and credits for Saitama, a neighboring prefectures
carbon trade program. As a result of the program, an approximately 10%
reduction in emissions was reported to have been achieved in 2011.
Source: TMG (2012).
2.5Policies for Achieving a Low-Carbon

Society in Asia
If it is to form a low-carbon society and reduce emissions drastically, Asia
has to change its energy mix. Today, Asian industries depend on fossil
fuels for more than 70% of their primary energy needs, so the adjustment
will have to be massive. Coal remains the major source of energy for the
PRC (70%) and India (37%). To cut emissions, these economies will either
have to reduce fossil fuel consumption drastically or strictly limit energy
demand by conserving it. Basic manufacturing industries will certainly

continue to grow in Asia, which will stimulate energy demand. Thus,
developing Asia faces enormous challenges in reducing coal-fired thermal
power generation and expanding power supply from renewable sources
which currently represent less than 5% of total supply.
The good news is that the barriers to building a low-carbon society
in developing Asia are by no means insurmountable. The region already
has the technologiesmany operating at commercial scaleto provide
70% of the necessary emission abatement. Recent studies (OECD
2008; NIES 2008; ADB 2013) have shown that this is possible only if
stringent policy decisions are made and implemented. A combination of
regulatory and market-based policies is needed to realize a low-carbon
society. Regulatory responses take the form of putting restrictions on
particular items from the set of product choices available to consumers
and/or licensing particular technologies or production techniques used
by firms operating in the domestic economy. Market-based policies
use markets, price, and other economic variables to reduce negative
environmental externalities. They seek to address the market failure by
incorporating the external cost of consumption activities through taxes
or charges on processes or products, or facilitating the establishment of
a proxy market for the use of low-carbon services.
Realizing a low-carbon society hinges on the following key policy
choices:

instigating fiscal incentives to harness market forces;

creating safety nets for socially vulnerable people;
improving energy efficiency for high impact sectors;
avoiding carbon leakages; and
using public funding for low-carbon technologies.
2.5.1Fiscal Incentives
There is a wide range of fiscal options available for emerging and
low-income countries. Removal of fossil fuel subsides is an important
component of any carbon pricing policy for most developing countries
in Asia. Under-pricing of fuels through government subsidies is a serious
impediment to establishing a low-carbon society as it sets artificially low
fuel prices for consumers, thus undermining emission reduction efforts.
In many parts of Asia, energy prices are under government control and
are underpriced through producer or consumer subsidies, in the range
of 10%30% (Table 2.2).
Although governments have compelling sociopolitical reasons for
providing such perverse subsidies to fossil fuel users, they often do not pay
Table 2.2: Impact of Subsidies on Economic Growth and Emissions in

Selected Economies in 2011
Country
Average Rate
Average Price of Subsidy
of Gasoline (% of Market
($/l)
Price)
Annual
Economic
Gain
(% of GDP)
Reduction
in Energy
Consumption
(%)
Reduction
in CO2
Emissions
PRC
0.58
10.9
0.4
9.4
13.4
India
1.22
14.2
0.3
7.2
14.1
Indonesia
0.48
27.5
0.2
7.1
11.0
0.11
80.4
2.2
47.5
49.4
Kazakhstan
0.79
18.2
1.0
19.2
22.8
Russian
Federation
0.77
32.5
1.5
18.0
17.1
Iran
CO2 = carbon dioxide, GDP = gross domestic product, l = liter, PRC = Peoples Republic of China.
Source: UNEP (2006); ESCAP (2010).
sufficient attention to the negative impact on fuel consumption and CO2

emissions. Subsidies to state-owned electricity utilities are another source
of carbon price distortion. Such subsidies have direct implications for
energy consumption and raise the dependence on imported fuel. An IMF
study (IMF 2008) found that the removal of consumption subsidies can
reduce energy use by 13%, lower emissions by 16%, and increase GDP by
almost 1%. The financial savings arising from the removal of these subsidies
could be redirected toward investments in clean technologies and R&D,
which would further contribute to the transition to a low-carbon society.
Putting a price on carbon through a cap-and-trade system or a carbon
tax will be critical for reducing carbon emissions. The Kyoto Protocol,
through which almost all countries have committed themselves to
engage in global emission reductions through trading, has proven to be
an effective first step. With the emergence of an international emissions
trading mechanism, capital is effectively being transferred from advanced
economies to developing economies for investment in projects that reduce
carbon emissions there. It is estimated that international carbon trading
and carbon finance has the potential to generate up to $100 billion in new
investments. However, this scale of investment and the positive impact
it will create for a low-carbon society will only occur if there is certainty
about the nature of the future international climate change regime.
Both a cap-and-trade system and a carbon tax will generate sizable
budget revenues, which can be mobilized to finance a number of lowcarbon infrastructure investments. A few countries, including the Republic
of Korea, Malaysia, and Singapore are experimenting with fiscal incentive
systems, such as energy taxes to achieve higher energy efficiency, because

of their potential economic and carbon benefits. However, such systems
sometimes face difficulties in achieving their targets when the fees are too
low. Emitting industries in Republic of Korea, for example, are prepared
to pay the low fees for being allowed to emit more, rather than investing
in energy efficiency. Opponents of such market-based instruments argue
that they will affect the competitiveness of domestic industries, which
risk being wiped out by multinationals if such policies are introduced.
The use of other fiscal incentives such as tax credits and accelerated
depreciation that reduces the taxable value of low-carbon project assets
has also been a challenge in several countries. Incentive schemes may not
work as intended as they may support investmentsuch as deployment of
technologiesthat would have been made anyway. The identification and
effective targeting of clearly defined industrial beneficiaries is needed in
designing fiscal incentives.
European experiences suggest that, as economies and governments
become more familiar with the use of market-based instruments such
as carbon tax and cap-and-trade, they tend to develop complimentary
pricing policies and improve their effectiveness (Fig 2.7). An evaluation
by the European Environment Agency (EEA 2012) found that, since
Figure 2.7: Revenues from Environmental Tax (% of GDP)

6
% of GDP
5
4
3
2
1
Australia
Austria
Belgium
Canada
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Italy
Japan
Rep. of Korea
Luxembourg
Mexico
The Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
1995
2000
2005
Note: Environmental taxes are excise taxes on environmental pollutants such as carbon or on goods
whose use produces such pollutants.
Source: Authors calculation from OECD economic indicators.
late 1990s, the increased use of a variety of market-based instruments

in a growing number of economies has augmented national wealth
by 3%6% of GDP. The extra revenue is reinvested in identifying and
implementing low-carbon society pathways.
2.5.2Social Safety Nets for Poor

Safeguarding the poor from hikes in fuel prices due to the removal of
subsidies and the introduction of carbon taxes is critical in all developing
economies. Their lack of financial and human capital makes poor
people particularly vulnerable to low-carbon society initiatives. Facing
rises in energy prices, poor people often take drastic action to salvage
their livelihoods, such as selling their important assets and foregoing
educational opportunities for children. Therefore, appropriate social
safety nets need to be put in place so they can effectively act as insurance
for those who lack the means to cope, or who face high costs as a result of
low-carbon society initiatives. Unfortunately many developing countries
in Asia have weak social safety net programs and offer limited protection
to the poor. Governments often implement inefficient programs hastily
and as a result they are very expensive, rarely benefit the poor, and are
difficult to reverse once introduced. However, it is possible to design
effective and efficient safety net programs for the poor and socially
vulnerablesuch as targeted direct cash transfer programsthat
adequately insure them during the period of transition to a low-carbon
society (see Box 2.3).
2.5.3Improving Energy Efficiency in High Impact

Sectors
Energy generation and demand are growing steadily in the region. The
combined energy needs of the Association of Southeast Asian Nations
(ASEAN), the PRC, and India are expected to increase by 83% during the
period to 2030 (IEAERIA 2013). The regions energy-related carbon
emissions will almost double from 33.7% in 2010 of global emissions to
46.1% in 2030. Emission growth by sectors is presented in Table 2.3.
Promoting energy efficiency in high impact sectors, such as
power generation, transport, and agriculture, is key to a successful
transition to a low-carbon society. Fossil-fuel-based power generation
is projected to account for about 80% of the regions total electricity
supply in 2030 (IEA 2012). A coal-based plant built now will continue
to generate GHG for 50 years and beyond. There is a need to adopt
clean coal technologies quickly, such as super and ultra-critical boilers,
Box 2.3: Social Safety Net and Energy Subsidy Reforms

in Indonesia
In 2014, the fuel subsidy cost of the Government of Indonesia was
Rp250 trillion, 15% of the national budget. Subsidies have kept fuel
prices low in a country where about half of the 250 million population
lives at or below the poverty line. In January 2015, the government made
a decision to abolish the fuel subsidy. Subsidy removal programs are
integrated with stronger social protection programs. When Indonesia
reduced its energy subsidies and raised fuel prices in October 2005, the
government established a program to transfer unconditional quarterly
payments of $30 to 15.5 million poor households. The same move was
undertaken when fuel prices were raised in May 2008, with $1.52 billion
being allocated as direct cash transfers to low-income households. The
proxy means testing method that was used to identify poor households
was subsequently adopted by the government in its design and trial of
the ongoing conditional cash transfer programsthe Hopeful Family
Program, intended to increase the levels of education and health of poor
communities. Payments are made to female household heads through
post offices on the condition that they use the cash to purchase health and
educational services.
Source: Hutagalung et al. (2009); Putunru(2012).
Table 2.3: Energy-Related CO2 Emission in ASEAN, the PRC,

and India
CO2 Emission (million tons)
Energy Sector
1990
2010
2020
2030
Power generation
7,471 11,896 14,953 17,824
Other energy sector
1,016
1,437
1,755
1,993
Percentage
1990
2010
2020
2030
36
41
43
44
Industry
3,937
4,781
5,571
6,152
19
17
16
15
Transport
4,574
6,623
7,733
9,332
22
23
22
23
Residential
1,891
1,877
2,031
2,198
Services
1,066
878
972
1,096
405
433
423
437
581
900
1,087
1,195
20,941 28,825 34,525 40,227
100
100
100
100
Agriculture
Non-energy use
Total
ASEAN = Association of Southeast Asian Nations, CO2 = carbon dioxide, PRC = Peoples Republic of China.
Source: Fan and Bhatacharya (2011).
and integrated gasification combined cycle (IGCC) plants. Newly built

coal plants should also aim to capture carbon, which can be sold at
market prices. Retrofitting and modernization of existing power plants
should also be accorded high priority. Simultaneously, investments in
renewable energy such as wind, solar, bio-fuel, and geothermal need to
be expanded to their full potential.
Industry is the second largest emitter of carbon after the energy
sector. Its energy demand will grow at 2.7% per year on average over
20092030 as the region shifts from labor-intensive to more energyintensive production. Growth in industrial emissions will slow with
time, if energy efficiency measures are introduced. Regional emissions
from the building sector will increase by 1.8% per year, rising by 52%
overall by 2030. The transport sector currently contributes about 20%
of global GHG emissions and is the fastest growing producer of carbon
emissions. Transport now represents about one fifth of total global
energy consumption, and is projected to account for over 60% of the
increase by 2025, with much of this growth expected to occur in ASEAN,
the PRC, and India (WBCSD 2010). By 2035, the number of private
vehicles in the PRC will be 15 times higher that in 2005, and in India
it will be 13 times higher. Since the urban vehicle fleet uses 3.5 times
more energy than urban bus travel and 6.6 times more than electric train
travel (IEA 2012), well designed mass public transit systems in Asias
major cities are essential.
Much of the rural population in developing Asia depends directly
on agriculture and livestock raising, which accounts for 14% of total
GHG emissions. Investments to improve energy efficiency in these
sectorspromoting bio-fuel production, enhancing irrigation systems,
and reducing fertilizer usenot only reduces emissions but also has
positive socio-economic impacts because it creates new jobs at all skill
levels.
2.5.4Avoiding Carbon Leaks

Trade-exposed, emission-intensive industries represent a special
challenge for Asian economies. All other factors being equal, if enterprises
in such industries are subject to stricter emission reduction targets and
face higher carbon prices domestically than their competitors in other
countries, they will relocate emission-intensive activities to other less
regulated countries. Such a relocation means global emissions may
not decrease. This is an argument for forging sector-level agreements
and targets at the regional level, especially between countries in
similar situations who compete with each other (Imura et al. 2012),
Emerging economies can show global leadership in pursing such

arrangements (MGI 2013), but in the meantime, developing countries
must implement nationally appropriate mitigation actions (NAMAs).
Introducing incentives for energy-efficiency improvements in traded
goods to attain NAMA targets should be based on competitiveness
and not on a false promise of compensation for lost profitability. The
introduction of disincentives such as carbon pricing will make the losers
lobby intensively at the national level. Establishing sector-level emission
targets and carbon pricing arrangements among countries that compete
by producing similar, carbon-intensive products and services in global
markets is an urgent matter. An integrated, international carbon market
would help policy makers at the national level because then they could
resist political pressures for ad hoc and generous international assistance
arrangements to protect these industries.
2.5.5Public Funding for Low-Carbon Technologies

Carbon-emission-reducing technologies are important for achieving a
low-carbon society. Globally available low-carbon technologies need to
be transferred to developing countries, where energy use is expected to
grow quickly. Developed countries and the private sector should support
transfers of new and better low-carbon technologies. Mechanisms
need to be developed to finance the additional cost of developing and
disseminating new low-carbon technologies and business models. Asia
has a long record of reducing the cost of new technologies, from computer
chips to cars, which has benefited the entire world. R&D investments
in limited but key priority sectors can achieve huge cost savings, if the
low-carbon technologies prove successful and are exported. There are
several mechanisms for directly supporting the private sector to bring
these technologies to the market (Table 2.4). Public financial support
for low-carbon technology innovation can potentially benefit the entire
world.
Match funding is a form of publicprivate partnership, wherein
national and local governments provide guarantees to national financial
intermediaries that can ensure that private sector operators continue
to bear and manage the risks associated with bringing new low-carbon
technologies to the market (Anbumozhi et al. 2011; Kolk and Pinkse
2005). However, the government institution that administers the public
funds should operate at arms length from government to insulate it
from political processes and to stimulate competiveness and innovation
in the private sector.
Table 2.4: PublicPrivate Partnership Mechanisms for an EconomyWide Uptake of Low-Carbon Technologies
Category
Policy Instrument
Tax
instruments
Niche
market
creation
Direct
funding
Description
Tax concession
Allows companies to claim deduction for lowcarbon technology investment, usually as a

proportion of total cost
Accelerated
depreciation
Allows companies to accelerate depreciation for

investment in technologies with high capital costs
Technology target
schemes
Establishes guaranteed markets for particular

categories of low-carbon goods and services
Guaranteed revenue
Provides innovative companies with revenue

certainty through regulated prices or tariffs
Government
patronage
Provides a niche market for low-carbon technologies

and products through public procurement policies
and advanced purchasing contracts
Competitive grants
Promotes specific low-carbon technologies

selected by merit based on low-carbon society
criteria through subsidies
Income targeted
contingent loans
Compensates venture capitalists and innovators

through government sharing of some short-term
exposure risks and through guarantees
Co-financing and
match funding
Stimulates diffusion, demonstration, and

commercialization by lowering the costs
associated with being first mover, by some fixed
proportion of total cost
Source: Authors.
2.6Role of the International Community

Policy reforms at the national level are necessary to accelerate the
transition toward a low-carbon society, but they are not sufficient. The
international community also needs to contribute by:

facilitating global political agreement;

enlarging carbon finance; and
promoting effective governance systems.
2.6.1Global Political Agreement

Improving the global architecture is crucial to implement actions for
a low-carbon society. Developed economies like those in the G7 need
to demonstrate environmental leadership by urging other countries to
agree on the scope and shape of a post-Kyoto deal against a backdrop of
challenging domestic economic conditions. It is critical that the major

emerging economies such as Brazil, the PRC, India, Mexico, and South
Africa join the climate negotiations in a constructive manner. These
large economies can be major drivers of innovation for a low-carbon
society.
Developing countries will only be persuaded to take part in the
transition to a low-carbon society if both the historical responsibility
of the developed world and the needs of the developing world are
clearly recognized. A combination of the historical responsibility of
the developed countries in terms of the accumulated GHGs since the
industrial revolution and the need to accelerate growth, development,
and poverty reduction in the developing world implies that the required
cuts in emissions will have to be fair across countries and contingent on
available financial, technical, and institutional support.
The existing international framework is weak and inadequate,
but a better architecture will come only from building on, rather than
overturning, already established efforts. A post-Kyoto regime based on
common but differentiated responsibilities is clearly needed. The 2015
United Nations COP 21 meeting in Paris will be an important watershed
in the attempt to find a basis for a mutually binding global agreement.
The international community needs to reach an agreement to reform
and expand market-based mechanisms in terms of the coverage of
sectors and geography as well as criteria for eligibility. Going forward,
it is important to engage countries like the PRC, India, and Indonesia
in building consensus on their national targets in a progressive manner
(Kawai 2008). Although they continue to reject containment of
emissions through mandatory targets, they have made important and
ambitious domestic commitments as reflected in NAMA.
The most likely global policy platform for promoting urgent
international action to facilitate transition to a low-carbon society
would be the G20 forum.1 As the G20 economies account for nearly
80% of world carbon emissions, it is easier to forge a meaningful
agreement on emission reductions by taking account of individual
countries circumstances and preferences in the G20 than through the
United Nations process, where more than 160 countries are involved.
Agreements reached between major developed and emerging economies
1
The G20 includes systemically important, major economies. Six countries in Asia
and the Pacific are members: Australia, the PRC, India, Indonesia, Japan, and the
Republic of Korea. In September 2009, the Pittsburgh G20 meeting made progress
not only in strengthening cooperation on macroeconomic policies but also in giving
the major developing economies of Asia a more influential agenda-setting role on
energy subsidies. The 2011 G20 Summit gave developing countries an opportunity to
review the economic policies of the developed countriesthus making the process
more transparent and accountable.
within the G20 have the potential to break deadlocks and give fresh
impetus to global negotiations on emission reductions and low-carbon
technology transfer.
2.6.2Carbon Finance
Massive investments in large-scale development, deployment, and
diffusion of low-carbon technologies are needed over the coming
decades. The IEA (2007) has estimated that $20 trillion will be needed
globally until 2030. Of this, more than half will be needed in developing
Asia. Some of this finance will come from public sources, but the largest
share will have to come from private capital. Financial firms that manage
trillions of dollars are positioned to provide the bulk of financing for
low-carbon investment. Long-term institutional investors such as
pension funds (Box 2.4) and life insurance companies are building up
low-carbon portfolios. Government guarantees on green bonds and lowcarbon investments can ensure that these investments are sufficiently
attractive in the long-term. Similarly, commercial banks are increasingly
bringing low-carbon considerations into their lending policies and are
designing low-carbon financial products.
It is crucial to send a long-term price signal that gives confidence
to both public and private sector operators considering making
investments in low-carbon technology and in financing low-carbon
society activities. An international agreement would be essential to
support carbon markets and pricing.
Box 2.4: An Example of Long-Term Investment:
The Norwegian Pension Fund
The Norwegian Pension Fund Global, one of the largest sovereign wealth
funds in the world, has a broad ownership in more than 8,400 companies
worldwide. As a universal owner, the fund seeks to ensure that good
corporate governance and environmental and social responsibilities are
taken into account. Fiduciary responsibility for the pension fund includes
safeguarding widely-shared environmental and ethical values. In the area
of the environment, the Norwegian Finance Ministry has established a
new investment program, which will focus on low-carbon investment
opportunities, such as those in renewable energy, energy efficiency,
carbon capture and storage, and waste management. At the end of 2010,
over NKr9 billion had been invested under this program, more than
originally assumed.
Source: Ministry of Finance, Norway (2011).
Although eventually most financing will have to come from

private sources, public financing is still essential for a low-carbon
transformation. The importance of public finance was demonstrated
by the several fiscal stimulus packages launched by major economies
in response to the global financial crisis that broke out in 2008. Of the
estimated $3.3 trillion spent as stimulus funds, almost 14% was initially
allocated for low-carbon investments (Anbumozhi and Bauer 2013).
These investments were made not simply as short-term responses to the
financial crisis. For example, during the 12th 5-year-plan period starting
in 2011, the PRC government invested $468 billion in low-carbon
sectors, with the focus on renewable energy, clean technology, and
waste recycling (Reichelt 2010). In countries that faced public spending
constraints, subsidies and taxation policies were used to support lowcarbon investments.
At the international level, a process was established for a Green
Climate Fund at the Conference of Parties in Cancun in 2010. The
conference decided to expedite $30 billion of financing from developed
to developing countries and additional commitments made in Warsaw
in 2013 included a plan to raise $100 billion per year by 2020. However,
developing countries must begin to deliver on their pledges on emission
reductions through nationally appropriate mitigation actions (NAMAs).
Multilateral and bilateral aid agencies can expand their support for
a low-carbon society transition. They can, for example, adopt the goal
of supporting a low-carbon society and link specific developmental
targets such as low-carbon energy provision to their poverty alleviation
objectives. They can also measure the net contributions of their
developmental projects to climate change mitigation by improving
the carbon efficiency of their project portfolio. These institutions can
also influence the nature of investments and public financing through
loan agreements and due diligence in their lending procedures. They
can jointly define protocols for low-carbon society due diligence and
measurement, reporting, and verification (MRV) standards and goals for
sectors in which they have major influence and accumulated experience,
such as energy, transport, and urban development.
Multilateral agencies need to coordinate with a range of
stakeholdersdeveloped and developing country governments, the
donor community, the capital market, and the private sector at large
to mobilize resources. Donor countries, in conjunction with the private
sector, can invest in long-term carbon bonds issued by multilateral
institutions. Stable and resilient capital markets supported by efficient
financial intermediation will have a pivotal role in the capitalization of
private funds at sufficient scale for the delivery of a low-carbon society.
Table 2.5: Surplus Savings in Selected Asian Economies ($ million)
PRC
2008
2009
2010
2011
2012
1,966,200
2,453,200
2,914,200
3,255,800
3,352,300
Hong Kong, China
182,539
255,816
268,731
285,408
317,336
India
252,326
277,042
303,482
294,398
292,317
Indonesia
Japan
Korea, Rep. of
51,639
66,105
96,207
110,123
112,781
1,030,762
1,048,991
1,096,068
1,295,838
1,268,085
201,223
269,995
291,571
306,402
329,398
Malaysia
91,648
96,744
106,590
133,257
139,658
Singapore
174,196
187,809
225,754
237,737
259,307
Taipei,China
291,707
348,198
382,005
385,547
403,169
Thailand
111,008
138,418
172,129
175,124
181,608
Viet Nam
23,022
14,148
12,382
13,500
25,400
Source: ADB (2013b).
Although the region as a whole needs significant investment in

order to achieve a low-carbon society, paradoxically many emerging
economies in the region have large current account surplusesnet
surpluses of domestic savings over investment.
Accumulated foreign exchange reserves in Asia amounted to
$7 trillion in 2012 (Table 2.5). Foreign exchange reserves can be used
to stabilize the value of a countrys currency but they can also be used
for investments in public goods. This underlines the critical importance
of developing a system of regional intermediation (Kawai 2013) to help
meet low-carbon society objectives. A regional financial architecture
would need to help connect savings and investments (Kawai and Petri
2014).
2.6.3Effective Governance Structure

Financing is not the only constraint on developing countries as they
move away from carbon dependency (Ockwell et al. 2006). The lack of
an effective governance structure and institutional capacity is a major
constraint. Most carbon-related ministries operate with few personnel
and limited resources. Institutional coordination is also inadequate
in many Asian economies. In Viet Nam, Electricity of Vietnam is
implementing a national energy conservation program, while the
Ministry of Industries is providing financial incentives for industries
to deploy low-carbon technologies, without any links between the two
programs. The budget for the Bureau of Energy Efficiency in India is

only 0.3% of total government investment for improving the potential
energy efficiency in the electricity sector.
Enhancing the bureaucratic competence to use market-based
instruments such as carbon taxes and emissions trading is very
important. Governments need sufficient regulatory capacity to secure
maximum benefits and to ensure their widespread distribution to the
poor. In order to create this capacity, substantial assistance will be
needed from developed countries. They could, for example, support
government officials in developing Asia in formulating benchmarks
and performance standards. Multilateral and bilateral development
organizations can target their capacity building programs to support the
formulation of effective policies and the establishment of institutions.
Multilateral environmental agreements, which have great potential
to influence the transition to a low-carbon society, have been supported
by the UNFCCC. The Kyoto Protocol has already stimulated private
sector investment in a number of economic sectors, such as renewable
energy power generation and energy-efficient technologies, in order to
reduce carbon emissions. At the global level, the reinvention of a postKyoto framework will be the single most significant factor in determining
the scale and speed of Asias transition to a low-carbon society.
Economic integration can have a significant influence on the
transition to low-carbon society, enabling a free flow of low-carbon
goods, services, technologies, and investments. Free trade agreements
that liberalize the flow of low-carbon goods and services and investment
across the borders into low-carbon projects offer the opportunity to
accelerate the transition to a low-carbon Asia. An ADBADBI study
(2013) found that trade liberalization could result in a 7%13% increase
in the trade volume of low-carbon goods and services. It is essential that
emerging economics are supported through capacity building to fully
exploit the potential gains from regional economic cooperation in the
move to a low-carbon society.
There is a need to integrate adaptation measures into future planning
and investment. Generally, more densely populated and less developed
economies are more vulnerable and less able to adapt to climate change
impacts. Developing economies have underscored the importance of
adaptation in several international forums including the Lima Deal,
wherein more international finance is provided for actions on climatesmart agriculture, better water resource management, and vulnerability
risk assessment. Multilateral and bilateral development organizations,
including the Asian Development Bank (ADB), have already started
to work with Asian countries to build their adaptive capacity. These
capacity building efforts need to be scaled up.
2.7Conclusion
A transition to a low-carbon society is not only desirable but inevitable
for developing Asia. A low-carbon society has the potential to resolve
many domestic environmental problems, ensuring energy security and
mitigating climate change through co-benefits. However, developing
Asia will need to decouple economic growth from carbon emissions,
which also has implications for bringing energy and environmental
security to the poor. Policies that favor decoupling and co-benefits are
available, but political will is needed if low-carbon society objectives are
to be achieved.
The right price signalsremoval of perverse subsidies, introduction
of carbon taxes, and launching of cap-and-trade systemscan alter the
energy mix and bring investments in low-carbon technologies, which
are critical to starting the transition to a low-carbon society. The marketbased approach needs to be complemented by adequate social sector
protection, such as targeted direct cash transfer programs so the poor
and socially vulnerable can cope with higher energy prices. A proactive
role by the international community, including financing for technology
transfer and carbon market creation, will help accelerate the transition.
Multilateral and bilateral aid agencies need to implement innovative
technical and economic assistance programs to support developing
countries to build effective institutions. These efforts need to be tied
together in a global framework which is sufficiently attractive for all
countries that wish to join, and that binds them even in hard times.
Many developing countries in the region have committed themselves
politically to low-carbon society objectives but many have yet to match
this with the necessary policy actions and financial allocations. The
funds required are significant but in many cases they represent just a
few percentage points of GDP. The emerging economies of Asia need
to adopt the co-benefit approach at the regional level. This will make it
easier for developed countries to enter into arrangements that involve
large-scale human and financial resources and technology transfers
to developing countries for climate change mitigation. Unilateral and
regional efforts occurring in parallel with UN-led global efforts might
look like a chaotic process, but it is one that increases the chance of
success in the shortest time possible. Asia has the potential, through
regional cooperation, to build a new financial, economic, and political
architecture that would enable more efficient intermediation of the
regions savings for investments. The more Asian countries join regional
efforts based on the common guiding principles outlined in this chapter,
the greater the prospects for a comprehensive and ambitious future
global framework.
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Stern, N. 2008. Stern Review on the Economics of Climate Change.
London: Her Majestys Treasury.
Sugiyama, T., and S. Oshita. 2006. Cooperative Climate: Energy
Efficiency Actions in East Asia. Tokyo: The International Institute
for Sustainable Development for Central Research of Electric Power
Industry in Japan and the University of San Francisco.
Tokyo Metropolitan Government (TMG). 2012. On the Path to a Low
Carbon City: Tokyo Climate Change Strategy. Tokyo.
United Nations Development Programme (UNDP). 2009. Nationally
Appropriate Mitigation Actions: Key Issues for Consideration. New
York, NY.
United Nations Environment Programme (UNEP), Division of
Technology, Industry and Economics. 2006. Reforming Energy
Subsidies. Paris.
UNEP. 2009. Catalyzing Low-Carbon Growth in Developing Economies:
Public Finance Mechanisms to Scale up Private Sector Investment in
Climate Solutions. Nairobi.
United Nations Framework Convention on Climate Change (UNFCCC)
Secretariat. 2012. CDM: Registered Projects by Host Party.
http://cdm.unfcc.int/Statistics/Registration/Number Of RegistredProjBy
Region.html.
Wlison, D., and R. Purushothaman. 2003. Dreaming with BRICs: the Path
to 2050. Global Economics Paper No. 99. New York, NY: Goldman
Sachs.
World Bank. 2006. Clean Energy and Development: Towards an
Investment Framework. Washington, DC.
World Business Council for Sustainable Development (WBCSD). 2010.
State and Trends of Carbon Markets. Geneva, Switzerland.
Chapter 3
Green Growth and

Equity in the Context
of Climate Change
Jeffrey D. Sachs and Shiv Someshwar
3.1Introduction
Green growth entails several different kinds of processes: conversion
to low-carbon energy, climate resilience, and response to climate
shocks. Equity implies a fair sharing of the costs, within and between
countries. Equity issues have been considered in a number of ways,
including implications of historic responsibility, development impacts
of a carbon budget on developing countries, impacts on the poor and
most vulnerable, consequences of a top-down global-benefit-oriented
mitigation policy, and the implications of official development assistance
(ODA) on climate finance. Fairness involves both helping to share the
incremental costs of adaptation and mitigation, and compensating for
damage incurred as the result of climate change. Both the mitigation
and adaptation activities (and many actions involve both mitigation and
adaptation) are costly. We should undertake them because the social
costs of these actions are less than the social benefits they promise. Still,
for developing countries, the costs are real and compound the ongoing
challenges of economic development.
In the first section of the paper we explore some of the ways in which
equity has been considered in climate change discussions. We discuss
per capita emission rights approaches, and highlight key challenges in
the application of equity in global climate change negotiations. In section
2 we briefly overview key approaches to carbon financing, focusing on
some recent cost estimations of potential climate change impacts, as
well as of projected needs for green growth programs. We highlight
the diversity of estimates and present evidence on the apparent gulf
45
between available public financing and green growth needs. In section

3 we turn to considerations of implementing green growth, focusing on
building climate resilience and responding to climate shocks. Section 4
presents an approach to a global Green Fund that would receive assessed
contributions of member countries and disburse grant and loan funds
to low- and middle-income countries to enable them to pursue green
growth programs.
3.2Equity Considerations in Climate Change

Discussions
Unlike in global discussions of sustainable development, in climate change
negotiations equity concerns have received considerable attention. In
the former, the emphasis was on the global responsibility on the part
of developed countries to support sustainable development, rather than
on equity between countries (World Commission on Environment and
Development 1987). Equity is coming to be recognized as critical for the
effective linking of environmental, economic, and social considerations,
in order to achieve sustainable development (UNESCAP 2012, p. xv).
Green growth strategies would help build a green economy while
enhancing the earths natural capital, and reducing ecological scarcities
and environmental risks. However, it is also recognized that green growth
strategies will not by themselves realize sustainable development. Social
policies enhancing inclusion, and addressing poverty and the needs
of disadvantaged and vulnerable groups are also important. Further,
especially in the Asian context, the economic, social, and environmental
dimensions need practical integration into systems of governance
that promote equityin resource use and in risk sharing, between and
within countries, and both between and within generations. Equity in
this expanded sense is the most critical consideration for the long-term
sustainability and greater socioeconomic resilience of societies.
In the run up to the Rio+20 conference in 2012, a number of
multilateral organizations, research institutes, advocacy organizations
and governments pushed for the consideration of a green economy as
a key framing for national development (UNEP 2011; HM Government
2012; Green Economy Coalition undated). In the United Kingdom
governments submission to Rio+20, for example, it was stated that
the green economy will maximise value and growth across the whole
economy, while managing natural assets sustainably (p. 1). Equity
considerations are noticeably absent. The emphasis instead is on
economic growth and wealth creation while reducing environmental
Green Growth and Equity in the Context of Climate Change47
impacts, making efficient use of natural resources, reducing reliance on

fossil fuels, improving preparedness for climate change impacts, and
exploiting the comparative advantage of businesses for green goods
and services. The apparent jettisoning of sustainable development
in favor of the green economy has made some observers nervous. As
Khor notes, the hard won gains of sustainable development (such
as the sustainability principle, right to development, common but
differentiated responsibilities, and international cooperation that
recognizes the development needs of the South) should be preserved in
considerations of green economy (UN-DESA 2011).
In the case of climate change, where the emission levels of developed
countries are directly linked to changes in the climate, equity between
countries has been seen as highly relevant in global negotiations.
However, its formulation has been varied, and its application to realize
the financing for implementation of climate policies on mitigation and
adaptation action in developing counties has been highly uneven. In
this section we provide an overview of some of the ways that equity has
been considered. In the next section, we discuss global climate financing
needs and its actual availability.
3.2.1United Nations Framework Convention on

Climate Change
The United Nations Framework Convention on Climate Change
(UNFCC) states that developed countries need to assume
responsibilities to both reduce their own greenhouse gas (GHG)
emissions, and to support efforts to reduce the vulnerabilities of
developing countries to climate change risks. It is widely understood
that rigorous implementation of a global carbon budget in the absence
of a rapid transition to a low carbon economy would seriously constrain
long-term development in developing countries. Equity considerations
require financial and technological support and capacity development
to developing countries to help them achieve development goals on a
green growth path. Climate change policies are also expected to magnify
the impacts of climate vulnerability, with some of the biggest impacts
on poor people resulting less from the changing climate itself than from
policies to mitigate climate change. Further, a rights-based approach
has been used, focusing specifically on the needs of the most vulnerable
groups, advocating that they receive preferential support. Climate and
development justice requires that poor communities in developing
countries, who will bear the brunt of climate change impacts while
contributing very little to its causes, need the worlds help first and
foremost.
The climate system is a shared resource and its stability is affected

by emissions of carbon dioxide and other greenhouse gases.The average
temperature of the earths surface has risen by 0.74 degrees Celsius (C)
since the late 1800s and is expected to increase by another 1.8C to
4C by the year 2100 with massive environmental and socioeconomic
implications for all of humanity (Solomon et al. 2007). While greenhouse
gases in the atmosphere, especially carbon dioxide, methane, and
nitrous oxide occur naturally, the principal reasons for higher emissions
over the past 150 years are associated with industrialization activities:
the burning of ever increasing quantities of petroleum and coal and
land use changes. Almost two decades ago, many countries joined an
international treatythe United Nations Framework Convention on
Climate Change(the Convention)to begin to consider actions to reduce
global warming and to cope with whatever temperature increases are
inevitable.
Equity is given considerable attention in the Convention, as are the
difficulties that countries (as parties to the Convention) would face in its
realization. It notes that the largest share of historical and current global
emissions of greenhouse gases has originated in developed countries,
that per capita emissions in developing countries are still relatively low
and that the share of global emissions originating in developing countries
will grow to meet their social and development needs,.. (UN 1992: 1). It
continues: [R]ecognizing further that low-lying and other small island
countries, countries with low-lying coastal, arid and semi-arid areas
or areas liable to floods, drought and desertification, and developing
countries with fragile mountainous ecosystems are particularly
vulnerable to the adverse effects of climate change,.. (UN 1992: 2) The
Convention also recognizes that all countries, especially developing
countries, need access to resources required to achieve sustainable
social and economic development and that, in order for developing
countries to progress towards that goal, their energy consumption will
need to grow taking into account the possibilities for achieving greater
energy efficiency and for controlling greenhouse gas emissions in
general, including through the application of new technologies on terms
which make such an application economically and socially beneficial,..
(UN 1992: 3). The Convention notes that: The Parties should protect
the climate system for the benefit of present and future generations
of humankind, on the basis of equity and in accordance with their
common but differentiated responsibilities and respective capabilities.
Accordingly, the developed country Parties should take the lead in
combating climate change and the adverse effects thereof. (UN 1992: 4)
The Conventions Principle 3 draws attention to equity issues in a
number of ways. These include a focus on common but differentiated
responsibilities and respective capabilities, the need for developed

countries to take the lead in climate action, a focus on developing
countries that are particularly vulnerable to climate change effects,
and a recognition of the right of developing countries to development.
The Convention clearly holds the industrialized countries responsible
both for reducing global warming and for helping developing countries
manage the impacts of global warming. However, it is in the identification
of precise areas of responsibilities and in their resourcing that the equity
framing begins to get diffuse, creating differences in interpretation
and difficulties in being put into practice. The various proposals can
be classified into two categories: resource sharing and effort sharing.
The former, adopting an equal per capita approach to the sharing
of the carbon budget, focuses mainly on GHG mitigation efforts. The
effort sharing approaches focus on enabling development in developing
countries in a carbon-constrained world. We examine a few of the more
well known ones below.
The earths atmosphere is considered a global commons, to be shared
by industrialized and developing countries alike. Given the carbonconstrained nature of the atmosphere, global negotiations are intended
to devise a fair means of sharing the total carbon budget. Industrialized
countries have developed without having to internalize the costs of
high levels of GHG emissions. With less than one fifth of the worlds
population, they are responsible for almost three-quarters of all historic
emissions. On a per capita basis, their historical emissions are more
than 10 times those of the developing countries. Developing countries,
on the other hand, need to bear the cost of carbon emissions, while at
the same time growing out of poverty (Adger et al. 2006). In climate
negotiations, industrialized countries have tended to seek ways to lock
in high amounts of emissions for themselves based on past emission
levels, making carbon budget sharing highly inequitable (Actionaid
2007; Oxfam 2008). A per capita emission approach is seen as a fairer
way forward. Variations in this approach include the following.
3.2.2Per Capita Emission Rights Approach

The Agarwal and Narain equal per capita emission rights approach is
premised on the rights to the atmospheric commons. It distinguishes
between luxury emissions and subsistence emissions. This allows
the use of carbon (and other GHG sources) to fulfill basic human needs
to be distinguished from that used to support luxurious lifestyles. All
countries would be awarded emission allowances in proportion to
their population, and would be free to trade them. The total number
of allowances granted globally would steadily decrease along a path
consistent with an agreed climate stabilization goal (Agarwal and Narain

1991).
3.2.3Hybrid Contraction and Convergence Model

The hybrid contraction and convergence model was formulated by the
Global Commons and presented at the second Conference of the Parties
in 1996. The key idea is to help equalize GHG emissions per capita on a
global scale, over time. In principle the rich would consume (gradually)
far fewer resources per capita than before, while the poor would consume
more than they have in the past, so that both groups can converge toward
a common fair share level, which the planet can sustain (GCI 2008).
The model envisages global emissions peaking and then gradually falling
(contraction), while emission reduction would be achieved by limiting
per capita emissions so they converge (convergence). It requires large
cuts in per capita emissions for developed countries while allowing
developing countries to continue growing their economies before they
have to make cuts to reach equal per capita emissions. The fair carbon
emission per country is calculated based on a total population cap for
each country.
3.2.4Equal Cumulative Per Capita Emission Rights

Approach
The equal cumulative per capita emission rights approach extends the
concept of equal per capita rights to cover the entire carbon budget
from the industrial revolution onward, rather than limiting it to the
near past (from the Brazilian ProposalUNFCCC 1997; Bode 2004).
The framing tries to account for the role of industrialized countries in
emitting GHGs in the past 150 years. Such past emissions are expressed
as a carbon debt, to be used in calculating carbon budgets as negative
allocations for the future. Many large developing countries, including
the Peoples Republic of China (PRC) and India, have favored this
approach, while making different assumptions about the year at which
accounting of historical emissions begins.
3.2.5Greenhouse Development Rights Framework

The most widely discussed effort sharing approach is the greenhouse
development rights (GDR) framework (Baer et al. 2008). This is
based upon national responsibility and capacity with respect to a
development threshold that excuses the poor from any responsibility
to bear the burdens of the climate transition. The majority of emission

reductions required to prevent dangerous climate change must be made
in the developed world in the coming decades. In the same period,
developing countries require hugely expanded energy services to
meet the developmental aspirations of their citizens. Historically, the
expansion of energy services has always been accompanied by rising
carbon emissions. The GDR framework proposes a climate regime
structured to safeguard a right to development. It is a burden-sharing
framework that defines national obligations, based on responsibility for
the climate change problem and the capacity to solve it. Both are defined
with respect to a development threshold that serves to relieve those
individuals still striving for a decent standard of welfare (Kartha et al.
2009) from the costs and constraints of the climate crisis. By focusing on
people rather than nation states, the GDR framework also helps focus on
inequities within countries (such as the development needs of the poor
in the industrialized countries).
In the remainder of this section we highlight some diverse issues
that make the application of equity in climate change mitigation and
adaptation so challenging, even when there is broad agreement on its
need.
3.2.6Distinguishing Impacts of Anthropogenic

Climate Change
The Convention (unlike the International Panel on Climate Change,
IPCC) focuses exclusively on the anthropogenic forcing of climate.
Natural variability is of interest only to the extent that it is modified by
the anthropogenic forcing. Developing countries seeking resources and
technologies through the Convention for enhancing climate resiliency
need to first show the additional nature of impacts from anthropogenic
climate change. Climate science and associated vulnerability studies have
not progressed to the extent that this is possible. Especially in the least
developed countries (LDCs), climate variability continues to be a key
driver of development risk. Does this mean that these countries should not
be allowed to access Convention climate funds to manage climate risks?
Sustainable Development
The Convention is specific on the right of developing countries to

sustainable development. However, for the purposes of identifying
and costing technologies and practices, there is little guidance on
what constitutes an acceptable level of sustainable development. This
is complicated by the high diversity underlying ecosystems. Perhaps
attainment of Millennium Development Goals (MDGs) or a certain level
of development according to the Human Development Index could be

considered as a proxy for sustainable development in climate finance
calculations.
Per-Capita-Based Calculations
Per-capita-based formulations for making available funds for adaptation

programs (or per capita emissions in the case of mitigation) in
developing countries privilege larger and more populated countries.
Smaller countries and those projected to face catastrophic changes
to their ecosystems or territorial extents are not well served by such
formulations.
Historical Start Date for Calculating Obligations
What start date should be used in calculating the obligation of

industrialized countries for the existing atmospheric carbon stock?
For full responsibility, the date should be farther back. How far
back? Perhaps frameworks should differentiate basic from luxury
historical emissions, with the latter identified for obligation calculations.
Share of the Positives of Industrialization
If carbon stock is the negative effect of industrialization, should the

positives of industrialization (such as science, technology, medicine)
and their benefits to developing countries also be accounted? This also
raises intellectual property rights, since these are often controlled by the
private sector, and have bedeviled international science and technology
transfer efforts.
Policies for Tackling Mitigation
The literature points to the availability of a number of policy instruments

for tackling GHG emissions, including carbon taxes, emission trading
schemes, standards, and technology support. However, there are also a
number of existing policies, with economy-wide implications, that make
mitigation difficult. They include energy and agricultural subsidies,
emissions from deforestation, and barriers to trade in emissionsreducing technologies. Equity considerations of policy changes are as
important as devising cost-effective mechanisms.
Adverse Impacts of Climate Change Policy Response
There is growing concern that developing countries, and especially the

poorer populations, may be adversely impacted less by the direct impacts
of climate change than by the policy responses engendered in response
to climate change. From 2005 to the middle of 2008, international
prices of major food cereals surged upward, causing a major panic in
food-importing countries. Along with a number of other causes, a major

reason for the steep increase was the rise in energy prices, leading to a
surge in demand for biofuels made from maize and oil seeds (Headey and
Fan 2010). This has generated much discussion on the potential impacts
of biofuels on long-term food security. The potential for adverse impacts
on local communities from the Reducing Emissions from Deforestation
and Forest Degradation (REDD)+ programs in areas of poor governance
and uncertainty in access are other areas of high equity concern. Barr
et al. (2009) note inequitable distribution of REDD payments could
increase disparities in the forestry sector, and could displace and
impoverish forest-dependent peoples.
Governance of Diverse Stakeholders, Active Across Multiple

Scales
Climate governance, from global to local levels, requires the working of

a diversity of actors, from the purely private to the state. Rather than
state-led efforts alone (the staple of development), there is increasing
recognition that guided market-based approaches are required to tackle
climate change and build climate resilience. In addition, the challenges
of mitigation and adaptation need approaches to work across traditional
boundaries imposed by the nation state, requiring a transnational
governance architecture that is at the same time respectful of the nation
state. The international climate change negotiations, being state-led,
have yet to consider these governance challenges in-depth.
3.3Low Carbon Financing: Impact Costs,

Needs, and Availability
In this section we provide an overview of some recent cost estimations
of potential climate change impacts, as well as some projected needs
for adaptation and mitigation.1 We highlight the high variance in the
estimations as well as the gulf between the costs of climate change and
public financing for adaptation and mitigation from the industrialized
countries currently on the table. At the end of the paper, we propose
a methodology and architecture for a global Green Fund to promote
discussion.
The climate change focus here precludes discussion of green economy transition cost
estimates. Interested readers may consult the IEA Blue Map scenario and the UNEP
green economy study for global green economy cost estimates.
3.3.1Climate Change Impact Costs and Projected

Needs for Adaptation and Mitigation
Costs of climate change have been calculated for overall impacts, for
adaptation, and for mitigation activities. Cost estimates have rapidly
evolved as understanding of complex systems and associated modeling
capabilities have improved, along with further refinement in policy
options. Despite these improvements, as we discuss below, significant
variations in cost estimates remain. Some of the key reasons for the
variations are in accounting for uncertainties (in projections of the
GHG emission mix and GHG emission impacts on climate processes,
especially on temperature and precipitation amounts and trends, and
valuation), time horizons being considered (50, 80, or 100 years), and
the aggregation of socioeconomic impacts (e.g., the mix of market and
non-market, discount rates adopted). There are also large variations in
the different general circulation models (GCMs) on the state(s) of the
future climate. Averaging across the GCMs, as has been often done, does
reduce the uncertainties. A significant potential source of variation in
impacts and associated costs is the specific climate characteristic being
considered. Calculations of temperature-driven impacts would be quite
different from those derived from precipitation variations, leading to
further uncertainties (and confusion).
Impact Cost Estimates
Predicting the economic costs of climate change involves modeling a

large number of variables. They include changes in emissions scenarios,
projections of precipitation, temperature and sea levels, technology
changes, population growth, and idealized levels of adaptation. Most
integrated impacts cost assessments have used relatively simple
models, using a single climate variable (generally global mean surface
temperature), aggregating sectoral impact studies, and simplistic
treatment of uncertainty such as of climate sensitivity and the potential
irreversibility of impacts (Jamet and Corfee-Morlet 2009). Figure 3.1
illustrates significant variation in cost estimates, based on expected
global temperature change, impact studies used, and inclusion of nonmarket and catastrophic event damages.
In addition to the variations across models and methodology,
significant disparities are expected in impact costs across geographic
regions. While some studies use sectoral analyses to illustrate
differences across regions (such as Stern et al. 2006; Jamet and CorfeeMorlet 2009; UNDP 2007) others provide detailed analysis at a regional
scale. Figures 3.2 and 3.3 show the application of multiple models
to estimate impact costs for Africa and Southeast Asia, respectively
Figure 3.1: Estimates of the Global Damages of Climate Change

(% of world GDP)
0
2
4
6
8
10
12
14
16
IPCC (1996)
IPCC (2001)
Stern (2007)
"baseline"
Stern (2007)
"high climate"
Total impact
Risk of catastrophe
Nonmarket damages
Market damages
IPCC (2007)
IPCC = Intergovernmental Panel on Climate Change.

Note: IPCC estimates represent the consensus among experts of the impact of climate change.
IPCC (1996) estimates only include market impacts. IPCC (2007) estimates are the average of the
range of possible values quoted in the report (from 1% to 5%). The Stern baseline scenario produces an average mean warming of 3.9 relative to the preindustrial period in 2100 while temperature
changes are pushed to higher levels in the Stern high climate scenario through the action of amplifying feedbacks in the climate system.
Source: Jamet and Corfee-Morlet(2009).
(Watkiss et al. 2010; ADB 2009). The latter study, of four countries in
Southeast Asia, found significant gross domestic product (GDP) impacts
over the coming decades. A recent study by Brown et al. (2010) finds
that precipitation, rather than temperature, is the dominant influence
on economic growth. Since estimations of climate change impacts on
economic growth often use projected temperature changes, this finding
suggests an underestimation of impacts.
Estimates of Adaptation Costs
Estimates of adaptation costs carry great uncertainty. Adaptation

involves responding to context specificities of vulnerabilities and
development risks. A number of criteria need to be considered in the
Figure 3.2: Equivalent Annual Cost of Climate Change in Africa,

as a % of GDP
Business as usual scenario
25.6
15.6
12
9.6
Annual Cost, as a % of GDP
10
8.2
6.1
4.1
3.4
4
2
0
1.9
1.7
0.8
2020
2040
2060
2080
Nonmarket
Major (catastrophic)
2100
Market
IPCC = Intergovernmental Panel on Climate Change.

Note: Using PAGE Model and the Business as Usual A2 IPCC emissions scenario. Shows 5% to 95%
range.
Source: Stockholm Environment Institute, n.d.
Figure 3.3: Mean Impact of Climate Change on Southeast Asian

Countries and at the Global Scale, as a % of GDP
B. Global
0
Percent of GDP
Percent of GDP
A. The Four Countries

0
4
6
8
10
2000 2020 2040 2060 2080 2100
Market
4
6
8
10
2000 2020 2040 2060 2080 2100
Market + Nonmarket
Market + Nonmarket + Risk of catastrophe

Note: Using a modified PAGE2002 Model and the BAU A2 IPCC emissions scenario. The four
countries are Indonesia, Philippines, Thailand, and Viet Nam.
Source: ADB (2009).
planning and implementation of adaptation efforts, including economic

benefits and their distribution, relation to development objectives,
spillover effects, and capacities. Assessments at the global scale and
across sectors are relatively recent, with two significant reports in 2006
(World Bank Investment Framework and the Stern Review) leading to
a number of responses and revised estimates. The estimates of annual
adaptation investments vary widely, even when the core methodology
remains similar (Figure 3.4).
Figure 3.4: Adaptation Cost Estimates Based on Various
Methodologies
UNDP (2007)
70
Oxfam (2007)
41
UNFCCC Global estimate
36
(2007)
UNFCCC LDCs estimate
23
(2007)
World Bank (2006)
Stern review (2006)
19
Upper bound
99
32
27
28
Lower bound
Primary research
Source: ECA (2009).
The UNDP 2007 Human Development Report suggests that donor

countries will need to increase adaptation financing to $86 billion
annually by 2015 (with $44 billion to climate-proof development
investments, $40 billion to adapt poverty reduction activities, and $2
billion to strengthen disaster response). A number of critiques have
been leveled against the climate change cost estimate literature. While
some raise concerns about the limited treatment of uncertainty or the
vast array of adaptation options (Parry et al. 2009), others note issues of
double counting, and scaling up to global levels from a very limited (and
often very local) evidence base (Agrawala and Fankhauser 2008: 77).
More recently, the World Bank completed an Economics of
Adaptation to Climate Change study (World Bank 2010a). In addition
to country-level adaptation cost analyses and better cost estimates, the
study uses two models to create future climate scenarios: a drier scenario,
developed at the Australian Commonwealth Scientific and Industrial
Research Organisation (CSIRO), which results in lower adaptation
costs, and a wetter scenario, developed by the US National Center for
Atmospheric Research (NCAR), which leads to high adaptation costs,
largely due to sharply higher infrastructure costs (Figure 3.5). These two
scenarios capture in some ways the potential range of costs. The total
estimated costs for 20102050 using the CSIRO model are approximately
14% less than those using the NCAR model.
Figure 3.5: Total Annual Cost of Adaptation for the National

Center for Atmospheric Research Scenario, by Region and
Decade ($ billions at 2005 prices, no discounting)
30
25
20
15
10
5
0
201019
202029
203039
204049
LAC
MNA
Years
EAP
ECA
SAS
SSA
EAP = East Asia and Pacific, ECA = Europe and Central Asia, LAC = Latin America and Caribbean,
MNA = Middle East and North Africa, SAS = South Asia, and SSA = Sub-Saharan Africa.
Source: World Bank (2010a).
Estimates of Mitigation Costs
Cost projections for mitigation vary significantly depending on the

greenhouse gas stabilization target, desired stabilization year, emission
reduction strategies employed, population and economic growth
assumptions, and climate model. The IPCC review (2007) suggested
mitigation costs by 2030 would range from -0.6% to 3% of GDP, relative
to baseline emission scenarios, depending on the stabilization target
(see Table 3.1).
Table 3.1: Estimated Global Macroeconomic Cost Estimates of
Mitigation Scenarios in 2030 and 2050
Median GDP
reductiona (%)
Stabilization levels
(ppm CO2-eq)
445535d
2030
2050
Not available
Range of GDP
reductionb
(%)
Reduction of
average annual GDP
growth rates (%)c,e
2030
2050
2030
2050
<3
<5.5
<0.12
<0.12
535590
0.6
1.3
0.2 to 2.5
Slightly
negative
to 4
<0.1
<0.1
590710
0.2
0.5
-0.6 to 1.2
-1 to 2
<0.06
<0.05
Notes from original figure: Costs are relative to the baseline for least-cost trajectories toward different
long-term stabilization levels. Values given in this table correspond to the full literature across all baselines
and mitigation scenarios that provide GDP numbers. a) Global GDP based on market exchange rates.
b) The 10th and 90th percentile range of the analyzed data are given where applicable. Negative values
indicate GDP gain. The first row (445535 ppm CO2-eq) gives the upper bound estimate of the literature
only. c) The calculation of the reduction of the annual growth rate is based on the average reduction during the assessed period that would result in the indicated GDP decrease by 2030 and 2050, respectively.
d) The number of studies is relatively small and they generally use low baselines. High emissions baselines
generally lead to higher costs. e) The values correspond to the highest estimate for GDP reduction shown
in the third column.
Source: IPCC (2007).
Some studies break these costs down by region and country. Figure
3.6 reveals the significant variation across countries and country
groups given a set of Organisation for Economic Co-operation and
Development(OECD) modeled policies to achieve a stabilization target
of 550 ppm. Using the 2009 pledges (Copenhagen Accord), with the
aim of limiting average global temperature increase to 2oC, an OECD
study estimates that, while Annex I countries could lose 0.3% of GDP
by 2020 due to the pledges, introducing a carbon pricing and trading
system could lead to GDP increases of more than 1% in 2020, amounting
to more than $400 billion (Delink et al. 2010).
2050
EU27+EFTA
Japan
US
Rest of the world
Canada
Brazil
Australia and
New Zealand
India
PRC
Russian Federation
0
2
4
6
8
10
12
14
16
18
Non-EU Eastern
European countries
Oil exporting
countries
(% deviation from BAU baseline GDP)
Figure 3.6: Costs from Stabilizing Long-Run Greenhouse Gas

Concentration at 550 ppm Across Regions
Cumulative 20052050
BAU = business as usual; EU = European Union; EFTA = European Free Trade Association.
Note: Scenario 550ppm-base (Scenario A) and 2050 denotes the cost as a percentage of GDP
in 2050 relative to BAU baseline. Cumulated 20052050 denotes the cumulated costs over
20052050 and represents the gap (in %) between the (undiscounted) sum of annual GDPs over
20052050 in the 550ppm-base scenario and the corresponding sum in the BAU scenario.
Source: OECD (2009).
Some studies vividly illustrate the critical role played by policy

instruments at the international, national, and sectoral levels (see OECD
2009; McKinsey 2009). Table 3.2 provides a summary of incremental
annual cost estimates of mitigation in dollar terms and the upfront
investment necessary to enable mitigation activities.
3.3.2Available Public Finance for Mitigation

and Adaptation
The previous discussion provided an overview of the costs of potential
impacts of climate change, and the financial needs for adaptation and
mitigation. We now briefly discuss the public climate financing that
is currently being discussedboth financing that has been pledged or
committed and financing that is now in the planning stages (such as that
arising from the Copenhagen Accord).
Table 3.2: Incremental Mitigation Costs and Associated Financing

Requirements for a 2C Trajectory: What Will Be Needed in
Developing Countries by 2030? (constant 2005 $)
Model
Mitigation cost
IEA ETP
McKinsey
175
MESSAGE
MiniCAM
REMIND
Financing requirement
564
563
264
139
384
Note from original table: Sources: IEA ETP: IEA (2008c); McKinsey: McKinsey & Company (2009)
and additional data provided by McKinsey (J. Dinkel) for 2030, using a dollar-to-euro exchange rate of
$1.25 to 1; MESSAGE: IIASA (2009) and additional data provided by V. Krey; MiniCAM: Edmonds and
others (2008) and additional data provided by J. Edmonds and L. Clarke; REMIND: Knopf and others
(forthcoming) and additional data provided by B. Knopf. Both mitigation costs and associated financing
requirements are relative to a business-as-usual baseline. Estimates are for the stabilization of greenhouse
gases at 450 ppm CO2e, which would provide a 40%50% chance of staying below 2C warming by 2100.
Mitigation cost refers to the incremental annual costs, while Financing requirement is the upfront
investment necessary to enable the mitigation activities.
Source: World Bank (2010b).
Attention is drawn here to the findings of the UN High Level

Advisory Group on Climate Change Financing (AGF 2010). Following
the Copenhagen Accord, a UN Advisory Group on Climate Change
Financing was established by the UN Secretary General to identify
potential sources of finance in order to mobilize $100 billion per year
by 2020. Four potential types of finance were analyzed, including public
sources for grants and highly concessional loans (including carbon
taxation and auctioning of emission allowances, removal of fossil fuel
subsidies, other new taxes such as a financial transaction tax, and general
public revenues through direct budget contributions), developmentbank-type instruments, carbon market finance, and private capital. A
substantial share of the revenues was considered likely to remain in
developed countries. Carbon prices of $20$25 per ton of CO2 equivalent
in 2020 were used in calculating potential revenues.
A range of $81 billion$91 billion was identified as being available
annually for international climate action in 2020. This is broken down
as follows:

$30 billion annually from auctions of emission allowances and

domestic carbon taxes in developed countries (at 10% of total
revenues);
$10 billion annually from redeployment of fossil fuel subsidies

in developed countries or from a financial transaction tax;
$10 billion annually from international transportation
(allocating between 25% and 50% of total carbon pricing
revenues);
$10 billion to $20 billion annually from private net capital flows
(allocating 10% of total revenue);
$10 billion annually from carbon market flows (from a likely
total of $30 billion to $50 billion); and
$11 billion net flows from multilateral development banks.
The findings seem to reflect a group consensus, with no major

breakthroughs. The revenue streams identified are quite modest.
Further, follow up actions on the report seem uncertain. The UN
Secretary General writes in the foreword I hope Governments respond
positively to the Advisory Groups findings, and I encourage other key
stakeholders, including civil society and the business community, to give
this report full consideration (AGF 2010: 2).
Most available public climate finance is for mitigation activities
(e.g., energy and transportation, with forestry recently included in the
mix). Other than a few bilateral programs (and with the exception
of the extremely modest Adaptation Fund), funds are managed by
multilateral development banks (MDBs) with a smaller number by other
multilateral institutions. A handful of donor governments provide the
bulk of the climate funds (Tables 3.3 and 3.4). While developing country
governments and other accredited institutions are eligible to apply
for funding, there seems to be a wide diversity in requirements along
with time-consuming and multistep processes. While this is generally a
hallmark of public finance institutions, the particular nature of uncertain
and context-driven specificities of climate resilience and green growth
seem to have further reinforced the tendency. It is perhaps not surprising
that LDCs and low-income countries are often frustrated in accessing
the very finds that ostensibly have been set aside specifically for them.
While most funds are open to supporting programs ranging from the
multiregional to the local, most efforts seem to be at the subnational
scale, often within a strong sectoral orientation (e.g., agriculture, health,
water, energy, and transport). Programs tackling systemic climate change
impacts that cascade across multiple spatial scales and administrative
levels are a rarity, donor rhetoric not withstanding. Access to the global
best science and technology on green growth issues is not systematically
organized. Programs managed by bilateral organizations and multilateral

organizations (with the exception of MDBs that seem to depend to a
greater extent on internal staff resources) appear to depend more on
project-defined consulting, often from the private sector with the
rules of engagement privileging value for money. Such an approach
seriously undermines the ability of developing countries to access the
best and most relevant science. Commodifying science also disables
the free exchange of project experience and best and worst practices.
Most project and program reports (at least those publicly available to
developing country stakeholders) glow about their successes.
A key issue with respect to climate change funding is its relation
to official development assistance. As discussed earlier, UNFCCC
principles require that funding is distinguished from development funds,
and must be accounted for as additional to overseas development
assistance (ODA) already being provided to developing countries. The
equity issues underlying this distinctionnamely, that the burden of
addressing climate change should fall on industrialized countries that
bear primary responsibility for the problemare quite valid. However,
this has often resulted in awkward calculations. In the case of the Global
Environment Facility, funding required for adaptation is separated
from that required for development, despite their interconnectedness.
In the Fast Start Finance pledges, for example, it is not clear how much
of Japans pledge under the Cool Earth initiative is new and additional.
There are also a number of other questions at hand: how much of
the pledged funds are re-routed ODA? A relative drop in ODA would
have serious implications, especially for the LDCs. Another issue is
conditionalities. Since climate funds are a result of the common but
differentiated responsibility principle laid out in the UNFCCC, the
nature of the conditionality between donor and recipient countries
would need to be markedly different (relative to ODA).
For the purposes of discussion, at the end of this paper we suggest
one approach for a global Green Fundbased on a carbon levy and
with assessments paid by member countries determined according to
each countrys CO2 emissions and GDP per capita. Perhaps the time is
now ripe to distill a similar regional approach that exploits the many
potential revenue flows for climate change financing, while mindful of
global flows of technology, capital, and political will.
- Least Developed
Countries Fund
(LDCF)
- Special Climate
TF - National
government
contributions
(SCCF)
GEF Funds
- Trust Fund
Climate Change
Focal Area (TF)
LDCF - National
governments (majority
from Germany, US,
Denmark, and Canada)
SCCF - National
governments (majority
from Germany, Norway,
US, and UK)
Eligibility
Multilateral
development
banks (World
Bank, AfDB, ADB,
IDB, and EBRD)
National, subnational,
community
Implementation
levels
TF - UNFCCC criteria /
TF - Global, regional,
eligibility to receive funds national and subthrough World Bank or
national
UNDP
SCCF - National
SCCF - Non-Annex
governments, with
1 countries eligible.
subnational project
Emphasis on most
activities
vulnerable countries in
Africa, Asia, and the SIDS LDCF - National
planning (preparation
LDCF - The 49 LDC
of NAPA), with subparties to UNFCCC
national and community
implementation
Countries eligible for

Regional, national, subOfficial Development
national, and private
Assistance (ODA) based sector
on OECD/DAC guideline,
with an active MDB
country program
Adaptation Fund Developing country

Board, World Bank parties to the Kyoto
as trustee
Protocol that are
particularly most
vulnerable
Management
entities
TF - National
GEF with World
government
Bank as trustee
contributions (large
amounts to overall fund
from US, Japan and
Germany)
Donor government
(majority from UK,
Japan, US, and
Germany)
Climate
Investment Funds
- Strategic Climate
Fund
- Clean Technology
Fund)
From sales of CDM

projects certified
emissions reductions
(CERs); Donor
governments (Spain,
Germany, Sweden..)
Funding sources
Adaptation Fund
Name
Table 3.3: Climate Change Financing
$310 million pledge,

$225 million
deposits
Volume of funds
For SCCF, activities

must focus on
additional costs
imposed by climate
change on the
development baseline
National Project
Proponent requests
assistance of GEF
implementing agency
(e.g., UNDP, ADB).
continued on next page
LDCF $324million
pledges, $253million
deposits
SCCF $180 million

pledges, $143 million
deposits
TF $2.17
billion pledges,
$1.886billion
deposits
National governments SCF $1.891billion

submit country
pledged, $1.150billion
investment strategies/ deposits
plans with MDB
CTF $4.399 billion
pledge, $2.558billion
deposits
Through National
Implementing Entity
(e.g., Environment
Ministry) or
multilaterals (e.g.,
UNDP, WFP)
Pathways to access
funds
European Union, EC
Fast Start Funding,
Donor governments
(Ireland, Sweden)
Global Climate
Change Alliance
EuropeAid
Donor
governments
Support to 18 most
vulnerable developing
countries, and general
dialogue support to
others
Various Donor country

criteria
Developing country
governments, some
through multilateral
institutions
National programs in 13
countries and additional
regional programs for
knowledge sharing
Eligibility
Source: Individual fund websites, www.climatefundsupdate.org, www.faststartfinance.org
Donor governments
Climate funds as
part of bilateral aid
package
- Fast-Start
Financing (FSF)**
FSF - Donor
governments (Japan,
US, France, UK)
- Green Climate
Fund (GCF),
currently in
development
FSF Donor
government
agencies
GCF World
Bank, interim
trustee
GCF Donor
governments (not
finalized)
Copenhagen
Accord
instruments
Management
entities
UNEP and FAO

with UNDP as
Administrative
Agent
Funding sources
UN Programme
EU and donor
on Reducing
governments (Norway)
Emissions from
Deforestation and
Forest Degradation
in Developing
Countries (UN
REDD)
Name
Table 3.3continued
Regional, national, and

subnational
Varies
FSF Global to
community, with focus
on national
GCF Not finalized
Global, regional,
national, and
subnational
Implementation
levels
Volume of funds
Developing country
governments/ NGOs
Some have
independent
mechanisms: e.g.,
Hatoyama Initiative
(Japan), International
Climate Fund (UK),
International Climate
Initiative (Germany),
Global Climate
Change Initiative (US),
MDG Achievement
Fund (Spain).
FSF - Varies,
depending on donor
country
GCF ($100 billion

in 2020) - Not yet
finalized
Difficult to calculate
given plethora of
initiatives, and some
with overlaps
FSF - $30 billion

pledges, $621
million delivered.
GCF ($100 billion

in 2020) Not finalized
National governments $150.8 million

work with UN
pledges, $97 million
Country Team to
deposits
establish National
REDD Steering
Committee.
Pathways to access
funds
231
157
1,804
1,804
444
537
1,145
2,454
640
Denmark
Finland
France
Germany
The Netherlands
Spain
Sweden
United Kingdom
Australia
1,705
15,000
1,000
159
1,704
7,200
382
162
400
510
NA
192
165
929
648
35
601
53
57
72
Requested /
committed for
20102011
($ million)
Funding Areas
Adaptation 3% Mitigation >95% (REDD+ $223 million)

2010 Mainly REDD+
2010: Adaptation 40% Mitigation 60%
2010: Adaptation 35%, Clean Energy 45%
Sustainable landscapes 20%
2010: Adaptation 25 million

Mitigation 18 million, REDD+ 7 million
2010: Adaptation 10 million, Capacity building 2 million; Renewable
energy 20 million
Sustainable forests /REDD+: 10 million
2010: Adaptation and Capacity Building 48%
Mitigation 52%
2010: Adaptation 35%, Mitigation 53%
REDD+12%
20102012: Adaptation 20%, Mitigation 60%REDD+ 20%
2010-2012: Adaptation 35%, Energy-related mitigation and REDD
350million
20102012: Mitigation At least 280 million
20102012: REDD 20%, Adaptation at least 45% in 2010
2010: Mitigation 59 million, Adaptation 347 million, REDD 11 million
20102012: Adaptation 50%, Mitigation 50% and REDD
20102012: Adaptation 52%, Low Emission Growth 24%, REDD+ 24%
2010: Adaptation 35%
Mitigation 65%
Not specified
SIDS and Africa

Africa, SIDS and
LDCs in Asia
Not specified
Not specified
All regions
Not specified
Africa
Africa
Not specified
SIDS
Africa, SIDS
Africa and some
efforts SE Asia
Africa, Asia
Africa
Africa, Asia,
Pacific SIDS
Geographic focus
(in addition to
global)
Note: Funds with total pledges of more than $150 million for 20102012 are listed here.
Sources: www.climatefundsupdate.org; www.faststartfinance.org; http://www.wri.org/publication/summary-of-developed-country-fast-start-climate-finance-pledges
REDD = Reduced Emissions from Avoided Deforestation, SIDS = Small Island Development States.
US
Japan
Norway
Switzerland
414
215
Belgium
Canada
215
European
Commission
Party
Pledged for
20102012
($ million)
Table 3.4: New and AdditionalFast Start Funds (20102012)
3.4Implementing Green Growth: Some

Observations on Building Climate Resilience
and Responding to Climate Shocks
Adaptation to climate risks requires consideration of a continuum of
risks across critical time scalescovering seasons, years, and decades.
Adaptation involves building climate resilience in sectors and social
economic systems as well as responding to climate shocks. We highlight
here some of the critical issues involved in their practice.
3.4.1Toward Practice of Climate Risk Management

Limitations of Current Risk Management Efforts
Managing current climate risks establishes a sound base for adaptation

to climate change. However, as noted elsewhere, it does not by itself
form the entirety of activities needed for adaptation for several reasons
(Someshwar 2008):
Effective management of current climate risks is still an emerging
field. Innovation and strategic demonstration are needed. While
indigenous coping strategies are valuable and need to be better
appreciated, most societies are still far from successfully managing
current climate risks. Famines and floods associated with the El-Nio
Southern Oscillation (ENSO) cycle continue to affect millions of people
worldwide, and countries continue to operate only in a reactive mode.
Static accounting of climate. In development programs, climate tends
to be accounted for in a static rather than a dynamic mode. In common
with farming communities, policies and plans of governments are based
on an understanding of immediate past climate. Observed climate
data, generally for the past 30 years, is used to calculate key statistics
of weather and climateaverage conditions, maxima and minima of
temperature and precipitation across seasons, anomaly content and
timing (e.g., onset delays, dry or wet spell lengths and breaks, timing
and intensity of frost). Climate-dependent environmental information
such as stream flow and aquifer recharge capacities is also based on
immediate past climate.
Limits of systems resiliency. An appreciation of the limits of climate
buffering of cities and regions from current planning and infrastructure
systems is badly needed. It requires a thorough examination of
variability characteristics (at weather and climate scales) that underlie
infrastructure systems and resource transfer agreements (Someshwar

2010). Decisions and policies on future resource availability typically
use statistical averages of past years. For example, the Colorado Water
Compact of 1922 used average flows of the preceding 30 years to design
water allocations (Figure 3.7). A more historically informed view tells
us that the design period was above normal. Systems should hence be
prepared to handle more years of water scarcity in the future.
Figure 3.7: Colorado Water Compact of 1922
PDSI = Palmer Drought Severity Index.

Source: Drawn from Goddard et al. Near Term Climate Change: IRI-PRED Priority Area presentation
(2010), based on Stahle et al., 2007.
Limits of responding to climate surprises. When climate anomalies

occur, plans are in place to manage impacts of climate surprises. The
success of many governments in Asia in preventing famines, despite
deep and widespread droughts, is mainly due to policies based on
the internalizing of variability in the immediate past climate in the
policy-making process (Kaosa-ard and Rerkasem 2000). However,
the approach of using deterministic information to mobilize action
launching emergency food security operations after a drought has
occurred, for example (p.11)means that institutions are not geared to
handle uncertain forecasts. As Miles et al. (2006) observe, Despite the
increasing predictability of climate Every empirical study conducted
to date has shown that climate forecasts are not used to their full
potential. While disaster response efforts will still be needed, managing
(future) uncertainty requires an appreciation of potential risks and the
adoption of anticipatory risk management, prior to actual impacts.
Climate is not the only dynamic element that communities and

nation states need to respond to. Demographic pressures that intensify
resource demands, declining terms of trade for cereal production and
natural resources, rapid urbanization, societal upheavals due to religious,
sectarian and class differences, are some of the dominant dynamic
drivers of development. In designing systems for managing the impacts
of climate change it is important to consider non-climate shocks and
or trends as well. For many existing climate-sensitive systems, such as
water supply systems, changing demands from population growth and
higher levels of per capita demand often impose higher burdens than
those due to changes in the climate. This is especially the case in the
near term (to about 30 years) in rapidly growing regions of the world
(such as cities in Asia). Often, discussions of adaptation seem oblivious
to the real world non-climate shocks that systems must respond and
adapt to.
Effectively managing shorter-term climate risks does not always
translate to building effective long-term resilience. The amplitude,
pace and frequency of hazards in future may be quite different from
those experienced by societies in the recent past. Adaptation measures
undertaken for todays hazards may well be insufficient, and in some
cases may even compound risks from more intense and frequent
hazards. Climate change is also expected to bring new kinds of hazards
for which societies have no prior experience, such as from sea level rise
and glacial melting.
Need for Improved Climate Risk Management
From the point of view of adaptation to climate change, managing current

climate risks is important for at least two reasons. First, the operational
use of strategies and programs that build resilience to current climate
hazards (such as floods, droughts, and heat waves) can be applied to
climate change risks since they are heightened variations of past climate
anomalies. Second, stronger climate resilience helps countries realize
a higher level of socioeconomic development, affording social and
economic climate buffers at household, community and societal levels.
A specific application of this method can be seen in the work of the
Earth Institute in Indonesia to help reduce the risk of peat forest fires in
Central Kalimantan (Someshwar et al. 2010). The methodology, valid for
a range of low- and medium-income countries, involves the following:

Spatial analysis of historical and current climate impacts,

integrating climate and socioeconomic data to arrive at past and
current impacts;
Estimations of ranges of future climate conditions and their

reliability, using past climate data as well projections to identify
ranges of uncertainty, including sea level rise and frequencies
of extreme events;
Assessment of likely impacts on development from a
changing climate, derived by stakeholders placing estimates of
future climate risks in the context of policies and development
plans over the next 30 years, with a particular emphasis on
planned policy initiatives to help achieve selected MDGs; and
Identification of a suite of anticipatory risk management
considerations in each country to address priority risk areas.
3.4.2Engaging the Form and Function of Policy Making

for Climate Resiliency
Departures from historic climate averages due to long-term
anthropogenic changes to the global climate system pose critical
management challenges to agencies and institutions. When the very
basis for the climate and environmental characterizations that underpin
resource availability and their management (for example, reductions in
return periods of drought and floods, major alterations in the spread and
timing of the Asian monsoon systems, alterations in the hydrology of river
basins) is being altered by climate change, planning and management
need to be reimagined. The extensive and deep nature of potential
changes calls for a large-scale shift away from (current) reactive climate
management and toward anticipatory risk management.
Many adaptation programs are less based on development
aspirations of communities and policy makers than on long-term
development scenarios characterizing a more or less uniform future.
The approach can be defended perhaps over the very long term, given
the apparent economic convergence of societies. However, this does
not mean ignoring the diversity in country situations of the drivers of
vulnerability. Green growth needs to be built on localized aspirations of
long-term development. Regional development, for example, is realized
by plans with a time horizon of about 20 to 30 years. Infrastructure, land
use, housing, and alternate growth centers need to be planned for. In
investigating the socioeconomic future of a place, we need to consider
the available development plans as a starting point in order to arrive at
likely estimates of specific place-based development futures. Spatial
modeling of environmental, socioeconomic, market and policy variables
will be needed in the context of the economic future laid out in the
development plan.
Uncertainties in characterizing future climate and development

futures require systematic engagement with a critical body of key
development stakeholders in the country. This will help leverage
expert opinion, experience and intuition, permitting use of the limited
available information in order to develop forecasts of development. Such
an approach requires analyses of the policy, institutions, and decision
landscapes characterizing socioeconomic development in each country,
leading to the identification of a matrix of institutions that are currently
critical for disaster risk reduction and climate risk management, a
typology of policies that are considered critical to manage disaster and
climate risks, a typology of vulnerable geographies (highland, coastal,
delta, and riverine systems, for example), and the nature of institutions
and development policies needed to build resilience to emergent
climate risks. Scenarios developed in a participatory mode, including
use of Delphi techniques, can yield invaluable insights on current and
past development trends, policies, and trajectories.
3.4.3Risk Management Institutions in Practice

The interdisciplinary nature of policy development is both a strength
and a weakness. It is a strength because it affords a chance to draw on the
insights of a number of disciplines such as economics, sociology, history,
and political science. It is a weakness since it prevents the development
and use of common shared standards. Given the dominance of economics,
many climate-resilient policies are evaluated solely for their efficiency,
optimization, marginal cost, and marginal utility. Power relations and
the risk averseness of institutions that influence their functioning and
efficacy, to name two issues, are rarely studied.
Governance institutions are struggling to keep pace with complex
and fast-changing ground realities. The nature of many risksincluding
those related to climateis dynamic, the result of many factors that
are themselves undergoing change. For example, in urban areas in
many Asian countries, increased frequency of flooding cannot be solely
attributed to a changing climate. Wetland loss, a greater paved area, ever
growing landfills to accommodate waste, groundwater extraction, and
other factors all figure in the calculation. Climate change adds a new
layer of complexity, and uncertainty. In this light, it is all the more urgent
to develop scientific and institutional capacity to enable managers
to understand and make use of risk management approaches and
tools (see discussion on risk transfer mechanisms below). Adaptation
programs that recognize institutional issues tend to focus on facilitating
the creation of an evidence base of climate impacts, enhancing data
availability, and training on tools and methods for better management of
climate risks. A minority of programs also attempt to engage institutions

across individual operations by creating new coordinating entities, often
with limited success. A smaller number attempt to refocus agencies
by reengineering incentives that are at the very core of institutional
productivity and efficacy. Political economy considerations that govern
institutional efficacy are often ignored in climate change adaptation
efforts.
Regional Risk Transfer and Insurance Mechanisms
Natural disasters can result in crippling financial and human losses.

National governments typically bear the greatest costs and responsibilities
in managing recovery efforts. While many developing countries often
receive emergency relief funds and donor aid for recovery efforts, they
are either insufficient or arrive too slowly. Many governments also
require immediate funds to continue functioning. Sovereign insurance
options typically require evidence of loss, which can cause significant
delays. Depending on the risk profile of the country, premium rates for
individual country insurance policies can be prohibitively expensive.
Regional catastrophe risk insurance facilities are a recent innovation,
and aim to provide immediate resources and liquidity following a
disaster, expedite payments by relying on predefined indexes of events
and losses, diversify the overall risk portfolio by aggregating risk
spatially (e.g., across countries), and improve premium stability through
guaranteed donor capital, reinsurance protection, and capital market
investments.
The Caribbean Catastrophe Risk Insurance Facility (CCRIF) is often
cited as a good model for similar entities in other regions, including in
Asia. Contributions from donor governments, the World Bank, and the
Caribbean Development Bank coupled with membership fees paid by
the 16 government members helped create a Multi-Donor Trust Fund at
CCRIF. 2 Originally designed to cover hurricane and earthquake events,
the facility may also cover excess rainfall events in the near future. In
order to expedite payouts, CCRIF uses parametric triggers based on
a suite of independently verified catastrophe risk models.3 Low and
stable premiums are afforded by pooling risks. Since it is highly unlikely
that all member countries would be affected by major anomalies in the
2
For details, see www.ccrif.org and World Bank. 2010. A Review of CCRIFs Operation
after Its Second Season. Washington, DC.
Input parameters have been developed for exposure, vulnerability, damage, and
losses for each hazard type. Public sources are used for data to run the models after
a disaster event. By using public information and predefined parameters, the facility
is able to avoid reliance on loss adjusters, reduce delays, and eliminate subjective loss
assessment.
same year, the diversified regional risk portfolio reduces reinsurance

costs. Importantly, CCRIF funds are not intended to cover all losses in
the event of a catastrophe; the payout is only meant to provide shortterm liquidity for disaster response and basic government functions.
For 20072014, the total payout amount was around $35 million for 12
events, of which 9 were cyclone and monsoon trough system related.4
CCRIF is serving as a model for similar efforts in development in
other regions. These include:

4
5
6
The Inter-American Development Bank and the reinsurance

company Swiss Re launched the Regional Insurance Facility for
Central America or RIFCA (Inter-American Development Bank
2011). This is intended to complement the IDBs Contingent
Credit Facility, which finances loans up to $100 million per
country for natural disasters.
The Pacific Catastrophe Risk Assessment and Financing
Initiative (PCRAFI) is a joint effort by the World Bank, ADB, and
the Pacific Islands Applied Geoscience Commission (SOPAC),
with funding by the Government of Japan and the World Banks
Global Facility for Disaster Reduction and Recovery. The
goals of PCRAFI is to provide the Pacific island countries with
disaster risk modeling and assessment tools, and to engage in
a dialogue with them on integrated financial solutions for the
reduction of their financial vulnerability to natural disasters
and to climate change.5
At the 2010 Ministerial Conference on Disaster Risk Reduction
in Africa, ministers recommended that the African Union
Summit explore the feasibility of continental financial risk
pooling in working towards the creation of an African-owned
Pan African disaster risk pool (UNISDR SecretariatAfrica
2010).
In April 2011, ASEAN Finance Ministers tasked their insurance
officials to explore risk financing options and mechanisms
that can be developed as part of the regional framework for
disaster management and disaster risk reduction (ASEAN
2011). ASEAN, World Bank, and UNISDR followed up by jointly
hosting the ASEAN Disaster Risk Financing and Insurance
Forum in November 2011.6
See http://www.ccrif.org/content/about-us.
See http://pcrafi.sopac.org.
See
http://www.worldbank.org/en/news/press-release/2011/11/08/world-bankgfdrr-asean-and-unisdr-cooperate-to-strengthen-fiscal-resilience-to-naturaldisasters.
ADB is pursuing parallel efforts to create regional disaster

risk solutions in Indonesia, the Philippines, and Viet Nam,
including the possible use of parametric triggers for insurance
or contingent credit mechanisms (ADB 2011).
While the insurance mechanisms discussed so far focus on

addressing disaster impacts for national level governments, the South
East Europe and Caucuses Catastrophe Risk Insurance Facility Project
(SEEC CRIF) of the World Bank is pursuing a different model.7 The
project supports countries in the region to join and benefit from the
Europa Reinsurance Facility (Europa Re), with the goal of increasing
the number of individuals and small and medium enterprises (SMEs)
insured by the private insurance market against catastrophic risks.
While countries are the top-level participants in the facility, the
ultimate beneficiaries are individuals and small and medium-sized
enterprises (SMEs). Europa Re and the SEEC CRIF were partly, though
not explicitly, motivated by climate change risks.
The Horn of Africa Risk Transfer for Adaptation (HARITA) project,
Oxfam and Swiss Re along with International Research Institute for
Climate and Society for Climate and Society of the Earth Institute as
a technical partner have successfully applied an index-based weather
insurance scheme at the farm level to help farmers smooth risks and
access credit. It is now being scaled up across the region in partnership
with the World Food Program.8
3.4.4Building Urban Climate Resiliency

The year 2007 marked the first time in history that over one-half of the
worlds population lived in urban places. By 2030, 60% of the worlds
populationalmost 5 billion peoplewill live in cities. By mid-century
the forecast is for two of every three people to be living in urban places.
In Asia alone, 1 billion more people will live in cities in 2030 than in 2005.
By 2015, there will be 22 mega-cities with populations of 10 million or
more; 12 of these will be in Asia.
In most developing and some industrialized countries, urban areas
are already stretched, due to population growth, in-migration, increasing
per capita demands on precious resources such as land and water and
7
See
https://www.thegef.org/gef/content/regional-southeastern-europe-andcaucasus-catastrophe-risk-insurance-facility-crif.
See
http://www.oxfamamerica.org/issues/private-sector-engagement/weatherinsurance.
on urban service systems such as transport and health, in combination

with the rapidly deteriorating condition of the infrastructure due to
ageing. Cities in both developing and industrialized countries are also
marked by deep inequalities, with the poor living in marginalized areas
where water, sanitation, and housing infrastructure is almost nonexistent and access to other forms of infrastructure-dependent services
such as transport, health, and education is severely limited. Ecosystems
supporting current urban areas are already under stress.
Infrastructure is one of the defining features of urban life and
landscapes, and plays a critical role in shaping social resilience as well as
the economic dynamism of cities. Infrastructure reflects the choices that
governments make, both economically and socially, and provides insight
into issues of equity, governance, and the strength of local institutions.
Fast paced growth, both in terms of spatial area and resource demands,
will outstrip the capacity of existing infrastructure to provide water,
sanitation, and transportation, and will strain the carrying capacity of
ecosystem services.
It is already hard to argue that urban development in Asia in the 21st
century is sustainable. When we overlay climate hazards, their situation
is even more acute.9 Thus, even as urban growth exacerbates existing
vulnerabilities under current climate conditions, decision makers
must also grapple with an uncertain future climate. The patterns of
inequitable development that characterize much of the present growth
in urban areas in Asia are likely to be exacerbated by such changes.
Pressures may include increased flooding and storms in coastal areas,
where many cities are experiencing rapid population growth, and
increased frequency of breakdown in vital urban infrastructure as a
result of climate anomalies, in the context of increased fiscal pressure
on urban policy makers to reduce GHG emissions and go green. Rather
than being centers of innovation and engines of compact and efficient
economic growth and well being, the impacts of a changing climate
could well propel the cities of the global South into increasing poverty
and endemic strife.
Cities are enormously important as engines of economic and
social growth, especially for the low- and middle-income countries
9
The lack of climate-smart infrastructure is not just a problem in the global Southit is
endemic in the industrialized countries as well. New York, for example, is struggling
to adapt current infrastructure to the future effects of floods and storms, and to
better plan future infrastructure projects. The transit, water supply, and sanitation
infrastructure, among others, are all extremely vulnerable to the effects of climate
change and the city is ill-equipped to handle even todays severe weather events, let
alone increased severity and frequency of storms and sealevel rise in the future.
of the global South. Careful planning and investment will be required

to realize their potential, particularly if it is to be achieved without
increased inequities. Urban climate resilience efforts require a problemdriven approach that takes into account the historic evolution of the
cities, the sociocultural fabric of city making, economic inequities, and
institutional decision making. All too often urban adaptation efforts
focus solely on climate as the dominant driver of urban economic and
social risk. Urban mitigation efforts, on the other hand, focus exclusively
on GHG emission reductions in transportation, building efficiency and
energy generation sectors. Green growth efforts need to inform better
urban governance and management and finance, and to enable economic
growth with equitya set of converging goals along with GHG emission
reductions and the creation of climate resilient cities.
3.4.5On the Architecture of Green Growth

Governance
The emphasis in global negotiations has been on making climate change
financing from the North available for adaptation and mitigation
programs in the South. Given the poor demonstration record of many
developed countries in fulfilling their stated commitments, such an
emphasis is very appropriate. The global and regional architecture of
finance utilization are also very significant. It has been assumed that the
selected administrative agent (such as a multilateral institution) would
impose its administrative and fiscal management on the climate fund.
The limited absorptive capacity of developing countries for the
effective use of climate finance is a serious concern. One response on
the part of the donors has been to exercise more control on all aspects
of the program, often deploying consultants from developed countries.
While this may make for more effective projects, overall it perpetuates
poor capacities in developing countries. Project-based capacity building
efforts are simply not sufficient.
Many green growth efforts are consciously aligned to respond to
demands of the developing country clients. Unfortunately, the clients
are often not able to access the full range of scientific and technological
options available globally, nor to fully assess their fit in the local
socioeconomic and environmental context. Also, access to knowledge
alone does not promise that the right choices will be made. Scientific
and technical expertise, independent of the donors, needs to be made
available to developing country clients, along with the long-term
programs to build their capacity.
3.5The Green Fund: An Approach Based

on the Principles of Common but
Differentiated Responsibilities and Equity
Purpose: The Green Fund will receive assessed contributions of
member countries and will disburse grant and loan funds to low-income
and middle-income countries to pursue programs of climate-change
mitigation and adaptation.
Duration: The Green Fund will operate until the sustainable reduction
of GHG emissions is sufficient to meet the objectives of the UNFCCC.
This is targeted to occur no later than 2050.
Members: All signatories of the UNFCCC are members of the Green
Fund.
Governance: The governing board will include two representative
countries of each regional development bank. Each bank will select its
representatives according to procedures set by the governing boards
of the respective banks. The representatives will serve for 2 years.
At least one of the two countries sending representatives will be a
recipient country of the Green Fund. Each bank will have a non-voting
representative, as will relevant UN agencies.
Funding: The Green Fund will be funded by assessments paid by
member countries. Assessments will be determined according to each
countrys CO2 emissions and the countrys GDP per capita (World Bank
Atlas method). The formula is as following for country i:
Assessment (i) = CO2 Emissions (i) x CO2 Assessment Rate x GDP Factor
(i)
The assessment rate is expressed in $/tons of CO2
The GDP Factor is as follows:
High-income country (>$12,276): 1.0
High middle-income country ($3,976$12,275): 0.5
Low middle-income country ($1,006$3975): 0.25
Low-income country (<$1,005): 0.0
Table 3.5: Illustration of Proposed Green Fund Assessment Rates
Country
CO2
emissions
(million tons
per year)
GDP/capita
Ranking
GDP Factor
Assessments
Total
as % of GDP
Assessment
(PPP
(at $2/ton)
equivalent)
7,710
Upper
MiddleIncome
0.5
$7.7 billion
0.08%
India
1,602
Lower
MiddleIncome
0.25
$0.8 billion
0.05%
Mozambique
2.35
Lower
Income
United
Kingdom
520
Higher
Income
$1.0 billion
0.05%
5,420
Higher
Income
$10.8 billion
0.07%
PRC
United States
Source: Authors.
Consider the illustration in Table 3.5 for an assessment rate of $2 per

ton, based on national CO2 emissions in 2010 from the consumption of
energy resources.
The assessment rate will be fixed every 5 years to produce the
targeted funding stream. Note that a modest assessment rate will
produce significant revenues for the Green Fund, at very low cost to
the consumer. A $1 levy per ton produces $24 billion worldwide. The
implied levy per gallon of gasoline is 0.9 US cents for high-income
countries, as shown in Table 3.6. (To convert to cents per liter, multiply
cents per gallon by 0.26.)
Table 3.6: Potential Green Fund Revenues Based on CO2 Levy
$/ton of CO2
Cents Per
Total
Cents Per
Gallon in
Green Fund
Gallon in
Low MiddleRevenues Low-Income
Income
Worldwide
Countries
Countries
Cents Per
Gallon in
UpperMiddle
Income
Countries
Cents Per
Gallon in
High-Income
Countries
$24 billion
0.2
0.4
0.9
$42 billion
0.4
0.9
1.8
$72 billion
0.7
1.3
2.6
$96 billion
0.9
1.8
3.5
Source: Authors.
Disbursements: All low-income countries will be eligible for grant

financing from the Green Fund. Middle-income countries will be eligible
for loan financing on the terms of the respective MDBs.
Criteria: The Green Fund will finance both mitigation and adaptation
projects, 50% to each category. Each multilateral development bank will
set guidelines for the suitability of projects, based on criteria including
cost effectiveness, social equity, and environmental impacts.
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Chapter 4
Evaluation of Current
Pledges, Actions, and
Strategies
Stephen Howes and Paul Wyrwoll
4.1Introduction
The 2015 United Nations Framework Convention on Climate Change
conference in Paris obscured an important outcome. In a substantial
break with existing conventions, the governments of major developing
economies are to announce quantitative national targets for climate
change mitigation.
Nowhere is this shift more significant to global action than in the
engine of the global economy: developing Asia. An unparalleled economic
expansion is underway in this region that encompasses a third of the
worlds population. If this development follows the carbon-intensive
trajectory of todays high-income countries, catastrophic global climate
change would seem unavoidable. Acknowledging this international
reality and acting on related domestic concerns, governments in the
region have begun developing an ambitious climate policy agenda.
Although a start has been made and the present course in developing
Asia may be encouraging, the urgency of extensive global action means
that current efforts are insufficient: the level of ambition will have to be
raised even further. That the burden, financial or otherwise, of reaching
higher objectives should not overly impinge on economic development
is well accepted; developed countries must provide substantial support.
However, outside assistance will be a necessary but not sufficient
condition for extensive mitigation activities; the relevant actions will
primarily be developed internally and with specific, domestic policy
considerations in mind.
85
This chapter provides an overview of the domestic policy

settings for climate change mitigation and green, or environmentally
sustainable, growth within the major economies of developing Asia: the
Peoples Republic of China (PRC), India, Indonesia, Thailand, and Viet
Nam. Although these countries possess different social and economic
characteristics (Table 4.1), they share a common role as driving forces
within the global economy, today and for decades to come.
Table 4.1: Economic and Social indicators for Developing Asia in Context
%
Median
Urban
Country Population Population Age Population GDP per
or Area
(billion) <$2 a day (years) (% of total) Capita
GDP
Growth
2009
2020
(2009
2035)
GDP
PRC
1.39
36%
35
44%
$7,535
$1.01*1013
8.1%
(5.9%)
India
1.17
75%
26
30%
$3,585 $4.20*1012
7.7%
(6.6%)
Indonesia
0.24
51%
28
52%
$4,428
$1.03*1012
Thailand
0.07
27%
34
33%
$8,612
$5.87*1011
Viet Nam
0.09
38%
27
28%
$3,129
$2.77*10
Japan
0.13
0%
45
Australia
0.02
0%
Rep. of
Korea
0.05
0%
OECD
NonOECD
Asia
World
11
66%
$34,012 $4.33*1012
1.7%
(1.4%)
37
88%
$39,415
$8.65*1011
38
82%
$27,133
$1.42*10
12
2.4%
(2.2%)
7.4%
(5.7%)
6.86
51%
$11,128
$7.63*1013
4.2%
(3.6%)
28
GDP = gross domestic product, OECD = Organisation for Economic Co-operation and Development,
PRC = Peoples Republic of China.
Notes: GDP is adjusted for purchasing power parity and measured in international dollars (see World
Bank 2011 for further details). All data are current unless otherwise specified. GDP growth projections
originate from the International Monetary Fund and are adapted from IEA (2011a). % population <$2 a
day indicates the percentage of a countrys population estimated to live off $2 dollars a day, adjusted for
purchasing power parity.
Source: World Bank (2011), IEA (2011a), CIA (2011).
10,253
6,877
1,548
PRC
India
918
1,655
1,088
395
515
2,021
Japan
Australia
Rep. of Korea
OECD Asia
Oceaniaa
35,442
4.29
9.96
10.57
17.87
8.58
1.49
1.31
3.36
1.64
1.37
5.14
4.14
8.15
2.11
2.34
7.39
0.45
0.45
0.56
0.32
0.38
0.41
0.40
0.35
0.60
2,730
8,980
11,038
7,833
904
2,073
609
597
2,648
Electricity
2035 CO2
Emissions
Consumption
Emissions per Intensity 2009
per Capita
Capita
(tCO2/unit of
2009
(t/capita)
GDP)
(kWh/capita)
12,271
850
130
472
784
59
107
198
669
2,271
2009 Total
Energy
Demand
(Mtoe)
16,748
912
478
1,472
1,464
3,835
2035
Total Energy
Demand
(Mtoe)
CO2 = carbon dioxide, Mt = megaton, Mtoe = million tons of oil equivalent, kWh = kilowatt-hour, OECD = Organisation for Economic Co-operation and Development,
PRC = Peoples Republic of China, t = ton.
Notes: All emissions figures are for energy-related emissions only. Projections are for the New Policies Scenario from the IEAs World Energy Outlook 2011. For further details see Box 3.
a
OECD Asia Oceania reports aggregate data for Japan, Australia, the Republic of Korea, and New Zealand.
Source: IEA (2011a).
28,999
2,899
1,565
Non-OECD
Asia
(ex. India, PRC)
World
114
Viet Nam
376
227
Indonesia
Thailand
3,535
2035 CO2
Emissions
(Mt)
2009 CO2
Emissions
(Mt)
2009 CO2
Emissions per
Capita
(t/capita)
Table 4.2: Summary of Indicators for Carbon Dioxide Emissions and Energy
Evaluation of Current Pledges, Actions, and Strategies87
The potential surge in global emissions1 from Asias growth reflects

the enormous rise in income, economic activity, and, consequently, energy
consumption that is occurring (Table 4.2). As incomes rise, consumers
will use more energy-intensive goods and industry will require more
energy to meet the heightened demands of the economy. Similarly,
projections of motor vehicle ownership estimate a rise in vehicles on the
PRCs roads of 130 million to 413 million between 2008 and 2035, and a
corresponding increase of 64 million to 372 million in India (ADB/DFID
2006). Although emissions per capita are currently low in reference to
developed countries, the PRC and India are respectively the first and
third largest aggregate source of national emissions already. Developing
Asia as a whole accounts for nearly one third of global emissions today;
by 2035, even accounting for recent policy announcements, that figure
is estimated to rise to 42%.
The challenge of shifting developing Asias major economies toward
a sustainable, low-carbon trajectory amidst rapid economic growth and
burgeoning demand for energy is the focus of this chapter. Section 2
outlines the domestic motivations behind recent policy announcements.
Section 3 surveys the climate change mitigation targets across the
five study countries, including an assessment of their adequacy in the
context of necessary global action. Section 4 outlines the additional
transformation required with respect to emissions, the composition of
the power generation mix, and energy demand. Section 5 reviews the
available policy instruments and their use in developing Asia. Section
6 examines the challenges involved in expanding the deployment and
effectiveness of technology-based and carbon-pricing policies, including:
energy sector reform, economic reform, strengthening institutional
capacity, and securing international support. Section 7 concludes the
chapter.
4.2Motivations for Climate Change Mitigation

and Green Growth
In recent years, climate change mitigation and green growth have
emerged on the agendas of governments in developing Asia. Policy
making in these areas reflects a range of motivations. National
economic self-interest has dictated the need for policies that: promote
energy security, pursue technological advantage, and address local
1
This paper focuses on energy-related CO2 emissions: the largest and fastest growing
component of total greenhouse gas emissions (IPCC 2007a).
environmental problems. In addition to being the principal source of

future carbon emissions, emerging Asian economies are also highly
vulnerable to climate change damage. The convergence of these, by and
large, domestic concerns with global efforts to address climate change is
advantageous, but this convergence is not inevitable and trade-offs may
sometimes be necessary, most notably between the broader objectives of
climate change mitigation and green growth.
4.2.1Energy Security
Access to sufficient and affordable energy is critical to the continued
economic expansion of emerging Asia. Figure 4.1 shows substantial
projected growth in energy demand over coming decades. Failure to
meet this rising demand would seriously constrain economic growth
and, in the domestic energy sector, undermine rising living standards.
Domestic fossil fuel reserves will be insufficient to meet such expansion,
and rising energy demand, without changes to the composition of the
power generation mix, will increase dependency on energy imports.
Figure 4.1: Projected Energy Demand in the PRC, India,

and Other Non-OECD Asia
Energy Demand (Mtoe)
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1990
2009
PRC
2015
2020
India
2025
2030
2035
Other Non-OECD Asia
Notes: Other Non-OECD Asia refers to aggregate energy demand across non-OECD Asia minus
the PRC and India. In 2009, Thailand, Viet Nam, and Indonesia comprised 47% of aggregate energy
demand across these 32 countries (IEA 2011b). Projections are for the IEA New Policies Scenario
which represents an extrapolation of recently announced policies concerning energy efficiency,
climate change mitigation, and renewable energy (See Box 4.3 for further details).
Figure 4.2: Energy Import Dependency in Emerging Asia
Energy imports (% of energy use)
40
20
0
20
40
60
80
Thailand
Viet Nam
India
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
100
PRC
Indonesia
Over the last two decades, the PRC has joined India and Thailand in
being a net importer of energy (Figure 4.2). The other two study countries
are likely to follow suit as their economies grow: Viet Nams domestic
oil production is declining, and Indonesia, already a net importer of oil,
has limited reserves of coal. Concerns over energy security in emerging
Asia have often centered upon oil, but coal has become increasingly
important as a, or the, principal fuel in electricity sectors.2 Figure 4.3
demonstrates that domestic coal supplies in all five countries are either
limited in size, or wont last long. Domestic supplies can also be costly to
access, such as the deposits in western PRC, and the extractable volume
may be, in the case of India, significantly overestimated (see TERI 2011).
The major disadvantages of energy import dependence are two-fold.
First, securing foreign supplies is costly, in terms of logistics and also
Coal is currently the dominant fuel source for electricity generation in the PRC,
India, and Indonesia, respectively comprising 79%, 69%, and 41% of total generation
capacity (IEA 2011b). The situation is different in Thailand and Viet Nam where gas
is more widely used, and coal has a share of around 21% in both cases.
Figure 4.3: Domestic Coal Reserves in Developing Asia Are

Limited and/or Depleting Rapidly
30
500
450
25
400
350
20
300
250
15
200
10
150
100
50
am
Vi
et
N
Th
ai
la
nd
do
ne
sia
In
di
a
In
ra
lia
A
us
t
C
PR
Fe Rus
de sia
ra n
tio
n
Reserves to production ratio (years, right-hand-side axis)

Share of world's total coal reserves (%, left-hand-side axis)
Notes: Reserves are proven reserves at end of 2008. Reserves to production ratio is the number of
years proved reserves would last if production at 2008 rates continue. See Howes and Dobes (2011)
for further details.
Source: Howes and Dobes (2011), Figure 1.9.
because of the lack of certainty that future domestic demand can be met.3
Second, and perhaps more important, net energy importers are subject
to the high volatility of global fossil fuel prices (see Figure 4.4). Among
other economic costs, rising energy prices can cause large, sudden, and
damaging inflation. Given the progressive scarcity of total fossil fuel
reserves, particularly oil, and continuing global growth in demand,4
energy-price-based economic instability looms as a significant future
issue worldwide, not least in the rapidly expanding economies of Asia.
3
The issue of supply certainty is perhaps more pressing for oil than coal, as much of
the remaining global reserves can be found in relatively safe exporting countries
such as Australia and the United States (see Figure 4.3).
The IEA projects that global demand for fossil fuels, even taking into account recent
ambitious climate change targets, will continue rising to 2035. See IEA (2011a, p. 544)
Figure 4.4: World Energy Prices: Volatile and Rising
World prices for crude oil, LNG, and coal, adjusted for inflation (1990=1)
Liquefied natural gas
Crude oil
Coal
Notes: Data are quarterly. See Howes and Dobes (2011) for further details.
Source: Howes and Dobes (2011), Figure 1.11.
The risks inherent to fossil fuel import dependency highlight the

great potential for renewable energy within developing Asia.5 Both the
PRC and India have large potential resources of solar and wind-based
power generation. Indonesia has the greatest potential geothermal
capacity of any country worldwide, of which it has only exploited
around 3% to date (MoF 2009), while Viet Nam and Thailand have
considerable untapped hydropower potential, among other renewable
resources available. However, fossil fuels will certainly remain a
substantial component of the power generation mix over the next three
decades, even in the event of more ambitious climate change mitigation
(Figure 4.8). Nevertheless, exploiting such opportunities, in conjunction
with improving the efficiency of energy use (Box 4.1) will restrict the
rise in energy imports and, consequently, reduce the exposure of these
economies to energy insecurity as energy demand grows rapidly.
See Krewitt et al. (2009) and IPCC (2011) for surveys of the large technical potential
of renewable energy in developing Asia.
Box 4.1: Energy Efficiency in Developing Asia: A Principal

Concern for Economic Growth, Local Environmental
Sustainability, and Climate Change
Policies to promote energy efficiency are a major component of the
economic and climate change agenda in developing Asia. If energy
demand growth corresponds to or rises with rapid increases in economic
growth, then costly, and equally rapid, infrastructure investment is
required. Short-term difficulties in matching surging energy demand with
new supply create bottlenecks, market distortions, and act as a drag on
growth. In the longer term, where supply is fossil-fuel-intensive, spiraling
demand increases exposure to energy insecurity, increases environmental
pollution, and, of course, prompts swift growth in carbon emissions.
Decoupling the link between economic growth and energy demand
through greater efficiency of energy usage therefore fulfills a range of
economic, environmental, social, and climate change objectives. In
addition to being very beneficial at the broad social level, energy efficiency
measures often involve low or even negative costs because they have
long-term economic benefits that eventually exceed the initial cost or
investment that is required. For a consumer or business, roof insulation
and other building efficiency measures will reduce all future energy bills.
In transport and coal-based power production, investment in fuel efficient
technology significantly reduces future fuel expenditure.
Given that energy efficiency measures often involve net economic benefits,
rational economic analysis would expect that consumers and producers
of energy would pursue such measures of their own accord. That this is
not the case reflects a range of market and informational barriers, such
as the inability to afford the initial investment, lack of awareness of
potential benefits, technology unavailability, and psychological resistance
to change. Government policy has an important role in correcting such
distortions, particularly in developing Asia where actions to achieve
energy efficiency, despite concerted efforts in recent times, lag behind
those in developed countries. Given the large co-benefits involved, energy
efficiency measures are often referred to as low-hanging fruit in the
context of climate change mitigation, meaning that they are attractive,
relatively easy to implement measures in the short term.
Consequently, much of the mitigation activity in developing Asia
currently focuses on energy efficiency. This is particularly the case in
the Peoples Republic of China (PRC), where energy intensity (i.e., the
amount of energy used for a given unit of GDP) surged at the start of the
century. A number of government initiatives were successful in reducing

Box 4.1continued
national energy intensity by close to the targeted 20% over the course of
the 11th Five Year Plan (20062010). This success and the great potential
to further reduce environmental and economic problems, as well as
address climate change, are reflected in new energy intensity targets (see
Table 4.4). The Indian government also has instituted substantial energy
efficiency measures. Rai and Victor (2009) argue that there are very large
efficiency gains to be made in Indias power sector, particularly through
transmission infrastructure improvements and greater efficiency of coalfired power plants.
Source: Authors.
4.2.2Technological Advantage and Renewable Energy

as a Growth Engine
It is not only Asias emerging economies that recognize the advantages
of renewable energy, but much of the world. Clean energy and lowcarbon technology is widely viewed as the driver of the next wave of
innovation and economic growth. Most governments are acutely aware
of the benefits of obtaining market share at an early stage, and many are
taking action. For example, the Government of the Republic of Korea
sees offshore wind power as its next big export industry, and is vigorously
investing in the establishment of companies as major global players
(see GGGI 2011). Many European countries have similar objectives, as
does Australia, and even the United States and Canada have burgeoning
renewables industries, despite the influence of the powerful oil lobby.
Emerging Asia is increasingly prominent in this clean energy race.
The PRC leads the world in renewable energy investment and in 2010
accounted for half of all global manufacturing of solar modules and wind
turbines, with the majority of solar technology production made for
export (PCT 2011). The government has frequently articulated its goal
for PRC companies to dominate clean energy markets and demonstrated
its sense of purpose through ambitious policies. Elsewhere, India is now
ranked 10th globally in clean energy investment, and Indonesia had
the fourth largest growth in this area from 2005 to 2010 (PCT 2011).
Whether for export or to meet domestic expansion, growth in the
renewable energy sector will be an important stimulus for domestic
manufacturing, and economic growth more generally.
At the domestic level, proliferation of renewable energy technology
is a significant opportunity for increasing access to modern energy
services. It is estimated that over 675 million people in developing Asia
do not have access to electricity (IEA 2011a). Extending national grid

infrastructure to remote areas is proving to be a difficult, costly, and
time-intensive process in many countries, perpetuating poverty and
the damages from traditional biomass cooking practices (see below).
De-centralized, off-grid technologies such as small-scale solar and
biogas present a very real opportunity for remote communities to share
the rising living standards being experienced elsewhere, and further
promote national economic expansion.
4.2.3Local Environmental Problems and Green Growth

Much of developing Asias recent economic growth has come at the
expense of the environment. Heavy air pollution, degraded water
resources, and clear-felled forests have become characteristic features
of the natural landscape. Increasingly, policy makers are appreciating
that long-term growth requires sustainable use of natural resources,
and that pollution bears economic costs, even in the short term.6 Whats
more, the burden of environmental damage weighs far greater on lowincome communities, whose welfare is disproportionately dependent
on ecosystem services. Consequently, sustainable or green growth is
now a central feature of the development agenda in the PRC, India, and
other emerging Asian economies (see NDRC 2011; Government of India
2009; ASEAN 2007).
In this arena the objectives of climate change mitigation and green
growth frequently intersect. Urban air pollution from vehicles and
industry causes major health damages, as well as increasing greenhouse
gas emissions. Similarly, a vast proportion of the population in emerging
Asia burn solid fuels for household energy (see Table 4.3), creating indoor
air pollution that is estimated to cause over 1 million deaths every year
(WHO 2011). These same emissions send black carbon particles into the
atmosphere, a major driver of both global and regional climate change.
In addition to releasing sequestered carbon, deforestation, where fireclearing methods are used, can also create black carbon emissions. At
the local level, tree-clearing degrades land and forest-based resources,
causes flooding, and damages groundwater aquifers. Burning coal for
energy produces acid rain, which, in turn, pollutes waterways and
6
For example, the PRC governments single attempt to calculate Green GDP
estimated that environmental pollution cost 3.05% of GDP in 2004, or around onethird of GDP growth in that year (Government of the PRC 2006). It is indicative
of the true magnitude of damages that this particular figure encompassed only
direct economic losses (such as agricultural production and health) and not natural
resource degradation or long-term ecological damage (see Government of the PRC
2006).
degrades land. As governments in emerging Asia have begun addressing

the causes of these local environmental issues, particularly deforestation
(see Table 4.3), a significant and extensively self-publicized co-benefit
has been the advancement of the global climate change mitigation
agenda.
Table 4.3: Summary Statistics for Air Pollution, Deforestation,
and Land Degradation
Issue/Variable
Location
Description/Value
Source
Average PM10
concentration
230 Asian cities
89.5 g/m3
(WHO standard is
20 g/m3)
Clean Air Initiative

(2010)
Percentage of Asian
cities exceeding WHO
SO2 concentration
standards
230 Asian cities
24%
Clean Air Initiative

(2010)
Acid rain
PRC
258 of 488 cities

Ministry of
experienced acid
Environmental
rain in 2009. In 53 Protection (2010)
of these cities >75%
rainfall was acidic.
Proportion of
population using solid
fuels (2007)
PRC
India
Indonesia
Thailand
Viet Nam
71% (rural),
48% (total)
88% (rural),
59% (total)
79% (rural),
58% (total)
>45% (rural)
World Health
Organization (2011)
Annual rate of change

in forest area (2000
2010)
PRC
India
Indonesia
Thailand
Viet Nam
1.6% (2,986,000 ha)

0.5% (304,000 ha)
-0.5% (-498,000 ha)
~0% (-3,000 ha)
1.6% (207,000 ha)
Food and
Agriculture
Organization
(2011a)
Percentage of national
territory subject to land
degradation (1981
2003)
PRC
India
Indonesia
Thailand
Viet Nam
22.86%
18.02%
53.61%
60.16%
40.67%
Bai et al. (2008)
PM = particulate matter, PRC = Peoples Republic of China, SO2 = sulfur dioxide, WHO = World Health
Organization.
Notes: The 230 Asian cities referred to in rows 1 and 2 are from the PRC; India; Indonesia; Thailand;
Malaysia; Philippines; the Republic of Korea; and Taipei,China. See Clean Air Initiative (2010) for further
details. PM10 refers to particulate matter <10 m in diameter. SO2 is the principal cause of acid rain.
4.2.4Vulnerability to Climate Change Damages

Developing Asia is highly vulnerable to damage from climate change.
Due to both geographic factors and past human activities, natural
resources are characteristically sparse. Continuing population growth
will compound this scarcity in the future. The region contains around
two thirds of the worlds poorest people, many of whom are already
exposed to significant food and water insecurity, both of which are likely
to intensify as the climate changes. Many major population centers are
coastal and highly exposed to rising sea levels and storm surges. Ocean
fisheries are a principal source of animal protein in coastal areas, and
ocean acidification may prove the catalyzing factor for their complete
depletion after a prolonged period of over-fishing.
While the full force of impacts will not be realized for many decades,
climate change adaptation is already a contemporary issue within the
five study countries. Rising maximum temperatures and changing
rainfall patterns are already affecting agriculture and food security, and
the effect of these changes will escalate to 2030 (Lobell et al. 2008). For
example, it is estimated that yields of important crops will decline in
parts of Asia by 2.5% to 10% by the 2020s (IPCC 2007b). Within the
study countries, commonly voiced concerns for the near future include:
greater intensity of extreme weather events, increasing incidence of
flooding and tropical disease, and decline of marine ecosystems (see
ADB 2009, IPCC 2007b).
Looking toward 2050 and beyond, the scale of potential damage
magnifies at an escalating rate (see IPCC 2007b). As principal sources
of future global emissions,7 the PRC and India in particular will play a
decisive role in how large this future damage becomes. Therefore, at
some level, extensive climate change mitigation activities are a matter
of self-interest. The process of lifting the standard of living in these
countries, and developing Asia more generally, simply cannot follow the
carbon-intensive trajectory laid out by todays high-income economies.
Such a path would likely result in debilitating food and water insecurity,
environmental refugees and conflict, among other damaging economic
impacts from climate change. Therefore, assuming high-income
countries play their part, domestic development objectives must also
motivate climate change mitigation activities in the PRC and India
(Hepburn and Ward 2010).
See Table 4.2 in Section 4.1 and Figure 4.6 in Section 4.3.
4.2.5The Limitations and Benefits of Domestic

Motivations for Climate Change Mitigation
Any discussion of the largely domestic motivations outlined above
must be tempered by the acknowledgement that they are not always
aligned with the climate change agenda. Co-benefits are common across
climate change mitigation and sustainable use of the local environment,
but they are not inevitable and there are numerous examples where
these objectives diverge. In the power generation sector, large-scale
hydropower and hydraulic fracturing (fracking) are two examples
where climate change mitigation is pursued at great risk to the local
environment (Box 4.2). In transport, biofuel production is a major
driver of deforestation and biodiversity loss, and can also cause land to
be converted from food production, raising food prices and promoting
food insecurity. Despite, by and large, being less emissions-intensive
than fossil fuel use, the local effects of such activities can, in certain
cases, be anything but sustainable or consistent with green growth.
Aside from the divergence between climate change and green
growth, it must also be recognized that the domestic motivations outlined
in this section may not always lead to the same outcomes. For example,
if energy security were the central concern, priority would be given to
reducing oil consumption8. If climate change mitigation and the local
environment took precedence, reducing coal use would be paramount.
If technological advantage in global markets were most important, the
level of renewable energy consumption in export markets may be the
main issue. Such divergence may at first glance appear a weakness.
However, this mix of motivations can be a strength. Instead of being
contingent upon a single driving force, the climate change mitigation
agenda has several. In such a situation, a range of different targets and
policy actions to achieve them is desirable, re-balancing responses to the
various motivations back toward the climate change agenda. In fact, this
is precisely the approach that has transpired in emerging Asia.
One cannot assume that the economic benefits of these domestic
motivations will be sufficient to immediately stimulate the full scale of
potential climate change mitigation activity. There will be a significant
time delay in the full benefits being realized, yet the required up frontinvestments may be significant and immediate. Therefore, future
benefits are likely to be heavily discounted, especially when there still
exist more immediate social welfare concerns in emerging Asia. It would
be disingenuous to suggest that governments of countries with low
per capita incomes, such as India, would or even could pursue climate
8
Oil combustion is less emissions-intensive than combustion of most types of coal in

the majority of industrial or commercial applications.
change mitigation without regard for short-term costs to growth or social

welfare. Strong climate change mitigation represents an opportunity
for green jobs, but it also entails job losses in emissions-intensive
industries. Removing energy subsidies would increase the efficiency of
energy consumption, but at the social cost of higher household prices.
Such costs can be minimized or, perhaps, even avoided through welldesigned policies, but only if the existence of potential trade-offs is
acknowledged in the first place. Where a large gap exists between the
required domestic investment in mitigation from a global perspective
and the investment stimulated by domestic motivations, there is a strong
case for international assistance.
Box 4.2: Hydropower and Hydraulic Fracturing:

Green Growth?
Although hydropower involves the release of far less greenhouse gas
emissions than fossil fuels, the local effects of dams can be far more
damaging. Dams obstruct the fundamental processes underpinning river
ecosystems, such as: water and sediment transfer, and species migration
(particularly fish). Downstream erosion and alteration of natural flow
regimes impacts on agriculture, with diminished fisheries further straining
food security. The impacts are most keenly felt in developing countries,
where riparian communities often subsist on river-based resources. Aside
from flooding upstream areas, the broader impacts can extend hundreds
of kilometers downstream. Recognition of these environmental hazards
and their damaging social impacts prompted a significant global pause
in large-scale dam construction for much of the first decade of the 21th
century, except in the PRC. However, spiraling energy demand and the
need for less-carbon intensive energy sources is now driving a major
expansion in hydropower development across the world, particularly in
Southeast Asia, the PRC, Africa, and South America.
Much less is known about the local environmental impact of hydraulic
fracturing or fracking than dams, but the early indications are
concerning. This process involves a mixture of water, sand, and chemicals
being injected into the ground under high pressure to release natural gas
from underground formations such as coal-beds. Although technically
feasible in the past, this procedure has only recently become economically
viable; consequently, the scale of fracking activities is expanding rapidly
across the world. The United States has the largest fracking industry
at present, but it is believed that there are large exploitable reserves in
Australia, the PRC, India, the United Kingdom, and many other countries.
The local environmental damage largely relates to water. Although the
injected liquid is removed from the bore-well during the extraction

Box 4.2continued
process, it also leaks into the soil and surrounding aquifers. Moreover,
fracking alters the composition of the water table, connecting or releasing
pressure from different aquifers, causing land subsistence, and reducing
the productivity of groundwater outlets from affected aquifers.
A large volume of water is consumed during the process: it is estimated
that drilling and fracking a single bore-well requires 19 million liters of
water (Chesapeake Energy 2011). Such large volumes may be diverted
from other uses, such as agriculture or the environment. Once the gas is
extracted this now contaminated water has to be disposed. Recent studies
by US environmental regulatory authorities show the contamination of
drinking water by chemicals used in fracking and released methane (EPA
2011), and the devastating impacts that fracking fluids have on trees and
plants across a wide area (Adams et al. 2011). There have also been reports
of household bores yielding flammable water in the United States. Aside
from concerns regarding local environmental damage, the benefits of
fracking for climate change mitigation are also questionable. Howarth
et al. (2011) estimate that the large volumes of methane which leak from
fracking wellbores render natural gas extracted by fracking at least, and
potentially more, greenhouse gas emissions intensive than coal-burning.
Source: Authors.
4.3Country Pledges and Targets

The motivations outlined in the previous section have given rise to a range
of pledges and targets relevant to climate change mitigation. Achieving
these goals would represent a fundamental shift in the emissions and
development trajectories of these economies. This section reviews these
various goals, and concludes with a discussion of their adequacy.
4.3.1Climate Change Mitigation Targets

All five of the countries under review have articulated targets relevant to
climate change mitigation. Table 4 summarizes these objectives across
four major indicators: emissions, renewable energy, energy efficiency,
and deforestation. Many of these broad objectives are accompanied
by sector-specific or policy-specific objectives which are unable to be
reviewed in depth here due to space limitations. What follows is a brief
overview of policy developments in each country.9
9
These summaries draw heavily on the country background papers of the ADBI
Climate Change and Green Asia project: Chotichanathanwewong et al. (2011),
Mathur (2011), Patunru (2011), Toan (2011), and Zhu (2011).
In recent years, the PRC has set increasingly ambitious targets across
a variety of issues. Recognizing the unsustainable trajectory of soaring
energy use and local environmental degradation, the 11th Five Year Plan
(20062010) set out a number of targets relating to energy efficiency,
renewable energy use, and afforestation. Of these, the most prominent
achievement was the 19.1% reduction in energy intensity, just missing
the target of 20%. Most notably, however, in the lead up to the UNFCCC
Copenhagen conference, the PRC, for the first time, articulated a specific
target for reducing carbon emissions. Subsequently, the 12th Five Year
Plan revealed a further series of relevant targets to 2015. In addition to
those shown in Table 4.4, the government aims to reduce nitrous oxide
emissions (a greenhouse gas) by 10%, install extra capacity of non-fossil
fuel power generation (i.e., wind, 70 GW; solar, 15 GW; hydropower, 120
GW; nuclear, 40 GW), amongst other quantitative targets (see NDRC
2011).
Over recent decades the Indian government has instituted a series
of targets and plans to promote energy efficiency which have had cobenefits with respect to emissions reductions. Prior to its voluntary
Copenhagen pledges, the Indian government announced its National
Action Plan on Climate Change in 2008, covering both mitigation and
adaptation issues. This document included the targets for renewable
energy, energy efficiency, and deforestation shown in Table 4.4. A major
focus is for India to become a global leader in solar energy deployment
through the extension of electricity access. Targets relating to this
objective include: 2 GW of off-grid solar plants, and 20 million solar
lighting systems to be created and distributed in rural areas, saving
about 1 billion liters of kerosene every year.
Indonesia has voluntarily pledged to reduce its emissions from
a business-as-usual approach by 26% in 2020, and up to 41% with
international support. At present, land-use and land-use change
(particularly forestry and peatland) lead to 85% of national carbon
emissions. Consequently, the government plans to achieve 87% of its
emissions reductions for both higher and lower targets in these sectors.
However, energy-based emissions are the largest source of emissions
growth, and are projected to reach parity with land-based emissions by
2020. In response, the government has formulated the energy-specific
targets shown in Table 4.4, and, in 2010, formulated the goal of tripling
geothermal energy generation to 4 GW by 2015, and up to 9 GW by 2025.
As the energy requirements of Thailands industrializing economy
have grown, the government has instituted ambitious energy efficiency
and renewable energy targets. For the economy-wide energy efficiency
targets shown in Table 4.4, 44% of the savings are intended to be found
in the transport sector, followed by industry (37%), and buildings (17%).
For renewable energy, 3.7 GW of the targeted 5.6 GW of renewable
energy is assigned to biomass, and then, in descending order, wind
(0.8 GW), solar (0.5 GW), hydropower (0.32 GW), and methane from
municipal waste (0.16 GW).
Viet Nams government estimates that, under current policies,
energy demand will grow four-fold and coal consumption will double
between 2010 and 2030, with the country becoming a net energy
importer by 2015. Consequently the government has passed several laws
relating to energy efficiency and conservation, in addition to specific
environmental laws and a National Target Plan to Respond to Climate
Change, where the latter sets national ministries, provinces, sectors
and cities with the task of developing concerted plans to reduce carbon
emissions.
The discussion in this section has primarily focused on nationallevel actions. Our analysis is therefore incomplete because of two
connected issues.
Firstly, subnational action is very important:10 effective
implementation of nationwide policies and targets requires the
participation of provincial and local authorities. Whats more, co-benefits
are more readily apparent at the local level and the cumulative impacts
of consequent small-scale mitigation activities are very significant.
Second, subnational action is already occurring and much more
is being planned. For example, Chotichanathanwewong et al. (2011)
outline the mitigation plans and actions of Bangkok and other Thai
provinces and cities. At the subnational level in India, a notable policy
achievement has already occurred in Delhi where the citys fleet of
three-wheeler taxis has been successfully converted to natural gas,
concurrently reducing local air pollution and greenhouse gas emissions.
Similarly, Delhi has recently introduced a modern rail transport system
that is growing rapidly. The PRC is planning pilot emissions trading
schemes in seven municipalities or provinces (Xinhua 2011). Moreover,
the 12th Five Year Plan mentioned above contains specific targets for
each province related to energy intensity and emissions of nitrous oxide,
sulfur dioxide, and other air pollutants (see Government of the PRC
2011).
For the purposes of comparison across countries, targets are also
shown in Table 4.4 below for the major OECD economies in Asia: Japan,
Australia, and the Republic of Korea.
10
See Ostrom (2010).
Emissions
30% energy emissions below

BAU
Conditional 25% emissions

below 2000 levels
5% to 25% emissions below

2000 levels
30% emissions below BAU in

2030
Thailand
Viet Nam
Japan
Australia
Rep. of
Korea
Renewable Energy Targets
6.08% by 2020,
up from 2.7% in 2009
20% by 2020,
up from 8% in 2007
5.6% by 2020
9.4% by 2030
up from 3% (2010)
16.0 TWh by 2014
20.3% by 2022
15% by 2020
up from ~ 4% (2010)
20,000 MW solar by 2020
15% by 2025 (incl. nuclear)
11.4% by 2015
15% by 2020
up from 8.3% in 2010
Energy Efficiency
1% average annual energy

intensity (20052025)
elasticity of electricity/GDP to
<1 (2025)
8% energy intensity
(20052015),
15% (20052020)
25% (20052030)
elasticity of electricity/GDP
from 2 (2010)
to 1.5 (2015), to 1 (2020)
30% energy intensity
(20062030)
10,000 MW energy savings by

2020
16% energy intensity

(20102015)
Deforestation
Planned offset scheme as part of

domestic carbon market
Forest cover to be 40% of total

land mass (target introduced in
1991, 2010 level is 37%, up from
25% in 1998)
forest cover to 16.2 million ha
in 2020 from 14.3 million ha
(2010)
Forestry as net carbon sink by

2030
forest cover by 40 million ha

by 2020 from 2005 level
forest cover to 21.7% by 2015,
From 20.36% in 2010
forest cover by 20 million ha by
2020 from 2010 level
BAU = business-as-usual, GDP = gross domestic product, ha = hectare, MW = megawatt, PRC = Peoples Republic of China, TWh = terawatt-hour.
Notes: All emissions targets by 2020 unless stated otherwise. Emissions intensity refers to the volume of carbon emissions produced per unit of GDP. Energy intensity refers to the
volume of energy consumed per unit of GDP. The absence of specific targets for particular issues does not indicate an absence of policy, rather the absence of a stated national target.
For example, the Government of the Republic of Korea is implementing a large number of policy actions relating to energy efficiency, but does not have a specific national target.
Sources: United Nations Framework Convention on Climate Change (2011); Howes and Dobes (2011); Chotichanathanwewong et al. (2011); Mathur (2011); Patunru (2011); Toan
(2011); and Zhu (2011).
26% to 41% emissions below

BAU
40% to 45% emissions intensity

(20052020)
17% emissions intensity
(20102015)
20% to 25% emissions intensity
(20052020)
Indonesia
India
PRC
Table 4.4: Climate Change Mitigation Targets for Major Asian Economies
4.3.2Adequacy of Current Climate Change Mitigation

Targets
The various targets set by emerging Asian economies reflect a
fundamental change in emissions and development trajectories.
Conversion of the various pledges to common metrics demonstrates that
the PRC in particular is embarking on mitigation activity commensurate,
in both outcome and relative cost, with that being planned in developed
countries (Jotzo 2010; McKibben et al. 2011). The important question is
not, however, whether anything significant is being done, but whether it
is going to be enough? Numerous studies have shown that the aggregate
effect of the Copenhagen pledges by all countries will not be sufficient
to avoid breaching what has become the international standard for
dangerous climate change: 2C of warming or atmospheric greenhouse
gas concentration of 450 parts per million (ppm) CO2-equivalent.11
Global energy-based CO2 emissions (Gt)
Figure 4.5: Global Emissions Projections: The Gap Between

Planned and Required Action
World
45
40
35
30
25
20
2009
2015
2020
Current Policies
2025
New Policies
2030
2035
450 ppm
Gt = gigaton, ppm = part per million.

Notes: See Box 4.3 for a description of the different modeling scenarios and underlying assumptions
of the IEAs World Energy Outlook 2011.
Source: IEA (2011a, Figure 6.2).
11
For example, see UNEP (2010), Dellink et al. (2010), IEA (2010a), Nordhaus (2010).
Recent International Energy Agency (IEA) projections of future

global emissions in Figure 4.5 demonstrate the change in trajectories
from anticipated, new policies (i.e.,, the difference between emissions
in the Current Policies and New Policies scenarios), and the much
bigger change that will be required, i.e., the gap between the New
Policies and the 450 Scenario (450 ppm). Although future action is
likely to reduce emissions substantially, twice the effort is required. The
same study estimates that, under the New Policies scenario, emerging
Asia as a whole will account for 46% of global energy emissions in 2035,
and the combined value for the PRC and India will be 38%. Figure
4.6 shows that, even if todays developing economies (i.e., members
of the Organisation for Economic Co-operation and Development,
or OECD) reduced their emissions to zero by 2035, this action would
be insufficient to achieve the global target for a 450 ppm trajectory of
annual emissions falling to 21.7 Gt of carbon dioxide (Figure 4.5). Given
that the world needs to act further, including in developing countries,
it will be necessary for emerging Asia to upscale its ambition beyond
existing targets.
Figure 4.6: Mitigation in Developing Economies Only
will be Insufficient
Global energy-based CO2 emissions (Gt)
40
35
30
25
20
15
10
5
0
2009
OECD
New Policies 2020

Other
Other Non-OECD Asia
New Policies 2035

India
PRC
OECD = Organisation for Economic Co-operation and Development, PRC = Peoples Republic of
China.
of the IEAs World Energy Outlook 2011. Other Non-OECD Asia refers to developing Asia minus
the PRC and India. In 2009 Indonesia, Thailand, and Viet Nam jointly comprised 46% of emissions
from this group.
4.4Additional Transformation
This section outlines different elements of the additional transformation
required in developing Asia to limit global warming to 2C.12 The
principal topics covered are: emissions trajectories, the power generation
mix, and energy demand. Additional focus is given to: energy subsidies,
advanced coal technologies, and deforestation in Indonesia.
Box 4.3: Modeling of Alternative Scenarios in the World
Energy Outlook 2011
The projections of emissions and other related variables used in this
report originate from the IEAs World Energy Outlook 2011. The IEA
models three different scenarios across 2010 to 2035.
The Current Policies Scenario envisages the world if policies enacted by
mid-2011 continued in their present form without any additional policies.
The generated emissions trajectory is consistent with long-term global
warming of 6C.
The New Policies Scenario incorporates all stated plans or commitments,
even where there are not specific policy actions to implement them as
yet. It acts as a baseline, or a business-as-usual scenario that incorporates
anticipated changes. The generated emissions trajectory is consistent
with long-term global warming of 3.5C. As many stated plans extend
only to 2020, extrapolation is made from 2020 to 2035 of emerging
trends such as, for example, declining global energy intensity. Given the
uncertainty surrounding implementation, the New Policies Scenario is
a conservative interpretation of stated plans; for example the lower end of
the Copenhagen commitments is assumed to be met.
The 450 Scenario (or 450 ppm in the current study) describes the
least-cost pathway by which the world has a 50% chance of limiting
greenhouse gas concentrations to 450 ppm CO2-equivalent, analogous
to 2C of global warming above preindustrial levels. The upper end of
international pledges is assumed to be met. Potential mitigation measures
are identified across countries and sectors and are implemented according
to the greatest reductions per unit cost.
12
The following draws heavily on the modeling undertaken in the IEAs World Energy
Outlook 2011 which is described in Box 4.3.

Box 4.3continued
Other greenhouse gas emissions are included in the modeling, but are not
the focus of policy constraints in the 450 Scenario. Emissions from landuse, land-use change, and forestry are assumed to decline at the same rate
across all three scenarios.
Important policy assumptions for the different scenarios include the
following.
Current Policies: realization of the energy targets in the PRCs 12th Five
Year Plan; phasing out of fossil fuel subsidies in all non-OECD countries
with current plans to do so.
New Policies: carbon pricing in the PRC covering all sectors by 2020,
starting at $10 and rising to $30 in 2035;a removal of fossil fuel subsidies in
all non-OECD net energy importing countries by 2020, and all net-exporters
with current plans to do so; a shadow price of carbon of $15 in the US by 2015
affecting investment decisions; 70 to 80 GW of nuclear power in the PRC by
2020; 20 GW of solar energy production capacity in India by 2022.
450 Scenario: carbon pricing for power and industry in US and Canada
(2020$20, 2035$120), Japan (2020$35,2035$120), the PRC,
Russian Federation, Brazil, and South Africa (2020$10,2035$95); all
trading schemes are linked at a regional level and all have access to carbon
offsets (leading to some convergence in carbon prices); international
sectoral agreements; widespread deployment of carbon capture and
storage in power generation by 2020.
While the discussion in the present study largely focuses on the transition
from the New Policies to the 450 Scenario, it should be noted that even
fulfilling the assumptions of the New Policies Scenario may turn out to
be ambitious.
While the World Energy Outlook specifically provides comprehensive
results for some major countries, it does not provide them for all.
Consequently, the presentation of IEA modeling for Indonesia, Thailand,
and Viet Nam in the present study appears in a proxy referred to as Other
Non-OECD Asia. This grouping describes data aggregated across all
Non-OECD Asian countries except for the PRC and India, of which the
three other study countries accounted for 46% of carbon emissions and
47% of energy demand in 2009 (IEA 2011b).
For further details of the modeling assumptions and procedures see IEA
(2011a, Chapter 1 and 6).
a
All quoted carbon prices are in terms of US 2010 dollars per ton of carbon dioxide.
Source: Authors.
4.4.1Emissions Trajectories
The observation that an additional transformation is required in
developing Asia beyond the currently planned or contemplated level
of mitigation prompts two questions. When should this additional
action occur? And, perhaps more importantly, how substantial does this
additional action need to be?
The answer to the first question is straightforward: as soon as
possible. As well as making it more difficult to achieve the required
transformation, a delay would make the future rate of change more
sudden and more expensive (Hepburn and Ward 2010). Given the
massive expansion in energy demand in developing Asia, it is not so
much the present sources of emissions that are the principal issue but the
infrastructure that is yet to be constructed (Davis et al. 2010). Once built,
infrastructure investments like power plants and factories have many
years of use. If they had to be retired or retro-fitted before their useful
life was over because they are emissions-intensive, some proportion of
the initial investment would be wasted. The IEA estimates that the world
has only until 2017 to shift to a 450 ppm trajectory before the lock-in
effect of existing infrastructure necessitates that all investments made
between 2020 and 2035 must involve zero emissions (IEA 2011a). For
every $1 needed to achieve the additional transformation that is not
spent before 2020, the IEA estimates that another $4.30 will have to be
spent afterward to offset the increased emissions. Although the up-front
cost to developing economies of immediate action is high, the costs of
delay are even higher still. For example, Bosetti et al. (2009) estimate the
additional cost to be as much 33%.
The natural counterpoint to the above discussion is that developing
economies, particularly ones with a low per capita income such as India,
may be willing to incur the higher costs of retiring infrastructure at a
later date; rapid economic growth and future wealth will render this
adjustment more affordable. However, such an argument ignores the
benefits of mitigation outlined in Section 2, as well as the emerging
avenues for developed country assistance, and, of course, the declining
window for stringent global action.
The importance of developed country assistance is also highly
relevant to the second question: how substantial does the additional
transformation need to be in developing Asia? The required shifts in
emissions to a 450 ppm trajectory for the study countries shown in
Figure 4.7 are steep. By 2035, the IEA estimates that the PRC would
need to further reduce emissions by about half, with the corresponding
reduction for India and the rest of developing Asia being around 32%. It
is important to note that the IEA modeling allocates such large emission
reductions without regard for any notion of cumulative emissions,

historical responsibility, or consumption-based emissions accounting.
Rather, it identifies from a global perspective the least-cost pathway to
a 450 ppm trajectory. That large cuts are required in the PRC, India,
and the rest of developing Asia does not mean the full burden of this
transition has to fall on these developing countries. Since bringing about
a plateau in Indias emissions, from a global perspective, is likely to be
cheaper than the adjustment involved in, say, achieving zero emissions in
some OECD countries by 2020, there is a very strong case for developed
countries to provide assistance.
The issue of seeking out the least-cost emissions reductions is
significant at a domestic level as well. Early identification of areas where
mitigation produces co-benefits, such as those outlined in Section 4.2,
will help achieved the forward momentum required for a large shift.
Particular actions may be low-cost in relative terms, or even have net
benefits, such as addressing deforestation in Indonesia (see Box 4.4) and
greater energy efficiency (see Box 4.5). But this low-hanging fruit will
not be ever-present and extensive mitigation will unavoidably involve
trade-offs with growth or social welfare at some point.
Box 4.4: Deforestation and Land-Use Change in Indonesia

The present study focuses primarily on energy because this sector is the
largest source of growth in carbon emissions, for the study countries and
the world as a whole. However, emissions from land-use, land-use change,
and forestry (LULUCF) are central to Indonesias short-term mitigation
activities. In the last 20 years the countrys forested area has declined by
24 million hectares, equivalent to around 26% of the forest remaining
today (FAO 2011).
It is not simply the loss of forest as a carbon sink that creates LULUCF
emissions, but the way in which it occurs. Fire is commonly used to clear
land for expansion of agricultural activities and to provide access to timber,
sending black carbon particles into the atmosphere. When this practice
occurs on carbon-rich peat-land, which is also often drained, the fires can
burn underground for an extended period. The combination of peat fires,
fire-clearing, and logging meant that LULUCF emissions accounted for
85% of Indonesias emissions in 2005 (Panturu 2011). Once land-based
emissions are taken into account, Indonesia is the worlds third highest
source of carbon emissions.

Box 4.4continued
Given the prominence of this issue in its current emissions profile, it is

unsurprising that the government plans for 88% of its planned emissions
reductions to 2020 to be achieved within the LULUCF sector. Whats more,
the marginal cost per ton of abatement from forestry and peat in Indonesia
is much less than that in, say, transport and industry (see Panturu 2011).
However, preventing deforestation has proved a very difficult task to date due
to: institutional incapacity, including widespread corruption; local poverty
encouraging unsustainable practices; illegal logging; and the decentralization
of government authority following the Suharto regimes collapse. Moreover,
strong action to reverse deforestation in nearby countries, such as the PRC
and India, has essentially exported deforestation from those countries to
Indonesia, particularly as demand for palm oil has risen.
The Indonesian government has targeted forestry to become a net
carbon sink by 2030. Reversing deforestation will not be easy; at current
rates, the 52% of its land mass still covered by forest will not last long.
Encouragingly, the Reducing Emissions from Deforestation and Land
Degradation (REDD) mechanism is progressing within the international
climate policy architecture, and a recent bilateral agreement with Norway
has produced a government moratorium on new clearing permits, with
Indonesia to receive $1 billion if deforestation rates decline within 2 years.
Yet, in 2010 the forestry sector was estimated to be worth US$9.5 billion,
or 2.5% of GDP (FAO 2011), not accounting for the goods produced on
cleared land such as palm oil. As long as there are economic incentives
for unsustainable forestry practices, and a lack of strong government
regulation to constrain them, deforestation will likely retain its dominant
position in Indonesias emissions profile.
Source: Authors.
It should be emphasized that achieving such large, additional shifts

in emissions trajectories is not going to be an easy task in developing
Asia. That is not to say, however, that it is an impossible one. Rather, the
large scale of the task befits an appropriate response. Narrowly-focused
policies that avoid or do not address fundamental issues will not be
sufficient. A whole-scale approach across all sectors will be required
and is, in fact, beginning to emerge on the policy agendas of the study
countries. In Section 6 of the present study the major policy challenges
to achieving this additional shift in emissions trajectories are outlined.
4.4.2Power Generation Mix

An important element of shifting emissions trajectories and avoiding
the infrastructure lock-in discussed earlier is the future composition
2015
2020
2025
2030
2035
OECD
2015
2020
2025
2030
Current Policies
2035
Projections of India's
energy-based CO2 emissions (Gt)
14
13
12
11
10
9
8
7
6
2009
PRC
Energy-based CO2 emissions (Gt)
13
12
11
10
9
8
7
6
5
4
2009
Figure 4.7: The Additional Transformation Required

for Emissions Profiles Across Asia
India
4.5
4
3.5
3
2.5
2
1.5
2009
2015
2020
2025
2030
2035
2030
2035
OECD Asia Oceania

2.5
2
1.5
1
0.5
0
2009
New Policies
2015
2020
2025
450 ppm
Gt = gigaton, OECD = Organisation for Economic Co-operation and Development, ppm = part per
million, PRC = Peoples Republic of China.
Notes: See Box 4.3 for description of the different modeling scenarios. In some cases emissions appear higher in the New Policies scenario compared to the Current Policies scenario before 2020
due to missing data points for the latter scenario.
of the power generation sector. At present this sector accounts for 48%
of developing Asias energy-related carbon emissions. In the PRC and
India, the generation mix is currently dominated by coal (see Figure
4.8). In the rest of developing Asia, gas is the dominant fuel for power
plants, although coal and oil are also prominent.
As electricity demand increases, investment decisions will be made
regarding the deployment of different technologies. On the current
trajectory (the New Policies Scenario), renewable and hydropower
capacity will be greatly extended across the region. However, fossil fuel
use, particularly coal, is also set to rise. In India the generation capacity
of coal-fired power plants is projected to rise by 350% between 2009 and
2035, with the equivalent figure in the PRC being 178%, and in the rest of
developing Asia, 311%. This trend does not necessarily mean the volume
of emissions from coal-based power generation would rise in an identical
fashion (Box 4.5). But it does substantially undermine the mitigation
benefits of an expanded deployment of renewable technologies.
Switching to a 450 ppm trajectory will require different transitions.

In the PRC, wind power capacity would have to increase by 52% in 2035
compared to the current trajectory. Compared to the current value, the
final capacity would be over 18 times higher. In India and the rest of
developing Asia, hydropower would need to expand greatly, in aggregate
terms and with respect to total generation capacity.
Box 4.5: Increasing the Efficiency of Coal-Fired Power

Generation
Aside from the expansion of renewable energy, the investment decisions
made regarding coal-fired power generation technology are critical
to developing Asias future emissions trajectory. The PRC, India, and
Indonesia all have significant domestic reserves of this cheap fuel. It is
projected that these three countries will account for 80% of global growth
in demand for coal to 2035 (IEA 2011a, p. 380). Coal will likely remain a
substantial component of the power generation mix in the region, even on
a 450 ppm trajectory (see Figure 4.8).
There are different types of coal-fired power plants, each with different
characteristics. The least fuel- efficient, least infrastructure cost, and most
emissions-intensive are subcritical plants. Better performing and higher cost
technologies (on an ascending scale) include: supercritical, ultra-supercritical,
and integrated gasification combined cycle (see IEA 2011a, Chapters 10 and
11 for an overview of the issues surrounding coal-based energy production).
Given the large expansion of coal-fired power generation underway in the
PRC, India, and Indonesia, a priority for climate change mitigation must
be investments in more efficient technologies. Although this is certainly
occurring in the PRC, most newly built plants in India and Indonesia
continue to be subcritical. Fuel efficiency and local environmental
considerations dictate that altering this trend will have significant benefits
beyond climate change mitigation.
A further consideration is the deployment of carbon-capture and storage
(CCS). This technology is designed to collect and store CO2 emissions
from power generation or industry. There exist over a dozen pilot projects,
but the technology is yet to be commercialized. Haszeldine (2009) argues
that much greater investment in demonstration projects is required for
CCS to play a significant role in emissions abatement in the near future.
The IEA modeling of a 450 ppm scenario discussed in the present chapter
requires CCS to begin deployment by 2020 and to account for 22% of
global mitigation by 2035 (see Figure 4.9). The same study estimates that
a 10 year delay in deployment will increase the global cost of reaching
a 450 ppm trajectory by 8%, due to large reductions in coal-fired power
generation and more rapid expansion of renewable energy.
Source: Authors.
Figure 4.8: The Additional Transformation Required in the

Power Generation Mix Across Asia
500
2009
450 ppm
2035
New Policies
2035
450 ppm
2020
Other Non-OECD Asia
800
OECD Asia Oceania
700
700
Electrical capacity (GW)
600
500
400
300
200
100
600
500
400
300
200
100
Oil
Wind
Geothermal
Gas
Nuclear
Hydropower
Biomass and waste
Solar PV
CSP
Marine
450 ppm
2035
New Policies
2035
450 ppm
2020
450 ppm
2035
New Policies
2035
450 ppm
2020
New Policies
2020
2009
Coal
New Policies
2020
2009
New Policies
2020
2009
450 ppm
2035
1000
New Policies
2035
1500
450 ppm
2020
2000
India
900
800
700
600
500
400
300
200
100
0
New Policies
2020
PRC
2500
Gt = gigaton, GW = gigawatt, OECD = Organisation for Economic Co-operation and Development,

ppm = part per million, PRC = Peoples Republic of China.
of the IEAs World Energy Outlook 2011.
4.4.3Energy Demand
A principal feature of developing Asias economic expansion is
substantial growth in industrial energy usage, power generation,
transport, and all other components of energy demand. Figure 4.9
shows the substantial shifts required under the different IEA modeling
scenarios. As outlined in Box 4.1, reducing energy demand through more
efficient usage is a prominent, low-cost measure that meets a range of
economic and environmental objectives. This observation is supported
by the dominant share of efficiency measures as a source of global
abatement shown in Figure 4.10.
Gt
Figure 4.9: Global Emissions Reductions by Source

42
Share of abatement %
2020 2030
Reference Scenario
40
38
Efficiency
End-use
Power plants
Renewables
Biofuels
Nuclear
36
34
3.8 Gt
32
13.8 Gt
30
28
2015
2020
2025
57
52
5
20
3
10
10
CCS
450 Scenario
26
2007 2010
65
59
6
18
1
13
2030
Notes: See Box 4.3 for description of the modeling and underlying assumptions of the IEAs World
Energy Outlook 2011.
PRC
Energy demand (Mtoe)
4500
4000
3500
3000
2500
2000
2009
1500
1400
1300
1200
1100
1000
900
800
700
2009
2015
2020
2025
2030
Other Non-OECD Asia
2015
2020
2025
2030
Current Policies
2035
India
1600
1400
1200
1000
800
600
2009
2035
Figure 4.10: The Additional Transformation Required for Energy

Demand Profiles Across Asia
1000
980
960
940
920
900
880
860
840
820
800
2009
New Policies
2015
2020
2025
2030
2035
2030
2035
OECD Asia Oceania
2015
2020
2025
450 ppm
Gt = gigaton, CCS = carbon capture and storage, PRC = Peoples Republic of China, Mtoe = million
tons of oil equivalent, OECD = Organisation for Economic Co-operation and Development,
ppm = parts per million.
Notes: See Box 4.3 for a description of the modeling and underlying assumptions of the IEAs World
Energy Outlook 2011.
Although achieving greater energy efficiency is notionally a cheap

form of mitigation, it will not always be easy to implement. This is
particularly the case in developing Asia, where fossil fuel and electricity
subsidies have become entrenched. In all five of the study countries,
cheap energy has generally been seen as a form of social welfare,
providing a disincentive for conservation. However, less than 10% of
the total value of fossil fuel subsidies in each study country benefits
the poorest 20% of the population (IEA 2011a). Due to this leakage of
subsidy benefits to the wealthy, Arze del Granado et al. (2010) argue that
reform toward more effective forms of social welfare will generate high
economic returns provided that short-term adjustment costs for the
poor are compensated. From the perspective of government finances,
this is particularly the case in net-energy importing countries (i.e., most
if not all of the study countries in the near future) where governments
currently absorb international price rises. Moreover, any future move
toward carbon pricing in the region (discussed in Sections 4.5 and 4.6)
will require energy prices to be liberalized and higher fossil fuel-based
generation costs to be passed on to consumers.
4.4.4Policy Instruments
This section reviews the policy instruments that governments in the study
countries are using to meet the climate change mitigation targets set out
in Section 4.3. The sheer volume of different activities being undertaken
prohibits a complete overview of all relevant policies in each country.13
Rather, this section will review the most prominent instruments across
countries, including the reasoning behind their application.
Following Howes and Dobes (2011), the following analysis is divided
into a discussion of technology-based policies and carbon-pricing
policies. Technology-based policies are so called because they typically
favor the adoption of a particular technology or class of technologies.
Whereas carbon pricing relinquishes decision making on how emissions
reductions occur to market forces, technology policies such as feed-in
tariffs or research and development funding involve explicit intervention
by the government in favor of a particular technology or project. Both
carbon pricing and technology policies are designed to correct market
failure, albeit in different ways. Carbon pricing policies are by definition
13
For a complete overview of individual country policies see the country papers which
this paper surveys: Chotichanathanwewong et al. (2011), Mathur (2011), Patunru
(2011), Toan (2011), and Zhu (2011), and also the IEA Policies and Measures database
(IEA 2011c), and government websites. For a thorough review of policy instruments
for promoting renewable energy see IPCC (2011, Chapter 11).
Table 4.5: Classification of Climate Change Mitigation Instruments

Carbon Pricing
Technology-based
Fiscal
Emission trading
Carbon tax
Hybrid trading-tax
schemes
Fiscal
Demonstration grants
Public R&D
Investment subsidies
Preferential tax treatment
Government investment in
venture capital
Public investment vehicles
Feed-in tariffs
Tax credits
Public procurement
Renewable energy certificate
trading
Subsidies for energy-efficiency
purchases
Regulatory
Technology performance
standards
Renewable fuel/energy
standards
Building regulations
Automobile regulations
Information standards
R&D = research and development.

Source: Howes and Dobes (2011).
fiscal (i.e., concern government revenue), while technology policies can

be either fiscal or regulatory instruments (i.e., mandated laws specifying
particular actions). Table 4.5 lists a variety of common climate change
policy instruments under this categorization. Complementary policies
or actions, discussed further in Section 4.6, are likely to be critical to the
effectiveness of these instruments.
4.4.5Technology-Based Policies
The already extensive deployment of technology-based policies
in developing Asia reflects a range of factors. First and foremost,
governments have acted on the more immediate motivations discussed
in Section 4.2 (i.e., energy security, local environmental problems, and
technological advantage) by setting the targets shown in Table 4.4. As
discussed further below, carbon pricing remains largely a prospective
activity in developing Asia; therefore technology instruments are the
only real means to pursue these targets at present.
There are numerous dimensions to the general rationale for applying
these instruments.14 The broadest is simply the correction of various
14
The following discussion draws heavily on Howes and Dobes (2011, Chapter
2.3.1), and Garnaut (2008, Chapter 18). See these earlier works for a more detailed
discussion of these issues.
market failures that arise along the innovation chain between early
research and the extensive deployment of a climate change mitigation
technology (see Figure 4.11). Such innovations generate social benefits
that are external to the private costs and benefits of firms, financiers,
and consumers. Government intervention can internalize these social
benefits, or positive externalities, within the decision making of the
various economic agents involved.
Figure 4.11: The Innovation Chain for a New Mitigation

Technology
Early research
Basic research
and
development
Technology
research and
development
Demonstration and
commercialization
Market
demonstration
Supply-push
Market uptake
Commercialization
Market
accumulation
Diffusion
Demand-pull
Source: Garnaut (2008, Figure 18.1) adapted from Grubb (2004).
Private firms have strong disincentives to underinvest in research

and development. Not only do they face uncertainty over whether their
investment will yield sufficient private returns, any progress or invention
they instigate may benefit their competitors. Knowledge generated at
the early stage of the innovation chain is often a non-excludable, public
good, which can easily be adapted and used by other firms at little cost.
Moreover, early stage research on a particular innovation generates
a skills base which can be applied to other innovations. As the total
social returns on developing new technologies exceed the benefit to an
individual firm, there is strong case for public funding to make up for
this under-investment in basic research.
The transition from research idea to demonstrated technology
presents similar challenges. Demonstration projects for renewable
energy projects typically involve large up-front costs and significant risk.
Traditional lenders in capital markets are often unwilling to take such
large risks. Firms also face disincentives similar to those during early
research. First-movers generate knowledge about how and, perhaps
more importantly, how not to convert an idea into a commercial project;
knowledge that competitors can later use at low or no cost. Other upfront
costs to first movers which generate externalities include: developing
a skills base, negotiating new regulatory and legal frameworks with

government, developing support industries, and achieving social
acceptance.
Even once a technology is demonstrated and commercially proven,
it faces significant barriers to being disseminated in the market. In the
absence of a carbon pricing, the consumer price of emissions intensive
goods will not reflect their external social costs and, conversely, the price
of mitigation technologies will not reflect their external social benefits.
Therefore, governments can intervene to rebalance this relative cost
differential in favor of higher social welfare. Stimulating demand for
new technologies has the added effect of generating economies of scale
and further driving their relative cost lower. In addition to addressing
market failure with regards to prices, policy instruments can also
address informational and agency barriers that prevent consumers from
adopting known mitigation technologies, even though they are cheaper.15
The policy instruments used across the innovation chain can be
divided into two varieties. Supply side, or supply-push, measures
reduce the private cost of producing a technology. Demand side, or
demand-pull, measures increase demand for a technology. Typically,
supply-side policies aim to correct market failures that arise between
the early stages of research and market demonstration, and demand side
policies focus on market uptake (Figure 4.11). The following discussion
selectively reviews demand-pull technology policies (i.e., feed-in tariffs,
renewable energy certificates, standards and regulations) and supplypush technology policies (i.e., investment subsidies and tax incentives,
and public finance for research and development) that are being used in
the major economies of developing Asia.16
Feed-in Tariffs
Feed-in tariffs (FITs) are a commonly used instrument wherein

renewable energy generators receive favorable terms. Although the
exact arrangements can vary, FITs generally share three standard
characteristics: guaranteed access to the electricity grid; long-term
contracts; and generated power being purchased by grid companies
at higher prices than that from fossil fuel sources, reflecting the
relatively higher generation costs of renewables. Table 4.6 shows that
15
16
Howes and Dobes (2011) cite the examples of landlords not having an incentive to
invest in energy efficient capital because tenants pay electricity bills, and consumers
judging the cost of durable goods, such as electrical appliances, on the basis of their
up-front cost and not the total cost of their use over time.
See Azuela and Barroso (2011), IPCC (2011) Table 11.2, and REN21 (2011) for a more
comprehensive overview.
FIT arrangements are already extensively used in the study countries.

This instrument has played an important role in the rapid development
of the PRCs wind power industry (Ma 2011), and the government has
recently expanded their coverage by allowing them for non-tender
solar power generators (IEA 2011b). The effectiveness of FITs, however,
can be limited by inappropriate design. For example, the feed-in tariff
may be too low to stimulate investment, or, as in the case of Indonesia,
grid companies may be insufficiently compensated by government to
incur the higher costs of an FIT and be unwilling to participate in the
arrangement for financial reasons (see Howes and Dobes 2011, Box 4.2).
Renewable Energy Certificates and Other Market-Based

Mechanisms
Renewable energy certificates (RECs) create a market mechanism

for utility companies to meet mandated targets for renewable energy,
or renewable portfolio standards. Renewable energy generators
are issued with credits proportional to the amount of electricity they
produce, and these credits can then be purchased and/or traded by
utilities in fulfillment of their portfolio obligations. This system provides
incentives for renewable energy generators to compete with each other
in lowering their costs. However, if multiple forms of energy are covered
by the same scheme, the lowest cost type of technology will generally
be favored, often wind power. In 2011, India was the first of the study
countries to launch an REC scheme, providing a means for states and
utilities to meet previously set portfolio standards.
The implementation of RECs in India accompanies a similar
scheme directed at energy efficiency, namely the Perform, Achieve, and
Trade (PAT) Mechanism, wherein Indias largest energy users are set
benchmark efficiency levels, with trade occurring between participants
who exceed their targets and those who fail to meet them. The PAT
instrument echoes a voluntary mechanism developed earlier in the
PRC, known as generation rights trading (GRT), in which coal-based
electricity generators are assigned tradable quotas and the efficiency of
electricity production is increased. High-efficiency generators are able
to buy quotas from low-efficiency counterparts, achieving mutual profit,
with the overall level of electricity production constant. In 2007, it was
estimated that the use of GRT across 23 PRC provinces involved a total
transaction quantity of 54 TWh, saving 6.2 x 106 tons of coal equivalent
(Ciwei and Wang 2010).
Regulations and Standards
The governments of emerging Asia have introduced many different

forms of regulations and standards relevant to climate change
mitigation. As opposed to incentives, which usually involve some

element of voluntarism, regulations and standards are mandatory
for affected parties. Such instruments are prevalent across various
sectors, especially: transportation, construction, heating and cooling
of commercial buildings, and the energy sector. Examples include:
ethanol blending in fuel; emissions and fuel economy standards for
cars; minimum efficiency standards and compulsory labeling of energy
appliances; compulsory closure of small, inefficient fossil fuel based
power plants; among many others.
There are numerous prominent examples of regulatory instruments
in the study countries. In the PRC the energy saving power dispatch
(ESPD) mechanism prioritizes dispatch to the energy grid by different
generators, based on their efficiency and the emissions each produces.
Priority is given to nonadjustable sources of renewable energy (such
as solar and wind), then adjustable renewable sources (such as
hydropower), nuclear, and so on, with coal and oil lowest in the ranking.
In India, government regulations have been effective in the conversion
of Delhis three-wheeler taxis to natural gas, among other policies to
reduce urban air pollution.
Subsidies, Tax Incentives, and Lending for Deployment and

Creating Market Demand
A variety of subsidies and incentives are used to reduce the costs of

investing in technology demonstration and deployment. Examples
include: reduced taxes on inputs, tax holidays, accelerated depreciation,
matched investment funding, and import duty exemptions. Governments
can also offer concessional loans to reduce firm costs, or loan guarantees
to reduce financiers risks. For example, Thailands Revolving Fund
provides capital to banks which is made available to borrowers at
concessional rates, with the repayments from existing borrowers
financing new projects.
Equally, subsidies and incentives can be used to create market
demand. For example, government rebates on energy efficiency devices
or domestic solar panels, low-interest green loans on retro-fitting
projects, and, from above, feed-in tariffs. Government intervention
brings the effective price down for users of a technology, which in turn
can assist the accumulation of economies of scale by producers and place
further downward pressure on prices, further stimulating demand.
Public Finance for Research, Development, and Deployment

(RD&D)
The public good characteristics of research and development represent
an attractive use of public finance. Various instruments can serve this
purpose, such as: national research institutes, direct government grants,

matched investment funding, student scholarships, tax subsidies,
among many others. All of the study countries have some form of RD&D
funding. Aside from developing new technology, it is also necessary for
research to focus on adapting imported technology, a prominent issue in
the later discussion of technology transfer (see Section 4.6).
Targets and Policy Processes as Instruments
It is useful to recognize that targets and policy processes can also

be described as instruments, insofar that they galvanize action. A
good example of this is the provincial targets set by the central PRC
government for environmental and energy efficiency. Promotion for
senior government officials within the bureaucracy has long been
dependent upon the achievement of centrally determined targets. Until
the 11th Five Year Plan (20062010) such targets almost exclusively
focused on macroeconomic figures, such as GDP growth. However,
today promotion requires achievement of environmental targets, thus
building strong incentives for provincial officials to meet targets or
follow through on central government initiatives. At the international
level, for all of the study countries, targets are a means by which actions
and progress can be judged externally, even if these targets or pledges
are voluntary.
Of course, the effectiveness and desirability of all of these different
technology instruments can vary greatly, across countries and time.
In essence, these policies are designed to correct market failure; but
they in turn can also result in government failure. Any situation where
government finance and regulations create profit opportunities is
susceptible to rent-seeking by lobby groups. Poorly designed programs
may not be cost-efficient, such as high solar feed-in tariffs in Germany
and Australia, or have unintended consequences, such as biofuel
mandates encouraging deforestation and food insecurity. Whilst it is
beyond the current scope to comment on the broad success or failure
of technology-based policies to date, in developing Asia or otherwise, it
is important to recognize their potential limitations, especially as this is
the area where greatest progress has been made so far.
Table 4.6 indicates the current application of the above instruments
within each of the study countries.
Technology Transfer
In addition to the above domestic technology policies, an important

issue for developing countries is technology transfer from developed
countries. The former have fewer resources to innovate and develop
technologies than the latter, and, consequently, there are significant
Public R&D Institutions
Public Investment, loans,

or Grants
PRC
Wind, solar,
biomass
India
Wind, solar, biomass,

small-hydro
Indonesia
Renewable
(incl. geothermal)
Thailand
Wind, solar, biomass/

gas, waste
Viet Nam
Feed-in Tariffs
Tax Incentives
Fuel Economy/vehicle
Emissions Standards
Capital Subsidy, Grants, or
Rebates
Mandated Biofuel Blending
Renewable Energy
Certificates
Trading Markets for Energy
Efficiency
Renewable Quotas/
Portfolio Standards
Table 4.6: Technology-Based Climate Change Mitigation Policies in

the PRC, India, Indonesia, Thailand, and Viet Nam
PRC = Peoples Republic of China, R&D = research and development.

Notes: Information accurate as of the middle of 2011. Planned policies are not included.
Sources: REN21 (2011); Clean Air Initiative (2011); International Energy Agency (2011c); Chotichanathanwewong et al. (2011); Mathur (2011); Patunru (2011); Toan (2011); Zhu (2011).
benefits to be had from the transfer of knowledge concerning renewable

energy technologies. In essence, significant technology transfer would
explicitly distribute many of the externalities involved in the supplypush phase (see Figure 4.11); in practice, there are significant obstacles
to transferring intellectual property rights, not least of them being
commercial concerns (see ICTSD 2008 for an overview). At present a
technology transfer mechanism is still developing under the auspices of
the UNFCCC, although there are other operational initiatives such as
the Asia-Pacific Partnership on Clean Development and Climate.
Carbon Pricing
This section focuses predominantly on technology-based policies

simply because little progress has been made on carbon pricing in
developing Asia, or, for that matter, in any major economy outside
Europe.17 However, given the scale of the additional transformation that

is required (see Section 4), carbon pricing will have to become a major
component of the policy agenda in the study countries at some stage,
and preparations will have to begin soon.
Economists view pricing carbon as a necessary, albeit not sufficient,
policy action to bring about strong mitigation of climate change.
Technology-based policies may address distortions that carbon pricing
may not completely overcome (e.g., underinvestment in R&D, financial
shortfalls due to risk, or informational barriers), but the former will be
insufficient to drive the substantial, necessary shifts in the behavior of
industry and consumers: carbon pricing is essential. The OECD (2011:
47) summarizes the issue as follows: only a strong and lasting carbon
price signal will achieve the major transition required in carbonintensive sectors.
Well designed and well supported carbon pricing is the most
efficient way of incorporating the social cost of greenhouse gas
emissions into firm and household decision-making. Placing a value on
emissions (and consequently raising the price of emissions-intensive
inputs, goods, and services) shifts the preferences of consumers toward
cheaper low-emissions goods and away from emissions-intensive
inputs, and investors toward low-emissions projects with, now, higher
returns. What is more, carbon pricing provides a signal for innovators
to develop new technologies that will meet the preferences of the other
three groups.
Placing a price on carbon would certainly seem to be critical to
achieving greater energy efficiency, a principal part of the mitigation
challenge outlined in Section 4.4. Figure 4.12 compares the PRC (and
Taipei,China and the Republic of Korea) to two sets of developed
economies: the US and Canada on the one hand, and the EU and Japan
on the other. The US and Canada have cheap energy (low electricity and
petroleum prices) and a high energy/GDP ratio. By comparison, the EU
and Japan have expensive energy and a low energy/GDP ratio. The PRC,
with relatively low energy prices and high energy intensity, currently
looks much more similar to the US and Canada than it does to Europe
and Japan. But the PRCs mitigation objective requires that it ends up
looking more like Europe and Japan in terms of its energy to GDP ratio.
It will not get there without higher energy prices.
17
New Zealand and some US states also currently operate emissions trading schemes.
Australia and California have legislated carbon pricing to begin in 2012 and 2013,
respectively, whilst legislation is currently under consideration in the Republic of
Korea for an emissions trading scheme to begin in 2015.
Figure 4.12: The PRCs Future: Low Energy Prices or High Energy
Efficiency? Cross-Comparison of Electricity Prices, Gasoline
Prices, and Energy Intensity (Ratio of Energy Use to GDP)
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
OECD
Europe
US
Canada
Industrial Electricity Price (2007)
Japan
PRC
Gasoline Price (2007)
Taipei,China Rep. of
Korea
Energy Intensity (2007)
GDP = gross domestic product, OECD = Organisation for Economic Co-operation and Development, PRC = Peoples Republic of China, US = United States.
Notes: Energy prices measured in current US dollars, using market exchange rates. Energy intensity is
the ratio of energy consumption to GDP measured using purchasing power parity. All OECD Europe
values are normalized to one.
Sources: IEA (2009, 2010a).
There are two main types of carbon pricing: a tax and an emissions
trading scheme (ETS). Many variations or combinations of the two
are possible and, in theory, the outcomes should be the same. In
practice, the choice is between price certainty, or certainty over the
final level of mitigation. A carbon tax fixes the increase in prices, but
without knowing what the final reduction in emissions is going to be.
An ETS involves a specific level of economy-wide emissions being set,
with permits being allocated or sold to industry and businesses such
that aggregate emissions equals the set level. Permits can be sold and
bought by participants in the market, thus encouraging firms with low
marginal mitigation costs to sell the right to emit to firms with relatively
higher costs, with trade producing mutual benefits. The carbon price is
determined by the market and the aggregate level of emissions can be
reduced over time, encouraging successively greater mitigation.18
18
See Stern (2007), Garnaut (2008) for a more detailed explanation of carbon pricing
mechanisms.
Table 4.7: Status of Carbon Pricing in Developing Asia

Policy Description
PRC
Pilot emission trading schemes occurring in seven provinces and

cities, beginning in 2013 and covering energy production and other
emissions-intensive industry. Government officials have indicated
2015 as a provisional starting date for a national scheme.
Electricity levy of CNY0.002/kWh to subsidize renewable energy.
India
Coal producers pay a levy, or tax, of about $1. Revenue is used to

finance clean energy projects.
Indonesia
In 2009, Ministry of Finance Green Paper proposed carbon tax

of about $10 per ton of CO2, rising by 5% per annum to 2020. No
legislation currently under consideration.
Thailand
Levy on petroleum products of B0.04/liter which contributes to energy

conservation fund.
Viet Nam
Proposed levy on petrol and diesel (between VND500 and VND4,000

per liter), as well as coal (between VND6,000 and VND30,000 per
ton).
CO2 = carbon dioxide, PRC = Peoples Republic of China.

Sources: Ministry of Finance, Government of Indonesia (2009); Xinhua (2011); The China Daily (2011);
Mathur (2011); Howes and Dobes (2011).
At present, experience with carbon pricing, whether a tax or trading

scheme, is fairly limited worldwide.19 This is particularly the case in
the study countries, although proposals do exist and carbon price
style instruments do exist, mostly in the form of levies on electricity or
fossil fuels. Progress is being made, however, most notably in the PRC
where pilot schemes are being set up, including in the nations most
industrialized region, Guangdong province, and also in Beijing. Table
4.7 provides further details.
It is beyond the scope of this chapter to comprehensively examine
the implications of carbon pricing for each of the five study countries.
However, several issues require specific attention. The first is cost. Most
modeling studies have shown that carbon pricing will be more costly to
developing than to developed economies (see Howes and Dobes 2011 for
a review). This is largely because, in general, lower-income economies
are more emissions-intensive and greater adjustment occurs in response
to a carbon price (Stern and Lambie 2010).
However, most modeling studies do not consider the revenue
implications of a carbon price. Table 4.8 shows the hypothetical
19
See Howes and Dobes (2011, Box 2.2) for a review of real-world experience with
carbon pricing.
Table 4.8: Revenue from $20 Carbon Price and Government Revenue
as a Proportion of GDP in Developed and Developing Asia, 2009
$20 US Carbon
Price Revenue as a
% of GDP
Government
Revenue as a % of
GDP
Carbon Revenue as
a % of Government
Revenue
PRC
2.75
20
13.78
India
2.44
18.1
13.52
Indonesia
1.39
16.5
8.46
Thailand
1.72
20.1
8.56
Viet Nam
2.44
24.4
10.03
Australia
0.80
33.5
2.38
Japan
0.43
29.7
1.46
Republic of Korea
1.23
23
5.37
GDP = gross domestic product, PRC = Peoples Republic of China.

Note: GDP is measured in US dollars, measured in market prices.
Source: IMF (2011), authors calculation.
proceeds of a $20 carbon price on emissions for the study countries in

2009. Clearly, the revenue implications would have been substantial, in
terms of overall government revenue and when compared to developed
countries in Asia. If carbon price revenues were used to reduce other
taxes, or, for example, finance government spending in health and
education, then the net costs of mitigation will be reduced, potentially
even to the point of a net economic gain.20
A further consideration is the likely benefits to energy importers of
a global carbon price. IEA (2011a, p. 227) analysis indicates that carbon
pricing in major economies consistent with a 450 ppm trajectory would
significantly decrease international fossil fuel prices (before factoring
in carbon pricing), and, consequently, decrease import bills and energy
insecurity.21 For example, the preceding analysis estimates that the PRC
and India would reduce their oil-import bill by around one third in 2035.
20
21
See Howes and Dobes (2011, p. 25) for an extended discussion of evidence concerning
the welfare impacts of carbon pricing.
Another important consideration is that a national carbon price would increase
demand for energy from renewable sources and more efficient coal technology, as
well as reducing overall demand through greater efficiency. These factors would also
reduce total energy demand and, consequently, expenditure on fossil fuel imports.
See also Howes and Dobes (2011, Box 1.1) for a discussion of the positive impact on
the terms of trade for energy importers through pricing carbon.
As the deployment of carbon pricing draws closer to becoming a

practical reality, further studies will need to consider the above issues
on a country-level basis. An existing example is the Indonesian Ministry
of Finance Green Paper (see MoF 2009). The results of this study
indicate net gains in GDP growth and poverty reduction in 2020 from
the imposition of a modest carbon price of approximately $10/ton CO2
from 2013, with the size of the gains dependent upon how revenue is
divided between sales tax reductions and income transfers, and also
whether energy subsidies are removed.
Finally, the design of a carbon-pricing mechanism is critical to
its effectiveness. The over-allocation of free permits in the first two
phases of the European Union emissions trading scheme has facilitated
a characteristically low carbon price, reducing the environmental
effectiveness of the scheme. Other considerations include: degree of
coverage across emissions-intensive sectors, incorporation of carbon
offset schemes, international linkages, and, of course, supporting
infrastructure for monitoring and compliance. As the European Union
experience has demonstrated, it will be more difficult to correct design
flaws after the fact.
4.5Policy Challenges
Achieving the additional transformations set out in Section 4.4 will
require expansion of the use of policy instruments set out in Section
4.5. This will not be an easy task. The economies, institutions, and,
particularly, energy sectors of developing Asia exhibit a number of
characteristics which will present significant challenges to effective
policy making. In this section we present some of the important
challenges to scaling up technology-based and carbon pricing policies
and outline the issues which policy makers will have to engage with,
namely: energy sector reform, economic reform, institutional reform,
and international support.
4.5.1Technology-Based Policies
Extensive climate change mitigation in developing Asia will require
extensive transfer of intellectual property rights for renewable
technologies. In the context of global mitigation, an outstanding and
significant issue remains, at the time of writing, the prospect of extensive
transfer of intellectual property rights (IPR) for renewable technologies.
If patent protection limits the ability of domestic manufacturers in
Asia to adapt externally developed technologies, then, of course, their

dissemination is likely to be more limited. In order to mitigate this
obstacle, Mathur (2011) proposes that developing countries be involved
in international collaborative partnerships from the research and
development stage.
Effective technology transfer is conditional on sufficient adsorptive
capacity in developing countries. Technology transfer is critical to
the proliferation of renewable energy in developing Asia. This process
involves much more than simply transferring technology blueprints
from developed countries. Achieving widespread dissemination of
a renewable technology in developing countries also requires: the
development of a local manufacturing base and associated supply
chains; systems for maintenance and marketing; a labor force that can
build, use, and maintain the technology; and, in many cases, the adaption
of technology to local conditions. Without the capacity to absorb and
use transferred knowledge, the returns to technology transfer will
be limited. Ockwell et al. (2008) therefore argue that domestic and
international policy intervention must have a central role in building
this capacity.
More research, development, and demonstration (RD&D) spending is
required globally, including in developing Asia. Globally, demand-pull
policies have been more heavily favored by governments than supplypush policies; there is a strong case for a more balanced approach. In
order to meet a 450 ppm target, the IEA (2010b) estimates that an extra
$40 billion to $90 billion will have to be spent annually on clean energy
RD&D to 2050. While developed countries will likely account for the
bulk of future expansion, increasing RD&D in developing Asia will
likely be necessary as well. From above, special local conditions, such
as Indonesias vast geothermal resources, justify targeted investments.
Domestic investments will diminish some of the difficulties associated
with IPR transfer. Attaining commercial advantage provides another
motivation; despite being a leader in production volumes and
investment, much of the PRCs wind turbine technology is well behind
the technological frontier (see UNDP 2010).
Publicprivate partnerships are an important mechanism for
leveraging private investment. Section 4.5 outlined the significant
barriers to socially optimal private RD&D investment in clean energy
technology. Publicprivate partnerships are an attractive option for
leveraging this private investment. Government finance and support
provides greater assurance of private returns. Private companies have
a natural advantage in driving efficiency and cost reductions, thus

increasing the prospects of commercialization as compared to a solely
public financed and operated project. Publicprivate partnerships
have been extensively used in the past to finance expensive public
investments in developing Asia, such as major infrastructure projects,
and the existing familiarity of governments and industry with this
mechanism is highly advantageous.
Policy rigor is important: effectiveness and efficiency requires
technology-based policies to be scrutinized. As noted in Section 4.5,
the environmental effectiveness and cost-efficiency of technology-based
policies cannot always be guaranteed. Governments need transparent,
independent processes to assess the costs and benefits of policies
before, during, and after their implementation. Transparency will help
to reduce rent-seeking activities. Post hoc analysis will yield important
lessons for future policy, domestically and in countries pursuing similar
policies. There are many different technology-based policies available to
governments, picking the right ones, designing them well, and ensuring
that they complement each other is critical.
In addition to these technology-specific factors, other issues that
also relate to carbon pricing are outlined later in this section.
4.5.2Carbon Pricing
Despite the existence of political obstacles, the introduction of
carbon pricing is a necessary, long-term concern across developing
Asia. Given the scale of the additional transformation outlined in Section
4.4, as well as the efficiency arguments discussed in Section 4.5, carbon
pricing is a necessary item on developing Asias climate change mitigation
agenda. However, effective policy implementation will involve domestic
and international political challenges. Domestically, carbon pricing
will raise the cost of electricity and fossil fuels; a politically dangerous
proposition given that many low-income households in developing Asia
rely on energy subsidies, and that the welfare of the many without grid
access, particularly in rural India, would benefit if they could switch
from traditional biomass to cheap electricity. Significantly reducing
the welfare of the domestic poor in the interests of international
climate change mitigation is neither desirable nor feasible for regional
governments. Moreover, energy is a luxury good in much of developing
Asia: wealthier households are more likely to own cars and household
electrical appliances. If the share of household expenditure on energy
rises with income, then wealthier households, who are likely to be more
politically powerful, will also be opposed to rising prices.
From an international perspective, the ambition of developing

country governments is unavoidably bound by progress on carbon
pricing, and mitigation more generally, in developed countries. Outside
Europe there has been little progress in rich countries, and within
Europe itself carbon prices are, at present, very low. High and effective
carbon prices would achieve significant mitigation; developing countries
will, and perhaps should, follow developed countries progress on both
issues. Therefore, unless significant progress is made elsewhere, the
introduction of carbon prices in developing Asia would be likely to occur
at a low level, rendering them less effective, if they are introduced at all.
Over time, however, the international obstacles will be less
important. Although current action is relatively limited, developed
countries will increasingly introduce carbon prices as climate change
becomes more evident and they ramp up their mitigation activities;
upon committing to substantial mitigation it is only natural that they
should seek the most efficient means. Domestic political constraints may
be more difficult to overcome. From the perspective of poor households,
absolute welfare concerns may diminish as living standards continue to
rise, but perhaps not if energy consumption continues to rise. For both
poor and wealthier households, political support for carbon pricing may
be contingent upon the development of compensation instruments, a
topic considered in the discussion of economic reform further below.
Effective carbon pricing would require a range of supporting
instruments and changes: a wholesale package of reforms will be
needed. In an abstract sense, carbon pricing is a very straightforward
proposition. Its practical application is a much more complicated issue.
Not only are there many design considerations, such as the coverage
or size of a carbon price, but a range of supporting institutions and
processes are also required. For example, electricity price rises must
be passed through to consumers, generators must have incentives
to switch to renewables, a capable bureaucracy must be present to
measure emissions and ensure compliance, and so on. In the following
subsections of this chapter, we argue that the underlying requirements
for effective carbon pricing are, by and large, not yet present in developing
Asia, particularly in the energy sector. Whats more, economic reform,
institutional reform, and greater international support from developed
countries will be critical to the implementation of carbon pricing and, by
extension, substantial mitigation in the region.
Although effective carbon pricing may be a longer-term objective,
creating the necessary conditions is an immediate concern. Before
turning to the specific policy challenges below, their immediacy must
be highlighted. This chapter does not argue that carbon pricing should
or could be implemented at once within developing Asia. Efficiency
and effectiveness in the long-term will require the challenges outlined
below to be addressed first. This preparatory reform will not be easy;
therefore it must begin now to ensure that carbon pricing is a realistic
policy option as soon as possible.
4.5.3Energy Sector Reform

The structure of the energy sector in developing Asian economies is
critical to the effectiveness of carbon pricing. Howes and Dobes (2011)
outline 12 general characteristics which distinguish energy sectors in
developing economies from those in most developed economies, using
the PRC, Viet Nam, and Indonesia as case studies.22 For the purposes of
the current discussion we focus on 10 of these:

22
Rapid rate of energy growth. Energy demand grows rapidly

in developing economies, with the electricity sector growing
even more rapidly. Figure 4.10 in Section 4.4 of this chapter
demonstrates the large projected rise of future energy demand
in developing Asia.
Presence of energy subsidies. Petroleum products, coal,
and electricity are all commonly subsidized. Four of the
study countries rank among the 15 countries with the highest
expenditure on fossil fuel subsidies: India (4th, $22 billion a
year), the PRC (5th, $21 billion), Indonesia (9th, $15 billion),
and Thailand (14th, $8 billion). Consequently, subsidies are a
significant claim on government budgets, increasingly so when
international energy prices rise. Household electricity prices are
significantly below those in developed countries, particularly in
Indonesia where they are about half the price (see Howes and
Dobes 2011, p. 46). Lower household electricity prices are often
funded by cross-subsidies, i.e., industrial prices are pushed up.
Politicization of energy pricing. Price-setting is often
conducted in an ad hoc manner by governments. For example,
electricity price rises in Indonesia have to be approved by
The degree to which these general characteristics apply will, of course, vary between
countries, provincial regions, and across time. They are, however, broadly relevant
to the current situation of the countries considered in the present report, including
India and Thailand. See Howes and Dobes (2011, Chapter 3) for supporting evidence
for these general characteristics with specific reference to the study countries; the
following provides a summary of the key points.
Parliament and are, unsurprisingly, uncommon. Despite the

existence of a formula to increase the electricity price if coal
prices rise by 5% in 6 months, the PRC government has changed
it only three times even though the condition was met 10 out of
12 times from the end of 2004. As a result of these and similar
circumstances, price rises for petroleum or coal are not fully
passed onto consumers.
Presence of energy rationing. Power rationing is a common
problem affecting the major economies of developing Asia.
High growth in demand is a common problem, while subsidies
can also limit the financial capacity of utilities to expand
supply. Black-outs and brown-outs can consequently be an
important constraint on business activity. In the PRC, power
shortages have re-emerged recently as generators have chosen
to withdraw from the market rather than endure losses arising
from government-set electricity prices that have not kept pace
with rising coal prices.
Reliance on captive power. Unreliable power supply and high
prices arising from cross-subsidies can often drive industry
to become self-reliant through captive power generation. It is
estimated that captive power comprises 20% of total power
generated in India (Joseph 2009); the corresponding figure for
Indonesia is estimated to be 42% (Howes and Dobes 2011).
Constraints on flexibility in dispatch. Weak transmission grids
with limited inter-regional connectivity commonly constrain
the ability to transfer generated electricity within developing
economies. Furthermore, policy-induced inflexibility may be
present; in the PRC, for example, generators sell to the grid
under a quota system and no extra payments are made for
providing additional capacity.
Dominance by state-owned vertically-integrated utilities.
The most common model for the electricity sector in the study
countries is a state-owned monopoly responsible for generation
transmission, and distribution, supplemented by private
companies that can sell into the grid. The PRC is something of
an exception, having separated generation from transmission,
but all the major grid companies and generators are stateowned.
Reliance on central planning in the electricity sector.
Investment decisions are commonly made through governmentcontrolled sectoral plans, such as those contained within the
PRC and Indias respective Five Year Plans.
Divergence from commercial orientation. A result of state

involvement in the energy sector is that public enterprises,
such as state-owned distribution companies, can be confident
that the government will bail them out if they fail financially.
That being said, energy companies will need to negotiate this
assistance, with the likely result that governments will resist
meeting the full divergence between costs and low consumer
prices.
Political difficulty of reform. Although attempts are being
made to reform the power sectors in the major economies of
developing Asia, overcoming powerful interest groups and
securing sustained political commitment has proved difficult.
Taken together, these features limit the likely impact of carbon

pricing. We explore their collective role below, as well as the need for
and potential impact of energy sector reform.
Insufficient mechanisms exist for cost-pass-through of carbon
pricing. Given the politicization of energy pricing and subsidies, there
would seem little certainty that a carbon price would be passed on to
customers, in full or at all. In recent years, economies with regulated
fuel prices have found it difficult to pass on rising global fuel prices
into domestic retail prices. As mentioned above, electricity price rises
in developing Asia will meet fierce political resistance. The larger the
carbon price, the greater the political consequences, and the less likely
cost-pass-through would occur.
Carbon pricing will not be credible without cost-pass-through.
Recall that one of the objectives of carbon pricing is to shift consumer
preferences away from carbon intensive goods or activities. Without
cost-pass-through, consumer prices will not change and there will be
no incentive for consumers to change behavior. Whats more, if carbon
prices are not passed through, energy companies will not be able to pay
their carbon bill to government. Instead of receiving extra revenue, and
as a consequence of the lack of commercial orientation, governments
may be called upon by utilities to cover their extra costs. With the
government covering extra costs through, for example, free permits in
a trading scheme, utilities would lack incentives to reduce emissions.
Developing economies may have limited capacity for the dispatch
order in the electricity sector to change in favor of less emissionsintensive sources. As noted earlier, shortage of supply is a common
feature of the power sector in the study countries. In the short term,
and where there is excess demand, any extra capacity will likely be
used, whether it attracts a carbon price or otherwise. A further issue
is that renewable energy technologies, such as wind and solar, often
occur in remote areas and may be available only intermittently; weak
transmission grids and/or inflexible dispatch may limit the capacity for
renewable energy to receive priority over fossil fuels.
Governments are already shifting toward gas and renewable energy
without a carbon price, if renewable energy is introduced at a low
level (as seems likely), then any additional effect on investment
decisions may be negligible. Section 3 of this chapter outlined some of
the national targets and planning processes committed to in developing
Asia. These targets incorporate a range of environmental and economic
motivations that assign an implicit carbon price, particularly on coal.
Any explicit carbon price is likely to be low, and probably lower than the
implicit price already driving energy investments.
Investment decisions made by utilities will not incorporate a
carbon price, explicit or otherwise, if it is not credible. Utilities have
significant discretion in implementing government plans. For their
investment decisions to incorporate a carbon price, the utility must
follow an investment plan which deviates from least financial cost. They
are only likely to do so if the carbon price is credible. We argued above
that utilities are unlikely to believe that they will be able to pass through
the carbon price to customers. Given the lack of commercial orientation,
they will probably remain reliant on government subsidies, although
there is a risk that such subsidies would only be partial and would not
cover the full extent of the carbon price. The economy-wide pressure
to expand supply and avoid shortages reassures loss-making utilities of
continuing government support, but, given that support is likely to be
only partial, utilities will still have strong incentives to pursue expansion
at least financial cost (i.e., building new coal-fired power plants rather
than wind farms). Without credibility, a carbon price does not change
the financial reality facing utilities and their investment decisions are
unlikely to change significantly, regardless of central planning directives.
The impact of carbon pricing will be heightened by energy sector
reform. The characteristics of the energy sector in developing economies
which limit carbon pricing are, therefore, important targets for reform.
Energy sector reform, particularly in the power sector, typically
encompasses: the development of cost-pass-through mechanisms
(through, for example, price liberalization or the establishment
of independent regulators), privatization, and the introduction of

competition to increase commercial orientation. Such reforms would
encourage cost-pass-through, as well as making investment and dispatch
decisions more responsive to a carbon price.
Energy sector reform is also important for technology-based
policies. The weakness of the energy sector can also undermine the
impact of technology-based policies. For example, captive power is
prevalent in some economies; the costs of complying with renewable
energy mandates typically fall on grid companies who, in turn, pass on
these costs to industrial consumers, creating incentives for the latter to
rely on captive power. Politicized pricing may undermine feed-in tariffs:
utilities may have insufficient incentive to purchase renewable energy
at a suitably high feed-in tariff if they are unable to pass on their higher
costs to consumers and/or they do not believe that the government will
compensate them for these higher costs.
Reform of the energy sector will be difficult and some measures, on
their own, could actually increase emissions. As noted earlier, reform
of the energy sector has proved a difficult undertaking in the major
economies of developing Asia, notwithstanding previous attempts.
There is an economic case for continued reform efforts, which is now
augmented by the issue of future carbon pricing. It should be noted,
however, that reform, particularly in the power sector, will not be easy
and, from the perspective of climate change mitigation, results may not
always be desirable. For example, without rationing, price increases
would be expected to reduce electricity demand. With rationing,
however, price increases could stimulate investment in new fossilfuel generation, increase total energy supply, and reduce rationing
constraints, thereby fulfilling previously unmet demand and increasing
emissions. Incomplete or only partial reform may, in some cases, be
detrimental.23
4.5.4Economic Reform
Factor market distortions in some economies are facilitating
energy and emissions intensive growth. Figure 4.13 shows that some
developing Asian economies, particularly the PRC and Viet Nam, have
very high levels of investment. In the case of the PRC, Huang (2010)
explains high investment as a symptom of the limited liberalization
23
See Howes and Dobes (2011, pp. 6566) for a discussion of the negative environmental
impacts of the PRCs partial reform of the electricity sector.
of factor markets. Low interest rates and land and energy prices have
encouraged capital-intensive production. The combination of low
wages and limited social security encourages greater household saving
at the expense of consumption, furthering lowering the cost of capital.
Consequently, much of the PRCs recent economic growth has been
led by the expansion of capital, energy, and emissions-intensive heavy
industry.24 Energy use per unit of GDP, which fell by around 5% per year
from 1970 to 2001, actually increased by 3.8% per year between 2002
and 2005 (Zhou et al. 2010); a considerable break with national and
international trends which have almost always seen energy intensity fall
as GDP rises.
In recognition of this unsustainable trend, and the worrying
consequences for energy security and the local environment, a
centerpiece of the PRC governments 11th Five Year Plan (20062010)
was a successful, sectoral-based energy efficiency drive.25 Despite the
governments success in increasing efficiency in, for example, steel
manufacturing and coal-fired power plants, Howes and Dobes (2011)
argue that a broader approach is needed. Rebalancing the entire economy
toward services and away from export-oriented manufacturing will be
crucial in reducing emissions. Indeed, the economic importance of this
shift is well recognized in the PRC, as are the significant co-benefits for
climate change mitigation.
While the PRC may be something of an extreme case in terms of
the dominant position held by capital-intensive industry in the recent
past, there are important lessons to be learned for other economies
in developing Asia. Viet Nam and Indonesia could be heading in a
similar direction, and India, if large inefficiencies in the power sector
are rectified, could find itself in a situation where manufacturing
increasingly erodes the currently large economic share of the services
industry.
Effective social security policy is critical to the feasibility of carbon
pricing, as well as economic rebalancing. A principal consideration in
the discussion of controlling investment is, of course, the importance
of adequate social security to stimulate household consumption and
reduce savings. This is an even more important issue if one considers
the prospects for implementing carbon pricing. As mentioned earlier,
there is likely to be significant political resistance to the higher prices
for energy arising from a carbon price. Low energy prices are a common,
24
25
See Rosen and Hauser (2007) for an overview of this trend.

See Zhu et al. (2011) for a quantitative analysis of the success of the energy efficiency
targets.
Figure 4.13: The Ratio of Investment to GDP for Developing Asia

and the Average for OECD Economies
50
Investment/GDP (%)
45
40
35
30
25
20
15
PRC
India
Indonesia
Viet Nam
Thailand
2010
2009
2007
OECD members
2008
2005
2006
2003
2004
2001
2002
1999
2000
1997
1998
1995
1996
1993
1994
1991
1992
1990
10
GDP = gross domestic product, OECD = Organisation for Economic Co-operation and Development, PRC = Peoples Republic of China.
Notes: Investment is measured as gross capital formation. See World Bank (2011) for further details.
albeit inefficient, form of social security. In order to secure political

support for higher energy prices, governments will need adequate
compensatory instruments; those which would be used in developed
economies, such as lower income taxes or direct welfare payments, may
not be available or have insufficient scope. The proposition that social
welfare reform may be a necessary precondition for carbon pricing to be
politically feasible and socially desirable is a challenging one, but worthy
of further research. This is particularly the case in the PRC, where a
national emissions trading scheme is provisionally planned for 2015, and
there exist significant gaps within the social welfare system, particularly
for migrant workers, and in health care (see Huang 2011).
4.5.5Institutional Reform
Effective and efficient operation of a carbon price, whether a tax or trading
scheme, would demand substantial institutional capacity. A carbon price
would be a fundamental reform affecting the entire economy; proper
management of such a large reform demands substantial institutional
capacity. Not only would systems need to be put in place to design and
manage the mechanism over time, government bureaucracy would need
to monitor emissions by affected business entities, ensure compliance
through credible enforcement, monitor the economic and social impact,
and so on. Creating the necessary additional institutions in a developing
country may be hard enough, doing so in developing countries where
institutional capacity may already be lacking would be harder still.
A large body of skilled bureaucrats with ample resources would be
required. Coordination between different government departments
and provincial and local authorities would be necessary. In some
cases, where government is based on a federalist system, fundamental
changes may be necessary to put in place responsibility for taxation
arrangements and other domains of economic and social governance.
None of these conditions or requirements are likely to come about
easily; improved governance is a much sought after, yet elusive objective
in many developing economies. Fortunately, however, developing Asia
is gaining increasing experience with market-based mechanisms within
the domain of climate change mitigationthe Perform, Achieve, and
Trade Mechanism in India, generation rights trading and the pilot
emissions trading schemes in the PRC, or the various fossil fuel taxes
in all countriesand the lessons learned and extra capacity created will
facilitate future institutional reform.
Corruption remains a common problem and will undermine
future climate change mitigation policy. Public sector corruption is a
significant issue in Asias major developing economies. Transparency
Internationals (2011) recent rankings of 182 countries on a scale of 0
to 10, with 0 being highly corrupt, represent all five countries poorly:
Thailand (rank 80, score 3.4), the PRC (75, 3.6), India (95, 3.1), Viet
Nam (112, 2.9), and Indonesia (100, 3). It is not necessary however to
look to ratings by international think tanks; the scale of the problem
has been self-evident from, for example, large-scale public protests
against government corruption in India and the PRC over recent years.
Table 4.8 indicated the large potential increases in government revenue
associated with carbon pricing; capture of this extra revenue by corrupt
officials would reduce the benefits of extra revenue and increase the
national costs of mitigation. Rent-seeking involving corrupt activities
could generate inappropriate technology-based policies, or government

investment decisions. Companies may underreport emissions in order
to avoid compliance. Although these propositions are generalized and
hypothetical, the risks are clear. Moreover, corrupt practices may prove
a disincentive to foreign investment and act as a barrier to acceptance
into international markets for carbon offsets and emissions reductions,
thereby limiting the economic benefits of a domestic carbon price.
4.5.6International Support
Financial support from developed countries is necessary and
justified. It is in the developed worlds interests for developing Asia
to cut emissions; therefore it is imperative for developed countries to
finance the significant gap between the up-front benefits and costs of
mitigation. The domestic motivations outlined in Section 4.2 of this
report, such as energy security and improved local environmental
conditions, involve substantial benefits over time, but probably not
enough in the short term to drive the major, additional transformations
required. Substantial additional investments in, for example, renewable
energy need to occur soon to avoid locking-in future emissions. While
sufficient resources may be available, at least in the PRC, to pursue
some of the large necessary investment independently, developing
Asian economies have other, more immediate priorities than future
climate change; chief among them is raising the standard of living. As
arrangements for the UNFCCC Green Climate Fund progress in a risky
global economic environment, it is important that developed countries
fulfill their climate finance commitments; the major economies of
developing Asia cannot and should not be expected to carry the full
burden of their mitigation costs alone.
Non-financial forms of assistance could be, in some cases, even
more important. Achieving extensive technology transfer will require
new arrangements and, perhaps, willingness on the part of developed
countries to forgo some commercial advantage for their own industries.
The earlier discussion highlighted the significant institutional capacity
requirements of carbon pricing; technical assistance from developed
countries and multilateral organizations will therefore be very
advantageous. Of course, developing countries would benefit greatly
from the knowledge created by the experience of carbon pricing and
substantial mitigation activities in developed countries; a key driver
for mitigation in developing Asia will therefore be the establishment of
ambitious carbon pricing in developed countries.
Regional cooperation will promote climate change mitigation in

developing Asia. International support extends beyond developed
countries. Despite variability in economic structure and society, the
major economies of developing Asia share two important characteristics:
high rates of growth and the need to alter their development trajectories.
Achieving the latter transformation amidst the former trend will
throw up many policy challenges, above and beyond those mentioned
in this report. The exchange of knowledge on how to overcome these
many challenges will be mutually beneficial, particularly with regard
to technology adoption, difficult reform processes, and minimizing
mitigation costs. Coordination of national policies may reduce the
prospect of intraregional carbon leakage. If and when national carbon
prices arise, regional linkages could reduce mitigation costs by
exploiting areas of comparative advantage in reducing emissions, such
as deforestation in Indonesia, agriculture in Viet Nam, or the efficiency
of coal-fired power plants in India.
4.6Conclusion
The preceding analysis of major policy challenges facing developing Asia
may appear, at first glance, to cast a pessimistic light on the prospects
for extensive action on climate change. This is not the intention of
this chapter. Rather, the purpose is to highlight the importance of a
broad-scale approach to mitigation that extends across all levels of the
economy and government. Isolated or sector-focused policies will not
be sufficient for the major switch to a low-carbon, environmentally
sustainable trajectory. Carbon pricing, a transformative policy that will
be necessary in the future, is instructive in this regard: a large number of
complementary reforms will be required for extensive carbon pricing to
even be a feasible policy option.
This chapter also emphasizes the importance of governments
in developing Asia continuing to increase their level of ambition. It is
certainly the case that recent policy announcements and targets have
already transformed emissions trajectories and developing Asia is
making a major contribution to collective global efforts. The problem is,
however, that the current course remains insufficient.
Developing Asia is the engine of todays emissions-intensive global
economy. The limits of the climate system prohibit a region containing
one third of the worlds population, including the majority of the global
poor, from following the same development path of todays high-income
countries. The countries considered in this report are the principal
source of future emissions and, in the case of the PRC and India, among
the largest contemporary sources. Analysis in this report shows that
if zero emissions could be achieved in developed countries, and the
current trajectory continued in developing Asia, aggregate global action
would likely still be insufficient. Further action is needed, and quickly,
to avoid locking-in emissions intensive infrastructure as Asias energy
demand surges, and to reduce the costs of mitigation.
The central role of the study countries in global mitigation efforts
points toward the final central message of this report: considerable
international support is required for developing Asia to reach a lowcarbon trajectory. There are substantial domestic benefits to mitigation,
but likely not enough to drive the large, up-front investments that, in
the global interest, are needed to develop Asias energy infrastructure.
Given the necessity of meeting short-term social priorities, such as
raising living standards, governments in developing Asia will not and
should not bridge the gap between costs and benefits alone. If it is in
the interests of developed countries to see extensive climate change
mitigation in developing Asia, then it is in their interests to provide
substantial assistance, financial or otherwise.
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Zhu, Y. 2011. Development Trajectories, Emissions Profile and Policy
Actions: Peoples Republic of China, Background paper for ADBI
Climate Change and Green Asia study.
PART II
Driving Forces and Incentives of

Chapter 5
Co-Benefit
Technologies, Green
Jobs, and National
Innovation Systems
Sivanappan Kumar, Naga Srujana Goteti, and
Prathamesh Savargaonkar
5.1Introduction
Technological measures, whether to promote low-carbon green growth
or rapid industrialization, have unintended side-effects. These can be
both negative (co-damages) and positive (co-benefits). In many analyses
of the effects of current environmental policies, these side effects are
often considered only partly or not at all. Furthermore, interactions
among different technology measures can influence and be influenced
by the environment and the socioeconomic system. Therefore, there is
an urgent need for a methodological framework that considers all side
effects to enable a better evaluation of technologies for all stakeholders
at local, regional, and national levels.
When implementing and creating initiatives that promote the
development and use of low-carbon technologies, robust methods are
needed to identify, categorize, and quantify their co-benefits and codamages. Interest in co-benefits is increasingly becoming a crucial factor
for enabling successful greenhouse gas (GHG) mitigation strategies
that do not compromise national economic development plans (TERI
2010). However, policy makers need a way of quantifying the co-benefits
from each low-carbon technology on a common platform so they can
be evaluated against cost-efficient traditional technology projects. A
149
methodology is provided here to evaluate the co-benefits of low-carbon

technologies, paving the way for investments and policy developments
in developing countries, and thus to create an economy that is resilient
to climate change.
Specifying the co-benefits associated with a low-carbon technology
can only help improve its potential for implementation. To assist
in the promotion of low-carbon technologies using quantified cobenefits, economic, management and institutional approaches can be
identified through national innovation systems, defined as systems of
interconnected institutions to create, store, and transfer the knowledge,
skills, and artifacts which define new technologies (Metcalfe 1995;
OECD 1999, p. 138).
The proposed methodology is based on the hypothesis that lowcarbon green growth is an imperative for the Asia-Pacific region,
especially since the emerging economies of Asia are heavily dependent
on limited resources. Well timed policy interventions and defined
targets can boost carbon efficiency, increase economic growth, and
help solve societal problems (Yohe 2007). An evaluation of these
individual approaches is necessary to identify relevant approaches to
maximize available benefits. Thus, a comprehensive evaluation of cobenefits means an appropriate incentive-based system of approach and
intermediaries can be designed within the national innovation systems
framework. This will promote investment in low-carbon technologies,
thus enabling GHG emissions mitigation.
The framework links various components of the national innovation
systems in areas related to technology innovation and transfer policies,
and the transfer chain participants. Thus, this chapter can be explained as
an analysis of the diffusion of low-carbon technologies based on country
competencies for creation and innovation through various technology
transfer mechanisms and policies. The chapter thus aims to review
the current status and cost of prevalent low-carbon technologies and
existing innovative approaches and policies for low-carbon technology
promotion. It then:

identifies and analyzes the effect of co-benefit technologies and

their potential for low-carbon green growth,
quantifies the co-benefits from the technologies, and
identifies various economic, institutional, and management
approaches for mobilizing resources in stimulating innovation
at the regional level.
Co-Benefit Technologies, Green Jobs, and National Innovation Systems151
5.2Analysis of Co-Benefits from Low-Carbon

Technologies
The co-benefits of any technology may be large and diverse. They may be
direct or standard (which can be quantified) or abstract (which are not
easily quantified). Also, co-benefits may be direct in the sense that they
affect the participating stakeholders directly or abstract in the sense that
they are ancillary to the stakeholder or sector but affect the economy
(multiplier co-benefits). Co-benefits can vary based on investment,
purpose, and location. The study focuses only on level 1 and level 2 cobenefits. The three levels are defined as follows:

Level 1. Standard co-benefits are roughly proportional to the

amount of investment, irrespective of the source, e.g., job
creation and health benefits.
Level 2. Abstract co-benefits only happen above a certain
level of investment and occurrences (e.g., time or implied
assumptions). They are not proportional to the scale of the
investment, but require it to reach a critical level, or may
demonstrate a snowball effect.
Level 3. Multiplier co-benefits are interlinked and not easy to
quantify. Innovation can lead to capacity building as well as
improved productivity, which in turn can boost market growth,
with additional co-benefits, e.g., new jobs.
Table 5.1 provides a detailed analysis of co-benefits of low-carbon

technologies in the Asia-Pacific under the technological approach. The
direct approach defines generic level 1 co-benefits, while the indirect
approach defines generic level 2 and level 3 co-benefits.
5.2.1Job Creation Co-Benefits

Job creation is one of the most important co-benefits of low-carbon
and renewable energy technologies. However, these technologies have
both positive and negative impacts, as job creation by the low-carbon
technologies offsets jobs in the fossil fuels sector and thus it is important
to measure the net impact. A literature review suggests there are two
complementary approaches for estimating job creation resulting from
renewable energy projects (Ecofys 2010):

The simplified methodology of the Renewable Energy Policy

Network for the 21st Century (REN21 2011) is an analytical
Bio-ethanol Production
Transportation Sector
(biodiesel production)
Energy intensive industries

(advanced paper recycling as an
enabling technology)
Low-Carbon Technology
Increased energy security

Increased fuel exports
Job creation in industrial sectors

Increased farm incomes
Increased life of engine components with reduced wear

and tear
Reduced emissions of hydrocarbons and carbon monoxide
Decreased fossil fuel imports
Improved urban air quality
Non-toxic exhaust without bad odor
Job creation in agricultural and forestry sectors
Decrease in overall use of natural resources
Effluents from recycled plant have fewer environmental

impacts
Industrial diversification
High volumetric efficiency and the temperature of burning
is cooler than regular gasoline which keeps valves cooler.
This also contributes to increased power and better
productivity
Greenhouse gas savings by reduction of emissions
Biodegradable components
Creation of alternative markets for agricultural
commodities
Increased organization among farmersin the form of a

union so they can gain access to energy markets
Improved soil conditions

Rural community development
Stable and reliable power availability
Job creation in design, marketing, advertising, and

distribution of recycled paper
Recycling services are cheaper than trash disposable
services
Improved public health
Jobs are created in collection schemes, sorting plants,

recycled paper mills
Import prices of wood and pulp are offset
Level 2 and Level 3
Technological Analysis For Co-Benefits
Increase in cost efficiency due to reduction in use of

precious and expensive virgin wood
Better energy savings as less energy is required to produce
recycled paper
Level 1
Table 5.1: Standard and Abstract Co-Benefits Available From Low-Carbon Technologies
Level 2 and Level 3
Low capital cost

Lower risks for disposal of residuals leading to better
acceptance
Enabling development and furthering of R&D initiatives
Sustainable development for private parties due to
marketable products
Better aesthetics
Cleaner climate due to lower GHG emissions
Biofuels can act as power generators
Better biodiversity, soil recovery and regeneration of land

Use of marginal land for producing something useful
Quality of life benefits for women and children
Job creation and boost to small entrepreneurs
GHG = greenhouse gas.

Sources: Ministry of the Environment, Japan (2011); IPCC (2007); UNEP-IETC (2010); Climate Parliament (2010). Online sources: http://climatetechwiki.org and http://cleanairinitiative.org
Lower wastage
Revenue generation leading to improved economic
efficiency
Generation of syngas which can be used for electricity
Reduction of residuals as compared to conventional
technologies
Reduction in odor and dust
Industrial Sector
(solid waste management)
Level 1
Methane use
Wastage reduction due to carbon use
Recycling of cooking oil (Better utilization of resources)
Zero GHG emissions and promotion of Clean
Development Mechanism methodologies
Use of algae as fuels thus savings agricultural lands used
for biodiesel fuel production
Technological Analysis For Co-Benefits
Household Sector
(improved cooking stoves)
Low-Carbon Technology
Table 5.1continued
approach using employment coefficients based on information

on labor in person-years per MW of installed capacity, and data
on expenditure necessary to support a full-time job (personyears per $ invested).
Another methodology uses New Energy Finance (NEF 2009)
data for the wind and solar photovoltaic (PV) sector, taken
from published accounts and interviews with representatives
of leading companies. NEF takes a global approach although
most of the projects and companies it covers are in developed
countries
The first approach provides an estimate of job creation within a

range. The second, which is available only for some renewable energy
technologies, provides examples with which the data can be compared.
Table 5.2 provides data for different technologies. The following
comments relate to the data in Table 5.2.
Solar PV
The cost per MW installed varies in each developing country, but also
depends on the size of the installation. For example, 1 MW installed in
Abu Dhabi as part of a 40 MW project costs $3.3 million; 1 MW installed
in Southern Africa for a 1 MW project costs $ 4.5 million. The cost can
reach $9 million per MW for small roof-top installations.
Wind
NEF estimates that a total of 10.2 full-time equivalent jobs are created
for each MW installed, taking into account direct jobs in companies
supplying materials (0.6 jobs), components, subassemblies and
assemblies for wind turbine manufacturing (7.5), plus those in firms
developing and servicing (0.2), research (0.1) and constructing wind
farms (1.6), and those in the operation and maintenance of wind assets
(0.2).
5.2.2Health Co-Benefits
Previous studies have translated the available co-benefits into a
monetary value. In this study, we have quantified the health co-benefits
qualitatively and quantitatively (realistic measures) since assigning
monetary measures to health co-benefits is highly controversial. Health
co-benefits can be directly linked to the implementation of low-carbon
technologies in the sense that they reduce air pollution arising from the
GHG emissions of traditional technologies. Hence, these co-benefits are
important not only because they may provide an additional rationale for
Table 5.2: Estimated Job Creation Co-Benefits from

Low-Carbon Technologies
Measure
Manufacturing and installation of solar
photovoltaic power plants
Range of jobs
created per MW
new capacity
Estimated by New
Energy Finance
(2009)
7.136.4
1. Rooftop installation
36.4
2. Other installation sites
21.4
Operation and maintenance of solar

photovoltaic power plants
0.12.5
0.6
6.2522.4
22.4
Operation and maintenance of solar thermal

electricity power plants
0.71.58
0.8
Manufacturing and installation of wind power

plants
2.637.5
10
Manufacturing and installation of solar

thermal electricity power plants
MW = megawatt.
Source: TERI (2010); NEF (2009).
pursuing mitigation strategies, but also because progress has been slow
in addressing international health priorities such as the UN Millennium
Development Goals (MDGs) and reductions in health inequities. Careful
selection of climate change mitigation measures will benefit both the
environment and public health (Haines et al. 2009).
In the low-income countries of Asia-Pacific, the products of
incomplete combustion in traditional solid fuel stoves lead to heart and
respiratory problems. National programs offering low-emission stove
technologies for burning local biomass fuels in poor countries could,
over time, avert millions of premature deaths, and constitutes one of the
strongest and most cost-effective climatehealth links of low-carbon
technologies. Box 5.1 illustrates the health co-benefits resulting from
improved cooking stoves in India.
Energy generation, transportation, agriculture, and food production
contribute to a large amount of GHG emissions. Use of low-carbon
technologies in these areas can lead to important co-benefits. In the city
of Delhi, for example, it has been estimated (IAMP 2010) that use of
low-carbon measures in transportation could bring a cut of 10%25%
in heart diseases and stroke along with a 17% fall in the risk of diabetes.
Haines et al. (2009) present data on health co-benefits from low-carbon
measures in household cooking, transport, and low-carbon technologies
(Table 5.3).
Box 5.1: Cooking Stoves in India

Indoor air pollution in India and other developing countries is largely
due to the inefficient cooking technologies used widely in the rural
areas of the country generating energy from semi-burnt fossil fuels. It is
estimated that almost 29% of CO2 emissions in India can be attributed to
these technologies. Indoor air pollution from inefficient cooking stoves
increases the risk of acute respiratory tract infections in children younger
than 5 years and chronic respiratory and heart disease in adults older
than 30 years. It is noted that ...by 2020, the cumulative effect of the
proposed Indian stove program would enable the country to lower the
national burden of the three diseases mentioned above by about a sixth.
This would be equivalent to the elimination of nearly half the countrys
entire cancer burden, while reducing its GHG emissions.
Source: Lancet (2009).
Table 5.3: Case-Based Health Co-Benefits from

Low-Carbon Measures
Measures
Country/City
Health Effect
Clean-burning stoves
India
Reduction in exposure to
indoor pollution
Low-carbon and more

active transport
Delhi, India
Less air pollution, changes

in injury risk, changes in
physical activity
Low-carbon fuels and

technologies
PRC and India
Reduced (particulate) air

pollution
PRC = Peoples Republic of China.

Source: Lancet (2009).
5.2.3Economic and Energy Security Co-Benefits

Energy security is defined as ensuring the availability of diverse energy
resources in sustainable quantities at affordable prices, supporting
economic growth, assisting in poverty alleviation measures, not harming
the environment, and taking note of shocks and disruptions (Shrestha
and Kumar 2008). Energy security co-benefits are implied and indirect,
so quantifying them is very difficult. Studies have noted various energy
security co-benefits, some of which are as follows (IPCC 2007):
increased dependence on renewable energy sources helps to reduce

import dependency and in many cases minimizes transmission losses
and costs; electricity, transport fuels, and heat supplied by renewable
energy are less prone to price fluctuations, although they have higher
initial costs; implementation of low-carbon technologies are usually
accompanied by liberalization and privatization policies that lead to free
energy markets which provide greater market competition and lower
consumer prices.
Box 5.2 contains an example of energy security benefits in the PRC.
Box 5.2: Energy Generation Systems in the Peoples

Republic of China Reduce Dependence on Fossil Fuels
In the largest coal-producing province of the Peoples Republic of China
(PRC), an ADB-supported project is demonstrating the latest technologies
in capturing methane and turning it into a clean, safe, and cheap fuel. The
PRC is the worlds largest producer and consumer of coal and sends more
than 13 billion cubic meters of methane annually into the atmosphere.
More than 70% of the PRCs energy supply comes from coal, which
produces methane, a greenhouse gas (GHG) about 22 times more potent
than carbon dioxide. Largely as a result, many cities fail to meet minimum
standards for air quality and acid rain falls on about a third of the country.
The ADB provided a $117.4 million loan for a project to capture this excess
methane and use it in the process of energy generation. The project
captures and produces coal mine methane for a 120-megawatt power
plant and distributes it to consumers in Jincheng. It also produces coal
bed methane, mostly as transport fuel. Significantly, as a means to mitigate
climate change, the project avoids GHG emissions from 265 million cubic
meters of methane or at least 4.4 million tons of carbon dioxide emissions
as it saves the burning of over 430,000 tons of coal a year, according to
experts. Additional benefits from the sale of carbon credits under the
Clean Development Mechanism will provide an estimated total revenue
of more than $100 million until 2012.
Source: ADB (2010).
Co-benefits need to be quantified based on the relevance and

efficiency of outputs to the stakeholder as the co-benefits for the same
technology may differ widely. Table 5.4 gives some examples of different
low-carbon technologies in Asia with varying co-benefits.
Street lights
Photovoltaic Bangladesh,
Technology Chittagong
hill tract
7.2 kW
36 kW
solar home
systems
End Use
Technology
Application Specification
Solar home
system
Country and
Location
hill tract
Technology
Name
Case Study
By January 2005,
BPDB had installed
a total capacity of
7.2kW solar-powered
street lights in
Jurachari subdistrict
of Chittagong hill
tract area
By January 2005,
Bangladesh Power
Development Board
(BPDB) had installed
about 2,100 solar
home systems in
Chittagong hill tract
area (Juraisarichub,
Belaichari and Borkol
subdistricts)
Local
1. Better security,
transportation
and business
opportunities
2. Lower chemical
pollution due to
environmental
friendly disposal
3. No excavation
for electric supply
via cables so better
natural resource
conservation
1. Cleaner
environment
2. Arid area utilization
3. Reduction of noise
pollution due to silent
operation
Global
1. Lower energy
demand and
consumption
2. Enhanced carbon
trading market
efficiency due to
large number of CDM
projects
3. Reduced waste
1. Offsetting of GHG
emissions
2. Enhanced
sustainability of
resources
Environmental
Local
1. Maintenance
free so almost zero
operating costs
2. No safety hazards
so reduction in health
risks cost
3. Creation of
employment
opportunities
4. Sustainable
reduction of property
management costs
Global
A beneficiary
management
committee has
been formed with
representatives from
government offices
and local hill tracts
communities.
1. Rebates available
for installation at
about 30% of the
installed system cost
2. A photovoltaic
solar electric system
increases home value
by $20,000 for each
$1,000 in annual
reduced operating
costs
Additional
Quantification of
Co-Benefits
1. Transmission losses
savings
2. Lower spending on
health policies due
to reduced health
hazards
3. Creation of
employment
opportunities
4. Property value
appreciation and
addition of new selling
features
1. Less currency
exposure due to
reduced dependence
on oil imports for
energy
2. Revenue generation
via net metering and
feed-in tariff systems
Economical
opportunities
2. Productive work
time enhanced and
saved
Co-Benefits
Table 5.4: Case Study Matrix for Co-Benefits Evaluation and Quantification
Country and
Location
hill tract
Technology
Name
Table 5.4continued
Vaccine
refrigerators
for health
care system
360 Wp
End Use
Technology
By 2008, BPDB had

installed six sets of
vaccine refrigerators
in Jurachari, Barkal
and Thanchi subdistricts
Case Study
1. Better health
2. Lower emissions
when compared to
diesel powered and
kerosene powered
refrigerators
Local
Global
1. Increased longevity
and better human
health quality
2. Elimination of
hazardous material
being exposed to
environment
Environmental
Local
Global
1. Larger market for

pharmaceutical goods
2. Longer equipment
life leading to better
resource conservation
Economical
1.Accelerated
depreciation
technique enables
higher business
opportunities
2.Tax credit
available on the
systems enabling
entrepreneurship
promotion
3. Lower running and
maintenance costs
which were present
previously due to
power outages
Co-Benefits
1. Accelerated
depreciation helps in
recovery of project
costs within 3 years
2. Tax credit enabled
over 100 small
entrepreneurs
to promote the
technology
3. 3-5 jobs for
maintenance and
installations created
The committee
is responsible for
revenue collections
from the solar
electricity consumers,
operation and
maintenance of the
SPV systems and
also for the future
further expansion of
the systems to more
households.
Additional
Quantification of
Co-Benefits
Country and
Location
hill tract
Technology
Name
Table 5.4continued
Centralized
10 kW
electrification
for
commercial
purposes
End Use
Technology
By 2008, BPDB
had installed
centralized AC
market electrification
system for about 200
shops in a market in
Jurachari district
Case Study

preventing soil
erosion
2. Offset of GHG
emissions from
transportation of
fossil fuels to the
difficult access region
Local
Global
Local
Global
1. Promotion of
gender equality and
empowerment due
to enhanced earning
capacities for women
2. Enhanced market
access for enterprises
Economical
1. Micro enterprise
development
2. Better safety
and education
opportunities due
to operation of night
school
3. Creation of
permanent jobs
Co-Benefits
1. Cleaner and more

energy- efficient
environment due to
non-burning of waste
for heat generation.
2. Improved air quality
Environmental
1. Reduction of 56% in
non-methane organic
compounds, 46% CO2
and 34% methane
4. Typical carbon
savings are around
230 kg CO2/year when
replacing gas and
510kgCO2/year when
replacing kerosene
Additional
Quantification of
Co-Benefits
Wind Power
Technology
Name
Country and
Location
Table 5.4continued
Case Study
Local village 22 MWe

Gamesa Eolica
electrification onshore wind (Spanish company)
farm
supplied G58-850kW
turbines to Indian
company Pioneer
Asia wind turbines
for the erection of
wind turbines in
Muppandal area in
the state of Tamil
Nadu
End Use
Technology
1. Local ground water
and top soil are not
polluted
2. Reduced use of
non-renewable
energy
3. Wind farm lands
can be effectively
used for farming and
grazing
Local
Global
Global
1. Successful
implementation of
wind power plant
with right mix of
financial incentives
and adequate
support from the
local government
motivated foreign
investors to invest
in the wind farms
of Tamil Nadu for
greater returns.
2. The successful
implementation of
Muppandal wind farm
accelerated the use
of wind technology
in the state of Tamil
Nadu.
3. Tamil Nadu
promoted wind
energy with the right
mix of policies and
today it is a nodal
point for many
giant wind energy
manufacturers such
as Suzlon, Gamesa
and Vestas.
1. Heavy power
consuming industries
such as textile and
cement industries
consume captive
power from this wind
farm.
2. Load shedding
during summer was
a handicap to heavy
power consuming
industries but it was
offset by wind energy,
which peaks during
summer
3. Agricultural
productivity, rural
industries, health
and educational
opportunities could
benefit from the
availability of lowcost power and this
slowed down the rural
exodus
Economical
Local
Co-Benefits
1. Direct reduction in
CO2 emission levels
Environmental
1. This wind farm is

a part of Indias $2
billion clean energy
program.
2. Today Tamil Nadu
contributes about
40% of Indias wind
energy
3. The Muppandal
wind energy farm
offsets about 50,000
t CO2 equivalent/year
4.100% depreciation
opportunity enables
entrepreneurship
promotion
Additional
Quantification of
Co-Benefits
Country and
Location
Sri Lanka
Technology
Name
Solar
Thermal
Table 5.4continued
Domestic
4.5 m2 flat
plate solar
hot water
system
End Use
Technology
n/a
Case Study
1. Almost zero GHG

emissions
2. Better sanitation
facilities reducing
pollution
Local
Global
Local
1. More productive
time and
opportunities for
women
2. Heat generation
promoted local food
processing industry
Global
1. Creation of green
jobs
2. Revenue
generation through
CDM projects
Economical
4. New startups like

Sterling Infotech and
Lietner have also
started manufacturing
wind turbines in the
state of Tamil Nadu
after the success of
this project, which
was followed by many
other projects
5. The local
government of Tamil
Nadu provides a tax
holiday for about
5 years and a total
depreciation of about
100%
Co-Benefits
1. Cleaner air
improving health
quality
2. Better safety
of workers during
manufacturing due to
lack of moving parts
3. Land conservation
as generating
electricity from coal
requires as much or
more land per unit of
energy delivered (if
the land used in strip
mining is taken into
account)
Environmental
1. Average annual
heat production:
2,055 kWh
2. Payback period:
15yrs 3. Carbon
offset: 398 kg
Additional
Quantification of
Co-Benefits
Country and
Location
Sri Lanka
Cambodia,
Takaev
province
Technology
Name
Solar
Thermal
Biogas
Table 5.4continued
Cooking
stoves,
lighting
Domestic
and
Commercial
Chinese
model based
digester (46
m3)
8 m2 flat
plate solar
hot water
system
End Use
Technology
1. Fewer GHG
emissions
2. Cleaner air
3. Fewer respiratory
tract diseases
4. Better growth rate
of harvested crops
Participants in the
National Biogas
Program (NBP)
conducted a study
in the four districts
of Takaev province
on rural biogas
application in 2009
Local
1. Almost zero GHG
emissions
Case Study
n/a
Global
1. Lower GHG
emissions due to byproduct generation
of bio-fertilizer,
reducing the need
to manufacture
artificial fertilizer, a
highly GHG-intensive
process
Local
1.Saving of productive
time and convenience
2. Creation of jobs
and cheaper than
traditional methods
3. Enhanced
productivity
Global
1. Saving of time
and convenience of
technologyfarmers
save about 12 hours/
day and 1530 days/
year compared to
conventional usage of
firewood and charcoal
2. Per household
saving of $1.18 to $12
per plant as compared
to firewood and
batteries
1. Average annual
heat production:
4,096 kWh
2. Payback period:
10.6 years
3. Carbon offset:
794 kg
Additional
Quantification of
Co-Benefits
1. Entrepreneurship
opportunity from sale
of slurry
2. Better animal
sanitation leading
to enhanced animal
husbandry production
3. Efficient operation
of tax subsidy
policies as they
simultaneously
contribute to
economic growth of
the region
1.Creation of green
jobs
2. Promotion of
industries such as
tourism
3. R&D and
technology transfer
incentives
Economical
1. Creation of jobs and

promotion of female
entrepreneurship
2. Cheapest energy
generation source for
locals
Co-Benefits
1. Cleaner air
improving health
quality
Environmental
n/a
India
Biomass
4.5 MW
Waste
Incineration
Device
(WID)
biomass
system
with boiler
availability of
87.71% and
efficiency
of 76.54%
(20042005
figures)
20 kW (two
turbines
installed)micro-hydro
project
End Use
Technology
Lighting,
television
and radio,
water pump
Country and
Location
Hydropower India, Kerala
Technology
Name
Table 5.4continued
Case Study
MPPLs Gold standard

Clean Development
Mechanism project in
India with an annual
addition of Rs.45
million to rural GDP
Mallanadu
Development Society
(NGO) installed a
micro-hydro project
in Thulappaly, a
remote village in the
western part of Kerala.
The village location is
hilly and very unlikely
to receive central
grid connection.
This project was
implemented in 1999
Local
1. The recycling of
biomass wastes
mitigates the need to
create new landfills
and extends the life of
existing landfills
2. Biomass
combustion produces
less ash than coal, and
reduces ash disposal
costs and landfill
space requirements
3. The biomass ash
can also be used as
a soil amendment in
farm land
1. Reduced drudgery
in the families
2. Enhanced
communication and
awareness
Global
1. Biomass fuels
produce virtually no
sulfur emissions and
help mitigate acid rain
2. Perennial energy
crops (grasses and
trees) have distinctly
lower environmental
impacts than
conventional farm
crops. Energy
crops require less
fertilization and
herbicides and
provide greater
1. Community
awareness of
natural resources
conservation
2. Reduced accidents
and health hazards
occurring otherwise
from firewood
collection
Environmental
Local
1. Generation of more
jobs as compared to
other low-carbon
technologies
for the locals from
daily waste
Global
1. Creation of waste
management jobs
in the economy
offsetting
unemployment
2. Provision of
diversity to the
farmers, offsetting
their market value
risks
1. Payback period of
4.5 years with cost of
fuel at $30/tonne
2. Total cost of project
is $16 million
3. Annual revenue of
over $3 million
4. Return on
investment at 22%
5. Creation of 16
permanent jobs and
total 450 jobs
6. Cost per household
in the project at
$11,765
1. Electrification of
500 homes which
earlier had no access
to electricity
2. About 161 families
are receiving
education daily
on environment
conservation
Additional
Quantification of
Co-Benefits
1. Enables better
energy access
improving market
opportunity for global
manufacturers
2. Involves huge
investments and thus
boosts the economy
Economical
1. Improved
recreational and
environmental
attractiveness
generating revenue
2. Creates permanent
jobs unlike other
renewable energy
methods
Co-Benefits
Technology
Name
Country and
Location
Table 5.4continued
End Use
Technology
Case Study
Global
vegetative cover
throughout the year,
providing protection
against soil erosion
and watershed quality
deterioration, as well
as improved wildlife
cover
Local
4. Biomass fuels
recycle atmospheric
carbon, minimizing
global warming
impacts since zero
net carbon dioxide
is emitted during
biomass combustion,
i.e, the amount of CO2
emitted is equal to
the amount absorbed
from the atmosphere
during the biomass
growth phase
Environmental
Co-Benefits
Local
Economical
Global
7. Annual income
from the households
at $2,609
8. For biomass
power systems, it is
estimated that six full
time jobs are created
for each MW of
installed capacity
9. Depending upon
the capacity, this
employment figure
includes 1520 or
more personnel
at the power plant
and the balance of
people hold jobs in
fuel processing and
delivery
Additional
Quantification of
Co-Benefits
Country and
Location
Power
generation
1,000 MW
End Use
Technology
Zhejiang Guohua
Ninghai ultrasupercritical
power project
was developed by
Zhejiang Guohua
Zheneng Power
Generation located in
Ningbo City, Zhejiang
Province. A total
of two units were
developed operating
at a total capacity of
2,000 MW. They are
estimated to deliver
about 10,367.5 GWh
to East China Grid.
First unit was in
operation by 2009
Case Study
1. Cleaner
environment as
compared with
previous standards
due to use of diesel
generators
Local
Global
Local
Global
1. Better market
opportunity
for technology
manufacturers
2. Enhanced
technology transfer
opportunity for the
stakeholders
3. Significant
example promoting
investments in the
low carbon sector
Economical
1. Earnings for the

locals through
approved CDM
project credits
2. Enhanced
employment
opportunities for
locals
3. Financial subsidies
by the government
enable promotion of
investment
Co-Benefits
1. Better power
generation efficiency
and lower GHG
emissions
2. Less pollution
and no odor due to
substantial reductions
in emissions of
hydrogen sulfide
Environmental
1. Estimated annual
reduction of about
248,569 t CO2
equivalent/ year for
the given technology
2. Creation of over
320 permanent jobs,
including direct,
induced and implied
3. Reduction of
4%-5% emissions
of other poisonous
gases as compared
to traditional
technologies
4. Cheap construction
of the plant due
to abundant labor,
reducing the total
costs by about 18%
compared with OECD
countries
Additional
Quantification of
Co-Benefits
Source: REPP (2009); Appraisal Institute (2010); SGP, UNDP (2011); Alison Doig (2007); CWET (2010); Sri Lankan Sustainable Energy Authority (2009); UNFCCC (2010); UNDP, small grants programme (1999);
UNFCCC (2011).
CDM = Clean Development Mechanism, CO2 = carbon dioxide, GDP = gross domestic product, GHG = greenhouse gas, GWh = gigawatt-hour, kW = kilowatt, m2 = square meter, m3 = cubic meter, MW = megawatt,
OECD = Organisation for Economic Co-operation and Development, PRC = Peoples Republic of China, R&D = research and development.
Coal-based PRC,
super critical Zhejiang
and ultra
province
super critical
power plants
Technology
Name
Table 5.4continued
5.3Innovative Technology Mobilization

Measures and Policies for Asia and
the Pacific
Technology has always been important to growth and development; it
not only contributes to economic growth but also to improvements in the
quality of life and societal values. Mansfield (1975), p. 9 pointed out that:
One of the fundamental processes that influence the
economic performance of nations and firms is technology
transfer. Economists have long recognized that the
transfer of technology is at the heart of the process of
economic growth and that the progress of both developed
and developing countries depends on the extent and
efficiency of such transfer. In recent years, economists
have also come to realize (or rediscover) the important
effects of international technology movements on the
patterns of world trade.
The Asia-Pacific has been long been known to have a high rate of
technological transfer and a low rate of innovation development due to
its unique mix of labor-intensive factors and low level of technological
resources. Over time, economies in Asia have emerged as low-cost
producers of goods that are exported worldwide. However, innovation
is concentrated in lower-level technologies and efforts are required
to change this. Some countries have developed their own approaches
to promoting innovation at local levels through national innovation
systems or technology innovation policies. Singapore and the PRC have
well developed national innovation systems.
Climate change is not only an environmental problem but an
economic issue, since the cost of combating climate change is far lower
than the cost of facing it. This chapter evaluates the specific policy and
multidimensional approaches that have been followed by countries in
the Asia-Pacific in order demonstrate what countries have been doing to
address climate change.
Figure 5.1 summarizes current innovation and technology promotion
policies in the Asia-Pacific. National technology policies have been
divided into categories that are specific for low-carbon technologies.
Three levels of technology policies in the Asia-Pacific can be identified:

international technology adaptation and cooperation policies,

national assessment and planning, and
financial incentives and local participation.
These policies are implemented by various measures which

define the framework for innovation and the promotion of low-carbon
technologies. Innovative approaches can be very useful in the AsiaPacific for promoting low-carbon technologies but they need to be
implemented effectively, within a properly designed and established
framework, including the transfer of technology from developed to
developing countries.
Figure 5.1: Technology Promotion and Innovation Policy

Framework in Asia and the Pacific
Adaptation of low-carbon technologies
International
Application of low-carbon technologies
Policies
National
assessments
and planning
Financial
incentives and
local
participation
National resource planning and assessment

Legislative framework for requirement plannings
Reduction of subsidy on fossil fuels
Strengthening of "low-carbon technology market"
Source: Developed by authors.
According to Ramanathan (2011), the barriers that exist for the

successful transfer of eco-sensitive technologies are as follows:

Developed and developing countries have different perceptions

of technology transfer. Developed countries perceive it from
the point of view of business-to-business transactions, while
developing countries assume the government will play a major
role (Chung 1997).
The purpose of technology transfer becomes controversial when
there is a conflict between short-term profit maximization by
private firms and long-term capacity building for self-reliance
by the receiving country.
Resources dedicated to human skill development are not given
due importance, which makes it difficult to make continuous
improvements for a better performance.
On small enterprises, Ramanathan notes that although

small enterprises could well be aware of the importance of ecoinnovation, they lack skills and finance to plan and implement
TT projects. Also, the absence of a coherent policy mix that
explicitly prioritizes preferred technologies, establishes carbon
standards, and provides targeted financial and fiscal incentives
further aggravates the problem. This is a key issue that the
national innovation systems of developing nations needs to
address. (Ramanathan 2011, p. 17).
Intellectual property can be a barrier for technology transfer.
However, several useful technologies are available in the public
domain.
Ramanathan has also suggested the following measures to overcome

the barriers for a better national innovative system through technology
transfer. The interventions are:

Examine the current capacity of national innovation systems

in tackling climate change and promoting green growth with
specific reference to technology transfer.
Examine ways to accelerate the diffusion of internationally
available carbon efficient clean technologies by building
technology transfer capacity for small and medium-sized firms,
improvising innovations to be commercialized and encouraging
innovation hubs for the increased sharing of innovations
between developing nations.
Explore market, trade, and investment related issues that
need to be addressed to facilitate technology transfer for ecoinnovation.
Elaborate possible approaches to manage intellectual property
issues to facilitate technology transfer.
Box 5.3 presents some of the co-benefit projects implemented by

Japan in the PRC and Malaysia after the implementation of successful
Clean Development Mechanism (CDM) projects.
Policies promoting low-carbon technologies can be further
strengthened by considering the benefits to stakeholders and society due
to the many associated co-benefits of particular low-carbon technologies.
Thailands alternative energy policy on the usage of gasohol is a good
example. The Thai government aims to promote use of E20 and E85 at
the expense of current gasoline usage and to increase the number of fuel
flexible vehicles (FFV) to about 1,070,000 by 2022). The government
will promote cars fuelled by high proportions of ethanol. The strategy
Box 5.3: Projects Based on a Co-Benefits Approach

Saving energy with high efficiency boilers and processes
Air pollution has become a serious problem in many countries, especially
where rapid industrial development is taking place. For the industrial
sectors, energy efficiency improvements offer other co-benefits in terms
of better air quality, energy saving, and reduced CO2 emissions. Cleaner
production processes and high-efficiency boilers (including biomasspowered boilers) are examples of the co-benefits approach. One such
project was implemented in the PRC, in cooperation with Japan, as a
Japan International Cooperation Agency (JICA) cooperation project and
yen loan project.
Improving transportation systems by utilizing non-food products
such as waste cooking oil as fuel
Rapid economic growth in developing countries has resulted in economic,
social, and environmental problems related to urban transportation.
Traffic congestion has many negative impacts, and air pollution is an
urgent challenge. The production and utilization of biodiesel in the
transport sector can be considered a co-benefits approach if the biodiesel
is derived from sources that do not compete with food production. Possible
co-benefits include cleaner air, more effective use of energy resources,
and reduced GHG emissions. Japan International Cooperation Agency
offers a training course on community-based systems for the collection
and utilization of waste cooking oil for use as a biodiesel fuel.
Source: Government of Japan, Ministry of the Environment (2008).
will support car makers to increase domestic FFV production lines and
to increase the number of E20 and E85 service stations. As for FFV cars
fuelled by E85, a 3% excise tax reduction for 1,7803,000 cc cars has been
announced. Blending of 5% palm oil in diesel was made mandatory in
order to produce green diesel by 2011. There is support for research on
the ethanol and biodiesel production from third generation resources,
such as micro algae and weeds.
The direct benefits associated with this policy are a better
environment and improved energy security. However, there are also
co-benefits such as job creation, income generation, health, and
education. When these co-benefits are taken into account, the sectors
that are positively impacted by the implementation of this policy can
be targeted. In this case, for example, incentives can be allocated to the
FFV manufacturers encouraging them to develop FFV cars, and research
grants can be used to improve the efficiency of these vehicles. An analysis
of a low-carbon technologys life cycle helps in understanding possible

co-benefits at various stages, and their impact on the stakeholders. In
the case of Thailand, encouraging the use of FFV also encourages greater
production of ethanol. Thus, farmers growing ethanol crops will benefit
financially. Implementation of a policy should consider all co-benefits at
various stages, and should identify the important stakeholders who are
affected by the implementation of a policy.
5.4Conclusion and Recommendations

The lack of quantification for co-benefits from low-carbon technologies
can be explained by the difficulty in assigning a value to many of these
co-benefits and by a greater interest in economic than in societal and
social benefits. The quantification of co-benefits at a global level is
especially difficult because the delivery of co-benefits is very dependent,
for example, on location-based factors, purpose of use, overlap with
other policies and initiatives, and type of funding.
A focus on green growth is of vital importance to mitigate climate
change effects in the near future. If developing regions can continue
to grow at the same rapid pace using clean technology, this will enable
development of economies that are resilient to climate change effects
for the future, making their development sustainable. Although there
has been progress on the identification and quantification of co-benefits
associated with green technology, standard frameworks and methods
for their financial quantification need to be developed. Further, a
diffusion of technology can be possible via the creation of markets and
innovative approaches that are widely dispersed only when the three
basic sectorsprivate, public, and socialare able to work together to
make investing in clean technology lucrative for the private enterprises.
The chapter leads into the following conclusions:
1. A more strategic focus on the role of technology policies for
innovation in delivering co-benefits is necessary at the national
level.
2. Broadening industrial policies to foster R&D beyond science
and technology is required at the sectoral level and these
policies can then evolve at the firm level.
3. Greater and more coherent policy attention needs to be paid
to the creation of green jobs and new firms and their role in
technology deployment.
4. New approaches and governance mechanisms for regional
cooperation in science and technology will help address climate
change issues and share costs and risks.
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Chapter 6
Societal Innovations
and Lifestyle Choices
as a Low-Carbon
Development Strategy
Brahmanand Mohanty, Martin Scherfler, and Vikram
Devatha
6.1Introduction
Asia represents about 30% of the worlds landmass, 60% of its population,
and 30% of the global consumption of energy (Mohanty 2010). Most
countries in the region are in the process of development. The urban
population in Asia is expected to grow to 2.7 billion people by 2030.
Although Asias per capita contribution to climate change is relatively
small at present, this is expected to change as a result of rapid population
growth and urbanization. Asian cities have become engines of economic
growth, producing 80% of the regions gross domestic product (GDP).
However, along with this growth, poverty and income disparities are
becoming more commonover 40% of the urban population lives
in slums and lacks access to basic amenities and services. The wealth
generated in the cities is at the cost of a high use of resources; cities
account for 67% of all energy use and 80% of all greenhouse gas (GHG)
emissions (ICLEI 2011), two-thirds of which are contributed by fossil
energies that have become a necessity for modern-day living.
Industrialized nations went through three distinct phases of
developmentpoverty alleviation, industrialization and mass production,
and consumption. Asia is experiencing a simultaneous occurrence of
all three phenomenawhile per capita energy consumption is low and
175
poverty is rampant, there is massive growth in production, mostly to

cater to the industrialized world. To satisfy their needs and aspirations,
the urban upper and middle classes are adopting lifestyles comparable
to those of developed countries. In spite of the fact that Asias average
per capita ecological footprint is still relatively light, there is a need for
serious reflection on whether it is wise to continue with the present
exponential growth pattern that aims for a lifestyle that is unsustainable.
The western world is undergoing tremendous pressure to adjust
to a lifestyle that matches the earths carrying capacity, and several
governments have initiated policies and programs in this direction.
There have also been some interesting and successful initiatives,
although limited in nature, to adopt the so-called one planet living
lifestyle.
Growth patterns have demonstrated that it is not necessary to
consume excessively in order to improve the Human Development Index
(HDI) of the United Nations Development Programme (UNDP), which
is used widely as a yardstick to measure the level of development in a
country. Cuba, for instance, has achieved a high HDI while remaining
within the stipulated average bio-capacity threshold per person (WWF
2006).1
Along with the economic growth that is taking place in cities, there
is a trend to depend on more resources and produce more waste. On one
hand, the present models of development tend to favor large centralized
systems that offer economies of scale. On the other hand, thanks to the
technological progress made in the last few decades, it is now possible
to find solutions that are decentralized, efficient, reliable, cost-effective,
and well suited to developing countries context. Moreover, governments
have to understand that they cannot address climate change challenges
without promoting significant behavioral changes as well as active
participation of the population.
This chapter attempts to identify some lifestyle changes at the
individual level, and behavioral changes at the community level that
could offer high carbon abatement potential. It also provides some best
practices of public policies and policy recommendations that can be
pivotal in strengthening the collective awareness and decision making
of people to change their lifestyle in lieu of climate change.
In the 2006 Living Planet Report, Cuba was listed as the only country to fall into
the sustainable 14 category with both a low ecological footprint and a rather high
quality of living. By 2010 Cuba had slipped just out of the sustainable category (WWF
2010).
Societal Innovations and Lifestyle Choices as a Low-Carbon Development Strategy177
6.2Review of the Current Situation

6.2.1Demographic Considerations
The 20th century can be described as an era of population explosion. At
the beginning of the century, the world population was about 1.6 billion
and it had grown by almost four times, to about 6.1 billion by 2000. In
addition, the global economy grew sevenfold from 1950 to 2000 (GIZ
2010). The magnitude of this population change and economic growth
is unprecedented in human history. In 2011, the Earths population
exceeded 7 billion and according to United Nations (UN) population
projections, it will cross 9 billion by the middle of this century (United
Nations 2011a).
Much of this projected increase in population will come from
countries in Africa, Asia, Latin America, and Oceania. Asia, the worlds
largest and most populous continent, covers 29.9% of the worlds land
area and hosts 60% of the worlds current population (about 4 billion).
It is not only the most populated continent but also has the highest
population density per square kilometer2.5 times the world average.
Asias population is expected to grow by another billion by 2050, putting
heavy pressure on the planets bio-capacity (Figure 6.1).
Figure 6.1: Population Growth for World Regions, 19502050
(billion)
10
9
8
7
6
5
4
3
2
1
0
1950
1960
World
1970
1980
Africa
North America
1990
2000 2010
Asia
2020 2030 2040 2050
Latin America & the Caribbean
Europe
Source: Adapted from United Nations, Department of Economic and Social Affairs Database.
http://esa.un.org/unpd/wpp/unpp/panel_population.htm (accessed March 2015).
6.2.2Urbanization Trends
In 2014, about 3.78 billion people, representing more than half of the
worlds population, lived in cities (United Nations 2014b). By 2050,
another 3 billion people are expected to be living in urban areas,
which will make a total of 6.3 billion urban dwellers or about 68% of
the global population (Dodman 2009). Figure 6.2 shows the projected
increase of urban populations by continent till 2050. As a result, the
size of built-up areas is bound to increase; urban centers will continue
to absorb the hinterland, and thereby reduce the bio-capacity of the
region. According to UN estimates, the total built-up area of urban
spaces will triple by 2033 (United Nations 2011a). The 21st century will
symbolize urban development. Cities need vast amounts of water and
energy for transportation, infrastructure, housing, and food supply.
Ironically, while cities become economic powerhouses of the world and
account for a large percentage of the global consumption, many of their
inhabitants remain below the poverty line. The way we cope with the
social, cultural, and environmental challenges of the future will have
tremendous impact on the planet as well as on the future of humanity.
Figure 6.2: Proportion of Urban Population, 19502050

(%)
100
80
60
40
20
0
1950
1970
World
Latin America
1990
2010
Asia
Europe
2030
2050
Africa
North America
Source: Adapted from United Nations, Department of Economic and Social Affairs Database.http://
esa.un.org/unpd/wpp/unpp/panel_population.htm (accessed March 2014).
In Asia, the urban population is expected to increase from 3.4

billionin 2009 to6.3 billionin 2050. For the first time, more people
will be living in urban areas than in the countryside. Immigration from
rural areas will be triggered mainly by the pursuit of employment and
a better quality of life. Most of this growth will take place in informal
settlements and slum areas. In 2012, about 1 billion urban dwellers lived
in slums, representing nearly a third of all urban dwellers worldwide.
The following sections illustrate the current state in key areas, drawing
from figures and statistics of the previous decades, and forecasting
further into the 21st century.
6.2.3Food
Feeding the projected population of 9 billion in 2050 would require a
60% increase in global food production from current levels. But even
in 2015, with a global population of over 7.3 billion, 1 billion people did
not receive the required daily calorie intake. Paradoxically, many of
them are farmers themselves (Organisation for Economic Co-operation
and Development and Food and Agriculture Organization of the
United Nations 2010). The challenge then, will be to feed the existing
population as well as the projected increase of 3 billion people in the
coming decades. This will lead to a higher demand for energy and land
resources, in an era when the present usage already has adverse impacts
on the environment. The global arable land per capita is projected to
shrink from 2.00hectares to about 0.18 hectare by 2025 (Kwang 2011).
That means that there will be more mouths to feed, with less land
available for crops or rearing livestock.
Increases in disposable income tend to induce a change in diet,
such as a higher intake of meat, dairy, and vegetable oil products. Meat
and dairy production requires a relatively high level of energy, cereal,
and water input. It takes an average of 3kilograms of grain to produce 1
kilogram of meat. If the cereal that is used to feed animals was instead
used to feed the human population, the annual calorie requirement of
more than 3.5 billion people could be provided for (Nellemann et al.
2009). In Asia, demand for meat products and processed foods will
exacerbate the demand for arable land. Since arable land for agricultural
expansion is extremely limited (especially in countries like the Peoples
Republic of China [PRC], India, and Indonesia), Asia will not be able to
meet this demand on its own, but will have to start importing food from
the global market, leading to rising food prices.
6.2.4Water
Water is one of the fundamental supporters of life and a basic
commodity for mankind. Water resources are generally renewable, but
water availability differs widely. The Asian continent, which supports
about 60% of the worlds population, has only 36% of the worlds fresh
water resources. The per capita water availability for the PRC is about
2.138 cubic meters (m3) per person a year; it is less for India at 1.719
m3 and nearly five times more for the United States (US) at 10,231 m3
(FAO 2011). In 2015, about 1.6 billion people are affected by severe water
shortages. The number is projected to increase to about 3 billion people
by 2025 (International Energy Agency 2009). About 90% of the 3 billion
people who are expected to be added to the population by 2050 will be
in developing countries, many in regions where the current population
does not have sustainable access to safe drinking water and adequate
sanitation.
6.2.5Electricity
Global electricity production and consumption are not sustainable.
The main sources for energy are fossil fuels such as coal, oil, and
gas, which make electricity production one of the largest and fastest
growing contributors to carbon dioxide (CO2) emissions. These are
finite resources that are being depleted at a rapid pace. According to
forecasts by the International Energy Agency (IEA 2006), world energy
demand will grow by almost 60% between 2002 and 2030. Population
and economic growth in developing countries will drive most of this
increase, with much coal-based generation capacity driving up CO2
emissions. The IEA (2009) further estimates that under the current
business-as-usual scenario, energy use in Asia will increase by 112%
between 2007 and 2030 (Figure 6.3). India and the PRC are expected to
triple their per capita electricity consumption between 2007 and 2030
(IEA 2009).
6.2.6Transport and Mobility

Transport is a key component of todays economic development, and
its volume and intensity is increasing around the world. The problems
and challenges associated with transport are growing equally quickly
including air pollution, GHG emissions, petroleum dependency,
traffic congestion, traffic fatalities, and infrastructure costs. These
are especially pronounced in developing countries that have rapidly
growing economies and population.
Figure 6.3: Annual Per Capita Electricity Consumption, 2007

and 2030 (kWh)
12,000
10,102
10,000
8,477
8,000
6,080
6,000
4,128
4,000
2,000
0
1,895
2,752
2,346
543
India
World
2007
OECD
PRC
2030
OECD = Organisation for Economic Co-operation and Development, PRC = Peoples Republic of
China.
Source: Adapted from IEA (2009a).
Asia is experiencing a vehicle boom. From 1977 to 2008, the PRCs

vehicle ownership increased by a factor of 51, from 1 million to 51
million. According to J.D. Power, PRC and Indian consumers bought
about 19.9 million new passenger vehicles in 2010, which is 70% more
than in the US (ChinaMike 2011). The PRC has become the largest auto
market in the world. The increase in global vehicle ownership combined
with an increase in the overall distance that people travel has driven
up the demand for oil. Figure 6.4 shows the car ownership for various
geographical regions, indicating that some regions still have a long way
to go to reach European or North American car ownership rates. The
Asian Development Bank (ADB 2007) estimates that the demand for oil
in 2030 will be three times greater than it was in 2007.
Urbanization and globalization have increased the need for the
transportation of goods. The World Economic Forum and Accenture
(2009) estimate that the logistics and supply chains contribute 5.5%
of the global GHG emissions. In terms of emission intensity per tonkilometer (km), airfreight is the most carbon-intensive, followed by
road freight. On average, logistics and transport emissions account
for 5%15% of product lifecycle emissions (World Economic Forum
and Accenture 2009). Given the current dependence on oil, the global
transport sector faces a challenging future.
Figure 6.4: Cars per 1,000 Population, 2014

900
786
800
842
682
No. of cars per 1,000
700
600
500
400
300
200
170
100
0
18
PRC
North
America
Europe and
Central Asia
Italy
India
Source: Macro Economy Meter (2014).
6.2.7Housing and Construction

Most human needs (food, energy, water, and transport) revolve around
the place of living and activity. Buildings are the convergence of
humanitys end use of resources; they consume large amounts of raw
materials, energy, and water, and generate immense quantities of waste
and pollution. The way we build is shaped by geography, by cultural
values, and by the availability of material resources. Buildings usually
have a long life span, hence their effect on people and the environment
is long and continuing; this makes the building sector a particular issue
in terms of sustainability. According to a life cycle analysis (Adalberth
1997), more than 80% of energy is used in operations such as heating,
ventilation, and hot water (Figure 6.5). The International Energy
Agency (2006) estimates that current trends in energy demand for
buildings will stimulate about half of the energy supply investments to
2030. Buildings (both commercial and residential) account for about
40% of energy used, particularly in developed countries. In Asia, where
large parts of the population are still not connected to the grid, and live
in traditional houses, this figure is much lower but is likely to evolve
rapidly with growing affluence.
Figure 6.5: Lifecycle Energy Use in Buildings

4%
12%
84%
Manufacturing,
transport, and
construction
Use (heating,
ventilation, hot water,
electricity)
Maintenance and
renovation
Source: Adalberth (1997).
More than 50% of all new buildings constructed are in Asia.

Construction is booming, especially in rapidly developing countries
such as the PRC and India (Langer and Watson 2006). Construction
alone is responsible for about 20% of global GHG emissions (Veolia
2008). According to the IPCC (2007) report, buildings have the largest
potential of any sector for reducing GHG emissions, estimated at 30% by
2030 (Metz et al. 2007).
6.2.8Waste
In the past, resources were regarded as rare and precious and each
resource, including much of what we would now define as waste, was
used and reused, transmuting it into a new resource. This attitude of
careful resource management still exists today in some cultures and
especially in villages in developing countries, where everything has a
value and the material cycle is completed, imitating the ecosystem.
We distinguish roughly between two different kinds of waste
municipal waste and industrial waste. It is estimated that the total
amount of municipal and industrial waste produced annually is about 4

billion metric tons (Chalmin and Gaillochet 2009), and this figure does
not include waste from construction, mining, agriculture, and forestry.
The amount of municipal waste is directly linked to the standard of
living, the level of commercial activities, consumption patterns, and
lifestyle choices as well as the longevity of products. The total municipal
waste collected worldwide in 2006 was estimated at 1.24billion metric
tons (Chalmin and Gaillochet 2009).
Low-income households have a higher percentage of organic waste
than higher income households, which discard more plastic, glass, paper,
and metal. In Europe, almost half of the generated municipal solid waste
originates from packaging material (Eawag and Sandec 2008). Figure
6.6 illustrates the amount of municipal waste collected per inhabitant
per year for selected economies.
Chalmin and Gaillochet (2009) estimate the industrial waste
collected to be 1.4billion metric tons. That does not include hazardous
waste (about 300 million tons), agricultural waste, waste from forestry,
or from construction and mining activities. About 70% of untreated
industrial waste in developing countries is disposed of in water,
contaminating existing water supplies; this leads to a loss of crop
Figure 6.6: Municipal Waste

(kg/inhabitant year)
800
760
577
600
461
434
400
255
237
230
200
162
82
EU = European Union, PRC = Peoples Republic of China, US = United States.

Source: Adapted from Chalmin and Gaillochet (2009).
India (rural)
India (urban)
PRC
Thailand
Indonesia
Japan
Hong Kong, China
EU 15
US
productivity in agriculture and to contamination of the food chain,

among other things. Processing of waste has a negative effect on global
climate change because of its high GHG output, especially of methane,
which is known to have 21 times greater global warming potential
than CO2. ADB (2007) lists the global landfill sector as the third largest
anthropogenic emission source, accounting for 12% of global methane
emissions in 2005.
6.2.9Carrying Capacity
According to the Global Footprint Network (2011), humanity today
uses the equivalent of 1.5 planets to provide the resources we consume
and to absorb the waste we produce. Scenarios suggest that by 2030
we will need the equivalent of two Earths to support usprovided our
current population and consumption trends continue. We are facing
a global ecological overshoot, by consuming resources faster than the
planet needs to replenish those resources in return. Some of the most
noticeable effects of this overshoot are the buildup of CO2 emissions and
global climate change, the depletion of groundwater reserves, declining
reserves of mineral resources, the loss of soil, and the depletion of
forest cover. The existing world population cannot be brought up to
the living standards of developed nations by using present technologies
and consumption levels. For humanity to live within the boundaries of
the planets carrying capacities, new green technologies and smarter
policy implementation will have to go hand in hand with lifestyles that
promote less consumption and actively promote prosumption.2 The
buy-and-discard principle of the developed world cannot be the model
for the future, for neither developed nor developing countries.
6.2.10Cost of Climate Change

Climate change is a real and major threat to improving prosperity in
the world and in Asia. If current trends continue, the GHG emissions
of Asia and the Pacific will soon be comparable to those of Europe and
North America. The region is responsible for 42% of all global energyrelated emissions. Emissions from energy use alone are projected to be
127% higher in 2030 than they were in 2012 (ADB 2007), growing at
2.3% per year under business-as-usual scenarios. The costs of adapting
Prosumption emphasizes producing what one consumes. The prosumption

index can be used as a yardstick to measure what is produced as a share of resources
consumed.
Figure 6.7: Projected Impact of Climate Change
0C
Food
Water
Ecosystems
Extreme
Weather Events
Risk of
Irreversible
Changes
Global temperature change (relative to preindustrial)

1C
2C
3C
4C
5C
6C
Falling crop yields

Possible rising yields in some
high latitude regions
Glaciers disappear
Damage to
Coral Reefs
Decreases in water
availability
Falling yields in many

developed regions
Sea level rise threatens
major coastal cities
Rising number of species face extinction
Rising intensity of storms, forest fires, droughts, flooding

and heat waves
Increasing risk of abrupt, large-scale climatic shifts
Source: IPCC (2007a).
to climate change will be colossal: it has been suggested that, by 2030,

the world may need to spend more than 200 billion a year on measures
such as building flood defenses, transporting water for agriculture, and
rebuilding infrastructure affected by climate change (Martin et al. 2009).
An ADB (2009) study estimates that, by the end of this century, the total
economic cost of climate change could be equivalent to an annual loss
of 6%7% of GDP of Asian countries. Decisive mitigation actions taken
now can lower this impact. Figure 6.7 illustrates the projected impact of
climate change.
More intense typhoons, droughts, heat waves, landslides, and other
natural hazards are results of accelerated global warming. Climate
change threatens health, safety, and livelihood of people. Coastal cities
are vulnerable to climate change since the rise in sea level causes flooding
and coastal erosion. Many coastal cities in Asia have tropical hot and
humid climates in low-lying land, which heighten their vulnerability.
Nowhere in the world are as many people affected by climate change as
in Asia and the Pacific (ADB 2009a).
6.2.11Conventional and Alternative Indices of Progress

and Development
There seems to be a paradox connected to consumption and in the
way we measure progress. Gross domestic product (GDP)is the sum
total of goods and services consumed by a nation in a given year, and

is currently the most important measure of economic growth. As per
this definition, the more we consume, the higher the GDP. If we were to
consume less, then the economy is adversely affected, but continuing our
current consumption pattern will exhaust the planets carrying capacity.
Obviously under this measure of economic progress consumption is
the top priority. The more we produce and consume, the more we
prosper. External costs like environmental pollution, human well-being,
happiness, the distribution of income and wealth are not taken into
account. We also fail to distinguish the costs incurred to compensate
for undesirable events such as environmental or natural disasters,
which tend to inflate GDP since large sums are spent in mitigating such
disasters.
Is it worthwhile pursuing further economic growth in developed
countries? Does economic growth improve peoples well-being after
a certain point? Data from surveys conducted in the United Kingdom
(UK) and US reveal that life satisfaction has been stagnating in those
countries since the 1950s, even though economic output per capita has
tripled since then (Figure 6.8). When peoples basic needs are met and
they have enough goods and services, economic growth fails to improve
peoples well-being (ONeill, Dietz, and Jones 2010).
An alternative to the endless economic growth paradigm is a steady
state economy. Steady state economies aim at stable levels of resource
consumption, a stable population, with resource use within the planets
ecological limit, and equity in the distribution of wealth. The pursuit
Figure 6.8: Income and Happiness in the United States

90
Percentage very happy
80
70
Real income per person
60
50
40
30
Percentage very happy
20
10
0
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: Layard (2005).
of maximizing economic output is replaced by the goal of maximizing

human well-being and quality of life (ONeill, Dietz, and Jones 2010).
Indicators for measuring progress arise from a shared set of values;
they also create and enhance those values in return. Changing indicators
can be one of the most powerful and at the same time one of the easiest
ways of making system changes (Meadows 1998). Over the past 20 years,
new indicators of measuring human progress have been emerging. Some
focus on selected aspects such as the environment (GHG emissions, ecofootprint), human well-being (including indexes to measure happy life
years, quality of life, human happiness, and better life), or the economy
(economic self-sufficiency). Others try to integrate different aspects,
e.g., the happy planet index or Bhutans gross national happiness index.
These indicators may eventually replace or at least complement GDP.
The European Union (EU), for instance, has identified 10 headline
indicators (and subindicators) that should lead EU countries to a more
sustainably integrated development (European Commission 2011):
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
socioeconomic development,
sustainable production and consumption,
social inclusion,
demographic change,
public health,
climate change and energy,
sustainable transport,
natural resources,
global partnership, and
good governance
To be truly effective, these indexes need to be supported by strong

policy frameworks and policy actions by governments at the national,
state, and city level.
6.3Ecological Lifestyle Choices

The rapidly escalating population growth in developing countries has
often been named as one of the main causes of increasing demand for
consumer goods and services and thereby pollution. However, 78.6% of
the worlds resources are consumed by 20% of the worlds wealthiest
people (World Bank 2008), demonstrating the close correlation between
wealth and consumption (Figure 6.9). This also begs the questionwhat
are the real needs and wants of human beings in terms of consumption
and individual lifestyle choices? Making people aware of their needs
Figure 6.9: Share of the Worlds Private Consumption

World's
poorest 20%
consume
1.5%
World's middle
60% consume
21.9%
World's richest
20% consume
76.6%
Source: Adapted from World Bank. 2008. World Bank Development Indicators 2008 Poverty Data: A
Supplement to World Development Indicators 2008. Washington, DC: World Bank.
and contrasting them with their wants, paired with a supportive policy
environment, may have the potential to transform lifestyles toward a
low-carbon society.
Globalization and economic integration are giving consumers
access to more goods and services. The media has increased its reach
in many Asian nations, and this has had an unprecedented influence on
the aspirations of consumers and their ways of life. Global middle-class
consumers and global elites have become the target market for many
consumer brands. The demand for consumer goods is rising rapidly.
The PRC and India alone claim more than 20% of the global totalwith
a combined consumer class of 362 million (a mere 16% of the regions
population), more than all of Western Europe (Worldwatch Institute
2011). The consumption patterns of these millions are merging with
those of Western countriesespecially those of the younger generations
of urbanites who share lifestyles that are independent of culture or
nationality.
Lifestyles are also largely driven by materialistic cultural values.
Traditional Asian lifestyles were frugal, and are still common in many
countries. These are generally less damaging to the environment and

climate. For example, there is more communal living than individual
housing in Asia, the number of occupants per unit is much higher, and
traditional construction is based on natural materials like wood and
mud. For food, there is less packaging and refrigeration, less processing,
and fewer food miles.3 In the transport sector, private car ownership
is still the exception rather than the norm (SWITCHAsia Network
Facility 2010). The sections that follow identify a few lifestyles changes
among individuals and communities that could help to mitigate carbon
use.
Current policies that address GHG emissions are topdown in
nature; they identify industries that emit the largest amount of GHGs
and try to promote technologies that can reduce the emissions. However,
bottom-up approaches to policy making could have an equally important
effect, especially if they acquire a critical mass. These should emphasize
nontechnical measures such as individual habit changes and improved
knowledge.
Available low-carbon technologies or appliances usually demand
a high up-front investment, even though they prove to be energy- and
cost-efficient in the long run. These high initial costs are a barrier for
implementing these technologies, especially in low-income countries.
For example, compact fluorescent lamps (CFLs) are affordable for most
people in high-income countries, but out of reach for most people in
low-income countries. Hence, policies that promote innovative business
and market models need to be formulated. As it has been recently
demonstrated through the Demand Side Management based Efficient
Lighting Program (DELP) in India, Light Emitting Diode (LED) bulbs
which are even more expensive than the CFLs can be handed out by
power companies and paid back by the consumer in installments
through monthly savings in electricity bills. This will not only result
in higher energy efficiency and GHG emission reductions, but will also
avoid the need for additional power generating capacity.
Another new market mechanism to support ecological lifestyle
changes and GHG emission reductions is the product service system
(PSS). This shifts the focus from selling products like washing machines
to selling services, e.g., a laundry service. The equipment (washing
machines in this case) may still be at the clients home, but the company
retains ownership, maintains and stores the cleaning equipment, will
be responsible for the quality of the appliance, and will take care of
waste disposal. This incentivizes the company to prolong the use of
the product, reuse components, and recycle materials. At the same
3
The distance that food travels before it is eaten.
time, the consumers costs are spread over time, which make it easier
to opt for low energy and carbon-intensive solutions (United Nations
Environment Programme 2001).
6.3.1Food and Diet

Many individual lifestyle changes linked with food will have a positive
impact on the eco-footprint or GHG emissions. Some of those choices
require a dietary shift, while others require a change in habitual
shopping practices.
The carbon impacts of the meat industry are known to be significant,
not only from its high energy use, but also from its land use impacts.
The Food and Agricultural Organization (FAO) estimates that direct and
indirect emissions from the livestock sector contribute 18% of global
GHG emissions. An Indian, for instance, consumes around 1/11th of
the meat eaten by an average Chinese and 1/25th of that eaten by an
American. A global transition to a low meat-diet would drastically
reduce mitigation costs (Rao, Sant, and Rajan 2009).
Box 6.1: Lifestyle Choices: Food and Diet

Reduce food miles by eating locally grown food. DeWeerdt (2015)

estimated that replacing imported food with equivalent items locally
grown in the Waterloo (Ontario) region would save transport-related
emissions equivalent to nearly 50,000 metric tons of CO2, or the
equivalent of taking 16,191 cars off the road.
Switch to organic food as organic farming consumes 30% less energy
than conventional farming (Rodale Institute 2005)
Reduce consumption of meat and dairy products, which are
responsible for 18% of global greenhouse gases and are a major drain
on water supplies (Food and Agriculture Organization 2006).
Grow your own food in the garden and do not waste food: Combining
these actions could reduce our footprint by 11% (WWF 2011).
Promote community kitchens, and save on bulk purchases and
distribution.
Promote food courts in public spacesthese have common
maintenance facilities, a common dining area, and common cutlery,
and help to reduce energy consumption, transportation requirements,
and wastage.
Source: Authors.
Example: Buying organically produced food

Opting to buy organic food products can reduce an individuals personal
carbon footprint. It is estimated that organic farming uses about 30% less
energy to yield the same amount of products as conventional agriculture.
Artificial fertilizers used in conventional agriculture are the largest source
of nitrous oxide, a GHG that is 310 times more potent than CO2 (Soil
Association 2011). Synthetic fertilizers are also a source of water pollution
and soil degradation. Organic agriculture contributes to the restoration of
soils and to the building up of carbon storage.
Table 6.1 lists lifestyle changes related to food, potential hurdles
that are associated with such changes, policies that can support these
changes, and example policies.
6.3.2Water
Each individual can contribute to protecting water resources. Two main
actions can be takenreducing the demand for water through efficiency
and conservation, and harvesting rainwater. As with all lifestyle choices,
these actions are dependent on socioeconomic status and geographical
region.
Example: Changing dietary habits
Changing dietary habits by reducing meat and dairy products can
significantly reduce the water footprint. Meat production requires a
relatively high level of energy, cereal, and water input; and agriculture
accounts for 70% of the global water withdrawal (FAO 2011). The Water
Footprint Network estimates the global average water footprint at 15,500
liters of water for every kilogram (kg) of beef, 5,000liters of water for
a kg of cheese, 3,900 liters for a kg of chicken meat, and 1,300 liters
of water per kg of barley (Water Footprint Network 2011). Rockstrm
(2003) estimated that a diet consisting of 80% of plant-based foods and
20% meat (in industrialized countries, the proportion of meat is 30%
35%) requires 1,300 m3 of water per year, whereas a purely vegetarian
diet requires around half this amount (Rockstrm et al. 1999).
Example: Water savings at the household level
Adopting a no-drip policy is vital, since all leaks waste water round the
clock and need to be repaired. Other water saving options include lowflush toilets that use less water, dry compost toilets, water-efficient
showerheads, and energy-rated washing machines (since they not only
use less energy per load but also less water). Simple actions like turning
off running taps while washing dishes, having a shower, or brushing teeth,
or collecting unused water from the tap and using it to water plants will
Cultural values
Reduce consumption of
meat and dairy products
Food prosumption, promote Land use patterns, lack of

edible landscaping
awareness
Cultural values, quality of

food
Community kitchens
Mixed land use plan,

supportive infrastructure,
building codes for rooftop
gardening, training and
capacity building
Higher taxes on meat and

dairy products, awareness
campaigns
Awareness campaigns and

events that strengthen the
sense of community
Higher costs, lack of

Comprehensive labeling,
awareness, lack of availability support of organic agriculture
through financial incentives,
capacity building and market
creating
Policies and Initiatives
Examples
Level
National
Local
Urban agriculture in Cuba

Local and National
increased with the allocation
of urban land for food
production, and strong
support for seed and tool
banks, training centers, and
corporations (Pinderhughes
et al. 2000)
Community Kitchen
Auroville, India offers lunch
and dinner for up to 800
people a day (www.auroville.
org)
Denmark has strong organic National; middle- and highincome groups

labeling and support
for organic agriculture
development (www.Organic.
dk)
Offer free space for farmers Rome, Italy: Public Food

Local
markets, events, awareness
Procurement for schools tries
campaigns, food mile labeling to use locally produced food
as much as possible (Liquori,
n.d.)
Buy organic food
Hurdles
Lack of knowledge, personal

preference
Buy locally produced food
Lifestyle Change
Table 6.1: Lifestyle Changes and Associated Factors for Food
Logistics
Hurdles
Source: Compiled by authors.
Promote environmentLack of infrastructure

friendly food courts in public
spaces
Take packaging material and Inconvenient, forgetfulness

containers while shopping
Bulk buying of groceries
Lifestyle Change
Table 6.1 continued
Simply Bulk Market in

Colorado, United States
offers bulk purchase only
(simplybulkmarket. com)
Examples
Infrastructure and
management support,
certification
Level
Local and national
Local and national
Certification scheme to boost Local

the environmental practices
of food courts in Singapore
(Eco-business.com 2012)
Ban plastic covers and plastic Deposit system for beverage

packaging, provide containers containers in Germany
(Ankerandersen 2011)
that require a deposit
Legislation for supermarkets

to offer certain food items in
bulk or awards like incentives
for supermarkets
help reduce water usage. The treatment and reuse of grey water4 for
flushing toilets needs to be considered. Householders can grow native
plants in their gardens since these usually have lower water requirements.
Owners of cars and bicycles can either bring their vehicles to a carwash
that uses recycled water or wash their vehicles themselves using a sponge
and rinsing sparingly. Recycling will enable households to increase
consumption without having to spend additional money.
Table 6.2 introduces a few lifestyle changes associated with water,
along with possible hurdles in implementing those changes.
6.3.3Electricity
Individuals can significantly reduce their carbon footprint by lowering
their electricity consumption. This may entail using better appliances,
but much can be achieved with higher awareness of the issues involved,
along with motivation for adapting good practices.
Example: Energy-efficient appliances
Many opportunities for higher efficiency do not involve one large investment
with a substantial return. Instead, they consist of many small actions
that add up to significant energy savings. The most common household
appliancesincluding lamps, fans, fridges, televisions, washing machines,
water heaters, and computersare still quite energy-inefficient and draw
electricity in excess of what is normally required for using the appliance.
Most of these appliances are left in standby mode, thereby offering the
convenience of turning them on in an instant when required. It is estimated
that turning off appliances at plug point would result in saving over 133 kg of
CO2 emissions per household annually (Centre for Environment Education
2010), and an immediate reduction in electricity bills.
Example: Compact fluorescent lamps
Another area of energy savings is to switch from incandescent bulbs to
compact fluorescent lamps (CFLs). CFLs are five times more efficient
than regular incandescent bulbs. They last longer and therefore create
less waste. A switch offers an annual saving of 83 kg of CO2 for every 100
watt (W) bulb that is replaced by a 20 W CFL (Centre for Environment
Education 2010). On the negative side, CFLs are more expensive, and
have high mercury content. The future of lighting may lie in lightemitting diodes (LEDs). However, at present the benefits of energy
efficiency from CFLs, far outweigh their costs.
4
Grey water refers to waste water that is generated in homes and commercial
buildings as a result of laundry, dishes and bathing. Grey water can be efficiently
treated and utilized for a variety of purposes such as irrigation or toilet flushing.
Lack of awareness, initial

costs
Inconvenient, lack of space

for retrofitting, lack of
knowledge, psychological
barrier, availability of
technology
Unplanned growth, lack of

space, lack of knowledge
Use dry compost toilets
Harvest rainwater
Hurdles
Conserve water, fix leaks
Lifestyle Change
Ahmedabad, India made

rainwater-harvesting
mandatory for all buildings
covering an area of over
1,500 m2 (Centre for Science
& Environment 2011)
Local and national
Local and national
Erdos eco-town project

in the PRC is a full-scale
urban residential area with
urine diversion dry toilets,
recycling of human excreta,
and grey water treatment
(Sustainable Sanitation
Alliance 2011)
Tax incentive for purchase

and installation, education
and awareness campaigns,
mandatory installation in
public buildings
Directive by state, correct

water pricing
Local
Level
Toronto, Canada has

implemented a citywide
water metering system to
keep better track of water
consumption across the city
and to detect water losses
(City of Toronto 2012)
Example
Mandatory water metering,

water pricing
Policy and Initiatives
Table 6.2: Lifestyle Changes and Associated Factors for Water
Lack of awareness, inertia
Initial investment, lack

of awareness, lack of
infrastructure
Turn off tap while brushing

teeth, shaving and
washing dishes
Treat and reuse grey water

for flushing
Notes: m2 = square meter, PRC = Peoples Republic of China.
Correct water pricing,

innovative financing
mechanism where the
installations are paid for
through the monthly savings
in the water bill
Initial investment, lack of

awareness
Use Energy-Star compliant

washing machines and
dishwashers

mechanism where the
through the monthly savings
in the water bill, legislation
Mandatory water metering,

correct water pricing,
awareness campaigns

mechanism where the
through monthly savings in
the water bill, mandatory for
new buildings
Initial investment, lack of

awareness
Hurdles
Install water- efficient

flushes and showerheads
Lifestyle Change
Table 6.2 continued
In Tianjin, PRC, all sewer

water will be collected,
treated and sent back to
families for flushing toilets
(Liu 2011)
In Singapore, demand
management is
implemented by using an
increasing block rate water
tariff structure (Tortajada
2006)
Washing machine rebate

scheme in Sydney, to
increase the availability of
water and energy efficient
machines. About 43% of
machines in the market are
4.5 star or greater (Sydney
Water 2011)
Jordan has implemented

new codes for buildings that
include water efficiency
standards (DAI 2012)
Example
Local and national
Local
Local and national or

middle- and high-income
groups
Local and national
Level
Numerous initiatives in Asian countries have encouraged the

substitution of incandescent lamps by CFLs. In Bangladesh, which
has long hours of power outages throughout the year, the World Bank
supported the free distribution of 10 million CFLs to consumers to
bridge the gap between demand and supply. Rather than giving away
CFLs for free, governments or power utilities could also have a buy-back
policy for old bulbs, or could even rent CFLs to households as a means
of financing these initiatives. This would address the high adoption cost
of these technologies and lead to a better appreciation of their benefits
by end-users. Another initiative that would help finance these schemes
would be to charge a token deposit that is refunded when the bulbs are
returned after their use. Box 6.2 introduces individual lifestyle choices
related to energy, whereas Table 6.3 lists hurdles to such lifestyle choices,
supportive policy actions, and examples from policies around the world.
Box 6.2: Lifestyle Choices: Energy

Use of pressure cookers instead of regular cooking pots has a carbon

reduction potential of about 125 kilograms (kg) of carbon dioxide
(CO2) per household per annum (Singer, Denruyter, and Jeffries 2011)
Solar appliances such as cookers, water heaters, and lamps offer
immediate carbon reductions. A single solar water heater, for
instance, offers an annual saving of 687 kg of CO2 emissions per
year (Centre for Environment Education 2010). There are over 180
million households in India. If 1% of these households switch to
solar cookers, there could be a saving of over 1 million tons of CO2
emissions per year.
Refer to energy labels when making purchasing decisions. An
energy-efficient refrigerator or air conditioner offers savings of over
250 kg of CO2 emissions per year, amounting to over $30 savings in
the annual electricity bill per appliance. A switch from desktop to
notebook computers will result in over 275 kg of CO2 abatement per
cathode ray tube (CRT) monitor per year (Centre for Environment
Education 2010). The high up-front costs are negated by the long-run
savings from lower running and maintenance costs.
Optimizing the settings in household appliances can also lead to great
carbon emission savings. Using a cold cycle in a washing machine
for washing day-to-day clothes will use less electricity and result in
about 100 kg of CO2 saving per annum. In the United Kingdom, it has
been estimated that turning down the thermostat by 1C will reduce
the heating bill by 10%, amounting to a saving of 50 per year, as well
as cutting down on CO2 emissions (SOL2O).
Encourage sport and outdoor entertainment rather than computer
games. This can save up to 90 kg of CO2 emission per child per year
(Centre for Environment Education 2010).
Source: Authors.
Lack of infrastructure, poor

city plans, government
priorities
Lack of knowledge and

awareness
High initial investment

for low-income groups,
lack of awareness
High up-front investment,

lack of awareness, lack of
uniform standards
Optimizing settings in
household appliances
Switch to compact
fluorescent lamps (CFLs)
Use energy-efficient
appliances
Hurdles
Encourage sport and

outdoor entertainment
Lifestyle Change
National standards and

labeling, product service
systems as market
mechanism, tax incentives,
soft credits
Payback schemes based on

monthly savings through
CFLs, government subsidies,
awareness campaigns,
phase-out of incandescent
light bulbs
Awareness campaigns,
training programs, support
energy service companies
Mandatory number
of recreation spaces
playgrounds for certain
densities and regions.
Local
Local and national and

middle- and low-income
class
National and middle- and

high-income class
National Energy Efficiency

Awareness Campaigns
(SWITCH!) in Malaysia
(www.switch.org 2011)
Scheme to phase out

incandescent bulbs
from homes and replace
them with CFLs in India.
Partially financed by Clean
Development Mechanism
(Chadha 2010a)
Energy labeling program
for appliances and houses,
promotion of energy
efficiency in home design,
and public awareness
campaigns in Thailand
(Climate Parliament 2009)
Local
Level
Examples
Table 6.3: Lifestyle Changes and Associated Factors for Energy
High initial investment,

lack of awareness, lack of
availability
Use of solar appliances such

as water heaters, solar
cookers, solar lamps, solar
photovoltaic panels
High initial investment for

low-income groups,
lack of awareness
Hurdles
Use of pressure cookers
Lifestyle Change
Table 6.3 continued
Loan systems, provide tax

incentives and exemptions
for installation and use,
rent rooftops to corporate
entities that will install gridconnected solar panels
Payback schemes based

on monthly fuel savings
through usage of pressure
cookers, awareness
campaigns

Local and low-income class
Local and national
Sustainable financing
mechanisms for delivering
renewable energy systems
and fiscal incentives in
South Africa, e.g., Eskom
Incentive Scheme for solar
water heaters, Renewable
Energy Finance Subsidy
Office, and tax incentives
for energy efficiency
(Thabethe 2010)
Level
Renewable Energy & Energy

Efficiency Partnership
(REEEP) promotes CFLs,
pressure cookers, stoves,
and solar lighting systems.
By applying a sustainable,
replicable supply chain
business model in
Karnataka, India (Renewable
Energy & Energy Efficiency
Partnership 2011)
Examples
6.3.4Transport
With rising populations and numbers of vehicles on the road and more
frequent travel, it is critical that individuals learn to change their behavior
and lifestyles and become more efficient in their transport habits.
Successful initiatives around the world have shown that individuals and
communities are capable of altering their lifestyles and travel habits to
become more environmentally friendly. This can take various forms,
including reduced car usage by taking a smaller number of road trips,
better coordination with colleagues and partners in day-to-day travel,
green driving, as well as walking and cycling for short trips. In the long
term, homes and workplaces can be brought closer together and working
from home can increase. According to Anable (2008), individual travel
behavior change can manifest itself in a variety of ways to help in carbon
abatement. Although some of these may appear to be small measures,
when implemented at a city level or even at the community level, they
can result in large carbon reductions.
Example: Walking and cycling
Walking and cycling are often neglected, as they are viewed as modes
of transport for short distances only. However, studies in the UK have
shown that the average car journey is less than 3 km and over half of
all car trips are for distances less than 8 km (Department for Transport
2006). It has been estimated that: Around half of all local car trips
could be replaced using existing facilities by walking, cycling and/or
public transport, although this potential varies between urban areas
(Socialdata and Sustrans 2005: 12). It is likely to be the same in Asia, i.e.,
most trips will be for short distances. The status associated with owning
a big car must be replaced with values and ideologies that are in tune
with the environment.
Emissions are high for short journeys, especially when the engine is
cold and the fuel catalyst is not yet working at full efficiency. As a result,
if bicycles replaced motorized vehicles for short distances, the benefits
would be particularly high. These benefits include better health, air
quality, zero carbon emissions, and cost savings (Anable 2008).
Example: Green driving
Changes to the way in which vehicles are driven are crucial in securing
emission reductions. The Driving Standards Agency in the UK found
that eco-driving training yields at least an 8% improvement in fuel
efficiency, reducing fuel bills by over 2 billion. Eco-driving or green
driving includes regular servicing to ensure fuel efficiency, keeping tires
correctly inflated since underinflated tires increase drag, removing any
extra luggage from the vehicle and combining many short trips into one
long trip (AA 2011). Turning off the engine at traffic lights saves 63 kg
of carbon emissions per car per year, translating into about $30 at 2010
fuel prices (Sodhi et al. 2010). Many metropolitan cities now feature a
traffic light change counter (a timer that counts down to the next light
change). This is helpful in reminding people how much longer they will
need to wait for the lights to change, and encourages them to turn off
their engines. Driving smoothly, with smooth acceleration and reducing
unnecessary braking, being conscious of the air conditioning in the car
and changing gears early are all fuel-efficient measures.
Example: Carbon offsetting at Intrepid Travel, Australia
Intrepid is a sustainable travel company that tries to minimize the
negative impact of climate change. All intra-trip travel including flights
is offset; the company measures its footprint, and avoids activities that
contribute to emissions and reduce carbon emissions of its essential
activities. In 2009, approximately 5,000 tons of CO2 were offset through
38 carbon-offset trips. With the expansion of carbon offset across the
majority of their portfolio in 2010, Intrepid expects to offset 25,000 tons
of carbon emissions by the end of the year, equivalent to taking 4,800
passenger cars off the road for a year (Mitrovic 2010). A unique selling
point of Intrepid is its sustainability campaign; it caters to customers
who understand the environmental issues at stake. More and more
businesses are discovering this niche market, and contributing to the
cause.
Box 6.3 refers to travel- and mobility-related lifestyle choices.
Table 6.4 provides mobility-related lifestyle choices, hindrances in
implementing them, supportive policy actions, and existing policies
from around the world.
6.3.5Building and Construction

Buildings and habitats contribute a large proportion of carbon
emissions. There are two ways in which buildings consume energy and
hence have the potential for mitigation and adaptation interventions:
(i) energy used for the construction, including the embodied energy in
building materials used; and (ii) energy consumed during operation and
maintenance.
Although buildings are market-driven, many of the lifestyle choices
in this sector are largely dependent on policies, market creation, and
capacity building of builders and architects. The easiest carbon saving
interventions for individuals seem to be energy cost saving measures
and retrofitting of existing buildings with greener technologies. A study
Box 6.3: Lifestyle Choices: Travel

Restrict air travel; use land and rail transport for short distances as
these emit less carbon: A passenger on a flight from London to Paris
is responsible for 10 times more carbon dioxide (CO2) emissions than
a person using the Eurostar train for the same route (WWF 2011).
Adopt green driving practices: in the United Kingdom (UK), Forum
for the Future has demonstrated a 7% cut in emissions from ecodriving (Royal Mail, 2008).
Use public transport and reduce dependence on private vehicles: a
single person who switches from a 32 km round trip commute by car
to existing public transportation can reduce his or her annual CO2
emissions by 2,180 kilograms (kg) a year (CUNY and SAIC 2007)
Use home delivery for routine purchases. Home delivery has been
found to be four times more efficient than individual shopping trips,
resulting in a 13 mega tons of global carbon reduction potential
(World Economic Forum and Accenture 2009).
Walk or cycle short distances: emissions are high for short journeys,
especially since the engine is still cold and the fuel catalyst is not yet
working at full efficiency. As a result, if these trips are replaced by
bicycles for short distances the benefits gained are particularly high
(Anable 2008).
Work from home when possible and reduce travel miles. Teleconference rather than commuting to meetings.
Source: Authors.
by the World Business Council for Sustainable Development (WBCSD

2009) concluded that technology alone is unlikely to guarantee building
energy performance: Wasteful behavior can add one-third to a buildings
designed energy performance, whereas conservation behavior can save
a third (WBCSD 2009: 62). On the whole, wasteful behavior uses twice
as much energy.
Example: Local materials
Locally available materials like wood, mud, and stone do not need a
large amount of external energy to keep temperatures inside buildings
comfortable. Conventional building methods use tremendous quantities
of material, many of them nonrenewable and toxic, and pay little
attention to the impact the building has on the environment. Switching
to green building methods and technologies can offer significant benefits.
Box 6.4 lists What Makes Buildings Green? by the Ministry of
New and Renewable Energy, India.
Culture, lack of alternatives
Corporate policies
Infrastructure unavailable
Poor public transport

solutions
Poor city planning,

e.g.,urban sprawls, existing
infrastructure is not
conducive
Corporate policies
Restrict air travel
Teleconference rather than

commuting for conferences
Use home delivery for

routine purchases
Use public transport and

reduce dependence on
private vehicles
Walk or cycle short

distances
Work from home
Lack of awareness and

knowledge
Hurdles
Adopt green driving

practices
Lifestyle Change
High-speed internet
connections, awareness
campaigns
Implement pedestrianand bicycle-friendly

environment, make or
improve bicycle paths, smart
and compact city planning,
provide bicycles for hire
Make city centers motorvehicle free, entry tax for

private vehicles, integrated
public transport solutions
Tax incentives for home

delivery
High-speed internet
connections, awareness
campaigns
Taxes for exceeding a

certain number of air miles a
year, promote rail transport
as alternative
Mandatory component for

acquiring a driving license,
awareness campaigns, smart
signage
Policy
IT sector in India
Local
Local, middle and upper

income class
Local
Cordon area congestion

pricing in Singapore and
London (Transportation
Alternatives 2011)
Vlib cycle hire service in
Paris (Velib 2010)
Local, middle and upperincome class
Local
National, high income class
Local and national, middle

income class
Level
Home delivery store in

Bangalore (Grocbay.com
2011)
IT sector in India
Taxes and fees being

charged to passengers using
air miles in the UK (Gordon
2011)
Asia-Europe Foundation
initiative in green driving
in Beijing (United Nations
Development Program 2011)
Examples and Initiatives
Table 6.4: Lifestyle Changes and Associated Factors for Travel
Box 6.4: What Makes Buildings Green?

The following measures should be considered while designing and
constructing a green building:

Site selectioneasy availability of public transport and public

conveniences.
Soil and landscape conservation. The topsoil and existing vegetation
need to be preserved during construction. Changes to soil conditions
can affect the ecosystem, which takes a long time to revive itself.
Conservation and efficient utilization of energy and resources. Water
used during construction should be recycled and reused as much as
possible. Proper measures should be taken to harvest rainwater even
during the construction phase and wastage should be curbed.
Waste generated during construction should be recycled and reused.
Source: MNRE and TERI (2010).
Initiative: Auroville Earth Institute, Auroville, India

The Auroville Earth Institute in India has been extensively researching
and promoting earthen blocks as building material. These technologies
have been found to be both cost-effective and energy-efficient. The main
task is finding ways to minimize the use of steel, cement, and reinforced
cement concrete and to replace them with composite blocks (earth,
fibers, and stabilizer). The institute is also researching a homeopathic
milk of lime and alum as an alternative to cement, along with alternative
waterproofing with stabilized earth.
Example: Energy-efficient house
Houses and office buildings can be converted into places of production
with relatively minor alterations. By installing fuel cells, rooftop solar
shingles, living machine wastewater treatment, and rooftop gardens,
existing structures can minimize their dependence on fossil fuel
resources and thereby reduce their carbon emissions (Milani 2001).
Case study: Energy positive house
Public policies favoring prosumption can encourage households to
generate their own energy. For example, in a country like India which
faces a perennial shortage of electricity, power utility regulators are now
promoting rooftop solar power plants through net-metering or feedin tariffs. Increasing number of households are responding positively.
Figure 6.10 illustrates the example of how an urban household in
Southern India has adopted several demand and supply side options to
achieve a net energy positive status in 2014.
Figure 6.10: Annual Energy Performance of a Net Energy

Positive House in India, 2014
2,800
700
2,400
600
2,000
500
1,600
400
1,200
300
800
200
400
100
0
Cumulative net export, kWh
800
100
Cumulative net export
Cumulative export
December
November
October
September
August
July
June
May
April
March
February
400
January
Electricity exported and imported, kWh
Electricity Import and Export Data (2014)

3,200
Cumulative import
Source: Data gathered by the first author in his house.
The electricity demand of the household was drastically reduced by

opting for the most energy efficient appliances available in the market.
The electricity generated from a small solar power plant on the rooftop
is not only adequate for meeting the electricity needs of the households
but also takes care of the transportation needs of the family by charging
their electric car and scooter. The smart grid that allows for the twoway flow of electricity helps to resolve the mismatch between electricity
generation and demand. For example, the excess electricity generated
during the less hot periods of the year compensates for the greater
electricity needs to keep the house cooler during hotter months.
Box 6.5 gives an overview of lifestyle choices related to buildings
and housing. Table 6.5 presents potential hurdles for such choices, as
well as supportive policy initiatives.
6.3.6Waste
On the consumer side, individuals have a range of choices to help
reduce their waste. These need to be oriented toward the 3Rsreduce,
reuse, and recycle. Wherever possible, the emphasis should first be on
Box 6.5: Lifestyle Choices: Buildings and Habitat

Switch to green buildings and green technologies where possible.

Use alternatives to cement and steel in constructions such as rammed
earth or bamboo, as those contain less embodied energy.
Use compact building spaces, and save on energy needs for heating
and lighting.
Use lighter-colored cabinets and countertops to make rooms brighter
so they require less lighting.
Divide the building into separate zones, each with a different indoor
climate and hence different energy requirement; this will result in
the best use of natural sources for heating, cooling, and lighting and
can achieve up to 30% energy use (Hyde 1998).
Retrofit existing buildings with insulation: a study for Malaysia shows
that mineral wool insulation of buildings would result in savings of
over 32 million tons of carbon dioxide (CO2) across Malaysia (MIMG
2009).
Capture heat from water that goes down the drain from various
activities such as dishwashing, clothes washing, and showers, saving
up to 60% of heat energy that is otherwise lost.
Source: Authors.
reducing ones waste. Each income class has very different lifestyle and
shopping habits; the points listed below are mainly addressed to middleclass consumers.
Example: Green shopping
Changing existing shopping patterns can help in reducing waste. Smart
and green shopping habits such as purchasing durable goods or equipment,
and purchasing locally manufactured goods have a large impact on carbon
emissions. Goods that use fewer resources for manufacturing, that are
made of non-hazardous materials, and that do not produce hazardous
waste can be given preference over others. Also, buying products with
minimum packaging is an important choice a buyer can make.
Example: Waste segregation
Waste segregation at the household level enables waste materials to
be turned into valuable resources. Kitchen waste and other organic
waste can be turned into compost. Special attention should be given
to hazardous waste and electronic waste. Some companies have a buyback policy that allows consumers to send back old equipment, and this
should be used. Segregating waste and recycling allows individuals and
communities to increase their consumption without having to incur
additional expenses.
Availability, lack of
knowledge and capacity
Lack of design knowledge
Lack of design knowledge
Use alternatives to cement

and steel in constructions
Use compact building

spaces, and save on energy
needs for
heating and lighting
Zoning of buildings
Source: Compiled by Authors
Lack of capacity, higher

initial costs
Switch to green building

technologies
training centers on
bioclimatic architecture
training centers on
bioclimatic architecture
Training centers for

alternative building
materials, higher taxes on
steel and cement to boost
the alternative building
market
Make green technologies

mandatory for gated
communities and big
housing developments, tax
incentives for private home
builders
Tax incentives and special

loans for retrofitting,
awareness campaigns
High initial upfront costs,

lack of awareness
Retrofit existing buildings

with insulation

Tax incentives and special
loans for equipment,
awareness campaigns
Hurdles
Costs, availability of
technologies, awareness
Capture heat from water

that goes down the drain
Lifestyle Change
Level
National
Compressed earth bricks

being used by Auroville
Earth Institute, India
(Auroville Earth Institute
2011); cement production
tax in Texas, United States
(Onecle 2007)
Zoning of buildings is
mandatory for new buildings
in Shanghai (Lausten 2008)
Local and national
Local and national
National, state
CALGreen is a mandatory
green building standards
code in California (Building
Standards Commission
2011)
Bioclimatic Architecture
Department of the National
Renewable Energy Centre,
Zaragoza, Spain (Zaragoza
2011)
Local and national, highincome class
Local and national
The German government

provides tax incentives for
thermal retrofitting (Climate
Policy Initiative 2012)
Union Gas (Canada) sells

drain water heat recovery
systems to its customers
(Union Gas 2011)
Examples
Table 6.5: Lifestyle Changes and Associated Factors for Buildings and Construction
Box 6.6: Lifestyle Choices: Waste

Use durable products made of nonhazardous and recyclable

materials.
Avoid heavy packaging: 540 kilograms of carbon dioxide (CO2) can
be saved per annum if you cut down your garbage by 10% (Earthforce
2011). If a mere 1% of Asias urban population avoided heavy packaging
this would lead to an annual decrease of over 6 million tons of CO2.
Take your own bags when shopping, relying less on plastic bags. The
US uses 100 billion plastic bags annually, consuming about 12 million
barrels of oil. Less than 1% of plastic bags are ever recycled (WWF
2011).
Buy in bulk where possible, avoiding excessive packaging material.
Switch to e-accounts and e-statements, helping reduce paper
waste. In the US, paper products make up the largest percentage of
municipal solid waste, and hard copy bills alone generate almost 2
million tons of CO2 per year (WWF 2011).
Reuse cans, bags, and containers wherever possible.
Segregate household waste, making it easy to recycle material.
Recycling 1 ton of paper saves 26,500 liters of water, 2.3 cubic meters
of landfill space, and 4,100 kilowatt-hours of electricity (WWF 2011).
Make your own compost from waste from the kitchen. Composting
waste food can result in 0.09 kg1.13 kg CO2 equivalent avoided per
kilogram (Sang-Arun and Bengtsson 2009)
Send back old appliances like laptops to the company. About 40% of
heavy metals including lead, mercury, and cadmium in landfills come
from electronic equipment and discards (EPA 2008).
Source: Authors.
Box 6.6 summarizes some lifestyle choices for the waste sector. In
Table 6.6, hurdles, supportive policy actions, and existing policies from
around the world are listed.
6.4Behavioral Change at the Community Level

Communities and neighborhoods can adopt significant changes in
their behavior to help in carbon mitigation. Many of these will need
the support of local authorities and the participation of most, if not all,
residents for them to be truly successful.
Packaging design of
products
Not available at
supermarkets
Inconvenient, lack of space,

lack of knowledge
Inconvenient
Inconvenient, lack of
supporting infrastructure
Buy in bulk
Make your own compost

from kitchen waste
Reuse cans, bags, and

containers
Segregate household waste
Hurdles
Avoid heavy packaging
Lifestyle Change
Mandatory taxing of waste

in high-income countries,
purchasing of waste in
low- and middle-income
countries
Tax on waste, refund for

cans, bags, and containers
Mandatory, provide support

infrastructure, free compost
bins, micro business based
on kitchen composting
Legislation and incentives

for supermarkets to offer
certain food items in bulk
Awards for companies that

reduce packaging material,
awareness campaigns
Policies and
Initiatives
Local
Solid waste management

program in Surabaya City,
Indonesia (Samuel 1987)
NSW state government

(Australia) purchases waste
office paper for its needs
(NSW Government 2011);
segregation of garbage (wet
and dry) is compulsory for
large structures in Bangalore
(Deccan Herald News
Service 2011)
Local and national
Local and national
Local and national
eFoodsDirect sells groceries

in Utah, US (eFoodsDirect
2012)
Most EU countries have

introduced landfill taxes
(Economic Instruments in
Environmental Policy 2010)
National
Level
Packaging policy in the UK

focuses on optimization
of materials and improving
rates of recycling (Roberts
2008)
Examples
Table 6.6: Lifestyle Changes and Associated Factors for Waste
Technological
implementation, not
everyone is connected to
the internet
Inconvenient, lack of
awareness
Lack of availability, lack of

awareness
Switch to e-accounts
and e-statements
Take your own bags while

going for shopping
Use durable products made

of nonhazardous and
recyclable materials
Source: Compiled by Authors.
Inconvenient, awareness
Hurdles
Send back old appliances

such as laptops to the
company
Lifestyle Change
Table 6.6 continued
Stringent product labeling,

lower taxes on such
products
The EU has introduced

a tire-labeling scheme
intended to encourage
consumers to buy greener
tires for their vehicles
(Phillips 2009)
Ban on plastic bags in Coorg,

India (Coorgnews 2011)
National, upper-income
class
Local and national
Local and national
Vodafone charges extra

for providing paper bills
(eBillingNews 2009)
Directive by state, provide

terminals to check account
statements for those
without internet access,
extra charges for paper bills
Higher taxes on plastic
bags, ban plastic bags at
department stores
National
Level
Dell (2012) and Apple

(Price 2011) buy back old
products from customers.
Both refurbish and resell
their own computers with a
1-year warranty
Examples
Awareness campaigns
Policies and
Initiatives
Initiative: Subsidies in Los Angeles

The Los Angeles Department of Water and Power gives low-income
households a new energy-efficient fridge for free or at a subsidized price:
The program hopes to remove 50,000 old, inefficient refrigerators off
the market and save the City $12million a year in fuel costs and reduce
CO2-related greenhouse gas emissions, equivalent to removing 40,000
cars off the road. (The Scottish Government Riaghaltas na h-Alba 2009:
33)
Initiative: Top Runner program
The Top Runner is a Japanese program addressing efficient energy
use of products. Since the beginning of the program in 1999, mandatory
energy performance standards were set for a variety of products. The
most energy-efficient product in the market is identified as the Top
Runner and the program sets a target year by which all other products
should achieve the same level of efficiency. When that target year has
been reached, the cycle starts again with the assessment of a new Top
Runner product (Siderius and Nakagami 2007). The program has been
very successful. The energy efficiency of video tape recorders improved
by 73.6% from 1976 to 2003, which was 15% above original expectations.
Similarly, personal computers achieved their Top Runner Standard
well before their 2002 target year. This program is notable as it focuses
on the positive incentives of being the Top Runner in comparison
with the more negative incentives imposed by the mandatory energy
performance standards in other parts of the world. Moreover, with
increased awareness of products, these schemes resulted in less energyefficient products being removed from the market in a phased manner
and supported more carbon-neutral individual lifestyle choices.
Eco Villages
Eco villages are communities that attempt to become socially,
economically, and ecologically more sustainable. Some aim for a
population of 50150 individuals, while others have as many as 2,000
inhabitants. The main goal is to create the smallest possible ecological
footprint, and to produce the lowest quantity of pollution possible,
through efficient land use, recycling, composting, and converting waste
to energy. Eco villages contribute to other climate change initiatives and
have large carbon mitigation potential if adhered to. One large benefit
is the reduction in travel time for residents in the community, as eco
villages are planned around walking and cycling paths. A case in point
is the Los Angeles Eco-Village located in the Korea Town area in Los
Angeles, California. Distances between the various facilities are kept to
a minimum, encouraging (and at times mandating) that residents either
walk or cycle.
At Horse-Shoe Point near Pattaya, Thailand, Cellennium Company

has worked for years to establish a working model of a sustainable
eco-village. Applying energy saving design and architectural features,
insulated, panelized prefabricated houses have been constructed
that are aesthetically appealing, comfortable, and energy efficient.
Renewable energy technologies such as solar thermal and photovoltaic,
biomass and electricity storage, among others, are being employed with
the objective of selling excess electricity back to the grid. Water is being
captured, cleaned, used, treated, and recycled. Fertilizer, bio-char, and
carbon dioxide derived from solid waste generation and from biomass
to power processes are captured for soil enrichment and to enhance
further growth of biomass. All of these taken together create powerful
regenerative forces that can sustain and enhance the bio-sphere
(Cellennium Thailand 2009).
Initiative: Local currencies
Local currency that circulates only within a community can greatly help
reduce carbon footprints, as it encourages members of a community to
buy only local products. Communities such as the Findhorn Ecovillage
in Scotland have successfully implemented such initiatives, having their
own bank and community currency (Findhorn Foundation 2010).
Initiative: Territorial climate and energy plan in France
In France, cities are estimated to contribute directly to 12% of national
emissions, while citizens account for over 50% of emissions. Therefore,
the Government has taken initiatives to enable cities to play the role
of orchestrator and promote local dynamics. For instance, a city that
exceeds 40,000 people is obliged to develop and adopt a territorial
climate and energy plan, in line with the national target of reducing
energy consumption by a factor of four by 2050. It is widely accepted
that there can be no miraculous technical solutions; instead citizens
have to adopt a lifestyle that matches the reality. Media campaigns have
been launched with slogans such as Lets act, the earth is heating up
and Lets reduce our waste, the garbage bins are overflowing. Several
hundred energy information centers have been established in cities to
sensitize citizens to change their daily habits and adopt a lifestyle that
can help reduce their ecological footprint (Mohanty 2010).
Initiative: Eco-district, Kronsberg, Germany
Kronsberg is an eco-district situated in the city of Hannover, Germany,
which is built on 1,200 hectares on the city outskirts and is planned for
a population of 15,000 people. The emphasis is on low land occupancy,
to be achieved by means of high-density construction. A direct light
rail links the settlements to the city center; there are designated paths
for cycling throughout the district and a dense layout of footpaths
offers an attractive alternative to private motorized transport.
Ecological standards for developers were defined in the areas of energy,
construction, waste, soil management, water, and nature conservation.
For the energy sector, the goal was to reduce the carbon footprint by 60%
as compared to the national level, through measures such as innovative
building methods and renewable energy using solar photovoltaic and
wind turbines (Rumming 2007).
Initiative: Green cities
Broadening the concept of eco villages and eco districts, the governments
of India and Japan are planning to develop green cities, which would be
planned and executed around sustainable growth. The cities would have
better transport facilitiesand promote public transport. In addition, the
micro infrastructure within the cities would be designed to be easily
accessible to all residents and not to require any kind of transportation
(Chadha 2010b). The government of the UK has initiated special
programs to recognize the efforts of sustainable communities (Anable
2008). Three towns were chosen as sustainable travel towns and
10 million was made available over 5 years for promoting alternative
modes of transport. This initiative saw a 12%13% reduction in car use,
the development of new cycling paths, and a big increase in alternative
modes of transport.
Initiative: 2,000-watt society, Switzerland
The Vision of a 2000-Watt society was formulated in Switzerland by
the Federal Institute of Technology in Zurich. It entails a reduction
of energy consumption by two-thirds for Switzerland. It calls for a
significant lowering of energy consumption and a simultaneous rise
in energy efficiencysubstituting fossil fuels by renewable forms of
energy, adopting a more sustainable way of life, and rethinking current
business practices. Changes in the construction sector through the
implementation of solar passive design, zero emission buildings, and
fundamental changes in the road, transport, and freight sector are
envisioned. This should be achieved by adopting already existing
technologies and without compromising the present quality of life
(Stulz and Ltolf 2006).
Box 6.7 lists ways to mitigate the Urban Heat Island Effect through
green technologies.
Box 6.7: Mitigating the Urban Heat Island Effect

The urban heat island refers to an area in a city that has a significantly
higher temperature than that in the surrounding areas, meaning that
more energy is needed for cooling the habitat. The Heat Island Group
estimates that the heat island effect costs Los Angeles a minimum of $100
million per year in energy (Chang 2000).
If more houses in the neighborhood adopt green technologies such as
green roofs, curbside planting, and lighter-colored facades that reflect
sunlight and absorb less heat, the heat island effect could be mitigated and
the community would depend less on external energy sources (Columbia
University; Hunter College CUNY; SAIC Corporation 2006).
When a number of green buildings are located in close proximity to each
other, they create a green zone, providing a much healthier environment
and minimizing the heat island effect. The ultimate aim would be to
create many such areas, which would help towns and cities and therefore
the nation in reducing total energy requirements and the overall global
carbon footprint (MNRE and TERI 2010).
Source: Authors.
Initiative: Teleconferencing
Under WWFUKs One in Five Challenge, businesses and organizations
are committing to cut 20% of their air travel by 2016. A dozen large
companies have signed up for the program, including the Scottish
government. Audio, video, and teleconferencing provide alternatives to
face-to-face meetings (WWF, Ecofys, and OMA 2011). Corporate policies
such as these will go a long way in setting examples for employees and
for the population at large.
Initiative: Car pooling
An online initiative in India (http://www.carpooling.in) tries to bring
together people who have space available in their cars with people
looking for a car ride. In the US, an organization called GreenXC has
created a campaign that encourages people to adopt carpooling in order
to reduce the carbon footprint. The goal is to travel cross-country and
explore various national parks and forests exclusively via carpooling.
Without driving or renting a car, they hope to reach their destinations
with the help of others with the sole intention of being green (GreenXC
2011). Carpooling can be an effective means for individuals and
communities to combat climate change.
Example: Sharing resources

Sharing is one of the easiest and most powerful ways of conserving
resources (Gardner 1999). Communities can share buildings, open
areas, vehicles, tools, appliances, and other facilities to cut down on the
amount of materials used and the total energy requirement.Items such
as ladders, lawn mowers, saws, washing machines, and automobiles sit
idle for long durations of time. Communities can initiate groups and
resources to engage these idle resources and make sharing convenient
for its residents. Sharing can even extend the life of these items as such
pieces of equipment normally degrade when not in use (Milani 2001).
Initiative: Buying goods and services using ecological criteria in
Vienna, Austria
The city of Vienna purchases goods and services according to ecological
criteria. A list of requirements for classifying whether a product and/or
service is ecological was created, and made binding for all departments
of the city administration. This ensures that ecology is sufficiently taken
into consideration over the course of public procurement and tendering
by Vienna city government. Vienna spends about 5 billion per year on
ecological goods and services (Jerrod 2012). It can thus significantly
influence the quality of products and services offered in the local market.
Initiative: Calgary, Canada
Programs and initiatives that aim at increasing awareness of issues
related to climate change, and options that are available for reducing
carbon emissions are of crucial importance. The city of Calgary has
undertaken an effort to create awareness and understanding of climate
change, and to engage the private and corporate sectors in efforts to
reduce carbon emissions. This includes educating the public, including
the business community, about the impact of personal actions on GHG
emissions, marketing ways of curbing climate change, and empowering
the community to take its own emissions reduction actions (City of
Calgary 2000). Undertaking campaigns such as these in urban as well
as rural areas will be fundamental to securing peoples participation
in combating carbon emissions. Such soft policies will need to be
implemented frequently and at regular intervals for them to have the
desired effect.
Initiative: National Public Scheme for the Conservation of Drinking
Water, Egypt
Training and education play an important part in sensitizing the
population to the issues involved. The National Public Scheme for the
Conservation of Drinking Water in Egypt aimed at conserving drinking
water, locally and nationally, through intensive public awareness and

training programs for local plumbers. It also promoted the use of 16
locally developed sanitary fixtures. These measures resulted in lowering
water consumption by 36 million m3 per year, with annual cost savings
of about $5million. Consequently, the load on the sewerage system was
also reduced (The Together Foundation and UNCHS 1998).
Initiative: Deposit refund program, Micronesia
Pacific island states are also increasingly relying on a deposit refund
program as an effective means of inducing behavior change such as
recycling. A deposit is collected at the time of purchase of the product if
it is found to degrade the environment. This deposit is returned when the
customer returns the product to a designated facility. Such programs are
common in many cities today, and are usually applied to glass, aluminum
cans, or polyethylene terephthalate (PET). However, the Pacific islands
have taken this a step further and have started applying the same scheme
to items such as automobile batteries, pesticide containers, and even
electronic waste.
Kiribati has introduced a deposit and refund system on car batteries,
among others. A small deposit is paid on purchase and 80% of this is
repaid when the items are returned to privately operated depots. The
Government acts as the administrator of the fund and holds all the
deposits collected. In Yap and Kosraean states of the Federated States
of Micronesia, the government mandates that a recycling deposit fee of
6 cents is collected for aluminum, glass, and PET beverage containers
and PET cooking oil containers. A refund of 5 cents is given for every
container brought to the designated collection center. The regulations
also require that the funds be deposited into a separate account, which
is expressly for the use of the states recycling program (Richards 2009).
Box 6.8 explores potential behavioral changes for carbon mitigation
at the community level, while Table 6.7 lists hindrances to such changes
as well as supportive policy actions and examples from around the
world.
Role of Business in Influencing Change
Promoting a more sustainable lifestyle needs the active participation
of business, policy makers, and civil society. Sustainable consumption
needs to be mainstreamed through all policy areas and linked with
existing policy plans and strategies (CSCP 2010). To choose the most
effective policy instruments in promoting sustainable consumption,
there should be a better understanding of the needs (Figure 6.11). Policies
based on dialogues with manufacturers can assist in creating a demand
Box 6.8: Behavioral Changes at the Community Level

Check with your neighbor on starting a carpooling network. It has

been estimated that with each car that goes off the Indian roads, about
1,300 kilograms (kg) of carbon can be mitigated per year, amounting
to over $600 in fuel bills (Sodhi et al. 2010).
Share gardening and other idle household equipment with your
neighbors to cut down on the amount of materials used and the total
energy requirement.
Encourage children to play outside with neighbors rather than sitting
in front of the television or computer. This could potentially save over
61,000 tons of carbon dioxide (CO2) emissions per year, assuming
about 1 million children adopt this change (Centre for Environment
Education 2010).
Plant more trees in your community to offset carbon and engage in green
community initiatives, saving 183 kg500 kg of CO2 emissions for every
50 trees over 100 years (Centre for Environment Education 2010).
Create a community-supported agriculture program.
Source: Authors.
for sustainable products, identifying target areas for greening the supply
chain and in making sustainable consumption easier for consumers.
Business organizations are powerful players in todays marketdriven economies. The policies that they adopt and their goals and
visions have an enduring impact on society through their large customer
networks. A number of business organizations around the world have
changed their practices and become more environmentally conscious.
For instance, in the automobile sector, stakeholders have argued
that car companies have to respond to the growing consumption of fossil
fuels. However, actual market trends tell a different story: Instead of
smaller and more efficient cars, customers have increasingly requested
more horsepower and heavier vehicles such as sports utility vehicles
(SUVs). As the public awareness for climate change increased, Toyota
was one of the first companies to make innovative concepts available to
meet rapidly changing demand. It was the first to offer hybrid technology
and get a competitive advantage, which has increased profits due to its
considerable market share (Tuner et al. 2010).
Other initiatives by companies are given in Box 6.9.
Tuner et al. (2010) have shown that business opportunities can
arise from creating value in the environmental sector, such as:
Availability of land
Organization, sense of
ownership, maintenance
of tools
Communication and
anonymity in big cities
Plant more trees in your

community
Share gardening and other

idle household equipment
with neighbors
Start a carpooling network
Source: Compiled by Authors.
Mandatory playground per

certain density and region,
support of sport clubs
Lack of outdoor playgrounds

and outdoor leisure
opportunities
Encourage children to play

outside with neighbors
rather than watch TV
Provide online platforms

that connect people for car
pooling
Support community- or
neighborhood-based tool
and equipment banks
Assign space for tree

planting along streets and
pedestrian paths, organize
events for tree planting,
provide saplings
Awareness programs,
communication and
marketing assistance for
communitysupported agriculture
programs
Lack of awareness, lack of

infrastructure support
Hurdles
Create a communitysupported agriculture

program
Lifestyle Change
US Environmental
Protection Agency
has several carpool
incentive programs in
Cincinnati (United States
Environmental Protection
Agency 2005)
Local
Local
Local
Green Leap Delhi, Indiaan

initiative by the government
of Delhi to plant 1million
trees in different parts of
Delhi in 2011 (Green Leap
India 2011)
ToolBank provides a
platform for sharing tools
(ToolBank 2011)
Local
Local
Communitysupported agriculture
programs in Portland
(Portland Area Community
Supported Agriculture
Coalition, 2011), Chiang Mai,
Thailand (Fair Earth Farm
2011)
Example
Table 6.7: Behavioral Changes and Associated Factors for Communities

Level
Figure 6.11: Creating and Satisfying Demand for Green

and Fair Products
Challenges
Policy instruments
Identifying targets areas for

greening the supply chain
Guidance on hot spots
Creating demand for green and

fair products
- Information campaigns
- Bans and standard
- Sustainable public procurement
Making sustainable consumption

easy
Product labeling
Source: CSCP (2010).
Box 6.9: Green Initiatives by Companies

Memos strategy of selling most sustainable office supplies has

resulted in business growth.
In 2007, Henkel, a German manufacturing company, organized a
students innovative ideas competition with the focus on sustainability,
creativeness, and future perspective to foresee the possible needs
for year 2030 or 2050. The contest was focused on beauty products
initially, but later was broadened to all three main branches of activity.
SkySails innovative technology uses the power of high winds to save
oil in cargo ships and has successfully created a new market.
RICOH relieves customers from buying, installing, and maintaining
printing equipment and sells printed pages instead.
Source: Authors.
1. Designing new products and services that cater to the rising

demand for green solutions.
2. Devising new ownership mechanisms such as service-oriented
business models that provide a solution rather than a product
(e.g., energy service companies that provide energy-related
services instead of selling energy). This is because many
products have a high initial cost, e.g., automobiles and heating

systems.
3. Providing innovative after-sales services, including a buy-back
of environmentally harmful products.
As more and more businesses adopt such practices, policy makers
will find it easier to support lifestyle and behavioral changes in their
communities.
Initiative: Life Cycle Assessment Center, Denmark
In order to identify harmful environmental impacts of consumption,
the entire life cycle of products and services needs to be assessed. For
a single company with limited financial and human resources, such
data collection and assessment may not be possible. Governments can
support business by identifying priorities for improvement, creating
guidelines, and building capacity. The Danish government, for example,
has established the LCA Center Denmark, a knowledge center for
life cycle assessments (LCA). The center promotes product-oriented
environmental strategies in private and public companies by helping
them to implement life cycle thinking (CSCP 2010).
Initiative: Green label, Thailand
The Thai green label is an environmental certificate awarded to
specific products that have had the least detrimental impact on the
environment in comparison with other products serving the same
function. The scheme was initiated by the Thailand Business Council
for Sustainable Development and launched formally in August 1994
by Thailand Environment Institute (TEI) in association with the Thai
Ministry of Industry. The scheme is developed to promote the concept
of resource conservation, pollution reduction, and waste management.
The purposes of awarding the green label are to:

provide reliable information and guide customers in their

choice of products;
create an opportunity for consumers to make an environmentally
conscious decision, thus creating market incentives for
manufacturers to develop and supply more environmentally
friendly products; and
reduce environmental impacts from manufacturing, utilization,
consumption, and disposal of these products.
The scheme has generated product criteria for 48 different products.

In June 2011, 75 companies registered over 500 products in 25 categories
for the green label (TEI 2011).
6.5Policies and Strategies

Given the projected impact that climate change will have on the future
of the planet, decision makers need to pursue policies and legislation
that can help curb carbon emissions. Policies to enable low-carbon
and climate-resilient development need to be integrative and they
need to be brought to the mainstream. They should provide and foster
an environment for individual and collective behavioral change, offer
financial incentives, promote new market and support mechanisms
for industries to switch to a non-polluting mode of production, create
a market for green products and services, support capacity building,
promote research and dissemination of knowledge and technology, and
raise public awareness.
Low-income and developing countries such as Bhutan and Cuba
have made significant changes to their lifestyles and economies
with the use of innovative policies and demand for resources, clearly
showing that successful action is possible. It is important for policy
makers to recognize and capitalize on the fact that a large percentage of
investments and capital flowing into infrastructure development comes
from the private sector. Market distortions through subsidies on carbonintensive technologies and products need to be dealt with and more
resources will have to be directed toward climate change adaptation and
mitigation.
In general, there has been widespread criticism of government
policies. It is a challenging task to devise and implement policies
that account for all the different components of climate change and
environmental degradation. When only one component or sector
is addressed, it often ends up adversely affecting other sectors and
components in the system. For instance, in Australia, the National
Climate Action Summit of 500 participants representing 140 climate
groups nationwide has condemned the cap and trade system of
emission reduction that was to be introduced as law in Australia, and
has successfully campaigned to prevent it from becoming law. Major
concerns have been voiced on the announced targets (describing them
as inadequate), granting of property rights to pollute, and providing free
permits to major polluters.
The Government of Japan has a clear position on building a
low-carbon society which, along with the promotion of innovative
technology, has been identified as the key to lowering Japans emissions
by as much as 50% by 2050. The Ministry of the Environment of Japan
is entrusted with the task of developing principles, priority areas, and
strategies to achieve the target (Ministry of Environment of Japan
2007). The low-carbon society envisioned by Japan is founded on
three principles: minimizing CO2 emissions from all economic sectors,
shifting from mass-consumption to a society that focuses more on the

quality of life, and maintaining and restoring the natural environment.
Realizing a low-carbon society involves tackling technical, economic,
social, and informational barriers by formulating policies that motivate
citizens and companies to act toward the ultimate goal. The four policy
instruments employed by the government include:
1. putting in place institutional incentives through regulations,
economic instruments, and awards and recognition;
2. creating hard infrastructure such as urban structures, buildings,
transportation networks, and energy supplies;
3. adopting soft approaches such as information and sensitization,
capacity building, education, and financial resources; and
4. reinvesting in natural capital such as carbon sinks, biomass, and
adaptation.
Developing countries in Asia generally adhere to the principle of
common but differentiated responsibilities, agreed in the United
Nations Framework Convention on Climate Change, which gives
higher priority to economic development. For instance, even though the
Peoples Republic of China (PRC) accounts for the bulk of the worldwide
GHG emissions, the government argues that emissions per capita in the
PRC are low and that raising incomes must be their highest priority.
It also argues that industrialized countries must bear the primary
responsibility for the buildup of GHGs and should therefore lead the
way in mitigating emissions domestically (Leggett et al. 2008). There
is a general consensus in many countries that the industrialized world
should assist developing countries to mitigate emissions and adapt to
climate change.
Regional cooperation is crucial in bringing as many countries
on board as possible, so that there can be constructive and fruitful
cooperation between industrialized and developing countries and
exchanges of good practice among Asian developing countries. Policies
to mitigate GHG emissions in one country can provide economic benefits
to another country if both nations do not act together. For instance,
potential climate change legislation in the United States has been
influenced by the GHG emissions in PRC and uncertainty over how and
when it might alter that trend. There is concern that strong domestic
action taken without PRC reciprocity would unfairly favor the PRC in
global trade, and fail to slow the growth of atmospheric concentrations
of GHGs significantly (Leggett et al. 2008). Governments need to come
to a common understanding over not only the causes and impacts of
GHG emissions, but also the path for curbing them.
The following sections highlight some of the policy options available

to governments in the food, water, electricity, transport, construction,
urban planning, and waste sectors.
6.5.1Food
Policies in the food sector will have to address food security, management
of food waste, and healthy food and pollution control as well as the
conservation of agricultural land and biodiversity.
Example: Develop policies to promote and support urban agriculture
Urban agriculture can have a positive impact on a regions food security,
reducing food miles and organic waste in landfills. It would also improve
the quality of urban life by greening city spaces. Urban agriculture needs
to be incorporated in a citys land use plan. A legal framework that
allocates idle and/or under-used urban land for food production would
support the development of urban agriculture. Building codes need to
be adapted so that they reflect the actual structural contingencies for
rooftop gardening. Institutions will need to conduct research on urban
agricultural techniques and food processing, and centers for training,
dissemination and soil testing need to be established. Creating a support
infrastructure for urban farming that includes tool banks and input
material such as compost, seeds, organic fertilizers, and pesticides will
have to be supported. The unemployed can be trained in food-related
business. Financial mechanisms such as start-up capital or special loan
schemes need to be established. Public institutions can be encouraged
to buy locally produced food from urban farmers. Cooperation with
the municipal waste collection system for collecting and composting
organic waste can be forged to close the material loop.
Cuba has an outstanding history in developing urban agriculture.
By 2003, urban agriculture provided 60% of the vegetables consumed
by Cuban city dwellers. The planting of several million trees (including
fruit and nut trees) in and around Havana has recharged groundwater
and improved water security and the water quality of Cuban citizens
(Wolfe 2005). In 2013, Havana counted 97 high-yielding organoponics,
which produce vegetables such as lettuce, chard, radish, beets, beans,
cucumber, tomatoes, spinach, and peppers (FAO 2015). The total area
under agriculture in Havana is estimated at around 35,900 hectares, or
half the area of Havana Province. Production in 2012 included 63,000
tons of vegetables, 20,000 tons of fruit, 10,000 tons of roots and tubers,
10.5 million liters of cow, buffalo, and goat milk, and 1,700 tons of meat.
In Cuba as a whole, agriculture is now practiced by about 40,000 urban
workers on an area estimated at 33,500 hectares. This includes 145,000
small farm plots, 385,000 backyard gardens, 6,400 intensive gardens,
and 4,000 high-yielding organoponics (FAO 2015).
A feature of urban and peri-urban agriculture in Cuba is the high

degree of local autonomy, which is seen as a key to ensuring food security.
Cubas strategy is to promote agriculture in small, local areas with a large
number of producers who grow food for their own consumption and to
meet the food needs of their neighborhood (FAO 2015).
Example: Policies to promote organic farming
Organic agriculture should no longer be considered an alternative
to conventional agriculture but a mainstream agricultural approach.
Tailored policy instruments need to be flexible and region-specific,
making reference to geographical, natural, and socio-cultural conditions
(Niggli, Schader, and Stolze 2011). A multi-objective policy instrument
can capture the strong interrelations and potential trade-offs between
food security, biodiversity, and climate. Governments will have to play an
important role in providing a supportive framework for organic farming.
In most countries practicing successful organic farming, similar policy
measures exist, such as strategic action plans, redirection of agriculture
subsidies to organic farmers, organic labels and standards, organic
research and education programs, as well as marketing campaigns. A plan
for phasing out existing subsidies and redirecting them to the organic
agriculture sector needs to be drafted and the feasibility and potential
risks for the food security of a given country need to be considered.
Support mechanisms and incentives for farms that convert from
conventional to organic farming need to be created. Marketing of organic
agricultural products, creating consumer demand, should be supported
by the state as well, especially in the initial phase. Coherent labeling
of organic products and stringent internationally accepted quality
standards need to be adopted. Another interesting tool for stimulating
demand is integrating organic produce into public procurement (e.g.,
schools, government institutions, and hospitals). Besides stimulating
demand, it may also help to raise consumer awareness. One important
policy option for public decision makers to support organic agriculture
is accurate pricing that considers environmental services, carbon
sequestration, clean air, and clean water. Top priority should be
given to achieving prices and fees that reflect the full economic and
environmental costs, including all externalities.
Initiative: Organic agriculture in Austria
Austria is one of the best performing countries in Europe when it
comes to organic agriculture. Twenty per cent of its agricultural land is
under organic production. The per capita consumption of organically
produced food is among the highest in Europe and demand keeps rising.
The market entry of major retail chains has significantly contributed
to the creation and stabilization of this market. Support for conversion
and management, the creation of markets, clear target plans, awareness
campaigns, training and capacity building, market development,

research, and increases in farm efficiency are behind the success of
organic agriculture in Austria (Lehner 2010).
Although Asia has a very active organic movement, the total area
under organic cultivation is relatively small, over 400,000 hectares,
of which 75% is in the PRC. Several Asian countries have developed
national regulations for organic agriculture, to increase export and
domestic consumption. The Indian National Programme for Organic
Production (NPOP) was launched in April 2000. This includes the
framing of national standards for organic production, processing, and
certification. Regulations for the use of the trademark India Organic
have also been put in place (IFOAM 2003).
Box 6.10 summarizes policy actions related to the food and
agricultural sector that offer potential for carbon mitigation.
Box 6.10: Policy Actions for the Food Sector

Promote organic farming policies.

Promote urban agriculture through the citys land use plan, building
codes, supportive infrastructure (e.g., tool banks for input material,
training), and financial support mechanisms.
Create agro-eco-industrial parks.
Tackle food waste: put in place a national policy to reduce food
waste in the entire food cycle, invest in agricultural infrastructure,
(through technological skills and knowledge, storage, transport, and
distribution), provide special subsidies, loans, and grants for small
farmers and food producers, give awards for the best performing
food processors.
Improve water resource management: support improved irrigation
technologies (drip irrigation systems), carry out training programs in
water management, support passive rainwater harvesting, promote
synergies between industries and agriculture to use effluent wastewater,
scale pricing of water or electricity that is used to pump water.
Source: Authors.
6.5.2Water
Managing water resources is essential if the world is to achieve
sustainable development. Governments must make immediate
investments in water management and water-related infrastructure.
Corruption remains a stumbling block in the water sector. This can lead
to uncontrolled pollution of water sources, over pumping and depletion

of groundwater, lack of planning, degradation of ecosystems, weakened
flood protection, urban expansion leading to heightened water tensions,
and other harmful effects (United Nations 2009b: 3). The financial
costs of managing water can be met through tariffs, taxes, and transfers
through external aid and philanthropy (United Nations 2009). Policy
makers need to decide on the trade-offs between different objectives for
the water sector and who will bear the costs.
Example: Losses in water distribution
A conservative estimate of the global annual water losses in distribution
is estimated to be 35% of the total water supplied. For some low-income
countries the loss may be up to 80%, amounting to nearly $9 billion
per year in Asia (Kingdom, Liemberger, and Marin 2006). Indian cities
like Delhi and Indore lose about 50% of their water production, which
contrasts with the losses of cities that have successful water resource
management such as Berlin (3.0% losses) or Singapore (2.5%) (WWF
2009). Reducing total water losses by half would help utilities to serve
150 million more people, and would cost about $20 billion. In addition,
the total revenue of Asias urban water facilities will increase by $4.3
billion annually (GIZ, Federal Ministry for Economic Cooperation and
Management, VAG 2006).
Currently, investments in water infrastructure are spent more
on increasing production than on maintenance, improvement, and
extension of the existing system. By reducing water losses, water
utilities will have additional supply to enable them to expand services to
underserved areas. Water scarcity is not only an issue of the availability
of water, but lack of appropriate management and governance. Repairing
only the visible leaks will not be sufficient to curb water loss. Box 6.11
summarizes policy actions for the water sector.
Box 6.11: Policy Options for the Water Sector

Make rainwater harvesting mandatory.

Encourage recycling of grey water in households and for industries.
Make water saving devices for toilets, flushes, sinks, and washing
machines mandatory.
Support farmers to adapt water saving practices like drip irrigation;
provide special subsidies and innovative financing for small farmers.
Undertake measures to reduce water losses in distribution.
Consider higher pricing to reduce water consumption and wastage.
Source: Authors.
6.5.3Electricity
Access to reliable and affordable energy for electricity, cooking, transport,
and production is necessary to meet the basic needs and sustained
economic development of Asia. Toward this end, governments should
promote energy policies that help mitigate carbon emissions. Scaling
up the production side needs to be accompanied by addressing losses
in energy transmission and the high-energy consumption of the end
users with suitable policy interventions. A long-term policy for energy
development, with a strong focus on reaching a low-carbon society,
needs to be formulated. Policy mixes like incentives for renewable
energy development along with awareness programs have proven to be
quite effective. Rather than investing in new electricity generating plants
and increasing supply, governments would achieve a lot more by helping
the population buy energy-saving devices such as liquid crystal displays
(LCDs), compact fluorescent lamps (CFLs), and other technologies that
have fewer carbon emissions but a higher up-front cost.
Example: Renewable energy
Government interventions can prove helpful in encouraging the
uptake of expensive renewable energy investments by low-income
neighborhoods and can help in the achievement of the Millennium
Development Goals. In order to reduce CO2 emissions, governments
can help install wind energy for communities, including offshore wind
parks, new solar panels for existing buildings and houses, and solar water
heaters for households in regions that are exposed to the sun. Although
these options have high up-front costs, they offer significant potential
for carbon abatement. There can be innovative ways of financing such
investments. In Australia, for instance, households have the option of
renting their rooftops to a company that installs the solar system and
then feeds the excess electricity generated into the grid (Energy Matters
2011). Having a feed-in tariff system will help in the uptake of renewable
energy ventures, which are currently not common in Asian countries.
Emerging Asian countries that have already introduced feed-in tariffs
include India, Malaysia, Philippines, Sri Lanka, and Thailand. In fact,
fixed feed-in tariffs have proven to be one of the most effective policy
actions for the promotion of renewable energy. A mandatory electricity
utility quota for industries and public institutions, net metering, and
financial incentives like production tax credits and capital subsidies
are other interesting options for policy makers. The high initial cost of
energy-efficient equipment can be overcome by making it available for
hire, or by charging a deposit that is refunded when the equipment is
returned after its use.
Initiative: Renewable energy target in India

The Government of India has set ambitious targets for the renewable
energy sector. The National Action Plan on Climate Change (NAPCC)
targets a 1% annual increase in renewable energy generation, which
stood at about 3.5% of the total in 2008. Meeting this goal may require
40 gigawatt (GW)80 GW of additional capacity in renewable energy
capacity by 2017. To achieve this goal, a tremendous increase in
renewable energy is needed. Steps for an enabling environment have
been taken but significant barriers to renewable energy development
remain. Renewable energy systems have high up-front capital costs.
Besides financial barriers, a lack of support for infrastructurelimited
grid interconnectivity, lack of quality data, and hurdles in the regulatory
approval (delays in clearances)inhibit the development of the sector
significantly (World Bank 2010).
Measures to Improve the Allocation of Resources
An important policy action that could motivate people to take these
small measures would be to correct the pricing of energy resources.
Currently, most sources of energy are subsidized by the government,
but this leads to market failure and irrational allocation of resources
as the user does not pay the real cost of consuming the resource. All
traditional sources of energy are derived from fossil fuels, which are
heavily subsidized by governments. Eradicating subsidies for fossil fuels
would enhance energy security, reduce emissions of greenhouse gases
and air pollution, and bring economic benefits (IEA 2010). Fossil fuel
subsidies worldwide amounted to $558 billion in 2008 and $312 billion
in 2009, the majority of these subsidies being in non-OECD countries
(IEA 2010). Only a small proportion of these subsidies actually reach the
target group they are intended forthe poor.
Removing subsidies would increase the price of fossil fuel sources,
and, as a result, most traditional forms of energy would become more
expensive. This would prompt people to conserve energy and reduce
wasteful consumption. It would also motivate them to resort to energyefficient devices and modes of transport. The International Energy
Agency has projected that removing all fossil fuel subsidies by 2020 would
cut global primary energy demand by 5%, compared with a baseline in
which subsidies remain unchanged (IEA 2010). Alongside the removal
of subsidies, governments should actively explore increasingly taxing
products that are energy-inefficient and environmentally harmful.
Energy-related policy actions to reduce a nations carbon footprint
are listed in Box 6.12.
Box 6.12: Policy Actions for the Electricity Sector

Formulate a national policy on renewable energy targets.

Promote energy efficiency: green standards and labeling, subsidies,
grants, and interest-free loans for products and investments that
improve energy efficiency.
Promote renewable energy installations.
Correct the pricing of energy resources.
Tax products that are energy-inefficient and environmentally harmful.
Implement Smart Grid technologies: develop a national framework,
create incentives for investments, and demonstrate benefits to consumers.
Undertake public awareness campaigns on measures that save
electricity.
Source: Authors.
6.5.4Transport
Given the amount of CO2 abatement potential in the transport sector, it
is critical that policy makers strive to influence behavioral changes in
travel at individual and community levels. Policies to address climate
change will involve large sums of money. However, according to the Stern
Review, incurring costs now for carbon abatement, and avoiding serious
and expensive consequences at a later date, will be a wise investment
(Stern 2006). Policy initiatives in the transport sector will need to be
implemented at all levelsnational, state, and city level; they also need
to be integrated with urban planning policies. A guiding national policy
law for low-carbon footprint transportation with tangible targets will
provide a framework. The increase in personalized motorized vehicles
especially needs to be curbed by policy to provide alternative solutions
and discourage personalized motorized vehicles.
Example: Make city centers motor vehicle-free
Many cities around the world have designated areas as pedestrian zones
(also known as car-free zones). These areas have various policies for
the use of cycles, skates, and kick scooters. Some ban anything with
wheels, while others ban only certain types of traffic. Many Middle
Eastern centers have no motorized traffic, but use donkeys for freight
transport. European city centers, such as Venice, have a strict ban on all
forms of motorized traffic. In the UK, Birmingham has turned its central
area over to pedestrians. London has implemented congestion charges
for vehicles accessing the city center during peak hours. Montpellier
in the south of France has made its central retail and entertainment
district a place for walking (Low 2007). In Japan, some streets (Nishiki,
Teramachi, Shinkyogoku) have been designated pedestrian-only streets

and feature food markets and shopping facilities. By restricting traffic
in city centers, either by mandate or by charging a high enough entry
tax, non-motorized forms of transport are encouraged. Noise and air
pollution is abated, and citizens are made more aware of the benefits and
ease of walking and cycling. This could also encourage them to adopt
these sustainable modes of travel in the rest of the city.
Example: Provide cycles for rent in the city center
Policy makers should consider providing cycles for rent in city centers. An
often-cited example is that of Paris where the metropolitan authority rents
out cycles at various locations around the city. Cyclists have the option
of picking up a bicycle in one part of the city, cycling around, and then
dropping it off at another point close to their destination. This provides
an income-generating opportunity in addition to the environmental
benefits. A comprehensive global study of what happens when road space
is reallocated (i.e., because of bus lanes or unexpected events) reported an
average 18% of traffic went missing from the road network (Cairns et al.
2004 cited in Anable 2008). Policy makers could thus consider planning
traffic flows so there are lanes dedicated to sustainable modes of transport,
i.e., pedestrians, cyclists, and public transport.
Box 6.13 lists some policies which offer carbon reduction potential
in the transport sector.
Box 6.13: Policy Actions for the Transport Sector

Formulate a national policy on a low-carbon transport system.

Promote public transport. This will require better urban planning,
dedicated lanes, and improved information systems on time schedules
and investment in high-speed rail infrastructure.
Make city centers motor-vehicle-free.
Provide bicycles for rent within the city center and support their uptake.
Car labeling: make information on fuel consumption and carbon dioxide
(CO2) emissions for cars compulsory, impose higher taxes on heavy
vehicles.
Discourage personal motorized traffic through road pricing, higher
pricing for parking, and higher taxes on vehicles. Encourage car sharing.
Change air travel policies: restrict the number of air trips per year,
charge fees for additional air miles.
Promote electric cars and biofuels: require all public transport and
taxi companies to use biofuels or electric cars, provide tax incentives
for the purchase of electric cars, provide infrastructure support
(loading stations, battery banks, biofuel stations).
Green driving: make green driving lessons mandatory.
Launch public awareness campaigns on the dangers of using fossil fuels.
Source: Authors.
6.5.5Construction
Building materials and building waste, together with the energy
consumed by most buildings, form a large proportion of the total GHG
emissions of a region. The construction sector is a fairly unregulated
sector and any policy interventions will have to work with incentives as
well as mandatory regulations.
Example: Green building certification
Certification and labeling of materials that are considered green can
help the building industry and builders to select the right material and
technologies. Currently, there is a vast array of materials available, with
no clear guidelines on which are environmentally sound. The state
obviously has a key role to play in certification and labeling, a role that
can greatly benefit local green economic development (Milani 2001).
Compiling a green building directory, with details on green products,
distributors, consultants, and engineers can be helpful for the industry.
Such an initiative can finance itself, with sales providing a source of
revenue; it will also create green jobs.
The Building Construction Authority (BCA) of Singapore has
developed the BCA green mark, which includes the following criteria:
energy and water use, indoor air quality, along with other types of
environmental impacts. The green mark is supported by the National
Environment Agency and is applicable to new residential and commercial
buildings. There is also a special version for labeling existing buildings.
The energy star is a voluntary scheme developed by the US
Department of Energy (DOE) and is awarded to new buildings with
energy performances that exceed the 2006 IEEC Code by at least 15%.
Energy stars are also used in labeling schemes to highlight the energy
efficiency of buildings in Australia, the PRC, and India.
Example: Encourage green building standards for new buildings
Policy makers could mandate that new buildings beyond a certain size
or meant for a certain use have to be green. For instance, in Europe,
the certification of the energy performance of buildings of more than
50 m2 in area is mandatory. The certificates must be accompanied by
recommendations for the cost-effective improvement of the buildings
energy performance (Directorate-General for Energy and Transport
2005). To boost the green building market, new public buildings
and offices could be required to follow green building standards.
Governments could also mandate old buildings to be retrofitted with
insulating walls, roofs, and ground floors, energy-efficient windows, and
Box 6.14: Policy Actions for the Construction Sector

Implement a national policy on low-carbon building and land use.

Enforce green building standards for new buildings and create green
certification.
Promote sustainable building materials: create markets, build capacity,
and provide training.
Enact policies to retrofit existing buildings: make this mandatory for
commercial and public buildings, provide tax incentives.
Encourage reclamation of material from the construction sector:
promote recycling, tax construction debris.
Source: Authors.
ventilation systems. These may need to be supported by tax incentives

or other types of subsidies. Energy efficiency for buildings should be
made transparent so buyers and sellers can make informed choices.
Currently, there is little emphasis on energy efficiency when purchasing
buildings even though energy costs for the maintenance of a building
are substantial. Labeling and certification of buildings should be
reliable and controlled by governments (Lausten 2008). Green building
standards need to be adapted to local climatic and cultural conditions,
with equal emphasis given to the construction material used and the
energy required for maintaining the building.
Policies that support a low-carbon construction and building sector
are listed in Box 6.14.
6.5.6Urban Planning
Urban planning in future will be largely affected by environmental
challenges caused by climate change and the need to reduce the
overdependence on fossil fuels. Authorities must strive for a carbonneutral city that manages its energy demands through renewable
energy. Improving the eco-efficiency of the city should also be a priority,
enabling waste and by-products from one section of the city to serve as
inputs for other sectors of society. An example is waste being used to
create biogas, or heat from electricity generation being used for district
heating (UNHabitat 2009). Urban planning needs to be integrated with
policies for waste, water, transport, energy, and food.
Example: Plan cities for human beings rather than automobiles
Many cities and urban areas have sprawled, making the automobile
increasingly difficult to live without. If cities and neighborhoods were
designed to be energy-efficient by offering walkable, transit-oriented

options, the uptake of public transport and sustainable modes of transport
can increase (UNHabitat 2009). This will help cities reduce their
ecological footprints by cutting their use of fossil fuels. Unfortunately,
the reduction in car usage is not yet a priority for many cities, and as a
result traffic growth and environmental impacts have become even more
important. Urban planners need to start giving increasing importance to
designing cities that do not sprawl, allowing more reliance to be placed
on public transport, walking paths, and bicycle lanes.
Policies related to urban planning that will have a positive effect on
reducing carbon emissions are listed in Box 6.15.
Box 6.15: Policy Actions for Urban Planning

Plan cities around the dimensions of human beings, rather than

around the car.
Prevent urban sprawl.
Incorporate bicycle lanes and walking paths in all urban plans.
Develop sustainable modes of transport to reduce dependence on
fossil fuels.
Envision at least one eco-village per district and support its growth
and development.
Strive for a carbon-neutral city, reduce energy consumption by a set
factor.
Make a commitment to tap the maximum amount of renewable energy.
Promote land use plans for more green areas and urban agriculture.
Source: Authors.
6.5.7Waste
The waste sector has huge potential to be turned from a curse into a cure.
A global shift on how waste is perceivedas a valuable resource instead
of a nuisanceis due. Waste pervades all sectors of human production,
which makes it challenging for policy makers to take comprehensive
action. A national zero waste policy based on the model of a circular
economy, paired with a step-by-step implementation plan and a target
time line, needs to be formulated. Policies for effective handling of waste
can be grouped into the following categories:

waste prevention through eco-design or cradle-to-cradle design,

improving the availability of the resource, i.e., recycling and
reclaiming materials, and
consumer awareness programs.
Example: Eco-industrial parks

Eco-Industrial parks should be given priority over conventional
industrial parks. Special land allocation and fast-track approvals can act
as an incentive for the setting up of these parks. A policy framework,
including a timeline for the transformation of the existing industrial
sector into an environmentally-friendly and resource-efficient industry
based on a circular economy and a zero waste approach, needs to be
formulated. Financial incentives for the establishment of eco-industrial
parks or the transformation of existing industries can include tax
exemption or revolving loans on pollution control equipment or fixed
feed-in tariffs for surplus electricity.
Example: Waste prevention and eco design
Waste prevention needs to address both production and consumption.
Examples of waste prevention include the design of durable, longlasting goods or the selection of products and packaging that are free of
toxic substances. There should be switching from disposable to reusable
products, or redesigning a product to use fewer raw materials or to last
longer. Implementing stricter environmental standards for industries
that are not based on a cradle-to-cradle approach, along with support of
research and knowledge dissemination in this field, need to be promoted.
Policy actions related to the waste sector are listed below in Box 6.16.
Box 6.16: Policy Actions for the Waste Sector

Adopt a zero waste policy at the national level.

Introduce laws to enforce eco-design, implement stricter
environmental standards for industries, and support research and
knowledge dissemination.
Transform industry into eco-industrial parks.
Mandate waste collection and segregation at the industrial and
municipal level and the construction sector.
Support the development of production systems that use recycled
materials.
Encourage reclamation of material for agricultural or energy use,
such as eco-industrial parks.
Mandate solid waste treatment: enforce legislative measures, offer
technical and managerial support, promote biogas from digestion,
and initiate a fee-for-service collection.
Launch consumer awareness programs to educate people on waste
management.
Ban the practice of giving plastic bags for free at shopping centers
require shopping establishments to charge the consumer for each
plastic bag.
Source: Authors.
6.5.8Awareness Campaigns
Any policy action that will bring about shifts in habitual practices
and lifestyles needs support and acceptance among the population.
Awareness campaigns that inform and educate citizens and businesses
about the issues at stake and the benefits of interventions have proven to
be successful in securing acceptance for hard policy interventions.
Awareness campaigns are important and should be part of designing
and implementing new policies. Individual choices and community
behavior can be changed more easily by showing the benefits of the
changes and by reducing the obstacles to acting in a low-carbon way.
For example, the uptake of waste recycling can be raised by increasing
the awareness of the potential of emission reduction, and by making
recycling opportunities available.
Example: Desirable actions to move toward low-carbon society in
Japan
The Government of Japan believes citizens and businesses should
initiate action proactively so Japan can achieve a low-carbon society.
Various policy instruments are therefore designed to encourage citizens
through eco-participation, eco-thinking, and eco-sharing. Citizens
are encouraged to be actively involved in the creation of a low-carbon
society based on the consciousness that human beings are a part of the
ecosystem and are also main actors to create a coexistence society, as well
as to offer a variety of ideas to reduce carbon emissions and communicate
and share these ideas. Citizens need to practice environment-friendly
lifestyles with accurate knowledge of the global warming issue and
respect for nature as well as other people. They also need to assume
responsibility for the next generation (eco-learning) and pay for the use
of the planets limited resources such as for GHG emissions through a
carbon offset system (eco-buying, eco-use, and eco-disposal).
Example: Educate population about food system issues and the value
of eating local
Comprehensive campaigns and education about the benefits of eating
locally produced food will result in well-informed citizens and may
result in citizens buying more locally produced food. Locally produced
label systems or labels that indicate the food miles of a produce are an
effective way to create greater awareness among the population. The
negative health and sustainability impacts of the current food system
can be curbed by increased awareness and activity surrounding local
food accessibility. Local agriculture puts power back into the hands of
the individual. It can help unveil the trail between farmer and plate
and people can become more aware about the unsustainable aspects of
industrial agriculture. Involvement of the community through local ties
to farmers can increase social relationships in an area and people can

accept more seasonally grown food.
Policy actions for education and awareness creation that support
low-carbon development are listed in Box 6.17.
Box 6.17: Policy Actions for Awareness Campaigns

Implement a school curriculum on the environment at the national

level.
Educate the population on food system issues: food waste, food miles,
organic farming, and food security.
Initiate awareness campaigns about waste issues: sensitize and
inform citizens and industries about the 3Rs (reduce, reuse, and
recycle), with concrete actions that can be taken.
Raise awareness of water-related issues: promote water saving
technologies and practices for the recycling of water.
Launch awareness campaigns to inform people about energy issues:
provide information on energy-saving appliances, carbon dioxide
(CO2) emissions, and climate change; train companies in energyreducing practices.
Promote greener transport: celebrate cycling and walking, educate
citizens about the carbon intensity of current transportation systems
and green alternatives.
Inform and enhance knowledge about green buildings.
Source: Authors.
6.1Conclusion
Current global trends are more than alarming. We are witnessing a
tremendous increase in the consumption of raw materials and products.
Population growth and changes to lifestyle patterns caused by economic
growth account for most of this increase. The planets bio-capacity is
limited and already overshot, raw materials are being depleted at a rapid
pace, global waste production is increasing, agricultural land is being
converted into nonproductive land, natural aquifers are depleted, and
water bodies are polluted. Environmental pollution is on the rise; CO2
emissions are projected to increase, and global warming will result
in devastating calamities for life on earth. Mitigation and adaptation
strategies to tackle climate change will need to become a top priority for
all governments. Since climate change is a global issue, it will also require
global solutions built on common but differentiated responsibility for
each nation.
However, the responsibility for action does not only lie with
governments; each individual will have to re-examine his/her own
lifestyle in terms of consumption patterns and volumes. This calls for
a deep and sincere examination of the true needs of individuals versus
their wants. Changing individual habits requires effort and it needs
support at different levels. Governments need to create conducive
environments that enable and foster lifestyle changes; strong incentives
and enforcements are suitable tools for that.
Businesses need to adopt strategies and pursue the creation of
new business models, including environmentally friendly technologies
and financial products, that facilitate the propagation of sustainable
consumption practices. The concept of fair trade practices is better
known in developed countries although it benefits developing countries
even more. There is considerable scope for companies to make their
businesses more viable by creating awareness and promoting fair
trade concept among the growing upper and middle class consumers
in developing countries as well as helping to connect the rich with the
poor.
Hegemonic cultural practices orient themselves along the lifestyles
of elites. Media and advertising still promoting carbon-intensive
consumption patterns will have to be redirected to promote low-carbon
lifestyles. Campaigns and information on alternative options, carbon
mitigation actions, and support of strong peer groups are other tools
that can be used to support individuals on the path to a more sustainably
integrated life. Hard and soft policy instruments, with a step-by-step
action plan and tangible targets for the industrial and commercial sector
to implement carbon mitigation and adaption strategies, are already
being implemented in many nations, but their effectiveness as well as
the speed and range of implementation needs to improve. Globally, we
can learn from many initiatives and pilot projects. Some of those are at
the national level, but concerned citizens who are committed to change
have promoted the bulk of these initiatives. These initiatives need to
be supported and can be scaled up; governments need to recognize the
value of such movements by providing legal and administrative support
for experimentation.
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Chapter 7
Reforms for Private

Finance toward Green
Growth in Asia
Takashi Hongo and Venkatachalam Anbumozhi
7.1Low-Carbon Green Growth

The debate on climate change has shifted dramatically of recent.
The strong evidence presented by scientific community through the
Intergovernmental Panel on Climate Change (IPCC) process has largely
settled the discussion about whether the world needs to respond. The
question now is what shape such a response should take. There is
agreement approaching consensus that any successful program of action
on climate change must support two objectives: stabilizing atmospheric
greenhouse gases (GHGs) and maintaining economic growth. Research
by the Asian Development Bank (ADB) and the Asian Development
Bank Institute (ADBI) has found that reconciling these two objectives
is possible, but that technology and finance are indispensable resources
for such a low-carbon green growth paradigm (ADB and ADBI 2013).
7.1.1Green Technology
Essential to driving low-carbon green growth will be identifying and
employing appropriate technologies. The technology gap between
developed and developing countries and between large and small and
medium-sized companies is significant. Technology transfer offers
a least-cost option for improving the level of technology globally.
However, technologies are mostly developed, owned, and used by the
private sector and present an investment opportunity for them. The
private sector is the catalyst in transferring useful technologies through
251
the market. The public sectors role is to improve the investment climate
for accelerating technology transfer within the private sector. In order
for a sustainable technology transfer mechanism to be established, the
following should be noted:

Technology comes from a combination of hardware equipment,

software and experience and expertise embodied in engineers
and workforces. Cooperation between suppliers and recipients
of technology is required during the operation phase
(Ramanathan et al. 2012).
Technology needs to be improved continuously and new and
innovative technologies developed. Technology transfer is a
part of the technology cycle; research and development (R&D),
commercialization, diffusion, and re-investment, are all needed
to improve existing technologies and develop innovative
technologies (Kumar 2013).
7.1.2Low-Carbon Investments and Current Flows

in Finance
As the world economies continue to rebalance, the emerging economies
of Asia are forecast to make great contributions to the global economy.
The accompanying rise in demand for energy, water, urban development,
transportation, and agriculture infrastructure in developing countries in
Asia to help meet this forecast is estimated to be $18.1 trillion. Greening
economic growth can reduce risks from future climate change and
environmental degradation, and progress is being made. In 2013, Asian
investment in the renewable energy sector hit another record, up 19% on
2010a six fold increase from 2000. However, enormous funding will be
required to stabilize the temperature increase within 2C, beyond which
worldwide social, economic, and environmental disruption occur. Table
7.1 collates the investment requirements from different sources for
various sectors. The International Energy Agency (IEA) estimated that
investment in energy-related climate change mitigation in developing
countries of the world in 2035 would need to increase by $40 trillion.1
ADB has estimated that infrastructure investment demand for energy,
1
See IEA (2013). Over the period to 2035, the investment required each year to meet
the worlds energy needs in the 2oC scenario rises steadily toward $2,000 billion and
annual spending on energy efficiency increases to $550 billion. This means cumulative
global investment of more than $48 trillion, made up of around $40trillion in energy
supply and the remainder in energy efficiency.
Reforms for Private Finance toward Green Growth in Asia253
Table 7.1: Estimation of Global Investment Cost Requirements to

Combat Climate Change
Study
World Bank, 2010
Estimates
Country/Sectoral
Level Costs
Baseline investment
needs for clean
energy, consistent
with stabilization of
emissions at 550 ppm
by 2030.
$60 billion/year
additional investments
in the electricity
generation sector by
2030
$200 billion$210
United Nations
Framework Convention billion/year additional
investments by 2030
on Climate Change,
2007
Background
Assumptions
Sector Costs ($)

Fossil fuel supply -59
Power supply
-7
Industry
36
Buildings
51
Transport
88
Waste
1
Agriculture
35
Forestry
21
R&D
35-45
Estimation of the net

additional investment
per sector needed to
reduce GHG emissions
by 25% by 2030.
Stern, 2007
$1,000/year
investment by 2050
Annual global
macroeconomic cost
required to stabilize
emissions at 550
ppm levels by 2050;
represents 1% of global
GDP.
Organisation for
Economic Cooperation and
Development, 2009
0.6%3.9% reduction
in global GDP by
2050, compared with
business-as-usual
baseline GDP
Country Reduction in
GDP by 2050 (%)
PRC
4.5
India
3.8
Australia and
New Zealand
2.2
Japan
0.5
Estimation of global
cost of stabilizing GHG
and 650 ppm levels by
2050. Average GDP
loss between 2012
and 2050 varies from
0.2%1.7%. Results
are derived from
OECD ENV-Linkage
model, accounting
for investments
required to implement
multisectoral
mitigation policies
International Energy
Agency, 2009
Sector Yearly
$10.5 trillion in the
energy sector between Incremental
Investment (450 ppm)
2010 and 2030
20212030, $ billion,
334.1
Transport
Buildings
206.5
Power plants
141.5
Industry
88.2
Biofuels supply
37.8
Global cumulative
additional investment
needed in the energy
sector to stabilize
by 2030
GDP = gross domestic product, GHG = greenhouse gas, ppm = parts per million, PRC = Peoples Republic
of China, R&D = research and development.
Sources: World Bank (2010); International Energy Agency (2009); Organisation for Economic Cooperation and Development (2009); United Nations Framework Convention on Climate Change (2007);
Stern (2007).
transport, and water from 2010 to 2020 will reach $8.2 trillion2 and has
recommended that all investments should contribute to climate change
mitigation and adaptation.
Low-carbon green growth will require a significant reconfiguration
of current and future investment. Public funds in emerging economies
are limited. Figure 7.1 illustrates public, private, and international flows
of investments at the global level. Public financing from developed
countries such as official development assistance (ODA) and funding
Figure 7.1: Financial Flows to Developing Countries
($ million)
$ million
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
PR Grant
Private
OOF
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
ODA
ODA = official development assistance.

Source: Organisation for Economic Co-operation and Development, Development Assistance
Committee (OECDDAC) Statistics (2010).
See ADB (2009). Between 2010 and 2020, Asia needs to invest approximately
$8 trillion in overall national infrastructure. In addition, Asia needs to spend
approximately $290 billion on specific regional infrastructure projects in transport
and energy that are in the pipe line. Of these regional projects, 21 high-priority
projects that could be implemented by 2015 cost $15 billion. This amounts to an
overall infrastructure investment need of about $750 billion per year during the 11year period.
Figure 7.2: Banks Outstanding Loans to Asia and the Pacific

($ million)
15,000
10,000
5,000
Japan
US
Spain
France
Australia
10,000
Germany
5,000
UK
15,000
20,000
25,000
30,000
Q3 2011
4Q 2011
UK = United Kingdom, US = United States.

Source: BIS Quarterly Report (2012).
from multilateral financial institutions such as the World Bank and ADB
has been used to support projects and policies in developing countries,
particularly infrastructure projects. However, these conventional
sources of finance may continue to dominate because, first, traditional
donor countries have budgets deficits (the supply factor) and second
potential investors in developing countries are from private industry
and business (the demand factor). Mobilization of all potential financial
resources, including private finance, in both developed and developing
countries and from funds managed by institutional investors need to be
optimized through publicprivate finance, taxation and tax exemption,
regulation, and the enhancement of voluntary actions. This is not an
abstract concept. The Peoples Republic of China (PRC), for example,
has devoted key parts of its last three five-year plans to developing a
green growth strategy for energy, agriculture, and infrastructure.
Other economies such as India and Indonesia are promoting green
infrastructure investments to enhance resilience.
An emerging body of experience suggests there is considerable
potential for closing the low-carbon investment gap by mobilizing
private finance. The financial markets in emerging countries, such
as Malaysia, Thailand, and Viet Nam are growing and private finance
can be used to provide long-term financing to both infrastructure and
industrial projects. Also private finance in developed countries looks
at the emerging country market as a high-growth opportunity (Figure
7.2). While publicprivate finance mobilization and leverage ratios
are difficult to calculate or compare across projects, countries, and
instruments, ratios of 1:5 and above are not uncommon. A large amount
of private funding is becoming available for green growth. Public finance
is expected to play a catalytic role for mobilizing private finance. There
are some cases of instruments, such as grants, which are used either
for conducting feasibility studies or act as guarantees, catalyzing and
delivering publicprivate ratios of 1:8 and higher.
7.2Unlocking Private Finance

7.2.1Measurement and Carbon Pricing
The environment is an externality and needs to be internalized into
the market. The first step of this integration process is to measure the
negative impact of economic activity, such as climate change and the
benefits of a healthy environment so that a price can be determined. A
base price can then be decided by regulation, for example a carbon tax,
and also determined in the market by demand and supply, which are
usually generated by the regulatory framework.
The methodology for measuring greenhouse gas (GHG) emissions
and emissions reductionmeasurement, reporting, and verification
(MRV)is an essential component. From an operational perspective, it
may be desirable to use the methodologies of the Clean Development
Mechanism (CDM). The CDM has grown rapidly with more than 2,000
projects registered by 2012 and an increase to 7,598 projects by March
2015 (UNFCCC 2012). CDM is the most commonly used measurement
and 73% of global CDM projects are in Asia. However, it has more than
200 variations in identifying emission reductions. CDMs contributions
are enormous as it is a market-based instrument, but there is still room for
considerable improvement. The salient features of CDM methodology
are:

Reductions are defined as the gap between the baseline emission

and the project emission. Under the CDM, the assumptions
necessary for calculating the baseline emission are complex
and, sometimes, unrealistic. It has been pointed out that the
CDM executive board adopts a methodology that is different

from the conventional approach adopted by the investors, to
demonstrate energy conservation and CO2 emission reduction
effects at the project level (Hongo 2012).
The CDM methodology is based on a case-by-case approach.
The benefit of this approach is its flexibility. It can take into
account differences in local conditions and accommodate new
types of technologies and ideas. However, it is not transparent
or predictable. Investors would like to be certain about
the emission reductions, particularly when reductions are
converted to credits and generate additional cash flow.
7.2.2Improvement in Measurement, Reporting,

and Verification (MRV)
At the Cancun Climate change conference in December 2010, parties to
the Climate Change Convention decided to establish more market-based
mechanisms to unlock the potential of private finance to achieve the
climate change goals for 2020. Yet today there is limited understanding
of the role and definition of private financing to tackle climate change.
The MRV system could be extended to include some private climatespecific flows, such as those related to CDM. In addition, foreign direct
investment (FDI) can play an important role in supporting the diffusion
of low-carbon technologies. However, the important role of FDI has
received little systematic attention in the climate change agenda. In
partnership with others, the OECD is working on how to define and
measure green FDI, with a view to promoting a better understanding of
the contribution FDI can make to the shift to a low-carbon economy and
the role policies may play in the greening of FDI (OECD 2010). MRV is
a new concept, particularly for financing.
Varieties of MRV include CDM, voluntary certified standards,
and J-MRV which was developed by the Japan Bank for International
Cooperation for confirming GHG emission reductions in their projects.
MRV is commonly understood as a series of processes to quantify
GHG emissions and their change over time. It is a key instrument in
understanding the level of emissions and the impact of actions aimed
at changing emission levels. MRV has become important as many
emerging economies introduce national emission reduction activity
packagesNationally Appropriate Mitigation Actions (NAMAs). As of
today, there is no single comprehensive MRV which can cover all major
investment fields from energy efficiency in the energy supply sector
to small demand-side investment, renewable energy use, and land use

change. However, financial institutions have been involved in many
activities and their experience can be used to propose ideas for MRV. An
MRV alliance of financial institutions could be effective for formulating
practical MRV as well as for creating momentum for shifting to lowcarbon investment.
CDM is a good practice but it needs to be improved. An innovative
MRV system needs to be constructed using the experience of CDM.
The ideal MRV is a comprehensive system with clear principles. The
systems principles are crucial because they indicate the direction of
solutions when difficult decisions have to be made when calculating
reductions. The MRV should be simple and practical and as objective as
possible. In credit mechanisms that embed MRV, the baseline setting is
critical as it represents a scenario of emissions levels in the absence of
the project (business-as-usual). When actual emissions from a project
are below the baseline emissions, the difference between the two is
eligible for credits. In penalty mechanisms, the baseline is generally a
specified performance target. An entity is penalized for emissions above
the baseline, and some schemes may credit for performance below the
same baseline. This baseline setting should not be too complex and
subjective. One of the best options for simple and practical baseline
setting is benchmarking. Investors and verifiers can share views over
the baseline of CO2 emission prior to verification.
7.3Options and Outlook for MRV and Reforms

in Private Financing
7.3.1Carbon Market
Under the CDM, GHG emission reduction at project level is evaluated
and converted into carbon credits. The price of credits is decided
through the carbon market. This functions as a market-based incentive
mechanism for energy efficiency and renewable energy projects, but it
is unlikely to provide for all investment needs and should be combined
with other funding sources.
The carbon market encourages low-carbon investment to some
extent but not enough. One controversial issue seems to be carbon
pricing itself as the price has dropped below 5 per ton on the European
market. As shown in Figure 7.3, the peak of CER in early September
2008 was around 21 per ton.
Figure 7.3: Changes in Carbon Price

30
25
Sept. 29, 2008:

23.19
20
Sept. 29, 2014:

5.77
75%
15
10
5
2008
2009
2010
2011
2012
2013
2014
Source: IETA (2014).
Too low a carbon price will have a negative impact on behavioral

change by industry and citizens as well as low-carbon investments. A
higher price will encourage industry and consumers to choose lower
carbon options to mitigate the risk and increase their profits. Hence,
policies that bring long-term stability to the carbon price are seriously
being considered and implemented. For example, the UK adopted a
Carbon Budget in 2008. This stated that the allowed CO2 emissions
in the UK will be reduced by 34% in 2022 compared to the 1990 level.
Although this is not a direct price-setting intervention, it may have an
impact on the market price of carbon price.
Currently, the carbon market is deeply depressed because of the
uncertainty of the regulatory framework after 2014. Demand for credits
depends on the regulation for the GHG or CO2 emission and economic
activities. The World Bank has estimated that the total demand for
international offset credits under the Kyoto Protocol in 2008 was some
2 billion but it has since dropped to 1.2 billion. On the supply side, the
number of registered projects under the Kyoto Protocol is increasing and
issued credits are accumulating steadily even though its price has been
dropped. The supply side of credits from the GHG emission reduction
project is not as flexible as the demand side in the short term.
However, in Asia, a new trend is emerging. Each country is developing
its own carbon market with as yet no links to each other. Australia started
a carbon price mechanism called Clean Energy Future (CEF) in July 2012
and this was planned to be transformed into a fully functioning carbon
market in July 2015 from a fixed carbon tax system. This was suspended
but other countries are moving forward. The Republic of Korea has
started an emissions trading scheme (ETS) in 2015, and the Peoples
Republic of China (PRC) has started eight regional experimental schemes
to be developed into a nationwide scheme after 2016. India has started
Performance, Achieve and Trade (PAT) as a simplified version of a sectoral
ETS. Parallel to national initiatives, Japan has also been promoting a new
bilateral carbon offset mechanism, called the Joint Credit Mechanism
(JCM). It is anticipated that, in due course, the JCM will be incorporated
into a de facto global market in the post-Kyoto regime, augmenting the
carbon markets created by the CDM. Given the potential for emerging
carbon markets in other sectors and economies, it is better to facilitate
the harmonization of fragmented carbon markets with the ultimate aim of
transforming them into one universal market. The International Emission
Trading Association (IETA) is facilitating such a harmonization process
among many independent markets.
In addition to regulatory frameworks and market-based
mechanisms, voluntary action may give commercial value to reductions.
For instance, companies or individuals may offset the CO2 emissions from
their activities by using carbon credits as their voluntary environmental
contribution (Table 7.2). However, the magnitude of demand for this is
still limited in the Asian context.
Table 7.2: Options for Low-Carbon Financing
Policy Option
Characteristics
Finance with measurement, reporting, and

verification (MRV) as conditions
Finance after confirmation of greenhouse

gas (GHG) emission reduction using MRV
Performance-based incentive and Green

Climate Fund
Incentives to be given based on the reduction

amount of GHG (fixed carbon price)
Tax reforms
Carbon price on the emissions

Tax exemption by GHG emission
reductions
Removal/Reduction of fossil fuel subsidies
Custom duties
Carbon cost adjustment
Feed-in-tariff (FIT), renewable portfolio

system (RPS), green certificate, and
Viability Gap Fund (VGF)
Market-based incentives
Socially responsible investment
Mobilization of the funds of institutional

investors by rating or the creation of green
assets
Source: Authors.
7.3.2Future Carbon Market

Several emerging economies are in the process of designing national
emission trading systems to reduce GHG and CO2 emissions globally.
Many investors expect a carbon market to be a market-based incentive
scheme. Emission trading could be a least-cost option, but there are
conditions for using an emission trading scheme as a market-based
reduction option. The lessons learned from ongoing efforts can be
summarized as follows:

As a long-term policy measure, carbon pricing may encourage

behavioral change in industry and consumers, and it should
be part of a long-term policy framework that encourages
low-carbon investment. Introduction of carbon pricing
should also take into consideration the lead time required for
making investments as well as the payback period of the same
investment.
To encourage investment, the carbon price needs to increase
steadily. Price fluctuations in the market are unavoidable,
but in the long term the price needs to increase. Without an
expectation of price increases, low-carbon investment is not
attractive.
CDM has generated many GHG emission reduction projects
but there is a lot of room for improvement. For instance, the
methodology for evaluating emission reductions is complicated
and it takes time for incentives for reducing emissions to be
received. A simple and practical methodology is needed and
predictability has to be improved.
The development of a global carbon market can encourage

participation by further lowering the cost of mitigation actions. In the
near future, a global carbon market may gradually develop through
links and crediting systems with national and regional Emission
Trading Systems (ETSs). Any eventual linking of ETSs would require
some international harmonization of features, including levels and/or
procedures for setting emission caps, the adoption of safety valves, and
the use of international offsets. By broadening participation to include
developing countries and lowering the carbon price differential between
participating and non-participating countries, crediting mechanisms
can also extend the carbon market, thereby reducing carbon leakage and
related concerns. One such crediting arrangement is the CDM, which
allows the countries listed in Annex I to the Kyoto Protocol to invest in
projects that reduce emissions in developing countries.
Analysis shows that the cost-saving potential for developed

countries using well-designed crediting mechanisms could be very
large (WEF 2011). However, there are serious concerns about the
effectiveness and administrative burden of the current CDM, which
is largely project-based. To address some of these concerns, it may be
advisable to negotiate emission baselines at the sector level. Industries
that reduce their emissions below the baseline would generate credits
that could be sold in international carbon markets. The environmental
effectiveness of emission cuts could be improved by setting these
baselines significantly below the emission levels that would prevail if no
further actions were to be taken.
In the long run, however, to achieve ambitious global emission
reductions at low cost, such approaches will need to be integrated in a
unified, global carbon market, such as using binding caps with trading.
Well-designed, binding sectoral caps for energy-intensive industries
and the power sector in developing countries, which account for almost
half of current world GHG emissions from fossil-fuel combustion, could
lower the cost of achieving a given global emissions target, broaden
participation in actions to tackle climate change, and alleviate leakage
and competitiveness concerns. Even so, they would need to be ambitious
in order to be effective. Other sectoral initiatives, such as voluntary,
technology-oriented approaches, can help diffuse cleaner processes
and technologies, but are unlikely to provide sufficient incentives for
individual firms to reduce emissions as they put no explicit cost on
carbon emissions.
Although there is still some uncertainty about the international
framework after 2020, national and city carbon markets in Asia will
grow (Figure 7.4).
Major countries that have ambitious emission reduction targets set
for 2030, are expected to use international offset credit mechanisms
although, its magnitude is not clear. In addition to national and
subnational level markets, International Civil Aviation Organization
(ICAO) is also designing an offset mechanism for keeping emission from
international aviation at 2020 levels.
One concern is fragmentation of the carbon market. Investors in
low-carbon projects may use the carbon market but face higher risks
if the liquidity of the market is low. A fragmented market is better than
no market but it would be better to harmonize the different markets by:

harmonizing the methodology for evaluating total emissions

and emission reductions;
Figure 7.4: Carbon Market after 2014

2012
Kyoto Credits (CER, ERU, AAU)
2020
2050
Kyoto Credits (CER, ERU, AAU)
EU ETS
Japanese BOCM
Australia
Rep. of Korea
PRC (6 municipalities)
India (PAT)
De facto market
New international market
AAU = assigned amount unit; BOCM = Bilateral Offset Credit Mechanism; CER = certified emission
reduction; ERU = emission reduction unit; ETS = Emissions Trading System; EU = European Union;
PAT = Perform, Achieve and Trade; PRC = Peoples Republic of China.
Source: Authors.
strengthening the legal framework of the host countries for

projects, combined with technical support by countries with
advanced infrastructure; and
preparing a road map for the each market and for the integration
of these markets into the global market.
7.3.3Green Finance
Many public sector banks have special facilities to support energy
efficiency improvement and renewable energy projects. However they
tend to select projects on a subjective case-by-case basis. However, MRV
could be used to distinguish between GHG emission reduction projects
clearly and objectively. When the MRV is simple and objective, investors
can estimate the reduction prior to the approval of financing (Honbu
2012).
Among many good practices, GREENGlobal action for
Reconciling Economic Growth and Environmental Preservation is an
initiative for supporting low-carbon investments by the Japan Bank for

International Cooperation (JBIC), a government-owned policy-based
lending bank. Under this initiative JBIC provides attractive low-interest
and long-term finance to low-carbon projects directly or indirectly
through intermediary banks. The project owner estimates the GHG
emissions reduction and this is confirmed by JBIC. The structure of the
JBIC credit line is illustrated in Figure 7.5. JBIC has developed simple
and practical MRV guidelines for this initiative because it finds the
CDM methodology too complicated and it feels it would be a barrier for
investors. Some of its key elements have been transplanted to the MRV
for Japans Joint Credit Mechanism.
Figure 7.5: Structure of a Green Credit Line

J-MRV
CO2 reductions
J-MRV
Advisory
Committee
Opinion
Share of J-MRV
Finance
JBIC
Bank
Data
CO2 reductions
Data
CO2 reductions
Retained
Consultant
Finance
Data
(Planned and actual,

Energy consumption,
Power generation)
Project
Source: Authors.
Table 7.3 contains a comparison between the CDM and the J-MRV.
In the J-MRV, actual emissions are calculated before the investment,
using theoretical values. The goal is to make the process as simple and
practical as possible.
An example of a private sector bank supporting green growth is
the rating system for sustainable buildings used by Sumitomo Mitsui
Banking Corporation (SMBC). It reviews eight categories with 37 check
points, including energy and water use of buildings and gives a rating
out of 8. The bank will finance buildings in the top 3 grades (Table 7.4).
Table 7.3: Comparison of Clean Development Mechanism and JBIC

Monitoring Reporting and Verification (J-MRV) Systems
Clean Development
Mechanism (CDM)
J-MRV
Purpose
Crediting mechanism under

Kyoto Protocol
Confirmation of the
emission reductions,
a condition of a Japan
Bank for International
Cooperations financing
program (GREEN)
Principle
Conservative
Simple and practical
Means of facilitating
investment
Additional investment
Emission reduction projects

globally
Reduction
Baseline emission projects

emission
Baseline emission projects

emission
Baseline emission
Emission without the

project.
Technology and financial
additionalities will be
considered
Actual emission before

the investment. National
average or mission from
the installations before
investment
Measurement
In-situ measurement of
emissions
Emissions are estimated

using theoretical value and
sampling are allowed as
practical approach
Approach
Bottomup
Topdown and places high

priority on consistency
JBIC = Japan Bank for International Cooperation.

Source: Authors.
7.3.4Performance-Based Incentive Schemes

Under traditional incentive schemes, enticements are given to projects or
activities by governments directly or indirectly through implementation
agencies. Determination of the amount is mostly done on a case-bycase manner based on each application. It is not easy to evaluate these
applications because of the complexity of the technology involved and
the different business models, so third-party experts are invited to the
evaluation committee to improve its evaluation. Performance-based
incentive schemes using MRV can determine the amount of incentives
objectively and scientifically when the unit incentive amount is fixed
under the incentive scheme. For instance, one ton of CO2 emission is
equivalent to a fixed US dollar price, which will be determined prior to
delivery.
Table 7.4: Portfolio of the Green Credit Line

Financial
Year
FY2010
FY2011
Country
Borrower
Cofinancing
Amount
($ million)
JBIC Finance
($ million)
Turkey
Brazil
Central and
South America
India
Derizekbank A.S
BNDES
20
300
CAF
ICICI Bank
300
200
Mexico
Central and
South America
South Asia
Nafinsa
100
CABEI
South Asia clean
energy fund LP
ICICI Bank LTD
100
60
300
20
180
India
FY2012
Brazil
Columbia
India
Malaysia
Turkey
PETROBRAS
Bonca de Ba S.A
ICICI Bank Limited
RHB Bank Berhad
Development Bank
of Turkey
1000
100
90
80
100
600
60
45
48
60
FY2013
India
South Africa
Turkey
State Bank of India

DBSA
Denizbank A.S
90
50
25
45
30
15
Total
2,855
= not available, BNDES = The Brazilian Development Bank, CABEI = The Central American Bank for
Economic Integration, CAF = Development Bank of Latin America, DBSA = The Development Bank of
Southern Africa, JBIC = Japan Bank for International Cooperation, Nafinsa = Nacional Financiera.
Source: JBIC (2014).
A performance-based incentive system could reduce the economic

burden of adopting advanced technology by investors. The possible flow
of this system is as follows.
(i)
(ii)
(iii)
(iv)
(v)
Announcement of tender for the incentive system. Aim of the

project and eligible criteria are included.
Applications from applicants.
Review of applications by implementation agency and
conditions for incentive payment agreed with applicants as
contracts.
After the conclusion of the contract with the agency, applicants
start the project by using incentives.
Monitoring of the CO2 reductions will be performed by the
applicants and monitoring report with the third partys
evaluation will be submitted to the agency.
(vi) The agency reviews and pays incentives to the applicants

depending on the amount of the reductions.
(vii) Monitoring, review and payment cycle will be implemented
annually following the contract.
Figure 7.6 shows such an iterative evaluation process and the
implementation of a performance-based incentive system.
Figure 7.6: CO2 Reduction: Case of Performance-Based Incentive

Application for performance-based incentives
Register the project

Contract: MRV, assumption for MRV, price of CO2 reductions
Implementation of the projects
Annual cycle
Monitoring and reporting of CO2 emission reductions
Evaluation of monitoring report (confirmation of reductions)

Payment of incentives
MRV = measurement, reporting, and verification.

Source: Authors.
This process is similar to CDM because it operates on the basis of

project first and payment later. However, payment of the performancebased incentive system will be made by the government through the
agency. A unit incentive price denominated as price per CO2 ton can be
fixed in the contract, allowing investors to avoid price fluctuation risks.
Project cash flow can be improved by this scheme and private finance
institutions may find it easier to provide finance (GOJ 2013).
To implement this scheme, banks can submit applications and
receive incentives on behalf of the project. One of the conditions of
the implementation of this scheme is that financing covers the initial
investment cost and incentives are paid later. From this point of view, it
Figure 7.7: Carbon Market and Performance-Based Incentive

System
Government
Credit
mechanism
Regulation
(Cap of emission)
Offset
demand
Credit
Payment
Credit
Supply
Government
Reduction
plan
Contract
Reductions
Incentive
Payment
Reductions
(performance)
Source: Authors.
is more practical when banks provide finance first and receive incentives
when the loan is repaid (Figure 7.7).
A performance-based incentive system is very cost-effective.
However, the success of such schemes very much depends on the startup
costs, being covered by the initial investment. A possible solution is
combining the private finance with catalytic public finance, generated
from the carbon markets. Private finance reviews the project including
the incentives that the performance-based system can generate. Private
finance flows into the project when sufficient and necessary cash
flow exists, including these incentives. Under this scheme, a financial
institutions can submit applications and get them processed on behalf of
project developers and project developers will share revenue generated
from the incentives indirectly with financial institutions.
Based on these principles, the Green Climate Fund (GCF) can
mobilize financial resources for climate change mitigation and
adaptation in developing countries and is expected to play a catalytic
role in mobilizing private funds.
The GCF appoints intermediary banks to implement the program
first. These intermediary banks provide finance to CO2 or GHG emission
reduction projects when they confirm the CO2 emission reductions

of the project by using MRV and assess the economic feasibility of
the project. They monitor the reduction amount using MRV and
report this to the GCF. The GCF reviews the report and provides the
incentives to the intermediary banks who share them with the project
organizers following a profit-share contract agreed prior to submitting
the application to GCF. The amount is determined by the approved
reduction amount (the amount of the incentive is the amount of
reduction multiplied by the predetermined unit reduction price). This
system works on the simple basis of the more reductions, the more
incentives and reduces the GCFs institutional workload. Small but
efficient, the GCFs incentive system is illustrated in Figure 7.8.
Figure 7.8: Green Climate Fund and Its Performance-Based
Incentive System
Government
Credit
mechanism
Regulation
(Cap of emission)
Offset
demand
Credit
Payment
Credit
Supply
Government
Reduction
plan
Contract
Reductions
Incentive
Payment
Reductions
(performance)
Source: Authors.
7.3.5Fiscal Policies and Tax Reform

Low-carbon green growth fiscal policy options fall into several broad
categories and include: carbon taxes, tax exemptions and reductions,
broader and more robust pollution charges, green subsidies, grants and
subsidized loans to reward carbon performance, removing pervasive
subsidies, and directing public expenditure at green infrastructure

(Anbumozhi 2010; Hongo 2010, 2011). A carbon tax is one option for
pricing CO2 emissions. The tax rate is determined by the government,
e.g., the Australian carbon tax which was priced at AU$23 per CO2 ton
emission in 2013. Carbon tax schemes urge installations under this
scheme to reduce CO2 emissions to avoid a heavy tax burden. This
scheme is similar to the ETS but the price determination mechanism
is different; the carbon price under the ETS would be determined by
demand and supply in the market whereas a carbon tax is determined
by the government. One of the benefits of a carbon tax scheme is that
it avoids the fluctuation in the carbon price and regulated companies
can calculate the future tax amount and the effect of energy efficiency
improvement investment. However, determining the appropriate tax
rate, or carbon price, is crucial. A carbon tax scheme is easy to transform
into an ETS, although Australias plans were canceled due to the change
of government in 2014.
Another approach for giving incentives through a tax system is tax
exemption. For instance, in Thailand, investors in CDM funds enjoy tax
incentives through tax exemptions. This kind of tax exemption scheme
can be transformed into a performance-based tax exemption scheme
when investors can demonstrate the reductions to the tax authority.
This could be a good incentive for institutional investors and also for
venture capital for clean energy projects.
7.3.6Custom Duties
Under the UN Climate Change Conventions, two types of approaches
are implementednational approaches, which are implemented by
each government, and sector-wide approaches such as international
maritime and aviation regulation.
Internationally traded products and services are, in principle,
regulated by each country and customs at the point of import is a
possible place to enforce carbon pricing of goods. The cost of carbon
can be added to imported products and services. However, this is
technically very complicated because it is necessary to understand the
carbon impacts of the entire supply chain and the emissions at each part
of the chain. A sector-wide, cross-country approach for determining the
carbon price is preferable.
7.3.7Setting Regulatory Frameworks: Feed-in Tariff,

Green Certificate and Viability Gap Fund
Regulatory frameworks across capital marks are critical to facilitate
large-scale private financial resources toward low-carbon development.
CO2 emissions would become an explicit cost through such a regulatory

framework but this takes time and this is why an incentive mechanism
is required. Carbon emission trading is one of the market options for
providing incentives. However, sometimes emission trading may not
provide sufficient incentives for cost recovery, particularly technology
development costs. The gap needs to be filled by additional incentives.
The following are options to encourage market-based approaches:
Feed-in tariff (FIT). FITs are widely used to support
uncompetitive but climate-friendly electricity supply. FITs
fix the price of the purchase of electricity power generation
by using the supported energy sources, such as renewable
energy. This policy provides certainty to the price of electricity
generation over a long-term period and stabilizes project cash
flow. This is an attractive incentive to investors. A key element
of this scheme is price and tariff determination; there would
be no investment if the price was too low and too much supply
if the price was too high. The appropriate tariff level will be
changed by technological innovations and it may be necessary
to revise the tariff reflecting this. The cost of incentives is
shouldered by utilities first and then transferred to consumers.
(ii) Green portfolio/green certificate. This scheme decides the
volume or ratio of the supply first, by setting a mandatory
target for green energy. The price of the service is determined
by demand and supply conditions and in the long run, the
probability of oversupply and short supply is likely to be
low. However, price risk is taken by investors. The cost of
incentives is shouldered by utilities first and then transferred
to consumers.
(iii) Viability Gap Fund (VGF). This scheme is applied to the project
on a case-by-case basis, and is typically used for infrastructure
projects where there is a gap between the payable tariff and the
tariff for cost recovery. Subsidies are necessary to recover the
investment cost. One application of VGF is as follows: first, the
project to be supported by this scheme is decided and then a
tender is made. The lowest price offer for services which take
into account all the incentives, including emission trading or
other carbon-related revenue, is accepted and the gap from
the payable tariff for service buyers is filled by the VGF. This
scheme ensures there is enough revenue for investors and
that there are cost-effective incentives. However, sufficient
environmental performance, that is reduced emissions due to
project implementation, is a condition for the VGF to be costeffective. MRV can be used to check the cost performance of
(i)
the VGFs incentives and to confirm the taxpayers burden for

the incentives. The cost of incentives is funded by the host
government but a part of its cost can be supported by using
ODA or multilateral funds (World Bank 2012b).
A comparative evaluation of these three approaches is presented in
Figure 7.9.
Figure 7.9: Feed-in Tariff (FIT), Green Certificate Market,
and Viability Gap Fund
Feed -In
Tariff
Green
Portfolio
Price
Prefix
Variable
depending on
supply
Volume of
supply
Variable (short
or oversupply)
Almost assured
(volume or ratio)
Pros
Income is
almost
guaranteed for
investors
Volume
necessary under
the policy is
assured
Cons
Cost is high if
there is
oversupply
Volume and price

risk shall be taken
by investors
Tariff
Viability
gap
for investment
recovery
CO2
incentives
Payable
tariff
Source: Authors.
7.3.8Socially Responsible Investment (SRI)

Institutional investors manage huge amounts of funds and invest in
many varieties of financial products. They are aware that they can
make contributions to enhance low-carbon investment and support
companies that take proactive actions for green economy. Environment,
social, and governance (ESG) investment is one of their initiatives. The
ESG investment market is growing and it was estimated to be worth
over 7 trillion in 2010 (Euro Sif 2010). The EU and US markets are
leading the ESG market and their magnitude is 5 trillion and $2 trillion,
respectively. Japan and other markets are very small. The European
market is said to have grown faster and it reached 16 trillion in 2013.
Similar initiatives are expected to be taken by the institutional investors
in developing countries and this is already happening. For instance,
the Principles for Responsible Investment (PRI), which is a UN-led
initiative, have been signed by 22 institutions in developing countries

in Asia (the total number of Asian signatories, including Japan, the
Republic of Korea, and Singapore, is 206).
The ESG covers a variety of corporate policies and actions but it is
subjective in definition. Climate change was ranked as the top priority
category in environment-related investment in a survey by PRI.3 When
focusing on climate change, many innovative approaches are possible.
A rating scheme for climate change and environment actions is an
option. For example, Good Bankers Co. in Japan has developed a forest
conservation rating system. It reviews 19 items which are considered
to be forest conservation friendly actions and give them a grade. There
are 15 rating grades, from AAA to C. It is assumed that this will be used
in combination with conventional financial rating; fund managers can
consider both financial and environment aspects in deciding whether
to invest. Good Bankers released a new initiative on the Tokyo Stock
Exchange in 2012 to direct the funds of the stock market to companies
seeking aid in sustainable development (Figure 7.10). It reviews
corporate environmental policies and actions according to replies to a
questionnaire. It then publishes a table of findings with comments. This
could be an incentive to companies to take action on climate change and
their own sustainable growth because the reputation of the company in
terms of its support for sustainability may affect its sustainability.
Figure 7.10: Forest Eco Fund
Businesses
Finances
Academia
Policies
Citizens
190 items
reviewed
Network
Good
Bankers
Rating System
Advisory
Board
Service
contract
Rating
evaluation
advice
Financial
review
Reviewing forestfriendly activities of

companies
Stock Market
Source: Good Bankers Co., Ltd.
Press release of 4 September 2012.
Forest Eco Fund
Management
contract
Fund
Manager
Investment
Investment
Fund
Investment
Forest-Friendly
Assets
Institutional
and Individual
Investors
Socially responsible investment (SRI) has become measurable using

a rating system but the rating process needs to become more objective.
One possible solution is to construct a Green Asset identified by MRV
(Figure 7.11). First, financial institutions invest in projects with GHG
emission reductions confirmed by MRV. The investments are securitized
into a green asset portfolio which would be funded by institutional
investors. This concept means the creation of a new asset class market,
the green asset market, for institutional investors. For instance, the
green asset portfolio can be encouraged by tax exemptions which would
provide a good incentive for the creation of a green asset market.
A green asset portfolio scheme could also be developed. For
example, Bank Indonesia, the central bank of Indonesia, plans to
develop a green banking scheme and this can be combined with green
assets, which are identified by MRV. A green asset ratio may be set as
a mandatory target, like the renewable energy ratio in the electricity
market. By introducing a mandatory target, the commercial value
of green assets is expected to rise and then supply of funds to GHG
emission reductions will increase.
Figure 7.11: Transformation of Money Market

Investment /
Financing
Reductio
Projects/Products
Finance
(Public/Private)
Transformation
Negative impact
of market
fluctuations
Green Asset Market

on
ati
rm
fo
ran
Money Market
Short-term
financial return
Long-term
return
Institutional
Investors
Household
Pension System
Source: Authors.
Green bonds can be used to raise capital to finance or refinance

investments in low-carbon or otherwise environmentally beneficial
projects. They have significant potential as a means to access deep
pools of relatively low-cost capital that is held by institutional investors
for climate change and green projects. These investors typically avoid
direct investment in low-carbon green infrastructure. Pension funds, for
example, have increasingly invested directly in the carbon markets.
7.4Conclusions and Recommendations

Greening Asian economic growth is the only way to satisfy the needs of
Asias growing population, driving development and well-being while
reducing GHG emissions. Considerable progress has been made in
transitioning to low-carbon green growth, facilitated by technology and
financial flow into the region. However, progress in green investment
continues to be outpaced by investment in fossil-fuel-intensive and
inefficient infrastructure. Private financing of much needed low-carbon
green infrastructure is constrained by market uncertainty and lack
of a long-term regulatory framework. MRV is a useful instrument for
reforming financing mechanism by allocating a price to CO2 emitted in
economic activities.
The following actions are recommended for the further reform of
financing:
Adoption of MRV. Financial institutions can identify which
low-carbon activities, products, and services to finance by
reviewing the outcome of their financing activities using MRV.
Tax and government incentive schemes can be transformed
to CO2 base price schemes by adopting carbon taxes and tax
exemptions for green investment. MRV is in the learning-bydoing stage and further refinements can be expected.
(ii) Capacity building and sharing experiences. If only a few
financial institutions adopt MRV, its impact will be limited.
Many institutions are needed to generate momentum.
Multilateral institutions such as ADB and the GEF can provide
capacity building to financial institutions that do not have
enough capability to implement MRV. Leading public and
private financial institutions should transfer their experience
through their business activities such as cofinancing.
(iii) Dialogue with industry groups. Technology information
and experience in managing projects is needed to construct
practical and effective frameworks. Collaboration with
industry is crucial and dialogue with industry groups by policy
makers and financiers is recommended.
(i)
References
Asian Development Bank (ADB). 2009. Infrastructure for a Seamless
Asia. Manila.
Asian Development Bank Institute (ADBI). 2013. Low-Carbon Green
Growth in Asia: Policies and Practices. Tokyo.
Anbumozhi, V. 2013. Fiscal Policies for Green Finance. APEC Report
Financing Green Growth. Seoul: Ministry of Strategy and Finance,
Government of the Republic of Korea.
Asia-Pacific Economic Cooperation (APEC) and Global Green Growth
Institute (GGGI). 2010. Green Growth Green Finance. 17th Finance
Ministers Meeting. Kyoto, Japan.
Bank for International Settlements (BIS). June 2011 and June
2012. BIS Quarterly. Basel, Switzerland.
Eurosif. 2010. European SRI Study 2010 and 2014. Paris.
Good Bankers. 2013. Annual Report. Tokyo.
Government of Japan. 2012. Outline of the Bilateral Offset Credit
Mechanism. Kyoto Mechanisms Information Platform, Japan.
Honbu, K. 2012. GSEP: About Sectoral Approach. Energy Management
46(6).
Hongo, T. 2011. Green Growth from Green Finance. APEC Study Group
Report on Green Financing. Seoul: Ministry of Strategy and Finance,
Government of the Republic of Korea.
. 2010. Road to Market Mechanism for Sustainable Use of
Biodiversity. Nagoya Parliamentarians Forum, Valuing Natural
Capital to Mainstream Biodiversity, 2526 October, Nagoya, Japan.
. 2011. Transitional Committee for Green Climate Fund. Presented
at Workshop on Green Finance, 34 July, Singapore.
. 2012. Japan Goes Its Own Way. Global Carbon Markets, IETA
Newsletter, JanuaryFebruary.
Institute for Global Environmental Strategies (IGES). 2013. Measurement,
Reporting and Verification (MRV) for Low Carbon Development:
Learning from Experience in Asia. Hayama, Japan.
International Energy Agency (IEA). 2013. World Energy Investment
Outlook. Paris.
International Emission Trading Association (IETA). 2012. Global GHG
Market Report. Geneva.
Kumar, S. 2010. Co-benefits, Green Jobs and Innovation Systems.
Proceedings of Technical Workshop on Tackling Climate Change and
Accelerating Green Growth: New Knowledge towards Policy Solution.
1213 September. New Delhi, India.
2010. Transition to a Low-Carbon Economy: Public Goals and
Corporate Practices. Paris.
. 2011. Development Assistance in Charts. Paris.

Principles for Responsible Investment (PRI). 2012. Press release, 4
September. London.
Ramanathan, K. 2010. Eco-innovation and International Technology
Transfer, Proceedings of Technical Workshop on Tackling Climate
Change and Accelerating Green Growth: New Knowledge towards
Policy Solution. 1213 September, New Delhi, India.
2012. Climate Change, Carbon Markets and the CDM: Call to Action.
Bonn, Germany.
World Bank. 2012a. Green Infrastructure Finance. Washington, DC.
. 2012b. State and Trend of the Carbon Market Report. Washington,
DC.
Chapter 8
Flexible Incentives for

Low-Carbon Inclusive
Growth
Venkatachalam Anbumozhi and Armin Bauer
8.1Introduction
The Asian Development Bank (ADB) defines inclusive growth as
a process and an outcome (ADB 2010). Growth is inclusive, if it is
based on inputs from a large number of people, i.e., when it is broadbased and job-creating. In terms of outcomes, growth is inclusive if it
benefits many people, especially lower-income groups, i.e., when it
results in disproportionate increases in income among the poor and
when inequality is declining. Inclusive growth therefore characterizes
a nondiscretionary and disadvantage-reducing development path
generated through economic growth (ADB 2010, p. 5).1
Inclusive growth and energy consumption and use are closely linked.
One characteristic of poor people is their lack of access to affordable
energy, including power- and transport-related energy. And although
poor people in low-income countries contribute least to climate change,
they are the ones who suffer most acutely from its effects. They are the
1
The International Policy Centre for Inclusive Growths work on inclusive growth
starts from the premise that societies based on equality tend to perform better in
development. For instance, countries with more equal income distribution are
likely to achieve higher rates of poverty reduction than very unequal countries
(United Nations Development Programme [UNDP] 2010). Poverty is pronounced
deprivation in well-being, and comprises many dimensions. It includes low incomes
and the inability to acquire the basic goods and services necessary for survival with
dignity. Poverty also encompasses low levels of health and education, poor access
to clean water and sanitation, inadequate physical security, lack of voice, and
insufficient capacity and opportunity to better ones life. (World Bank 2010, p. 11).
279
most exposed to severe air and water pollution and are more dependent
on natural resources for energy (including firewood), coastal water
resources, and marginal lands. The poor also indirectly exert pressure
on natural resources and are a major factor in land degradation, water
contamination, and resources depletion.
In pursuit of economic development and poverty alleviation, there
is great potential among low-income households for green consumption,
production, innovation, and entrepreneurial activity. This chapter
shows how green growth can be made inclusive by involving low-income
households as producers, employees, and business owners. It provides
examples of profit-generating firms that are running green businesses
with products for the poor and produced by the poor at decent wages.
Green businesses aims to satisfy their customer bases while sustaining
economic prosperity, market competitiveness, environmental
regeneration, and social equity, i.e., increasing social and environmental
responsibility without compromising economic growth. The private
sector needs to be more actively involved in promoting inclusive and
green business. This can be achieved by encouraging enterprises to
adopt strategic corporate social and environmental responsibility in
their core business.
8.2Redefining Economic Growth, Sustainability

Concerns, and Poverty Reduction
Economic growth in Asia and the Pacific comes at major environmental
and, recently, climate change costs. The economy of Asia and the Pacific
today is worth about US$ 17,400 billion, which is almost five times the
size it was about three decades ago. If it continues to grow at the same
rate, it will be 80 times that size by 2050 (Wilson and Purushothaman
2003). This is totally at odds with our knowledge of the finite energy
resource base and the fragile ecosystems on which Asian economies
depend for survival. Today, many Asian countries are faced with steadily
rising commodity prices; the degradation of forests, water bodies, and
land; and the momentous challenge of stabilizing concentrations of
carbon in the atmosphere (Figure 8.1).
Growth is unsustainable when a country is consuming resources
such as energy and water at the expense of future generations.
Distributional patterns of growth also have deep implications for
sustainability, as the poor often use products and services with a lower
energy intake (e.g., in the transport sector). A rebalancing based on the
environmental footprint is urgently needed, especially in countries with
high and increasing inequalities.
Flexible Incentives for Low-Carbon Inclusive Growth281
Figure 8.1: Carbon Dioxide Emissions and Gross Domestic

Product per Capita in Selected Economies of Asia and the
Pacific
Proportion of population with access to electricity
120%
110%
PRC
100%
Thailand
90%
New Zealand
Malaysia
Viet Nam
Japan
Rep. of Korea
Singapore
Australia
Hong Kong, China
Philippines
80%
Sri Lanka
Mongolia
Indonesia
Pakistan
Lao PDR
70%
60% India
50%
Nepal
Bangladesh
40%
30%
Cambodia
20%
Timor-Leste
10%
Myanmar
0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
GDP (PPP $ per capita)
GDP = gross domestic product, PPP = purchasing power parity.

Source: The World Bank Development Indicators and IEA electricity access database.
8.2.1Development Constraints for Low-Income

Households
At the global level, 75 million100 million households constitute tier 1,
which is composed of middle- and upper-income people in developed
countries and some rich people from developing Asia (Table 8.1). In
the middle of the pyramid, in tiers 2 and 3, are low-income households
in developed countries and middle-income households in developing
economies. Tier 4 consists of about 4 billion people, whose per capita
income is very low. This extreme inequality in wealth distribution
reinforces the view that people with low incomes cannot participate
in the regional or global economy constructively, even though they
constitute the majority of the population. So even if all get richer, unless
inequality is addressed, the problem of a growth path that excludes
the lower half of the population remains. However, this is politically
unacceptable in most countries of the region. Hence, for sustainability
reasons, there is a need to address rural and slum poverty and to link this
work to climate and environmental programs.
Table 8.1: Tiers of Development Structure

Population and Gross National Income Per Capita (2009)
Income Group
High-Income
Population
(billion)
GNI per
Capita, Atlas
Methodology
(Current $)
GDP per
Capita, PPP
(Constant 2005
International $)
1.12
38,220
32,779
Upper-Middle-Income
1.00
7,471
10,799
Lower Middle-Income
3.81
2,298
4,299
Low-Income
0.85
503
1,053
World
6.78
8,741
9,514
Middle-Income
4.81
3,375
5,652
GDP = gross domestic product, GNI = gross national income, PPP = purchasing power parity.
Source: World Bank. Data for 2009 (http://data.worldbank.org/income-level/NOC, accessed
16 November 2010).
8.2.2Low-Carbon Green Growth in the Context of

Low-Income Households
Poor people contribute less to carbon dioxide (CO2) emissions than do the
rich. A white paper by the Department for International Development
of the United Kingdom (DFID) defines low-carbon development in the
following way:
(i) using less for growth;
(ii) using energy more efficiently and sustainably while moving
toward low or zero carbon energy sources;
(iii) protecting and promoting natural resources that store carbon,
such as forests and lands;
(iv) designing, disseminating, and deploying low or zero carbon
technologies and business models; and
(v) developing policies and incentives that discourage carbonintensive practices and behaviors.
Low-income households have contributed least to global
environmental problems such as climate change and to local problems
such as traffic, congestion, and water pollution. Low-carbon green growth
is not only about cutting emissions but about providing the benefits
and opportunities that come from higher economic growth, including
access to basic energy services and utilities that eventually improve the
quality of life. In other words, to make growth inclusive, green means
are necessary. Key policies and business models can be devised to link
low-income households with green products and services, depending
upon the communitys priorities and plans and the available funding and
technologies. It is important that new services targeting those in poverty
should focus on both the supply and the consumption sides of those
households, and also on their ability to develop at the lowest emission
and pollution levels.
8.2.3Adoption of Green Products and Services by

Low-Income Households
The consumption patterns of the urban poor and the rural poor differ.
In rural settings, the amount of electricity supplied could only support
a floor fan, two compact fluorescent light bulbs (CFLs), and a radio for
about 5 hours per day (Kimsun and Bopharath 2013). In urban areas,
consumption would also include a television and another household
appliance, such as an efficient refrigerator or a computer (Patnuru
2013). At the microlevel, there has been a growing interest in efficient
low-cost lighting through the distribution of CFLs in many developing
countries. These high-quality CFLs are 45 times more efficient than
incandescent bulbs, and last longer. The mass distribution of CFLs is
expected to reduce peak electricity needs and costs, and presents a
business opportunity for the private sector to exploit.
In terms of investments, it has been estimated that a cumulative
investment of $223 billion would be required between 2010 and 2015
to achieve the Millennium Development Goal of eradicating extreme
poverty and hunger by 2015, and another estimated $477 billion between
2016 and 2030 to ensure universal access to electricity by 2030 (UNDP
2011). The bulk of additional household electrification in this period
will be in rural areas through grid and off-grid solutions, as by 2015
(especially in Asia) most urban households are expected to have access
to electricity services. High household density is the most important
factor in providing electricity access through the grid, as it is cheaper to
deliver electricity through an established grid than through mini-grids
or off-grid systems. However, the cost of expanding the grid to lesspopulated areas is very high, and with transmission losses it is usually
not profitable. A large share of rural households that are to be connected
by off-grid and mini-grid options will use alternative sources of energy,
including solar photovoltaic, mini-hydro, biomass, wind, diesel, and
geothermal. The current total primary energy supply situation among
selected countries in Asia can be seen in Table 8.2. While large Asian
countries including India and the Peoples Republic of China (PRC) are
more dependent on coal for their energy supply, low-income countries
such as Nepal and Cambodia are dependent on biomass for their energy.
The bulk of investment in electrification in 20102020 is expected
to be incurred in developing Asian countries, especially because of their
rapid economic growth. Low-carbon renewable energy as a share of grid
extension in rural areas is expected to increase, but at present it is not
cost-effective. There are great investment and business opportunities
in developing small, stand-alone renewable energy technologies that
could meet the electricity needs of rural communities more cheaply.
Specific green technologies have potential, including solar photovoltaic
for lighting and clean drinking water. For greater load demand, other
technologies such as mini-hydro or biomass might offer a better solution.
Solar is expected to become more efficient and maybe used on a mass
scale as prices eventually drop. The main challenge with solar and
wind technologies is their high upfront cost, which demands new and
innovative business models and financial tools to improve dissemination.
The mini-grid is probably the best approach to rural electrification, as it
can combine different sources of energy and ensure stable supply and
transmission of electricity.
8.3Green Business Models for Low-Income

Households and Local Wealth Creation
Low-income households deserve to be recognized as resilient valueconscious consumers and creative entrepreneurs. They can be the
engine of a new development strategy; a source of innovation for
providing basic services in a green way while creating opportunities for
low-income households by offering access to energy and other services
and encouraging endogenous development. To understand how, the
following basic assumptions hold:
(i)
Low-income households present a latent market for

environmental goods and services. Engaging them is a
critical element of inclusive and sustainable growth, as
entrepreneurship activities for this market create choices for
them and foster competition among outside service providers.
These characteristics of a green market economy, new to lowincome households, can facilitate dramatic change.
(ii) Low-income households as a market provide new growth
opportunities for outside businesses and a forum for innovation
5.0
0.0
18.2
565.8
179.1
527.6
216.5
10.7
102.8
443.9
93.4
India
Indonesia
Japan
2.8
14.3
3.4
10.7
Mongolia
Myanmar
68.3
23.3
Lao PDR
Malaysia
Korea, Republic of
Hong Kong, China
319.9
China, Peoples
Republic of
1878.7
25.0
12.8
Bangladesh
863.2
122.5
87.7
Australia
Cambodia
2006
1990
Economy
Tons of oil equivalent

(millions)
Annual Total
0.8
71.7
12.0
24.3
21.3
15.5
39.4
38.6
64.2
0.0
1.4
43.9
2006
12.4
0.0
44.4
13.3
14.7
18.6
5.5
13.2
2.5
0.0
46.6
19.1
2006
12.7
24.0
38.8
43.2
45.6
33.0
24.1
44.9
18.3
28.4
17.8
31.6
2006
2.0
0.0
0.9
0.2
2.1
3.7
1.9
0.0
2.2
0.1
0.5
1.3
2006
72.1
3.8
4.1
1.1
1.3
29.2
28.3
0.3
12.0
71.3
33.7
4.1
2006
Total Primary Energy Supply (TPES)

Share of renewable
Share of fossil fuels in TPES
energy in TPES
Hydro,
solar,
Biomass
wind, and
and waste
Coal
Natural Gas
Oil
geothermal
%
0.0
0.0
0.0
17.9
15.0
0.0
0.9
0.0
0.8
0.0
0.0
0.0
2006
Share of
nuclear in
TPES
93.0
1297.0
3388.0
8063.0
8220.0
530.0
503.0
5883.0
2040.0
88.0
146.0
11309.0
2006
Kilowatt
hours
11.0
65.0
98.0
100.0
100.0
54.0
56.0
..
99.0
20.0
32.0
100.0
% of
population
2000
2006b
Electrification Rate
104.5
19.1
187.5
239.8
26.7
228.3
82.3
40.8
299.1
..
221.2
34.6
% change
1990
2006a
Electricity Consumption
Per Capita
Table 8.2: Total Primary Energy Supply, Share of Renewable Energy, Electricity Consumption, and Electrification
Rates of Selected Countries in Asia and the Pacific
24.3
Viet Nam
52.3
103.4
16.8
12.1
0.7
0.0
9.5
25.8
0.0
20.9
5.8
31.6
5.4
13.4
18.7
0.0
2006
11.9
2.7
2006
23.4
44.4
40.7
79.0
31.8
23.9
39.4
8.6
2006
3.9
0.7
4.2
0.0
22.9
3.5
24.0
2.4
2006
46.4
16.6
54.3
0.0
26.1
34.9
6.0
86.2
2006
Total Primary Energy Supply (TPES)

Share of renewable
Share of fossil fuels in TPES
energy in TPES
Hydro,
solar,
Biomass
wind, and
and waste
Coal
Natural Gas
Oil
geothermal
%
Denotes percent change in value of the variable within the given period.
Data are for the most recent year available.
Source: World Development Report. World Bank 2010.
43.9
Thailand
5.5
Timor-Leste
30.7
13.4
Singapore
Sri Lanka
9.4
79.3
43.0
43.4
26.2
Pakistan
17.5
13.8
New Zealand
Philippines
9.4
2006
5.8
1990
Tons of oil equivalent

(millions)
Annual Total
Nepal
Economy
Table 8.2continued
0.0
0.0
0.0
0.0
0.0
0.8
0.0
0.0
2006
Share of
nuclear in
TPES
598.0
2080.0
400.0
8363.0
578.0
480.0
9746.0
80.0
2006
Kilowatt
hours
511.2
181.4
159.5
72.1
60.7
73.6
14.5
129.2
% change
1990
2006a
Electricity Consumption
Per Capita
84.0
99.0
66.0
100.0
81.0
54.0
100.0
33.0
% of
population
2000
2006b
Electrification Rate
in developing green products and clean services in a costeffective way that old and tried solutions cannot create.
(iii) The green market for low-income households must become
an integral part of the work of the private sector. For big
companies, these households must become part of any firms
core business; they cannot merely be relegated to the realm of
corporate social responsibility initiatives. Successfully creating
green markets with low-income households involves changes
in the functioning of large companies as they need sustained
resource allocation and senior management attention.
There are significant untapped opportunities for such value creation,
at different levels and at a varying pace across Asia. Refocus (2001)
argues that, most of the time, energy subsidies do not reach the poor as
expected in the planning of the subsidy programs because of problems
with the design of subsidy models. Businesses go after the subsidies
rather than concentrating on the delivery of energy services to the poor.
The energy subsidies must have two specific goals. The first is that they
should assist the poor in accessing higher-quality energy services, and
the second is that they should provide incentives for business to serve
rural and poor consumers. Refocus suggests three subsidy models:
dealer model, concession model, and retailer model (Table 8.3).
Table 8.3: Different Subsidy Models Proposed by Refocus, 2001
Model
Description
Dealer model
The dealer model emphasizes the development of dealers that can

sell equipment, usually solar photovoltaic equipment. Subsidies
are provided to dealers to lower the cost of products so that the
consumer demand for those products will increase. This model
is used for the delivery and servicing of solar systems in several
countries, including Sri Lanka, Indonesia, and Kenya. This system
works well only when there is a strong dealer network. However, the
early adopters are mainly more wealthy households, and it means the
subsidy will go first to the more wealthy households in the rural areas.
Concession model
The concession model minimizes budgetary subsidies and

encourages private sector participation. In Argentina, for example,
franchise rights for rural service territories are being granted to
concessionaires that offer the lowest subsidy to service rural
households and community centers. Concessionaires can select
from a wide range of off-grid technologies in a cost-effective way.
The success of subsidies in the concession model as applied in
Argentina is clearly dependent on the level of competition across the
various service territories. To improve the sustainability of agricultural
projects, it is a priority for national authorities to offer concessions
with adequate conditions to the private sector or local cooperatives.

Table 8.3continued
Model
Retailer model
Description
Under this model a community, organization, or entrepreneur
develops a business plan to service local demand for electricity.
If the plan is approved, depending on the situation a loan or a
subsidy is given for the development of the business. The retailer
deploys the system through a fee-based service arrangement
to recover the costs, repay the loan, and earn a profit. This
approach ensures significant local involvement and consumer
choice. This model has been successfully implemented in several
projects that generate electricity, including in India and Sri Lanka
(micro-hydro component), and in a broader context in the Lao
Peoples Democratic Republic. This model of financing would be
focused on aggregating the demand and partially transferring the
problems of financing to the capacity of organization of the local
communities, which would then assume part of the risk in project
financing. The challenge of financing is in terms of aggregating
small loans to beneficiaries that may not have a record of risk, a
culture of payment, or, in many cases, a capacity to collateralize
loans. In this regard the role that intermediaries (energy supply
companies, suppliers of equipment, microcredit organizations)
play, and the commitment from beneficiaries (associations,
community organizations, cooperatives of credit, or companies of
local collection) become the basis on which the projects become
sustainable in the long term.
8.3.1Flexible Incentives and Barrier Removal for

Business Development
Since around 20002010, a slow but discernable transition has
been taking place, from traditional to market-based green business
development that serves low-income households. The changing
perceptions of business and policy makers are shown in Table 8.4.
A much needed green business development for low-income
household is in its infancy in most countries. This is mainly because
it is not easy to give up traditional practices, and so businesses and
policy makers need to see such households as markets, and demand
for green products and services needs to be stimulated through
public policy. It is also difficult for a whole generation of low-income
households to give up their dependence on pervasive government
oil subsidies. On the other hand, subsidies targeted at specific niche
populations can advance the penetration of modern energy services to
the poor, especially for those in rural areas (Modi, McDade, Lallement,
and Saghir 2005). Governments need to address a multitude of factors
while designing specific subsidies to guarantee that the poorest fringe of
the population is benefiting, rather than indirectly providing advantages
to higher-income households that already consume more.
Table 8.4: Changing Perceptions of Business and Policy Makers in India

From
To
Low-income households are a problem for

development
They represent a market. The private sector

can and should participate effectively in
this process
Low-income households are wards of

the state
They are active consumers and entrepreneurs
Low-income households do not appreciate

low-carbon green technologies. Old
technology solutions are appropriate
Creative bundling of low-carbon products

and services with a local flavor
Follow the urban rich model of

development
Selectively leapfrog
Carbon efficiency in a known model
Innovation to develop a low or zero carbon

model
Focus on resource constraints
Focus on creativity and entrepreneurship
Source: Authors.
8.4Policy Framework for Business Development

in An Inclusive and Green Growth Paradigm
The key economic policy issues aimed at inclusive and low-carbon green
growth include market-based instruments, carbon pricing, and financing.
Market-based instruments impose fees and provide incentives in
order to achieve the same objectives as regulatory policies. There are
two challenges to effectively implementing market-based instrument
policies: (i) supporting sustainable consumption and guaranteeing that
it reaches the households at the bottom of the pyramid, rather than
local elites only; and (ii) subsidizing low-carbon green technologies and
involving local small businesses through financial incentives to promote
sustainable production. Normally, private companies seek their own
profits and economic benefits rather than providing social benefits, so
attracting their investments in energy production and distribution is a
major challenge. Subsidizing social inclusion investments and taxing
harmful environmental activities could attract more investment in the
promotion of alternative energy in rural areas. Removal of fossil fuel
subsidies could also be an incentive to increased use of green energy
technologies (Zhang 2008).
These policies can have several positive effects, as illustrated
in Table 8.5. First, imposing a tax on fossil fuel use incorporates the
negative environmental externalities and could be used to pay for the
social cost of renewables. It also motivates consumers to use alternative
energy, which results in lower carbon emissions. Second, green energy
Table 8.5: Summary of the Potential Benefits of the Clean

Energy Investment Program for Low-Income Households in
the United States
Moving from unemployment to
employment
1.7 million new jobs overall

870,000 jobs for workers with low
education levels
Newly employed low-income workers can
lift themselves and family out of poverty
Falling unemployment produces rising

wages
Average low-income worker could

see a rise in earnings of about 2% as
unemployment rate falls 1%
Building retrofits lower home heating and

utility bills
Retrofits could reduce living costs by

up to 4%, depending on the climate and
quality of current housing stock.
Requires well-designed policies to create
market for retrofits for homeowners and
renters so benefits of retrofits are shared
by renters
Improved public transportation
Accessibility of public transportation

could improve considerably through
targeted investments
Increasing public transportation use in
urban centers to around 25%50% of total
could reduce living costs by about 1%4%
Households able to replace a car through
increased public transport use could save
roughly 10% of total living costs
Source: Pollin, Wicks-Lim, and Garrett-Peltier (2009).
subsidies lower the cost of production and consumption, which drives

investors to invest in such systems and allows poor people to consume
the energy they produce. As a result, poor people will have sustainable
and affordable access to energy. Third, these policies help to protect the
environment because people replace fuel wood and manure by electricity
for lighting, heating, and cooking, which reduces the extraction of fuel
wood from forests, resulting in lower carbon emissions. At the same time,
health and living standards will be improved due to a marked decrease
in air pollution. Fourth, once there is sustainable energy access, many
small and medium-sized enterprises and family businesses will evolve,
providing job opportunities for the poor.
8.4.1Reduction of Pervasive Subsidies

Fuel subsidies are stimulus packages that distort the price of goods
and energy resources and support activities that lead to environmental
degradation. In emerging countries, governments commonly control

the final consumer price of energy, usually by keeping it below the
real market price, to promote economic growth and reduce poverty. In
other words, fuel tax rebates and low energy prices stimulate the use
of fossil fuels, and subsidies for road transport increase congestion and
air pollution, while agriculture subsidies can lead to the overuse of
pesticides and fertilizers.
In 2008, non-OECD countries guaranteed $400 billion of fossil
fuel subsidies that instead could have been pledged to renewable
energy technology investments (IEA 2010a). The evidence shows that
fuel subsidies also contribute to an expanding fiscal deficit. Policies to
reform pervasive subsidies must be carefully designed; governments
need to evaluate the environmental and economic impacts of reforming
measures. A sudden rise in oil prices could depress consumption in
countries such as the PRC and Malaysia, where additional domestic
demand may be needed to compensate for slowing export growth.
There is merit in some subsidies, at least in the short term. Many lowerincome people cook with kerosene or get to work on motorbikes. Related
fertilizer subsidies may also be necessary in the short term to sustain
food output (Jozan et al. 2013).
Figure 8.2 suggests that countries with high debt, such as the PRC,
the Russian Federation, and Indonesia, also allocated larger budgets to
energy-related subsidies. Conversely, the governments of Thailand and
Viet Nam, which allocate lower amounts to subsidies, also have less
fiscal debt. Reducing pretax subsidies by 50% would reduce the average
projected deficit by 38% as a result of a more efficient allocation of
resources across sectors (Coady et al. 2006).
These policies have direct impacts on resource depletion and CO2
emissions. Instead of subsidizing environmentally harmful activities,
supporting the development of renewable energy and using energysaving devices would be more cost-effective in the long term in removing
barriers to green growth.
Phasing-out fossil fuel subsidies in regions where such fuel is
used for cooking and heating could lead to greater pressure on natural
biomass resources and consequent deterioration of indoor air quality,
even though subsidies are often intended to support poor consumers.
The possible social impacts of removing pervasive subsidies increases
pressure on the poor, as food and commodity prices rise and those who
cannot adjust become economic losers. In practice, subsidies for oil and
other energy sources mainly benefit higher-income groups and capitalintensive industries at a time when rising income differentials and job
creation are bigger concerns than overall economic growth.
Figure 8.2: Pervasive Energy Subsidies and Fiscal Debt in

Selected Asian Economies
(% of GDP, 2009)
Russian
Federation
PRC
Indonesia
Malaysia
Thailand
Taipei,China
Viet Nam
0
100
200
Debt
GDP = gross domestic product, PRCFiscal
= Peoples
Republic of China.
Source: IEA (2010) and CIA (2009).
300
400
Subsidies
8.4.2Incentives and Tax Breaks

Table 8.6 shows estimates of relative subsidies available to energy
produced. A global survey by Regus (2010) found that 75% of companies
worldwide have declared that government tax incentives are required
to accelerate low-carbon investments. The same survey revealed that
only 37% of companies worldwide actually measure their emissions and
only 19% measure the carbon footprint resulting from their activities;
46% of companies globally declared that they will only invest in lowcarbon equipment if the running costs are the same or lower than those
of conventional equipment. A disappointing 40% have invested in
low-carbon equipment and only 38% have a company policy to do so.
Finally, a full 100% of companies surveyed declared that, if governments
offered tax incentives to invest in energy-efficient or low-carbon
equipment, businesses were willing to significantly accelerate their
green investments. If governments are serious about meeting ambitious
carbon reduction targets and promoting green industries, they need
to provide incentives for environmentally aligned corporate behavior.
At the moment, low-carbon businesses are often limited in range and
Table 8.6: Estimates of Relative Subsidies to Energy Sources
Energy Type
Nuclear Energy
Subsidy
Estimate
($ billion/
year)
Energy
Produced
OECD Share
of Production
(2007) %
Subsidies per
Energy Unit
($/kWh)
45
2,719 TWh
electricity
84
0.017
Renewable Energy
such as solar, biomass,
wind, etc. (excluding
hydroelectricity)
27
534 TWh
electricity
82
0.050
Biofuels
20
34 mtoe
68
0.051
400
4,172 mtoe
n.a.
0.008
Fossil fuels
(non-OECD
consumers)
mtoe = million tons of oil equivalent.

Source: preliminary estimates based on GSI (2010), available at http://www.globalsubsidies.org/files/assets/relative_energy_subsidies.pdf
largely charge premium prices. Tax breaks will help accelerate takeup of clean technologies and will help create a mass market when unit
prices fall, as in India (Table 8.6).
8.4.3Introduction of Market-Based Instruments

Market-based instruments are most likely to be successful for green
business development in the following situations:
(i)
Policy makers are aware of the lobbying symmetry between

polluters, low-carbon green technology providers, and
taxpayers, so exemptions can be avoided.
(ii) The level of tax or charge is high enough to accurately reflect
externality costs but not so low that they become incentives for
polluters. The revenue could be used to support small green
businesses serving low-income households.
(iii) There is no free allocation of tradable permits, which have
negative effects on the cost-effectiveness and fairness of the
instrument used.
(iv) Market-based instruments are not introduced to replace direct
regulations or other incentives but to supplement them.
In the Philippines, the Laguna Lake Development Authority levies
fees on effluent discharge into the lake or distributary systems in order
to reduce pollution, based on the tradable permit system. Further,

businesses are rewarded by lower effluent fees and fewer penalties. This
approach has contributed to measurable improvements in the quality of
Laguna Lake (USAID 1999).
8.4.4Financing Low-Carbon Green Business Models

Investing in appropriate green businesses that target low-income
households is a new approach for the private sector and for financial
institutions. Local entrepreneurs are either not familiar with, or lack the
capacity to make, costbenefit analyses or to prepare documentation for
credit requests. Bankers are unaccustomed to appraising credit request
proposals for new innovative businesses. As financial institutions are
isolated from policy issues related to green energy and the creation of a
nonpolluting environment, a working partnership between policy makers
and financial institutions is needed to exchange experience, purposes,
and objectives. Liming (2009) notes that, as two of the worlds leading
countries in the development of rural renewable energy, the experiences
of the PRC and India in financing rural renewable energy will be of
interest to other developing and emerging middle-income countries. To
enhance the development of rural renewable energy, the PRC and India
have used many financing instruments, including grants, renewable
energy service companies, low-interest and long-term loans, joint
ventures, asset financing, venture capital and private equity, subsidies,
import duty reduction, and reductions in value-added tax (VAT).
However, financing renewable energy is still challenging. In the PRC, the
main subsidies for rural renewable energy are provided by the central
government, with local governments usually supporting research,
development, and demonstration projects for rural renewable energy.
In India, subsidies such as interest and capital subsidies, are mainly
provided by the Ministry of New and Renewable Energy Sources. In
the PRC, imports of renewable energy technologies are exempted from
import duty; in India this is the case for renewable energy technologies
not produced in India. In the PRC the rate of VAT is 17%, but for biogas
it is 3.0%, for wind power 8.5%, and for small hydro 6.0%. VAT for power
generation from municipal solid waste is 0%. In India, the VAT on
renewable energy equipment is lower than the normal rate.
Although many financing schemes and institutions designed to
assist small businesses are available, their effectiveness in attracting lowincome households to use green services is low. The Land Bank of the
Philippines, the Small Industrial Development Bank of India (SIDBI),
and the National Development Bank of Sri Lanka target small businesses
to reach low-income households by providing concessional loans.
The SIDIBI was set up as a wholly owned subsidiary of the Industrial

Development Bank of India. It is the principal financial institution
for promoting, financing, and developing small-scale industries and
coordinates the functions of institutions engaged in similar activities.
8.5Financing Inclusive and Green Growth

through Fiscal Reforms
If the developing countries of Asia are to meet the requirements of
inclusive and green growth, they will need to invest considerable
sums; many are already doing so. Table 8.7 summarizes government
expenditure with implications for investment in poverty alleviation
and the preservation of environmental resources. One reason why
government expenditure on inclusive and green growth might fall short
of expectations is that countries with high fiscal deficits have usually
been advised to cut public expenditure, and the simplest cuts are often
those on social and environmental expenditure.
If governments are to spend more on inclusive and green growth,
this should be part of a larger environmental fiscal reform program
that is integrated with other environmental measures. This means
environmental objectives can be pursued in combination with economic
and social objectives. The EEA (2006) argues that, rather than defining
the best instrument, policy makers should try to understand which
mix of instruments is best applied under certain local and political
conditions. The concept of an environmental fiscal reform program
is the same in developed and developing countries, as the OECD has
noted: Environmental fiscal reform (EFR) refers to a range of taxation
and pricing measures which can raise fiscal revenues while furthering
environmental goals (OECD 2005: 12). In other words, environmental
fiscal reform describes any policy measures that overlap between
environmental and fiscal policy, and implementation is not limited
to developed countries but may also be in transition or developing
countries as stated in recent reports published by the OECD (2005) and
the World Bank (2005).
Governments need to channel revenues from environmentally
damaging activities to create incentives that promote environmentally
friendly programs. Inevitably some economic sectors will be net losers
in the sense that their tax burden will increase and, generally, trade-offs
between social and environmental considerations need to be carefully
analyzed. Reductions in charges, taxes, and pervasive subsidies tend
to benefit the environmental dimension and to have low or moderate
impacts on poverty alleviation and/or economic development strategies.
510.50
Myanmar
12.61
5.26
Mongolia
Nepal
5.47
221.16
Malaysia
931.40
Lao PDR
Korea,
Republic of
4886.97
Indonesia
Japan
1214.21
India
Hong Kong,
China
4532.79
10.34
China, Peoples
Republic of
79.55
Cambodia
1039.42
2008
Bangladesh
Australia
Year
Economy
GDP
Current $
Billion (I)
41.5
24.4
172.1
28.3
54.9
13.6
15.6
39.4
14.3
2008
Public Debt
(% of GDP)
(II)
29.90
50.50
2.70
27.90
6.40
48.50
127.00
232.50
1,214.50
7.10
1,354.10
15.10
164.40
21.50
2010
Population
(million)
(III)
438
1,991
8,187
882
19,162
38,268
2,246
1,065
30,863
3,422
710
497
48,499
2008
0.12
0.24
4.33
6.7
10.31
9.02
1.69
1.25
6.05
4.92
0.31
0.29
18.48
2008
CO2
GDP per
emissions
capita
per capita
(Current $)
(ton /
(iv)
capita) (V)
3.8
1.3
5.1
4.5
2.3
4.2
3.4
3.5
3.2
3.3
1.9d
1.6
2.4
4.7
20002007a
2.0
0.2
3.5
1.9
0.8
3.5
6.5
1.2
1.1
1.9
1.7
1.1
6.0
20002007b
0.2
0.2
0.6
3.5
3.4
0.8
0.8
1.5
2.2
20002007b
0.4
2.8
0.9
2.6
1.1
1.8
2008
10.4
3.3
23.2
16.6
10.1
16.6
12.3
12.9
9.4
8.2
8.8
23.1
2008
1.3
1.4
4.1
3.8
4.8
2.7
0.8
0.4
1.2
2008
Research
and DeveDebt
Tax
Education
Health
lopment
Military
service
Revenue
(% of GDP) (% of GDP) (% of GDP) (% of GDP) (% of GDP) (% of GDP)
(VI)
(VII)
(VIII)
(IX)
(X)
(XI)
Table 8.7: Components of Government Spending, Emissions, and Public Debt
48.8
38.0
81.1
95.9
56.9
51.0
17.4
2008
Public Debt
(% of GDP)
(II)
89.00
68.10
1.20
20.40
4.80
93.60
184.8
4.30
2010
Population
(million)
(III)
1,051
4,043
453
2,020
39,950
1,854
994
27,045
2008
5.3
4.9
7.1
2.8
2.6
2.9
6.2
20002007a
2.8
2.7
11.5
2.0
1.0
1.3
0.8
7.1
20002007b
0.2
0.2
0.2
2.6
0.1
0.7
1.3
20002007b
2.4
1.5
4.7
3.6
4.1
0.8
2.6
1.1
2008
1.5
6.3
3.1
6.6
1.8
2008
16.5
14.2
14.6
14.1
9.8
31.7
2008
Research
and DeveDebt
Tax
Education
Health
lopment
Military
service
Revenue
(% of GDP) (% of GDP) (% of GDP) (% of GDP) (% of GDP) (% of GDP)
(VI)
(VII)
(VIII)
(IX)
(X)
(XI)
Sources:
I: World Bank Database.
II: CIA (Central Intelligence Agency). 2010. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html?countryName=Japan&countryCode=ja&regi
onCode=eas&rank=2#ja (accessed 15 Nov 2010).
IV: http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD. WB
V: 2010 Key World Energy Statistics. IEA.
The World bank, Where is the Wealth of Nations? (2006) (data from 2000)
IEA database (2008).
VI to XI: Human Development Report 2010.
1.19
3.41
0.61
9.16
0.8
0.81
7.74
2008
CO2
GDP per
emissions
capita
per capita
(Current $)
(ton /
(iv)
capita) (V)
Data refer to the most recent year available during the period specified.
b
Refers to an earlier year than that specified.
90.64
0.50
Timor-Leste
272.46
40.72
Sri Lanka
Viet Nam
193.33
Singapore
Thailand
165.18
167.49
Philippines
115.45
New Zealand
Pakistan
2008
GDP
Current $
Billion (I)
Year
Economy
Table 8.7continued
Table 8.8: Double EmploymentEnvironment Dividend: Practice in

Europe during the 1990s
Country
Tax shift
Belgium
The revenue of a special levy on energy (introduced in 1993) is paid

into a special fund to finance social security expenditures.
Denmark
New or increased environment-related taxes planned to increase

revenues by DKr12.2 billion in 2 years time, with a simultaneous
lowering of income tax. Since 1996, part of the revenue of the
newly increased CO2 tax on industry has been allocated to reducing
employers social security contributions.
Finland
Starting in 1997, lower taxes on income and labor (Fmk10 billion

Fmk11 billion in cuts announced for 19992003), offset in part by
new eco-taxes (e.g., a landfill tax, Fmk 300 million per year) and
energy taxation.
Germany
From the beginning of 1999 additional taxes have been imposed on

fuels with a 0.8% reduction (about DM9 billion) in National Pension
contributions.
Italy
Over half of the revenues (about L2,200 billion) raised in the first
year from a carbon tax introduced in January 1999 will go toward
reducing employment charges.
The Netherlands
A large part of the revenue of the regulatory tax on energy

introduced in 1996 goes toward reducing employers social security
contributions.
Switzerland
Revenue from new eco-taxes on volatile organic compounds (VOCs)

and extra-light heating fuels will be redistributed to households in
the form of reduced compulsory sickness insurance contributions
(1999).
Sweden
Tax reform in 1991 resulted in a kr15 billion tax shift to environmentrelated taxes, leading to a reduction in marginal income tax rates,
among other things. A reduction in employers social security
contributions is being considered.
United Kingdom
Revenue from a landfill tax introduced in October 1996 (450

million/annum) is to be used to reduce employers social security
contributions by 0.2 percentage points.
Source: Adapted from OECD (1997).
On the other hand, subsidies which enhance environmentally sound

programs have positive impacts on the environment, poverty reduction,
and economic growth. Governments should maintain revenue neutrality
and ensure that they do not distort the markets. In addition, governments
may also wish to provide transparent and timely information about
expected impacts of reforms to stakeholders.
One strategy to minimize the potential negative impacts of marketbased instruments is to implement well-targeted redistribution and
poverty alleviation policies. Well targeted subsidies that specifically
address low-income households, including multiple price systems and
lifeline tariffs, usually perform better than universal subsidies.
Past experience reveals that, in many developing countries,
economic and fiscal priorities have been the main drivers behind
fiscal policies. Nevertheless, some reforms have also had beneficial
environmental impacts. Examples include reductions in pervasive
subsidies and taxation of natural resources, which contribute to more
rational consumption and environmental protection. Malaysia and
Indonesia have sharply increased user taxes on fossil fuels and Sri Lanka
has reduced tariff schemes for water supply and sanitation. However,
some fiscal reforms are regressive and result in social costs, especially
for people at the bottom of the pyramid. When governments introduce
bulk taxes and no compensatory measures, the ramifications include
increases in prices of basic goods and services consumed by poor people.
Policy makers face the challenge of balancing economic efficiency and
political and social acceptability with environmental effectiveness.
The design of environmental fiscal reform should explicitly consider
revenue neutrality, guarantee a double employment and environment
dividend, avoid distributional and competitiveness effects, and address
institutional limitations (Table 8.8).
8.6Conclusions and Recommendations

Poverty is still a problem in Asia and the Pacific, despite its decreasing
trend. Recent economic policies to promote growth have lacked the
dimensions of environmental sustainability through green growth and
inclusiveness through poverty eradication. A macroeconomy that is
dependent on a continual expansion of debt is also driven by resource
consumption that is environmentally unsustainable, economically
unstable, and not socially inclusive. It is now time to promote growthenhancing policies that are green, employment generating, and inclusive.
There is a need to develop a new macroeconomic framework that
focuses on providing access to basic services to low-income households
in a cost-effective and ecologically sustainable way. International
pressure to reduce carbon emissions is growing, encouraging emerging
economies to make their growth paths more sustainable.
What is needed is a better approach to help the poor, an approach
that includes them in innovation and developing new products
and services so they are actively engaged and, at the same time, the
enterprises providing services to them are profitable. The penetration
of such business models into rural areas is constrained by inherent
weaknesses in terms of market responsiveness and innovative capacity.
Further targeted entrepreneurship training, skill development are
necessary.
Most of the regulatory frameworks in developing countries were
created in the last quarter of the 20th century and are characterized
by prioritizing and subsidizing conventional energies and fossil fuel
technologies. To move toward a sustainable energy supply requires a
fundamental change in regulationaway from conventional systems
(characterized by having few agents and large infrastructure projects)
toward a dispersed multi-agent focus (characterized by a higher
dispersion of installations and a greater number of participants). These
changes will face financial, legal, and institutional barriers which need
to be overcome; an equitable redistribution of subsidies and incentives
to address the needs of the poorest segments of the population and their
energy and resource demands will require the realignment of financing
models. Financing mechanisms coupled with a revision of fiscal and
regulatory policies should eliminate some of these barriers. Policy
actions can help to reduce these challenges over the short to medium
term. There are three important options:
Flexible redistributive and transformative public
expenditures to surmount the bottlenecks in the way of
inclusive and green growth. Fiscal policies can redistribute the
benefits of growth through pro-poor public expenditure and
by providing basic amenities such as energy and water, which
can be designed to be explicitly pro-poor and green through
broad-based expenditure on low-carbon green resources in
rural areas. This provides an important opportunity for the
benefits of growth to be more inclusive, and in a manner which
is not likely to have major disincentive effects for going for high
carbon choices now or in the future. On the contrary, increased
spending on rural green energy and clean water infrastructure
is likely to be an important cornerstone for future growth.
(ii) Flexible subsidies and finance sector development in order
to increase the number of green enterprises and to provide
jobs. New green jobs will provide opportunities for rural
people to innovate and benefit from new entrepreneurial
skills to move out of poverty. However, the recorded level of
employment creation with green growth has been weak in
many Asian economies. More entrepreneurial activity will
require substantial finance sector support.
(i)
(iii) Broad-based fiscal reforms for inclusive and green growth.

The argument for environmental tax reforma shift from taxing
economic goods (e.g., income) to taxing resource consumption
and pollution and other harmful impactshas been broadly
accepted but progress toward this goal is painfully slow. There
is an urgent need to change the structure of taxation so it is
geared toward achieving environmental and social objectives
and supporting socioeconomically disadvantaged groups.
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24.
PART III
Regional Cooperation for Managing

the Transition
Chapter 9
Climate Finance and

the Role of International
Cooperation
Tomonori Sudo
9.1Introduction
9.1.1Climate Change and Development
This article focuses on the role of international cooperation in mobilizing
climate change finance. Following the Climate Change Conferences
in Copenhagen (COP15) and Cancun (COP16), many discussions on
financing have been held, without an international consensus being
reached. At COP16, the establishment of the Standing Committee on
Finance and Green Climate Fund was decided. The transition committee
for the design of the Green Climate Fund (GCF) has finalized its report
(UNFCCC 2011) and the design of the GCF was discussed at COP17 in
Durban. The location of the GCF headquarters and its governing body
were decided at COP18 and COP19. Initial resources of $10.2 billion
were mobilized for the GCF at COP20. At COP21 in Paris, a new climate
change framework will be agreed. Among others, climate finance may
offer a great opportunity for developing countries to accelerate their
climate change actions together with their development goals.
The National Economic, Environment and Development Study
(NEEDS) for climate change conducted by the United Nations
Framework Convention on Climate Change(UNFCCC 2010) assessed
financial resource needs for 10 developing countries, including some
Asian countries. The UN Secretary-Generals High-Level Advisory
Group on Climate Change Financing has analyzed potential financial
sources and concluded that raising $100 billion per year is challenging
309
but feasible. Buchner et al. (2011) have pointed out that at least $97
billion per annum of climate change finance is currently being provided
to support low-carbon, climate-resilient development activities. The
Asian Development Bank (ADB 2009a) has shown that a huge volume
of investment is needed in the energy sector in Asia and it has also
conducted an important flagship study on the economics of climate
change in Southeast Asia (ADB 2009b), which pointed out that there
are a large number of international funding sources and mechanisms
already available for mitigation and adaptation by developing countries,
but these have barely been tapped by Southeast Asian countries.
Capacity Development for Development Effectiveness (CDDE 2010)
has also noted the proliferation of sources of climate change finance and
the burden this places on developing countries looking to access climate
change finance.
9.1.2Issues
First, even though a huge amount of climate change finance is
already available, developing countries are still requesting financial
contributions from developed countries. This chapter analyzes the gap
between expectations and reality. It suggests ways in which international
cooperation can be improved so climate change finance is used more
effectively.
Second, international development partners such as ADB have
assisted developing countries efforts to alleviate poverty and have a fund
of experience that can be applied to maximizing the role of international
cooperation in climate change finance.
9.2Gaps between Expectations and Reality

9.2.1Expectations and Reality on Climate Change Finance
Scaling Up Finance for Climate Change Action
Following the discussion at COP15 at Copenhagen, developed countries

and multilateral financial institutions have been accelerating their
financial contributions to climate change activities. At COP16 in Cancun,
Mexico, world leaders pledged $30 billion to Fast Start Finance between
2010 and 2012, and committed themselves to raise $100 billion per year
by 2020. Fast Start Finance successfully achieved its target, but efforts
by developed countries to fulfill their $100 billion commitments toward
2020 still continue.
Climate Finance and the Role of International Cooperation311
Figure 9.1: Climate Change Related Aid, 20082013

25
$ billion
20
15
10
5
0
20082010 Average
Adaptation
20112013 Average
Both Mitigation and Adaptation
2013
Climate Mitigation
Source: OECD/DAC CRS (2015).
Although current systems to track climate change finance are

limited, and no single system provides a complete picture of climatespecific finance flows and their trends, there has been an increase in
funding, particularly through international public finance and climatespecific multilateral funds (CDDE 2010). Official development assistance
(ODA) for climate activities has also increased (Figure 9.1).
Table 9.1: Estimated Volume of Mitigation and Adaptation Finance,
2013 ($ billion, %)
Source
Public
National DFIs
Objective
137
41.4%
69
20.8%
Bilateral DFIs
14
4.2%
Multilateral DFIs
43
13.0%
0.6%
Funds
2.7%
Private
Other public sources
193
58.3%
Total
331
100.0%
Source: Buchner et al. (2014).
Mitigation
Multi-objective
Adaptation
Total
302
91.2%
1.2%
25
7.6%
331
100.0%
According to a report by Buchner et al. (2014), around $331 billion

per annum of climate change finance is being provided to support lowcarbon, climate-resilient development activities (Table 9.1). The table
shows the source and allocation of finance. The private sector is the
largest contributor to climate change finance, accounting for more than
half of the amount, but that it finances mainly mitigation activity.
Types of Financial Assistance Programs for Asian Developing

Countries
The Asia-Pacific Region will require billions of dollars to transition to

low-carbon growth paths and to adapt to the unavoidable impacts of
climate change. Nevertheless, Asian developing countries are in a good
position as finance for climate change action is already available from a
variety of sources. One example of climate-related financial assistance
from bilateral donors is Japans fast-start finance (formally called the
Hatoyama Initiative) which was announced by the Government of
Japan at COP15 in 2009. Under this program, Japan pledged to provide
$15 billion over 3 years (until 2012). This financial program aimed to
assist developing countries to conduct several sorts of climate change
activities through ODA and other official flows such as export credits.
In addition to public finance, Japan also intended to encourage private
sector finance leveraged by public finance.
Multilateral financial institutions also provide several finance
mechanisms to support developing countries; among others, ADB
operates through climate-change-related funds such as the Global
Environment Facility (GEF), Least Developed Country Fund (LDCF),
Special Climate Change Fund (SCCF), the Adaptation Fund under
United Nations Framework Convention on Climate Change (UNFCCC),
and the Climate Investment Fund (CIF). In addition, ADB has developed
several climate-change-related initiatives such as the Clean Energy
Financing Partnership Facility (CEFPF) and the Climate Change Fund
(CCF).
Market mechanisms such as the Clean Development Mechanism
(CDM) are an important driver for private sector investment in climatechange-related projects in the Asia and the Pacific region. Grant
assistance (including technical cooperation) and concessional loans will
be provided for non-profitable public projects and programs as ODA
from bilateral and/or multilateral donors. Commercial term loans may
be provided as public finance to leverage private sector activities and full
commercial finance may be available if the projects are commercially
viable.
Nakhooda et al. (2011) have summarized climate change financial

flows into Asia and the Pacific region based on data extracted from
Climate Fund Update (CFU). This report indicated that $1.73 billion
for Asian countries was approved between 2004 and October 2011 from
dedicated climate change funds and approximately $866 million of this
approved funding has been disbursed.
Development Perspectives Including Poverty Alleviation
The World Bank (2015) reported that the proportion of people living
on less than $1.25 a day fell from 43.6% in 1990 to 17.0% in 2011. It also
forecasts that the extreme poverty rate will fall to 13.4% by 2015. In
particular East Asia and the Pacific have made significant achievements
in poverty alleviation, with the share of people living on less than $1.25
a day declining from 58.2% in 1990 to 7.9% in 2011, even though South
Asia has the second largest number of extremely poor people with close
to 400 million people living on less than $1.25 a day in 2011 (World Bank
2015). Although most developing Asian countries are on their way to
achieving the income Millennium Development Goals (MDGs) by 2015,
many still face great challenges in achieving the non-income MDGs, and
they need to continue their efforts to complete the unfinished business
under new Sustainable Development Goals.
In addition, Asia is one of the worlds most vulnerable regions to
climate change impact through droughts, floods, typhoons, sea level
rise, and heat waves. This is because of its long coastlines; its large and
growing populations; the high concentration of human and economic
activities in coastal areas; the importance of the agriculture sector in
providing jobs and livelihoods for a large segment of people, especially
those living in poverty; and the dependence of some countries on natural
resources and the forestry sector for growth and development. Climate
change poses significant threats to the sustainability of the regions
economic growth, its poverty reduction endeavors, the achievement
of the MDGs, and Asias long-term prosperity (ADB 2009). Thus,
accelerating climate change actions needs to take place in conjunction
with poverty alleviation.
However, as Groff (2011) has pointed out: one of the first lessons we
draw from the past 50 years [of experience of development assistance]
is that greater volumes of development finance do not automatically
translate into better development results.
Equity of Fund Allocation
Most developing countries expect that climate change finance should be

allocated to mitigation and adaptation activities according to countries
circumstances. In particular, least developed countries where climate
change impact is significant and where greenhouse gas (GHG) emissions

are still limited expect to use climate change finance for adaptation
activities rather than mitigation.1
However, most current climate change finance is directed at
mitigation rather than adaptation. One reason for this is that private
sector finance, the largest contributor to climate change finance, is
usually directed at mitigation. Even public finance from bilateral and
multilateral finance institutions is usually for mitigation. Although it is
difficult to identify adaptation-specific activities, finance for adaptation
tends to be less than for mitigation.
Private sector finance seems to take into account countries economic
circumstances. Figure 9.2 shows the share of foreign direct investment
(FDI) inflows in developing Asian countries in 2013. According to data
from United Nations Conference on Trade and Development (UNCTAD
2014), $381 billion has been invested in Asian developing countries.
Of this, the majority went to the Peoples Republic of China (PRC)
(including Hong Kong, China). Among developing Asian countries,
the top 10 recipient countries were the PRC ($203 billion), Singapore
($64 billion), India ($28 billion), Indonesia ($18 billion), Thailand ($13
billion), Malaysia ($12 billion), Kazakhstan ($10 billion), Viet Nam ($9
billion), the Philippines ($4 billion), and Turkmenistan ($3 billion).
These countries share 95% of the FDI inflow in Asia. In general, the
private sector tends to invest in profitable and low-risk projects, which
is why FDI flows into countries where the economic scale is large and
the investment environment is well established.
ODA is also an important financial source of finance. Figure 9.3
shows the climate change bilateral ODA finance flow in Asia and Pacific
countries. According to data from the Organisation for Economic Cooperation and Development (OECD 2015), Asian countries received
approximately $11 billion for climate change activities through bilateral
ODA in 2013. India, Indonesia, and Viet Nam were ranked as the
largest recipients of both FDI and climate change-related ODA. On the
other hand, Uzbekistan, Bangladesh, and Sri Lanka were the leading
recipients of climate change ODA (these countries received limited
FDI). The volume of ODA is significantly smaller than that of FDI, but it
is important for low-income and least developed countries.
Adaptation refers to adjustments in ecological, social, or economic systems in

response to actual or expected climatic stimuli and their effects or impacts. Mitigation
refers to actions to limit or reduce greenhouse gas (GHG) emissions or to enhance
GHG sequestration through the enhancement of sinks and reservoirs.
Figure 9.2: Share of Foreign Direct Investment Flows into Asian

Developing Economies, 2013 ($ million)
India
28,199
7%
Singapore
63,772
17%
Indonesia
18,444 Thailand
5%
12,946 Malaysia
3%
12,306
3%
PRC
(including Hong Kong, China)
202,875
53%
Kazakhstan
9,739
3%
Viet Nam
8,900
2%
Philippines
3,860 - 1%
Turkmenistan
3,061 - 1%
Others
17,153
5%
Source: UNCTAD (2015).
Figure 9.3: Share of Climate Change Official Development

Assistance Flow into Asian Developing Countries, 2013($ million)
Others
3,158
30%
Sri Lanka
243
2%
Uzbekistan
442
4%
Indonesia
617
Philippines Viet Nam
6%
902
634
8%
6%
India
3,522
33%
Bangladesh
1,223
11%
Figure 9.4 shows the allocation of climate-change-related bilateral

ODA to countries and illustrates that the allocation may depend on
the countries situation and their policies. For example, in most of
the largest climate-change-related ODA recipient countries, climatechange-related ODA was mainly for mitigation projects and programs
rather than for adaptation. In some other countries, ODA was allocated
to adaptation rather than to mitigation. This may be because most
Asian developing countries still need to invest in the energy sector
in order to alleviate poverty. In addition, as the OECD (2013) has
noted, some duplication can be observed (i.e. both mitigation and
adaptation are marked as objectives of the finance in single project).
For example, forest management projects such as Reducing Emissions
from Deforestation and Forest Degradation (REDD), may contribute
to mitigation by absorbing GHGs and adaptation by protecting land
from flood. Therefore, such projects contribute to both mitigation and
adaptation. Figure 9.4 shows actual fund allocation among mitigation
only, adaptation only, and both mitigation and adaptation.
Furthermore, as summarized by Nakhooda et al. (2011), several
dedicated climate change funds are implemented by multilateral
financial institutions such as the World Bank and ADB. Nakhooda shows
Figure 9.4: Allocation of Climate Change ODA Flow into Asian

Developing Countries
India
Bangladesh
Philippines
Viet Nam
Indonesia
Uzbekistan
Sri Lanka
Others
0%
10%
Mitigation Only
20% 30%
60% 70%
Both Mitigation and Adaptation
ODA = official development assistance.

40% 50%
80% 90% 100%
Adaptation Only
Figure 9.5: Breakdown of Amount Disbursed in Asia and the

Pacific and Contribution from Each Fund
700
600
500
400
300
200
100
0
Adaptation
AF
SPA
SCCF
MDG
Mitigation
LDCF
ICI
GEF
REDD
GCCA
GEEREF
UN-REDD
IFCI
AF = Adaptation Fund (GEF acts as secretariat and World Bank as trustee), SPA = The Strategic
Priority on Adaptation, SCCF = Special Climate Change Fund (hosted by the GEF), MDG = Achievement Fund, LDCF = Least Developed Countries Fund (hosted by the GEF), ICI = International Climate Initiative (Germany), GEF = UN Global Environment Facility, GCCA = Global Climate Change
Alliance, GEEREF = Global Energy Efficiency and Renewable Energy Fund (hosted by the EIB), UNREDD = United Nations Collaborative Programme on Reducing Emissions from Deforestation and
Forest Degradation, IFCI = International Forest Carbon Initiative (Australia).
Source: Extracted from Nakhooda et al. (2011).
that $588 million has been directed to mitigation activities, $89 million
to REDD+, and $145 million to adaptation activities in Asia and the
Pacific. As with climate-change-related bilateral ODA, the major part
of climate finance from dedicated climate funds is used for mitigation
activities.
Figure 9.5 shows the breakdown of the amount disbursed in Asia and
the Pacific and the contribution from each fund. Many of the dedicated
funds have provided finance for adaptation, but more funds have been
provided for mitigation. Funds for adaptation activities are still limited.
Gaps between Expectation and Reality
First, climate change finance is still limited and needs to be increased from
the current level of at least $97 billion per annum. Second, the volume
of climate change finance will not guarantee climate and development
benefits. Third, although there is an expectation that climate change
finance should be allocated to both adaptation and mitigation activities
equally, 95% of climate change finance is directed at mitigation rather
than adaptation. Fourth, there is a gap between expectation and reality
in country allocation of climate change finance (Table 9.2). In particular,

private finance tends to be directed at low-risk and profitable projects
rather than at low-profit and high-risk projects.
Table 9.2: Gaps between Expectations and Reality on Climate
Change Finance
Expectation
Reality
Scale of finance
Availability of climate
change is still limited
Almost $100 billion is

currently available
Development and climate

change
Large volume of finance

can contribute to address
climate change and
development
Volume of finance does

not necessarily result in
better climate change and
developmental benefit.
Fund allocation
Climate change finance

should be allocated to
mitigation and adaptation
equally, and distributed in
an equal manner
Climate finance should be
allocated to developing
countries equally
Finance for adaptation is

still limited. In particular,
the private sector tends to
finance mitigation rather
than adaptation.
The amount of climate
change finance a country
can receive may depend
on its capacity such as
economic scale.
Private sector investment
Private sector should invest

in climate change activities
in developing countries
Lack of social infrastructure

and limited profitability,
often means the private
sector finds climate change
activities too risky
Capacity

should be managed through
countries own systems

depends on absorptive
capacity and financial
management
Monitoring, reporting, and

verification (MRV)
Monitoring, reporting and

verification should be done
through countries own
systems
MRV systems often require

support
Source: Author.
9.2.2Issues
Information Gaps and Fragmentation of Fund Source
There is an information gap in current climate change finance. As

Buchner et al. (2011) have pointed out, there are thousands of sources
of finance in the world and there is no single tracking system to capture
all of them. Although the OECD has developed a policy marker (Rio
Marker) under the creditors reporting system (CRS), it captures only a
part of public-based climate change finance such as ODA. Also, OECD
statistics rely on reports from donor countries, and do not necessarily
reflect funds received by developing countries. However, tracking private
sector finance flows in climate change activities is very challenging.
Figure 9.6 shows sources of climate change finance.
Figure 9.6: Sources of Climate Change Finance

Capital
markets
Government
Budgets
Development
cooperation
agencies
Bilateral
Finance
Institutions
Official
Development
Assistance
Industrialized
countries ODA
Commitments
Multilateral
Finance
Institutions
New and
additional
climate finance
Industrialized
countries
Commitments
to new and
additional
Finance for
climate change
Private
Sector
UNFCCC
Domestic
Budgets
Carbon
markets
Industrialized
countries
emission
reduction
obligations
Foreign Direct
Investment
CDM Levy
funding the
Adaptation
Fund
Total finance available for climate changemitigation and adaptation initiatives
CDM = Clean Development Mechanism, ODA = official development assistance, UNFCCC = United
Nations Framework Convention on Climate Change.
Source: Sudo (2011).
The fragmentation of sources complicates access to finance as the

various sources have numerous procedures, terms, and conditions,
adding to transaction costs and limiting aid effectiveness (OECD 2011b).
However, the fragmentation of finance sources does provide a variety
of finance options; a single source of finance will provide easy access
to the client, but the variety of services available may be limited. Also,
if the client fails to convince finance officers of its suitability to receive
finance, no other option will remain. From the view of the financier,
if it is the only financial service provider it needs to take all the risks
associated with climate-change related activities.
Different Players
There is an asymmetry of information among the different players.

Although players in the finance sector are familiar with financial issues,
they may not know much about climate change. Players working in
climate change are not necessarily familiar with the nature of finance.
Difference in the Nature of Public and Private Sectors
In terms of climate change finance, the private sector is the largest

contributor. However, it focuses on private rather than public benefit.
Companies will conduct detailed due diligence, including risk analysis
and costbenefit analysis, for their investment decision making. As in
the case of public sector projects, they will conduct environmental due
diligence, such as environmental impact assessments. Corporate social
responsibility (CSR) is also an important factor for the private sector.
Development vs. Climate Change Actions
How can climate change finance be used to achieve both climate change
and development objectives? Developing countries expect climate
change finance to play an important role in assisting development and
alleviating poverty alleviation as well as addressing climate change.
Developing Asian countries also need to reduce the emissions of
greenhouse gases without harming their development, which will be
difficult if there is no coordination among development and climate
activities.
Uneven Allocation of Funds
In Asia, FDI is directed mainly to the PRC, India, and other large
economies rather than to least developed countries. In part this may
be due to the capacity of the recipients. In the case of development
finance, one issue may be how the ministry of finance and the ministry of
development prioritize climate change actions. Some sources of public
finance such as export credits are not under the control of the recipient
government, since export credits aim to support exporters rather than
developing countries. Private sector finance depends on the results
of risk analysis, so developing countries need to develop an enabling
environment for private sector finance.
Capacity
Capacity may be the most important issue affecting whether developing

countries can implement climate change policy and actions and develop
and deploy technology, and whether they have sufficient absorptive
capacity. Such capacity relates to policy and governance, domestic
financial systems, and the scale of the economy, among others. These
factors will be assessed by financiers through their due diligence process

to identify the risk associated with the finance. If a countrys absorptive
capacity is limited, the financial volume it receives may also be limited.
Strengthening absorptive capacity is as critical as creating an enabling
environment for investors and financiers.
9.3Role of International Cooperation

9.3.1Nature of International Cooperation
Since climate change is global and cross-cutting, international
collaboration is the key to tackling it. One countrys strength may help
to overcome the weaknesses of others.
Japan International Cooperation Agency (JICA) and OECD (2010)
have tried to group the developing Asian countries according to their
level of development and economic structure (Figure 9.7).
Figure 9.7: Grouping of Developing Asian Countries
Category 1:
Category 2:
Shift from industry Rapidly

to service
Industrializing
Category A:
Self sustaining
economies
Category 3:
Category 4:
Service-oriented Shift away from

growth
agriculture
Category 5:
Limited structural
change
PRC Thailand
India Malaysia
Group V
Category B:
Emerging
economies
Group II
Kazakhstan
Indonesia
Azerbaijan
Viet Nam
Philippines
Uzbekistan
Tajikistan
Mongolia
Pakistan
Sri Lanka Group IV
Group III
Category C:
LDCs
LDC = least developed countries, PRC = Peoples Republic of China.

Source: JICA and OECD (2010).
Group I
Bangladesh Nepal
Cambodia
Lao PDR
Lessons from more than 50 years experience of development

cooperation can be applied to climate change actions. In 2005, OECD
Development Assistance Committee (DAC) member countries,
multilateral donors, and developing countries endorsed the Paris
Declaration on Aid Effectiveness (OECD 2005) at a High Level Forum
on Aid Effectiveness. The declaration has five essential tenets: (i)
ownership, (ii) alignment, (iii) harmonization, (iv) management for
development results, and (v) mutual accountability. JICA and OECD
(2010) and CDDE Facility (2010) have argued that these principles can
be applied to climate change finance (Box 9.1).
Box 9.1: Principles of the Paris Declaration

on Aid Effectiveness
1. Ownership
Ownership is the fundamental principle of the Paris Declaration.
Development is something that must be done by developing countries, not
to them. Policies and institutional reforms will be effective only so far as
they emerge out of genuinely country-led processes. External assistance
must be tailored toward helping developing countries achieve their own
development objectives, leaving donors in a supporting role.
2. Alignment
Under the Paris Declaration, the principle of alignment refers to two
important changes to aid practice. The first is that donors should base
their support on the partner countrys development priorities, policies and
strategies (policy alignment). The second is that aid should be delivered as
far as possible using country systems for managing development activities,
rather than through stand-alone project structures (systems alignment).
3. Harmonization
Harmonization refers to cooperation between donors to improve the
efficiency of aid delivery. Donors are aware that multiple initiatives by
different donors, each with their rules and procedures, can be very draining
for developing country administrations. To reduce the transaction costs of
aid, donors have been developing a range of new approaches, including
program-based approaches, pooled funding arrangements, joint country
plans and other common arrangements.
4. Managing for Results
Managing for results is a general principle of management that involves
using information about results systematically to improve decision

Box 9.1: continued
making and strengthen performance. In the development field, it means

ensuring that all development activities are orientated toward achieving
the maximum benefits for poor men and women. It means ensuring that all
initiatives, from individual aid projects through to national development
strategies, are designed so as to generate performance information and
use it for continuous improvement.
5. Mutual Accountability
Mutual accountability is perhaps the most controversial of the Paris
principles, and the most difficult to put into practice. It suggests that,
in a true development partnership, there are commitments on both
sides of the relationship, and both donors and partner countries should
be accountable to each other (mutual accountability) for meeting those
commitments. However, there are also many other accountability
relationships involved in the development process that need to be taken
into account. One of the innovative aspects of the Paris Declaration is that
the commitments are reciprocal in nature, applying both to donors and
to developing countries. This is an advance on its predecessor, the Rome
Declaration, where the commitments were all on the donor side and on
traditional aid practices where the obligations were mostly on recipients.
Reciprocal commitments create for the first time the possibility of mutual
accountability.
Source: Extracted from CDDF Facility (2010).
The 4th High Level Forum on Aid Effectiveness held in Busan,

Republic of Korea (OECD 2011c), highlighted the importance of
engaging a wide range of development actors, including emerging
donors, civil society organizations, and the private sector. The OECD
also highlighted the need to promote coherence, transparency, and
predictability for effective climate finance and broader development cooperation.
9.3.2How Can International Cooperation Fill the Gap?

Figure 9.8 shows that ODA is the main source of public finance from
developed to developing countries. ODA is provided in several
forms including grants, concessional loans, technical assistance, and
contributions to multilateral donors and aims to assist development and
poverty alleviation in developing countries. While export credits aim to

assist developed countries exporters to share the risks associated with
the trade of goods and services, and are directed mainly at developed
countries and emerging economies where large-scale trade will take
place, they make a limited contribution to least developed countries and
small island countries. By contrast, ODA is designed for the purpose
of development in least developed countries and has many indirect
impacts, including demonstration effects, technology development and
transfer, and capacity development. International cooperation through
ODA and multilateral donors assistance can generate additional value
for money, helping to bridge the gap between expectations and reality.
Figure 9.8: Financial Flows to Developing Countries ($ million)

600,000
500,000
400,000
300,000
200,000
100,000
0
2005
2006 2007
2008 2009 2010
2011
2012
2013
(100,000)
ODA
OOF
Private Flows
Net Private Grant
ODA = official development assistance, OOF = other official flows.

Source: OECD. Stat Extracts, DAC1 Official and Private Flows (2014).
Bridging Climate Change and Development
International cooperation can play a central role in bridging development

and climate change issues. For example, the co-benefit approach is
designed to generate both developmental and climate change benefits
(Figure 9.9). Infrastructure development with conventional technologies
may lead to fossil energy dependent technology lock-in in developing

countries, and needs to be avoided. However, strong political will is
needed if developing countries are to move from using conventional
fossil fuel to new technologies such as renewable and energy-saving
technology. Bilateral and multilateral development agencies can support
a co-benefit approach.
Figure 9.9: The Co-Benefit Approach

Need to Increase
Power supply
Construction of
New Power
Stations
Increase of Power
Demand, Rural
Electrification
Policy
Project
Development
Objectives
Could it reduce
GHG?
New Technology
New Technology
+
+
ODA
Finance
Finance and T/A
Developmental
benefit
Increase of power
supply
Project Implementation
GHG Reduction
Introduce climate
friendly technology
Mitigation of Climate
Change
(Global Benefit)
Co-benefit
GHG = greenhouse gas.
Source: Sudo (2011).
A climate change program loan to Indonesia (Box 9.2) is an example

of a type of development policy loan intended to promote policy and
fiscal reform. Under a development policy loan, a donor provides finance
(in general, budget support) if the recipient country achieves targets
set by the donor and the developing country. The major differences
between a structural adjustment loan and a climate change program
loan are (i) policy reform is specifically about climate change, and (ii)
no conditions are set. Instead, donors and the recipient country jointly
conduct monitoring and dialogue to analyze why targets are not being
achieved. The results of their dialogue are reflected in the next policy
matrix. Ownership by recipient countries is respected and they are
encouraged to overcome challenges by themselves with support from
the donors.
Box 9.2: Climate Change Program Loan

Program loans are one of the ways for promoting proactive initiatives on
climate change in developing countries. They help to prioritize developing
countries climate change policies over other policies. Financial reform
and policy implementation have been supported through development
policy loans.
For example, Indonesia is one of the worlds largest emitters of greenhouse
gases and levels are expected to increase with economic growth. At the
same time, Indonesia is likely to be adversely affected by climate change,
especially reduced rainfall and longer dry seasons. This has increased
the urgency of integrating climate change into development planning
at both national and local levels. In 2008 the Government of Indonesia
developed, in collaboration with a group of development partners, a
policy matrix that outlined concrete actions to be undertaken on climate
change, complementary goals, targets, and timelines. The consultation and
involvement of the National Planning Agency and line ministries created
ownership over the proposed climate change actions and facilitated
the alignment of these initiatives with national and sector development
policies and programs.
A results-based framework was developed and agreed upon by all
stakeholders. While supporting climate change policy implementation
through development policy loans, donors collaborate with the
government to monitor the implementation of the policies that they have
mutually agreed and assess the implementation status. Based on this
assessment, the donor and recipient country examine and discuss the
provision of additional assistance. It is fair to say that this approach meets
the measurable, reportable, and verifiable standard for climate change
efforts.
Source: Sudo et al. (2008).
Climate Change Finance as Catalyst
Although ODA is the main public source of finance from developed to

developing countries, it is not necessarily a stable source of finance, since
the volume of ODA depends on the budget constraints of developed
countries. Nevertheless, many developing countries, particularly least
developed countries, rely on ODA. Greater predictability from developed
countries and more efficient and effective use of climate change finance
from developing countries are needed (CDDE Facility 2010).
Financial assistance through ODA can be used directly to

implement climate change actions, generating economic and social
benefits. In particular, adaptation activities whose nature is public and
mitigation projects that are not financially bankable but which need to
be implemented to meet economic and/or social needs can be supported
through ODA.
In addition, bilateral and multilateral donors can encourage other
sources of finance to provide financial assistance by providing seed
money. Even if this initial finance is only a small portion of the project
cost, it can be used to leverage other finance, since the participation of
bilateral and multilateral donors can have a great impact in terms of risk
sharing and enabling access to developing countries governments.
This may facilitate publicprivate partnerships which allow the
public sector to benefit from private companies strengths, such as
efficient project management, and private companies to generate
profit. International cooperation can assist such partnerships by
providing public finance and participating in the project, strengthening
collaboration between public and private sectors.
Bilateral and multilateral donors can support innovative activities
as demonstration projects. If innovative activities are implemented
successfully and generate value in terms of climate change and
development, they can be diffused more widely. The Clean Development
Mechanism (CDM) is one success story. CDM is an innovative activity
that transforms emission reductions into monetary value in the form
of certified emission reductions (CERs). When CDM was introduced
under the Kyoto Protocol and the Marrakech Accords, most project
developers hesitated to implement it because of the lack of a track
record. However, the Prototype Carbon Fund under the World Bank
has developed the capacities of project developers and there have been
initial demonstrations of CDM projects in their early stages. As a result,
the number of CDM projects has gradually increased and CDM has
enabled developing countries to participate and enjoy benefit from their
efforts.
In indirect ways, international cooperation can play a role in
encouraging other sources of finance to invest in climate change activities,
including capacity development and better policy making through
technical cooperation. Even if a country targets an increase in FDI, foreign
investors may hesitate to invest there if it has investment regulations that
are unfavorable to foreign investors. Policy coherence is one of the most
important factors for foreign investors. In addition to providing technical
cooperation so countries can develop the capacity to formulate their
own appropriate climate change policies and strategies, development
partners can also strengthen coordination among line ministries, civil
society organizations, donors, and private sector financiers. International

cooperation can help to create an enabling environment for the private
sector and to build the social and legal infrastructure which is often an
important factor for the private sector when companies make their
investment decisions. Stable and appropriate governance, a steady
economy, and appropriate foreign exchange controls, taxation, and
subsidies are all important for encouraging foreign investors.
As climate change is a global issue, experience needs to be shared.
Japan, ADB, the United Nations Environment Programme (UNEP), and
Sweden have developed an information sharing network in Asia and the
Pacific region called the Asia-Pacific Adaptation Network. This forums
gathering of experience and knowledge on adaptation among developing
Asian countries is expanding to other regions such as Latin America,
demonstrating SouthSouth cooperation. The notion of triangular
cooperation, with development partners facilitating cooperation between
two developing countries, was highlighted at the fourth High Level Forum
on Aid Effectiveness in 2011 in Busan (OECD 2011c).
Figure 9.10 shows the overall picture of the role of international
cooperation in bridging gaps and working as a catalyst to encourage,
directly and indirectly, other sources of finance to invest in climate change.
Figure 9.10: Role of International Cooperation
T/C
Development
Partners
(Bilateral,
Multilateral,
and others)
Enabling
Environment
Implementation
T/C
Climate
change policy /
governance
Financial
assistance
T/C
T/C = technical cooperation.

Source: Author.
Promotion
Budget Allocation
Implementation
Coordination
among line
ministries
Private
sector
finance
Public
sector
Finance
Implementation
Private sector
Actions
Actions
through
Public-Private
Partnership
(PPP)
Public sector
Actions
9.3.3Role of International Cooperation

The Asia-Pacific Region will require billions of dollars if it is to transition
to low-carbon growth paths and adapt to the unavoidable impacts of
climate change. A variety of sources of finance are available, but there
is still room for international cooperation to improve access to climate
change finance.
One option would be the creation of a new fund, but this may just
add to the complexity of the existing landscape. Another would be the
establishment of a new facility or platform offering information on
finance sources. If this facility could receive applications for finance from
developing countries and the private sector on behalf of the financial
institutions, it could reduce costs both for recipients and donors and
work as a facilitator for channeling climate change finance. ADB and
JICA launched the now closed cofinancing facility, the Accelerated
Cofinance Facility with ADB (ACFA), in 2007 as part of a joint initiative
between ADB and Japan called the Enhanced Sustainable Development
for Asia (ESDA), which was started during the ADB Annual Meeting in
Kyoto in May 2006. One of the objectives of this facility is to support
the efforts by Asian developing countries to promote energy efficiency
including major CO2 emitting countries (MOF 2007).
Three projects (two power sector projects and one road project)
have been implemented so far under the ACFA in Kazakhstan, Samoa,
and Uzbekistan. They aim to improve the efficiency of energy use and,
in turn, to contribute to a reduction in GHG emissions. Cofinancing
can reduce the risk burden for each financier by sharing risks, enabling
financiers to provide finance and to limit their country risk exposure
level. In general, the lead arranger of the finance will coordinate the
other participants and the capacity of the lead arranger is therefore the
key to the success of cofinancing.
Although ACFA is a bilateral facility between Japan and ADB, a
multilateral facility to channel climate change finance could be based
on its experience (Figure 9.11). The main objective would be to share
information and knowledge on climate change finance among donors
and recipients. Emerging donors such as the PRC and Thailand could
make an important contribution as donors. Since ADB is already working
as the executing agency for the Global Environment Facility and the
Climate Investment Fund, it may be an appropriate secretariat of the
facility. In this role it would develop a financial information platform
by gathering information on financial terms and conditions and other
information from each donor and on the financial demands of recipients,
acting as a match maker between donors and recipients. In addition,
it could work as a financial arranger and lead and/or participate in
cofinancing.
Figure 9.11: Potential Framework of a Climate Change Finance

Facility in Asia
International Framework
(UNFCCC, etc.)
GEF
CIF
GCF
UN Agencies
Other Donors
Asia Climate Change knowledge Exchange and Finance Facility
World Bank Group
ADB
(Finance Facility
Secretariat)
Private FIs
Japan-JICA-JBIC
PRC - ChinaEXIM
Republic of KoreaKOICA-Koreaexim
Thailand-NEDA
UNESCAP
(Knowledge Center)
Asian Developing Countries
Public Sectors under

Public Financial Management
(PFM) framework
Climate Change Funds
ASEAN
Secretariat
Private Sector, CSOs

etc.
ADB = Asian Development Bank, ASEAN = Association of Southeast Asian Nations,

CIF = Climate Investment Fund, CSO = civil society organization, FI = financial institution,
GCF = Green Climate Fund, GEF = Global Environment Facility, JBIC = Japan Bank for International
Cooperation, JICA = Japan International Cooperation Agency, KOICA = Korea International
Cooperation Agency, UNESCAP = United Nations Economic and Social Commission for Asia and
the Pacific, UNFCCC = United Nations Framework Convention on Climate Change.
Source: Author.
In addition, regional institutions such as the Association of

Southeast Asian Nations (ASEAN) secretariat and the United Nations
Economic and Social Commission for Asia and the Pacific (UNESCAP)
could be facilitators and knowledge providers. In particular, the ASEAN
secretariat could be a key institution since it is working as a center
of regional integration among ASEAN countries. Its experience will
be useful in facilitating regional collaboration in the Asia and Pacific
region. UNESCAP covers a wider range of countries in Asia and the
Pacific region, and it provides best practices and knowledge. It can help
to establish collaboration with other UN institutions, including the
United Nations Environment Programme, which has established Green
Economy Advisory services under its Green Economy Initiative (UNEP
2012), and the United Nations Development Program (UNDP), which,
in collaboration with OECD, is helping to build the Climate Change
Finance Building Block under the Global Partnership for Development

Effectiveness endorsed at the High Level Forum on Development
Effectiveness at Busan. Work related to climate change is fragmented
among UN Agencies and UNESCAP can play an important coordinating
role.
9.4Conclusion
9.4.1Important Role of International Cooperation
This chapter has discussed the role of international cooperation. Since
there is already a stock of experience and knowledge in development
cooperation, this can be brought to bear on climate change action.
However, there is also scope to improve development cooperation
and Kalirajan et al. (2011) have pointed out the inefficiency and
ineffectiveness of much ODA. However, the most important point, as
Kalirajan et al. also highlight, is how to mitigate and adapt to climate
change without compromising the developmental needs of developing
countries, particularly of the poorest section of society. In this context,
the following policy recommendations are made.
9.4.2Policy Recommendations
Establish an Effective and Efficient Enabling Environment
An enabling environment is essential for both developing countries and

donors. It should cover the investment environment and the political
and social environment in which implementing climate change actions
by all sorts of players can flourish.
Developing countries need to integrate climate change policy into
their national development policy. Since climate change is a long-term
process, developing countries need to develop a long-term adaptation
policy. Based on the national development policy, developing countries
should implement climate change policy as a program in which all
concerned ministries and stakeholders can work coherently.
The social infrastructure is an important decision-making factor
for private investors since a well-developed social infrastructure can
reduce the risks associated with climate change. It covers not only the
physical infrastructure but also the legal and banking systems and other
aspects of the business environment. Some Asian countries have already
developed successful social infrastructure systems and their experiences
should be shared within the region.
Financial institutions should make financial commitments sure

so that developing countries can predict the availability of finance. In
addition, financial institutions need to develop more user-friendly
financial facilities for their clients, including developing countries and
project developers.
Bridging Public and Private Finance
International cooperation can play an important role in creating

an enabling environment, in particular the social infrastructure.
International development partners can assist developing countries
to develop better and more sustainable business and investment
environments for private companies.
International financial institutions and development partners can
share some of the risks associated with climate change activities carried
out by private companies. In general, commercial risks should be borne
by the private sector, but some political and economic risks can be borne
by international financial institutions, especially in publicprivate
partnerships in climate change activities.
In addition, international financial institutions and developing
partners can help to close the financial gap for implementing climate
change action in developing countries, for example through a climate
change program loan (Box 9.2). The climate change finance facility
proposed in previous section may help financial institutions to coordinate
their finance and activities as they assist developing countries.
Capacity Development for Stakeholders
Capacity is also a crucial factor in enhancing climate change activities

in the region.
First, countries need to develop the capacity to manage the finance
they receive, including procurement and contract management and, in
the case of loans, repayment schedule management. In addition, even if
developing countries receive technology transfers, there is no guarantee
they will be used appropriately. Developing countries must develop
their own capacity to manage funds and technology. In addition,
stronger financial management and banking sector capacity will help in
mobilizing domestic financial resources for climate change actions.
There is a wide variety of countries in Asia, including developed
and emerging countries and great scope for sharing knowledge
and experience. The Asia Pacific Adaptation Network (APAN) is a
good practice that enables SouthSouth cooperation and triangular
cooperation. Sometimes developing countries experience can be copied
easily and cheaply in other developing countries.
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Briefing: Asia and the Pacific, Climate Finance Fundamentals. Brief
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doi:10.1596/9781-464804403.
Chapter 10
Regional Cooperation
toward a Green Asia:
Trade and Investment
Kaliappa Kalirajan
10.1Introduction
Trade and foreign direct investment (FDI) are East Asias twin growth
engines and they have contributed to a massive reduction in poverty in the
region (Kuroda, Kawai, and Nangia 2007). As regional income increases
through trade and investment growth, the demand for low-carbon goods
and services (LCGS) will increase. The interesting question is whether
Asian countries can close the gap between the demand for and supply
of LCGS in the region. Although developing countries have a relative
abundance of low-skilled labor, this will not guarantee sustained export
growth if they do not have good logistics, including transportation and
telecommunication infrastructure. Thus, labor availability needs to
be complemented by good physical and institutional infrastructures.
Regional cooperation can help build and sustain such infrastructures.
The Garnaut Climate Change Review (2011) is one of a number of
studies to argue that the sustained high growth of developing countries
such as the Peoples Republic of China (PRC) and India (together with
demand from developed economies) has been exerting pressure on the
global demand for energy, which has a bearing on carbon emissions.
Calculations by the International Energy Agency (2007) indicate that
the PRCs cumulative energy-related CO2 emission from 1990 to 2030
will soon catch up with those from the US and the EU. It is, therefore,
imperative to intensify the use of LCGS in all economic activities.
With the increasing awareness of climate change, environment
protection activities such as carbon sequestration and the Clean
Development Mechanism (CDM) create demand for LCGS. Some Asian
335
countries, including the PRC, India, Japan, the Republic of Korea, and
Singapore do have good potential to export such professional services,
which are in great demand in the region. For example, the UK Joint
Environmental Markets Unit has argued that there will be increasing
demand from countries like Indonesia, Malaysia, the Philippines, and
Thailand for solid-waste handling and disposal services, and also for
equipment for filtration and purification of water. This is an opportunity
to strengthen regional LCGS research capabilities through regional
cooperation. The huge foreign reserves in Asia could be leveraged for
green research and investment through regional cooperation (Kalirajan,
Anbumozhi, and Singh 2010).
Unfortunately, trade and investment in LCGS are very small
compared with trade and investment in pollution-intensive products
(Mikic 2010). Although tariffs on LCGS are low, the non-tariff barriers
are very high. How can they be eliminated? This chapter attempts
to show how regional cooperation can help to eliminate trade and
investment barriers in LCGS by addressing the following questions.

What will be the potential magnitude of technology and

investment flows in LCGS into the region under (i) a grand
regional coalition scenario, (ii) a limited cooperation
scenario, and (iii) a stand alone scenario?1
What are the impacts of behind-the-border constraints on
potential export flows in LCGS in the Asian region?
What are the potential options and challenges associated with a
grand coalition scenario?
How can impediments to successful cooperation among
government and private enterprises be eliminated?
10.2Methodology
The current patterns of trade and investment in LCGS in key emerging
economies of Asia, which were selected based on their carbon
emission capabilities, are examined. The chapter examines the PRC,
India, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and
Viet Nam. Export flows (EX) in LCGS between two countries (i and
j) are determined by the following factors. First, the demand for and
supply of goods, which are usually proxied by gross domestic product
Using firm-level data from East Asia, Wignaraja (2008) highlights the importance of
FDI and technological innovation to export growth.
Regional Cooperation toward a Green Asia: Trade and Investment337
(GDP), and population (POP) of the exporting and importing countries,

and the geographical distance (D) between countries, influence exports.
These factors may be classified as natural determinants of export
flows between countries. Second, relative prices of imported goods,
which are mainly influenced by the tariff (T) structure of the importing
country, also influence export flows. These can be classified as changes
in explicit beyond-the-border determinants. Third, institutional
and infrastructural rigidities in the exporting country may influence
exports negatively. Such factors may be referred to as behind-theborder determinants in the home country, which are under the control
of the exporting country. Fourth, different kinds of institutional and
infrastructural rigidities in the importing country would also influence
export flows negatively. These factors may be called implicit beyondthe-border determinants, which are beyond the control of the exporting
country. Fifth, bilateral and multilateral trade negotiations in the form
of improvements to the trade promotion and facilitation policies of both
home and partner countries would influence export flows positively. A
dummy variable (D1) can be used to represent whether there are such
trade agreements between countries. The influence of these factors on
exports may be classified as mutually induced determinants (regional
cooperation).
Another variable (FDI), the ratio of FDI from Asia to non-Asia
FDI to the home country lagged one period, is used as a proxy for
regional integration. Here, it becomes necessary to elaborate briefly
on the type of FDI used in this study: The limited understanding of
the role of FDI in promoting green growth objectives is largely due to
the lack of an internationally agreed definition of and relevant data on
green FDI (Golub, Kaufmann, and Yeres 2011, p.7). Further, there are
no uniform data available on FDI in the WTO 153 list of LCGS for the
selected emerging economies in Asia over the period of analysis: Most
importantly, particularly for FDI, green economic activity is often not
associated so much with a particular good or service, but rather with a
process or technology, which is very difficult to apprehend statistically.
There is an important greening role for FDI in sectors and industries that
are not environmental by nature but where the potential for pollution
abatement is important. The latter dimension would not be captured if
the definition was limited to investment in EGS (Golub, Kaufmann, and
Yeres 2011, p.16). Therefore, total FDI is used in the following model to
explain the export flow of LCGS.
Drawing on Kalirajan (2007), a stochastic frontier gravity equation
is modelled to explain the variations in total exports of the focus country
by incorporating directly the influence of natural determinants,
behind-the-border determinants, mutually induced determinants,
and the explicit beyond-the-border determinants, for a given level of

the existing implicit beyond-the-border determinants.
ln EXi,j,t = B1,t + B2,t ln(PCGDPi,t ) + B3,t ln(PCGDPj,t ) + B4,t ln(DISTi,j) + B5,t ln

(Tj,i,t) + B6,t ln(FDIj,t-1) + B7,t D1 + B8,t D2 uij,t + vij,t
(1)
PCGDP refers to per capita GDP. DIST refers to the geographical distance
between two major ports in exporting and importing countries. T is the
average tariff rate in the importing country. FDI is the ratio of Asian FDI
to total FDI in the exporting country. D1 takes the value 1, when there are
trade agreements between home and partner country; otherwise it takes
the value of zero. D2 is a year dummy and is equal to 1 when the relevant
period is considered; otherwise it is zero. The period considered for
the analysis is from 2000 to 2009. uij,t measures the negative influence
of the combined behind-the-border determinants that exist in the
exporting country on which complete information is not known; and vij,t
refers to normal statistical error. It is assumed that uij,t takes the value
zero if there is no significant negative influence of behind-the-border
determinants and takes a positive value and thereby reduces the level
of exports when there is significant negative influence of beyond-theborder determinants in the exporting country. The parameter Gamma
, is the ratio of country-specific variation ( u ) to total variation
2
), which indicates whether behind-the-border constraints are

u2 + v2
2
u
one of the determinants of total exports of LCGS. When is significant, it

implies that beyond-the-border constraints are important determinants
of LCGS exports.
Drawing on the framework used in the stochastic frontier production
function models (Kalirajan, 2007), uij,t may be assumed to follow a
2
truncated normal distribution N ( , u ), truncated at zero and vij,t as
N( 0, v2 ). The above equation (1) is estimated through the maximum
likelihood estimation method applied in the software FRONTIER 4.1.
Now, to answer the first question of what will be the potential magnitude
of export flow in LCGS of the selected emerging economies in Asia
to their partner countries under a grand regional coalition scenario, a
limited cooperation scenario and a stand-alone scenario, the following
simulations can be made using the estimated results from equation (1):
(i)
The potential exports of home country to the relevant partner

countries when there are no significant behind-the-border
constraints and there is grand regional coalition, which is
proxied by coefficients B6 and B7 associated with variables
FDI and D1 respectively, are calculated from the estimates of
equation (1) with the assumption that uij,t = 0.
(ii) The potential exports of the home country to the relevant
partner countries when there are no significant behind-theborder constraints and there is limited regional cooperation,
are calculated from the estimates of equation (1) with the
assumption that uij,t = 0 and either B6 = 0 or B7 = 0.
(iii) The potential exports of the home country to relevant partner
countries when there are no significant behind-the-border
constraints and there is a stand alone attitude in the home
country are calculated from the estimates of equation (1) with
the assumption that uij,t = 0 along with B6 = 0 and B7 = 0.
To answer the second question, what are the impacts of behind-theborder constraints on potential export flows in LCGS in the Asian
region, the ratio of actual export flows to potential exports flows under
the stand alone scenario (EXa/EXp) is calculated across the selected
countries, which provides a measure of how much potential is achieved
by the relevant country. A measure of [1 - (EXa/EXp)] X 100 shows the
relevant countrys inefficiency due to its behind-the-border constraints
in achieving its potential exports to its trading partners. Drawing on the
evidence-based approach, the options and challenges associated with a
grand coalition are discussed, along with the identification of pathways
to eliminate constraints to effective collaboration between governments
and the private sector.
10.3Data
The main data sources are COMTRADE, WITS, and UNCTADs World
Investment Reports covering the periods 2000 to 2009. The Asian
emerging economies covered are: the PRC, India, Indonesia, Malaysia,
Philippines, Singapore, Thailand, and Viet Nam. The LCGS covered in
this study are the WTO 153 list grouped into 12 categories for analytical
purposes: air pollution control; clean-up or remediation of soil and
waste; cleaner or more resource-efficient technology; environmental
monitoring, analysis, environmentally preferable products; heat and
energy management; management of solid and hazardous waste; natural
resources protection; natural risk management; noise and vibration

abatement; renewable energy plants; and waste water management and
potable water.
10.4Current Patterns of Trade and Investment

in LCGS
It is interesting to note that the PRC dominates the LCGS trade in all
categories except in management of solid and hazardous waste which
India leads from 2000 to 2009. Among the ASEAN emerging economies,
Singapore dominates the LCGS trade, followed by Thailand. Given
the difficulties in identifying FDI that is directly connected with the
production of the list of 153 LCGS, estimates from different sources
are discussed to examine the overall pattern of investment in LCGS.
Using FDI data in green field projects and cross-border mergers and
acquisitions data, UNCTAD has recently estimated that three LCGS
(renewables, recycling, and low-carbon technology manufacturing)
have attracted FDI flows amounting to $90 billion in 2009 (UNCTAD,
World Investment Report 2010). Between 2004 and 2014, new financial
investment in clean energy was $2,324 billion, of which $197 billion
was from public markets and $87 billion was from private equity and/
or venture capital. In terms of sectors, wind attracted the largest funds,
followed by solar, biofuel, biomass, and others (Mills 2015).
The pattern of FDI in LCGS is diversified geographically and in
terms of types of LCGS. For example, FDI in alternative/renewable
power generation is concentrated in developed economies, although
about 25% of investments are in developing countries, including the
PRC, India, Indonesia, Philippines, and Viet Nam. In terms of venture
investments in clean technology, North America, Europe, the PRC, and
India attracted about $10.6 billion from venture capital firms (NTEC,
Cleantech Ventures, and Foundation Capital). The pattern of clean
technology venture investments clearly shows an increasing trend from
$0.5 billion in 2001 to $2.1 billion in 2005 to $10.6 billion in 2011. The
PRC and India seem to be major growth markets for clean technology
investments, particularly for renewable energy technologies. Solar
accounted for about 50% of total clean technology investment and
investment in biofuels for 10% during 2011.
The PRC invested CNY200 billion in energy-saving and emissionreduction projects, generating investment worth about CNY2 trillion
during 20062010 (Xinhua 2010). From 2006 to 2010, United States
(US) firms invested a total of $6.5 billion in India, which is now one
of the largest markets for the US clean energy technologies. In 2011

2012, two of the three US financing agencies (SunEdison Inc. and First
Solar Inc.) approved 173 transactions in India, totaling $1.4 billion, in
solar energy. It is estimated that in the next 20 years India will need
investments of over $1 trillion to improve health care, transportation
infrastructure, energy production, and others. In May 2011, the World
Bank approved a $15.36 million credit and $8.14 million grant for the
Biodiversity Conservation and Rural Livelihood Improvement Project
to support the Government of India in its efforts to conserve high-value
forest areas with the objective of improving the livelihoods of forestdependent communities. The project, which will run for 6 years, will
conserve biodiversity, while improving rural livelihoods by applying
culturally appropriate and tested participatory approaches from the
communities to support opportunities for improving rural livelihoods.
10.5Potential Exports of LCGS under Different

Scenarios
Using unbalanced panel data for selected Asian emerging economies
over the periods 2000 to 2009, equation (1) was estimated using
the software FRONTIER 4.1 for total exports of LCGS and also for
each of the 12 categories of LCGS exports for individual countries of
the Asian emerging economies. Table 10.1 shows the results of the
estimation of the equation for total exports of LCGS. All the coefficients
for individual countries are statistically significant at least at the 5%
level, which indicates that the model has explained the variations in
export flows in LCGS through the selected determining variables.2 The
statistical significance of implies that behind-the-border constraints
are important determinants of export flows in LCGS from the selected
Asian emerging economies. This result also confirms that the selected
equation (1) is appropriate to examine the determinants of export flows
in LCGS from the selected countries.
Other interesting results include the magnitude and significance
of the variable FDI, which is the ratio of FDI from Asian countries to
FDI from non-Asian countries to the relevant Asian emerging economy,
and D1, which shows the existence of trade agreements between the
exporting Asian emerging economy and its trading partner countries.
Taken together, these two coefficients indicate the influence of a grand
2
Interested readers may contact the author for the panel estimation results for each of
the 12 categories for individual countries.
0.892
1.056
0.876
0.815
FDI ratio
D1(PTA)
D2 (Years)
Gamma -
0.786
0.612
0.768
0.675
0.720
0.882
0.556
0.825
0.558
0.680
0.580
0.642
0.572
8.560
Indonesia
2
u
0.797
0.338
0.845
0.457
0.831
0.643
0.525
0.438
7.655
Philippines
2
u
0.693
0.698
0.918
0.915
0.654
0.507
0.844
0.712
9.753
Singapore
0.802
0.589
0.822
0.584
0.710
0.620
0.616
0.453
7.662
Thailand
0.903
0.572
0.851
0.595
-0.730
0.614
0.589
0.426
7.453
Viet Nam
constraints are one of the determinants of total exports of LCGS. When is significant, which is the case in this study, it implies that behind-the-border constraints are important
determinants of LCGS exports.
Source: Authors estimation.
u2
2
All the variables are defined in the text. Gamma is the ratio of country-specific variation ( ) to total variation ( + v ), which indicates whether behind-the-border
0.867
0.612
0.856
0.618
0.725
0.553
0.788
0.618
9.862
Malaysia
ln EXi,j,t = B1,t + B2,t ln(PCGDPi,t ) + B3,t ln(PCGDPj,t ) + B4,t ln(DISTi,j) + B5,t ln (Tj,i,t)
+ B6,t ln(FDIj,t-1) + B 7,t D1 + B8,t D2 uij,t + vij,t

LCGS = low-carbon goods and services, PRC = Peoples Republic of China.

Notes: All coefficients are statistically significant at least at the 5% level.
The estimated model is as follows:
0.765
Tariff (%)
0.675
0.680
0.815
PCGDPm
0.435
0.672
Dist
9.441
0.543
10.532
India
PCGDPe
PRC
Constant
Coefficients
Table 10.1: Estimates of Determinants of Total Exports of LCGS across Countries
coalition scenario on the potential export of LCGS from the concerned

Asian emerging economy. Taking either of the coefficients individually
indicates the influence of a limited coalition scenario on exports.
Although these coefficients are all positive for all the Asian emerging
economies, they vary in magnitude across countries. The impact of
Asian FDI on exports of LCGS is largest for Singapore (0.92) and lowest
for the Philippines (0.46). This means that Singapores LCGS exports
will increase by 9% for every 10% increase in FDI from Asian countries.
This clearly supports the view that Asian money could be leveraged for
green research and investment through regional cooperation.
Another important result that conveys the significance of regional
cooperation on improving LCGS exports in Asian emerging economies
concerns the positive and significant coefficient of the variable D1.
The coefficient varies from 1.06 for the PRC to 0.82 for Thailand.
The implication is that the PRCs existing trade agreements with
other countries have helped it to export more LCGS than other Asian
emerging economies, which also have trade agreements with their
partner countries.
Table 10.2 shows how much of an increase in potential exports of
LCGS by category in each Asian emerging economy will be achieved
under the grand coalition, limited coalition, and stand alone
scenarios. These are simulated on the assumption that there are
no behind-the-border constraints to exports in the Asian emerging
economies. It is clear that all Asian emerging economies will enjoy
more export potential under a grand coalition than under a limited
coalition. However, the percentage increase varies across countries; the
PRC and Singapore appear to enjoy a greater increase in their potential
exports in the majority of the categories. The implication from these
results is that regional cooperation in the form of a grand coalition can
certainly increase the export potential for LCGS in the Asian emerging
economies, thereby increasing the pace of transforming Asia into Green
Asia.
Nevertheless, such a transformation will not come without careful
tailoring of existing policies and agreements relating to matters such as
preferential or free trade agreements entailing the removal of barriers to
trade in goods and services.
What is equally important is the elimination of behind-theborder constraints that exist within exporting countries such as poor
infrastructure and inefficient institutions, which creates a gap between
actually realized and potential exports. The gaps between the actual and
potential exports are calculated for each year from 2000 to 2009 and the
average gap for the selected eight Asian emerging economies are presented
in Figure 10.1. The results indicate that the PRCs gap between its actual
Table 10.2: Potential Exports of LCGS under Different Scenarios

Stand Alone
(% increase)
Limited
Coalition
(% increase)
Grand
Coalition
(% increase)
2005
2009
2005
2009
2005
2009
Air pollution control
20
22
26
28
32
33
Clean or remediation of soil and

waste
30
28
32
33
35
36
Cleaner and more efficient

technology
28
30
31
32
33
34
Environmental monitoring
40
35
42
38
44
41
Environmentally preferred products
35
33
37
35
38
36
Heat and energy management
38
35
39
36
40
37
Management of waste and

hazardous waste
42
43
45
45
47
48
Category
PRC
Natural resources protection
38
35
40
37
41
38
Natural risk management
44
42
45
43
46
44
Noise and vibration abatement
45
47
47
48
49
49
Renewable energy plant
28
27
30
28
32
30
Waste water management and

potable water
36
38
39
40
41
42
30
32
31
33
32
34

waste
31
32
32
33
34
35

technology
32
33
34
35
35
36
40
42
42
43
44
44
37
38
39
40
40
42
38
37
39
38
40
40

hazardous waste
28
26
30
28
32
30
40
42
42
43
44
45
India
37
35
39
37
40
38
46
47
47
48
49
50
30
32
32
33
34
35

potable water
40
38
41
40
41
42
Table 10.2continued
Category
Stand Alone
(% increase)
Limited
Coalition
(% increase)
Grand
Coalition
(% increase)
2005
2009
2005
2009
2005
2009
Indonesia
44
42
45
43
46
44

waste
33
30
34
32
35
34

technology
35
36
37
38
38
39
40
40
42
42
43
43
35
33
37
35
38
36
38
35
39
36
40
37

hazardous waste
45
42
46
44
47
46
38
35
40
37
41
39
34
35
36
37
38
39
46
47
48
49
49
50
32
33
33
34
34
35

potable water
40
41
42
43
44
45
34
35
36
36
38
38
Clean or remediation of soil

and waste
35
36
36
37
38
38

technology
35
36
37
38
38
39
33
34
35
36
37
38
40
41
42
43
44
45
30
32
33
36
35
37

hazardous waste
38
42
40
44
43
46
32
35
34
37
36
39
30
32
33
34
35
36
38
40
39
41
41
43
35
36
37
38
39
40

potable water
42
43
44
45
45
46
Malaysia

Table 10.2continued
Category
Stand Alone
(% increase)
Limited
Coalition
(% increase)
Grand
Coalition
(% increase)
2005
2009
2005
2009
2005
2009
Philippines
36
37
38
39
39
40

waste
37
38
39
40
41
42

technology
40
41
42
43
43
45
41
42
43
44
44
46
45
47
47
48
49
50
35
36
36
37
38
38

hazardous waste
38
40
40
42
43
45
40
42
43
44
45
45
38
40
41
42
43
44
38
40
39
41
40
42
37
39
39
40
41
41

potable water
45
46
48
48
50
51
23
24
25
26
27
29

waste
30
31
32
33
34
35

technology
28
29
30
31
33
34
27
29
29
30
31
32
28
29
30
31
32
33
31
32
33
34
36
35

hazardous waste
32
33
34
35
35
36
28
30
30
32
32
34
25
27
26
28
27
30
23
25
25
27
28
28
22
23
24
25
27
26

potable water
28
29
32
33
33
34
Singapore

Table 10.2continued
Stand Alone
(% increase)
Limited
Coalition
(% increase)
Grand
Coalition
(% increase)
2005
2009
2005
2009
2005
2009
45
46
47
48
49
50

waste
40
42
41
43
42
44

technology
40
42
43
44
45
45
41
43
43
44
44
45
Category
Thailand
45
47
47
49
49
50
40
42
42
44
44
45

hazardous waste
38
39
40
41
43
44
45
47
46
48
48
50
40
40
41
41
43
44
40
42
42
44
43
45
39
41
41
43
43
45

potable water
44
46
47
48
50
51
Viet Nam
46
47
48
49
49
50

waste
38
40
40
42
42
44

technology
40
42
41
44
43
45
42
43
44
45
46
48
40
41
42
43
44
45
38
39
39
40
40
41

hazardous waste
47
48
49
50
51
52
36
37
38
40
41
42
38
40
40
41
43
42
45
48
48
49
49
50
34
35
37
37
39
40

potable water
42
44
45
46
48
50

Source: Authors calculations.
Figure 10.1: Mean Inefficiency in Export Flows in LCGS across

Emerging Asian Countries
(%)
40
35
30
25
20
15
10
5
Viet Nam
Thailand
Singapore
Philippines
Malaysia
Indonesia
India
PRC

Source: Authors estimation.
and potential exports is the smallest, which means that on average the
PRC is able to realize 80% of its potential exports. Singapore is able to
realize 73% of its potential exports, while the figure for India is 70%. Viet
Nam appears to be realizing only about 62% of its export potential in
LCGS. It would be interesting to examine the specific behind-the-border
constraints that contribute to such gaps in these countries, but the lack of
appropriate data across the countries over the period of analysis means
that specific constraints could not be identified.
10.6Potential, Options, and Challenges for

Cooperation
In the case of environmental goods and services, FDI is determined by
technological capacity. The provision of environmental infrastructure
services, notably of potable water, requires complex organizational
capabilities, knowledge, and capital, which are typically possessed by

multinational enterprises. In the absence of a proper environmental
policy in the host country, a multinational may not transfer better
pollution control technologies to the host country. Nevertheless, it is
recognized by governments that technological upgrading is ultimately
the responsibility of firms, whose operations need to be supported by
governments with appropriate industrial and institutional frameworks.
However, the possibility of multinationals crowding out domestic
firms in the production and distribution of LCGS in emerging Asian
economies should not be ruled out. It is imperative for the countries
promoting FDI in LCGS to implement proper policies to minimize
the potential negative effects of FDI. Governments in Malaysia and
Singapore, for example, help small and medium-sized firms in many
ways without instituting business laws to link up with the multinationals
formally (Huff 1999; Rasiah 1995).
The diffusion of technologies using LCGS is generally a slow
process in any country. A number of factors can slow the pace of
diffusion, in particular government policies that influence the price of
LCGS. In this context, a countrys trade policy plays a crucial role with
respect to achieving its specific environmental goals, such as emission
reductions as a result of using efficient technologies and LCGS. This
is because the use of LCGS and efficient technologies depends on
accessibility to industries and households, which in turn is determined
by the cost of production of LCGS. Only when there are no restrictions
on the movement of LCGS across borders can the cost of production
drop significantly. For example, tariffs on biofuel imports are high in
many developed countries. The European Union and the United States
have instituted mandatory requirements to use biofuels in transport.
In these countries, domestic producers tend to dominate the national
biofuel market at the expense of environmentally and economically
more efficient imports from developing countries, where biofuels can be
produced at lower costs. Such restrictions on imports of biofuels need
to be eliminated.
The importance of infrastructure to attract FDI in LCGS is evident
in the case of India. At the South India Infrastructure Investment
Summit 2011 organized by the Confederation of Indian Industries,
Japans Ministry of Economy, Trade & Industry (METI) made the
point that infrastructure development and private participation should
go hand in hand: Many Japanese companies are willing to invest in
India, but the infrastructure bottlenecks are the deterrent. India spends
only one-eighth of the investment the PRC makes in infrastructure
development. Japan has national and international experience in
developing infrastructure facilities and India could make use of that in
several sectors like environment and energy conservation. The Japanese

companies with expertise in power generation and conservation, solar
and wind power, water treatment, including desalination plants, and
waste management are willing to interact with Indian counterparts for
possible collaboration and investments.
As multinational enterprises enjoy technical expertise in the
production of LCGS, developing countries tend to rely on them to
meet their demands for these products. There is therefore a danger
that multinationals may crowd out domestic firms, although this can
be mitigated by instituting proper FDI and research and development
(R&D) policies for domestic firms. In the PRC, for example, in 2007, the
Ministry of Finance set up a Fund for the Development of Renewable
Energy with the aim of supporting R&D by domestic firms working in
renewable energy.
10.7Feasible Pathways to Enhance

Cooperation between Government and
Private Firms
Publicprivate partnerships (PPPs) are an effective way of producing and
distributing national and global public goods such as LCGS. For example,
the ASEAN Infrastructure Fund, an initiative to boost the supply of
infrastructure financing, can be increased by including many private
firms across the regions. The Approach Paper to the XI Plan (2012
2017) of India highlights some of the conditions necessary to strengthen
cooperation between the government and private enterprises: PPPs are
best implemented through standardized arrangements that constitute a
stable policy and regulatory regime where private capital derives greater
comfort and seeks the least possible risk premium. Model Concession
Agreements (MCAs) including Viability Gap Funding would be used for
providing a stable regulatory and policy framework.
A successful PPP working on climate change improvement is that
between the World Renewal Spiritual Trust (WRST), a registered
charity trust with headquarters in Mumbai and branches all over India,
and the Government of India under the One India program. WRST
explains that: After detailed evaluation of various solar technologies,
WRST selected to make use of the in-house developed 60m2 Scheffler
parabolic dish in order to set up a solar thermal power plant at the
Prajapita Brahma Kumaris Ishwariya Vishwa Vidyalaya (BKIVV), which
is a premier spiritual university in India, in Abu Road, Rajasthan. For
this project, WRST has teamed up with Fraunhofer Institute (ISE) and
enjoys the support of Wolfgang Scheffler. The German Ministry for

Environment, Nature Conservation and Nuclear Safety (BMU) has also
agreed to support this project (http://www.wrst.in/). This is a good
example of how the private sector can be engaged in a strategic way in a
grand coalition scenario involving private, national, and international
government organizations. Similar examples involving national and
foreign governments can be found in other emerging Asian economies.
For example, the Indonesian Government is committed to reining in
deforestation and improving land management with help from Australia
under the IndonesiaAustralia Forest Carbon partnership.
10.8Conclusions
There is a large gap between the demand for and the supply of LCGS.
About 50% of the LCGS that will be used by 2030 are not yet available.
This provides an opportunity for those emerging Asian economies that
have the potential to contribute to the creation of LCGS individually and
collectively by pooling their physical and human capital. Realizing this
opportunity will depend on country-specific and region-specific factors.
The volume of trade and investment in LCGS will be determined by
whether the Asian emerging economies can work together fully under a
grand coalition, or whether they will proceed under a partial coalition,
or stand-alone scenario.
Regional cooperation was examined under these three scenarios,
which were simulated on the assumption that there are no behind-theborder constraints to exporting LCGS in the Asian emerging economies.
As expected, the analysis indicated that emerging Asian economies would
increase their export potential for LCGS more under a grand coalition
scenario than under the partial coalition scenario, although both show
more potential than the stand alone scenario. This implies that regional
cooperation either fully or partially has the potential to improve the
export performance of emerging Asian economies in LCGS. Economies
that are more open to trade and FDI, such as the PRC and Singapore,
will enjoy the greatest increase in their potential LCGS exports in LCGS.
Nevertheless, such a transformation will require regional cooperation,
such as preferential or free trade agreements entailing the removal of
barriers to trade in goods and services (Kawai and Wignaraja 2008).
The above analysis assumed that there were no behind-the-border
constraints in the emerging Asian economies. In reality, there are
infrastructure bottlenecks and institutional rigidities that contribute to
the gap between potential and actual exports. Therefore, it is imperative
to examine whether the impact of such behind-the-border constraints
on exports is significant and, if so, what the impact on potential exports

will be. None of the emerging Asian economies are able to realize their
full LCGS export potential. While the PRC was able to achieve on
average about 80% of its export potential during the period of analysis,
Viet Nam could achieve only about 62%. Special attention needs to be
paid to eliminating behind-the-border constraints to trade, including
transportation and telecommunication bottlenecks.
Although Asia represents a large market and has huge foreign
reserves, difficult relationships between countries in the region have
limited growth in intraregional LCGS trade. East Asia has demonstrated
that it is possible to grow together despite differences between
governments; the rest of emerging Asia needs to take its cue from East
Asia and form a grand Asian coalition for the benefit of the entire region
and the global economy. The East Asian experience indicates that one
of the crucial factors for such a grand cooperation is maintaining an
easy flow of goods and services, which very much depends on good
transport and communication networks and institutional infrastructure.
Global and regional institutions such as the Asian Development Bank
(ADB) have been facilitating regional and subregional transportation
infrastructure through project finance.
The involvement of multinational companies in trade and
investment in LCGS in Asia through FDI also has the potential to
enlarge regional cooperation. One important pathway to increasing
and strengthening regional and international cooperation is the public
private partnership (PPP) model, which has been promoted effectively
by ADB and the World Bank. Further, emerging Asian economies can use
greater regional cooperation to share their knowledge of policies and
practices with respect to promoting LCGS with other Asian economies.
Regional development organizations such as ADB can support them
through capacity building and institutional strengthening.
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Kuroda, H., M. Kawai, and R. Nangia. 2007. Infrastructure and Regional
Cooperation. ADB Institute Discussion Paper No. 76. Tokyo: Asian
Development Bank Institute.
Mikic, M. 2010. Trade in Climate Smart Goods: Trends and Opportunities
in Asia and the Pacific. Paper presented at the Regional Symposium
on Low Carbon Economy organized by ESCAP in Bali, Indonesia,
1314 October.
Mills, L. 2015. Global Trends in Clean Energy Investment. Bloomberg
New Energy Finance.
Rasiah, R. 1995. Foreign Capital and Industrialization in Malaysia.
Basingstoke, UK: Macmillan.
United Nations Conference on Trade and Development (UNCTAD).
2010. World Investment Report 2010: Investing in a Low Carbon
Economy. Geneva, Switzerland: UNCTAD.
Wignaraja, G. 2008. FDI and Innovation as Drivers of Export Behaviour:
Firm-level Evidence from East Asia. UNU-MERIT Working Paper
Series 061. Maastricht, The Netherlands: United Nations University,
Maastricht Economic and Social Research and Training Centre on
Innovation and Technology.
Xinhua. 2010. http://www.chinadaily.com.cn/china/2010-11/23/content
_11595289.htm. 23 November.
Chapter 11
Narrowing the Gaps

through Regional
Cooperation:
Institutions and
Governance Systems
Heinrich Wyes
11.1Current Regional Governance Systems and

National Institutional Frameworks
The interconnected and transboundary nature of environmental
issues underscores the need for regional cooperation to address
environmental issues, whose causes and conditions often spread across
many countries and many groups, including government and industry.
Most environmental problems such as loss of arable land, smog, and
ecosystem destruction cut across economic, social, and political
barriers. There is an increasing need for institutional strengthening to
tackle environmental issues at national and regional levels. Stronger and
more proactive regional institutions are required to support sustainable
development and green economies and to address climate change.
Environmental governance is an area of weakness in Asia, because
the central concern for all Asian countries has been to achieve high rates
of economic growth. However, the need for appropriate environmental
institutions and good governance is being increasingly understood;
countries appreciate that these are critical underlying factors for
sustainable development.
355
11.1.1Operational Principles for Regional Institutions

The Asian region does not share a common history. Nevertheless,
although Asian countries have different political and economic
environments, this should not be an obstacle to a shared vision. The
more developed economies in the region can share their development
experiences in the environmental sphere with the less-developed
economies. Strategies that have been adopted in Asia range across the
ideological spectrum, even among more developed Asian societies, and
this allows a multiplicity of approaches. Yet, when working against a
diverse background, certain rules that can govern the game of inducing
cooperation and integration have to be understood:

Non-dominance: When more involved decision-making is

required, and there is a wide network of organizations, someone
needs to take the lead. If a core group in the Asian region is to
make the important decisions, no consensual decision making
will result unless members of the core group can persuade
other members into agreeing. This is how the European Union
(EU) often functions.
Individual trajectories: Each member country will have its
own trajectory, time line, and pace at which it wishes to pursue
its stated objectives and these will have to be accepted by other
member states. It is, of course, possible that some countries may
be more reluctant than others to accept certain objectives. In
the interests of good relations it is only reasonable that others
goals and timelines be accepted, although this may slow the
pace at which the region as a whole reaches its environmental
goals.
Mutually agreed convergence: The question of whether Asian
countries will achieve goals that have been mutually agreed
upon has to be carefully considered. The answer depends
mostly on organizational issues, such as who will supervise the
implementation and decision-making process in the region. A
realistic approach would be an overarching organization with
an agenda heavily influenced by a core group of members.
In this approach, the groups leaders would determine how
convergence to goals that are thought to be valuable (e.g., within
an ASEAN-wide context) could be set. The manner of progress
to these goals would also be guided by the core member states,
as would the milestones that are to be achieved. Regional and
subregional organizations with interests in specific areas of
cooperation need to be established in Asia.
Narrowing the Gaps through Regional Cooperation: Institutions and Governance Systems357
Consensual approach: There are different ways in which

decision making can be carried out within an overlapping
architecture of organizations spanning the Asian region.
Countries can either adopt a consensual approach or select
a decision that the dominant members agree on. In the latter
case, the more developed and earlier members of such regional
organizations agree upon the agenda, and subsequently expect
the other members to concur. This weakens the principle of
proceeding by consensus. As the number of organizations that
cut across specific functional areas increases, and as the number
of subregional organizations grows, it will be more and more
difficult to plan and decide entirely on the basis of consensus.
This process can also be observed in the development of
environmental governance in Europe.
Institutions: There are several international cooperative
arrangements whose purpose is to strengthen position of their
members in the world as well as to reinforce regional stability and
economic exchange among member countries. Such groupings
are increasingly used as platforms to implement socioeconomic
reforms and environmental protection measures. There are
many examples that Asian countries can draw upon.
Policy makers in the Asian region realize that regional and

subregional institutions matter and are necessary for sustainable
development and green growth. There are two ways in which these
institutions interact with society. First, they can be the basis upon
which regional decision making in the environmental sphere functions.
Institutions can form the platform for the effective functioning of
regional cooperation. Second, institutions can be thought of as a set of
rules that influence or determine how joint activities are addressed,
emphasizing that good governance is only possible if accompanied by
strong institutional (regional and subregional) frameworks.
11.1.2Regional Governance Systems in Asia

A number of multilateral cooperation arrangements currently operate
in the Asian region. The biggest are the South Asian Association for
Regional Cooperation (SAARC), Asia-Pacific Economic Cooperation
(APEC), and the Association of Southeast Asian Nations (ASEAN). All
three recognize climate change poses a major threat to their member
states and are trying to step up common actions in order to tackle climate
change and promote green economic development across the region.
SAARC is an organization of South Asian nations, founded in December

1985 and dedicated to economic, technological, social, and cultural
development emphasizing collective self-reliance. Its seven founding
members are Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan,
and Sri Lanka. Afghanistan joined the organization in 2005. The 11 stated
areas of cooperation are agriculture, education, culture and sports,
health, population and child welfare, the environment and meteorology,
rural development, tourism, transport, science and technology, and
communications.
The SAARC Environment Ministers meeting in Dhaka (2008)
adopted the SAARC Action Plan on Climate Change. The objectives of
the plan are to identify and create opportunities for activities that are
achievable through regional cooperation and SouthSouth support in
terms of technology and knowledge transfer and to provide an impetus
for a regional action plan on climate change through national activities.
Significant progress was made at the sixteenth SAARC Summit
at Thimpu, Bhutan in April 2010. The Thimpu Statement on Climate
Change, adopted during the Summit, called for a review of the
implementation of the Dhaka Declaration and SAARC Action Plan on
Climate Change. Members agreed to establish an intergovernmental
expert group on climate change to develop clear policy direction and
guidance for regional cooperation.
APEC is a forum of 21 Pacific Rim countries that seek to promote free

trade and economic cooperation throughout the Asia-Pacific region.
APEC was launched in 1989 as a consultative body whose goal is to foster
cooperation on issues of trade and investment in the Asia Pacific region.
The founding members were Brunei Darussalam, Indonesia, Malaysia,
the Philippines, Singapore, Thailand (the ASEAN countries at that
time) and Australia, New Zealand, Canada, Japan, Republic of Korea,
and the United States. APEC was created to work toward improving
living standards and education levels through sustainable economic
growth and cooperation for the sake of common interests of Asia-Pacific
countries. However, diverse cultures, discordant histories, and a lack of
experience with multilateral institutions have shaped an organization
that is more an association than an autonomous decision-making body.
APEC members have in recent years made substantial efforts to
address environmental issues, including a number of initiatives and
measures to address climate change. In 2007, the APEC leaders adopted
a climate change program during the Sydney meeting, agreeing to tackle
global warming through improvement of energy efficiency and better
forest management. APEC has also established many working groups

to assist economies to meet climate change goals, including the Energy
Working Group, the Asia-Pacific Network for Energy Technology and
the Energy Security Initiative, to promote clean and efficient energy
production and use more broadly (Sydney Declaration 2007).
In November 2008, the APEC ministers adopted the Environmental
Goods and Services (EGS) Work Programme Framework, aiming to
support the development of the EGS sector in APEC and to link up the
projects related to the EGS in separate APEC working groups (EGS
Framework 2008).
ASEAN is a geopolitical and economic organization of 10 countries in

Southeast Asia, which was founded on 8 August 1967 by Indonesia,
Malaysia, the Philippines, Singapore, and Thailand. Since then,
membership has expanded to include Brunei Darussalam, Myanmar,
Cambodia, Lao Peoples Democratic Republic, and Viet Nam. Its aims
include the acceleration of economic growth, social progress, cultural
development among its members, and the protection of peace and
stability in the region by providing a forum for the member countries to
discuss differences peacefully.
The ASEAN Charter affirms in Article 1 that among its purposes is the
inclusive goal of enhancing the well-being and livelihood of the peoples
of ASEAN. This is a broad goal that goes beyond the achievement of
higher levels of income among ASEANs members. Article 2 specifically
states that ASEAN and its member states shall seek to adhere to the rule
of law, good governance, the principles of democracy and constitutional
government. This is a strong indication that ASEAN embraces good
institutional frameworks as a set of principles that will guide its member
states to achieve its economic objectives.
ASEAN as a regional grouping has an important role to play in
coordinating and encouraging individual states to improve their
environmental structures. Specialized ASEAN-wide institutions are
needed in order to set the direction for ASEAN and to meet mutually
agreed goals for the region. These institutions are also needed to
coordinate national initiatives and to align them with regional goals.
Another key function is to contribute to the capacity-building of national
agencies. Given the increasingly complex and overlapping functions
that will be performed by functional institutions, there is a need for
a subregional organization such as ASEAN that will play the role of
facilitating and coordinating initiatives that cut across nations.
The ASEAN leaders expressed their commitment for ASEAN
to play a proactive role in addressing climate change through their
declarations at the 2007 Bali and 2009 Copenhagen UN Conferences

on Climate Change. These see the protection of the environment and
the sustainable use and management of natural resources as essential
to long-term economic growth and social development. The ASEAN
Vision 2020 calls for a clean and green ASEAN with fully established
mechanisms to ensure the protection of the environment, sustainability
of natural resources, and a high quality of life for the people in the region.
11.2Addressing Environmental Changes

11.2.1Ecosystem-Based Adaptation
Scarcity of resources and the impending effects of climate change have
made ecosystem services a focus of attention. The wide range of services
provided by the ecosystems of the Asian region is one of its greatest
assets. It is becoming increasingly clear that sustainable approaches for
livelihood improvement and poverty reduction in the region can only be
achieved through appropriate linkage with ecosystem services.
Many recent climate change adaptation initiatives focus on the use of
technologies and the design of resilient infrastructure. However, there is
a growing recognition of the role healthy ecosystems can play in helping
people adapt to climate change. As natural buffers, ecosystems are
often cheaper to maintain and more effective than physical engineering
solutions. They offer a way of adaptation that is readily available and
addresses many of the concerns and priorities identified by the most
vulnerable countries and communities.
Ecosystem-based adaptation strategies can complement and
enhance climate change mitigation. Sustainable management of forests
can store and sequester carbon by improving overall forest health, and
simultaneously sustain functioning ecosystems.
11.2.2Payment for Environmental Services

The concept of payment for environmental services is an incentive-based
mechanism for addressing both environmental problems and poverty.
It is a concept that is gaining in popularity among natural resource
managers and policy makers in Asia. It includes a range of institutional
arrangements such as payments by direct beneficiaries of environmental
services and incentives for communities to practice sustainable land use
or to reduce emissions from deforestation and degradation (REDD).
Payment for environmental services has the potential to minimize
trade-offs between conservation and rural livelihoods.
11.2.3Reducing Emissions from Deforestation and

Forest Degradation (REDD)
Currently deforestation accounts for 18%25% of global greenhouse
gas emissions. A policy mechanism for reducing emissions from
deforestation in developing countries (REDD) was first proposed
by the UN Climate Conference of the Parties (COP 13) in Bali in 2007.
The REDD mechanism estimates a financial value for the carbon
stored in forests and offers developing countries incentives to reduce
emissions from their forests. At COP 15 in Copenhagen in 2009, the
REDD policy mechanism was expanded to REDD+ in order to include
the role that conservation, the sustainable management of forests and
the enhancement of forest carbon stocks can add to reducing emissions.
REDD+ allows for a wider range of forest-related activities and provides
opportunities for regional approaches such as community forestry, joint
forest management, social forestry, and collaborative forestry (Dahal et
al. 2011).
The Asian region offers huge potential to benefit from REDD+
because its forests and peat lands are important carbon sinks as well as
significant sources of CO2 emissions. By avoiding further deforestation
and forest carbon stock enhancement, the region has the potential
to contribute about 40% of the total global REDD+ potential for CO2
emissions reductions by 2050 (ADB 2010).
Leading regional bodies in Asia and the Pacific are paying
increasing attention to REDD+, which offers important opportunities
for moving toward shared visions and agreements at regional and
global levelscovering information exchange, identification of drivers
of deforestation, transboundary forest management, and other issues.
ASEAN has produced a Multi-Sectoral Framework on Climate Change:
Agriculture and Forestry towards Food Security that builds on its
economic, sociocultural, and political security blueprints as well as the
ASEAN Integration Strategic Framework. Knowledge networks on
forests and climate change, social forestry, and forest law enforcement
and governance inform member states about opportunities and
challenges in the forest sector. An ASEAN Forest Clearing House
Mechanism provides online policy briefs on key issues.
11.2.4Country-Level Plans for Adaptation

At present the policies and actions aimed at resilience to climate change
in the Asian region are focused at the national level, with specific time
frames ranging from a few years to less than 10 years. It is in the interest
of all Asian countries to identify climate-related vulnerabilities and

to prioritize adaptation measures (Rahman and Amin 2011) through
national adaptation programs of action.
Over the past decade it has become evident that climate change
transcends national boundaries and that its consequences are regional
and global. Regional policy making and national governance in the Asian
region can link with global frameworks to benefit from global expertise
to inform policy and assist with planning for regional mitigation and
adaptation to climate change.
11.2.5Clean Development Mechanism

The main dedicated sources of financing for mitigation at the global
level include the Clean Development Mechanism (CDM) and various
dedicated funds managed by the Global Environment Facility (GEF) and
the World Bank. The Adaptation Fund (financed through a 2% levy on
revenue generated by the CDM and through voluntary contributions)
is dedicated to adaptation to climate change. Governments in many
countries have also started to provide financial support for climate
change mitigation and adaptation activities within their territories.
These national programs and activities are the building blocks of the
global collective fight against climate change. However, national and
global efforts are not enough to address the climate change challenges
comprehensively.
11.3Regional Political Institutions and

Financial Architecture Needed
Only strong regional cooperation oriented to tackling issues related
to climate change can ensure that appropriate measures to reduce
greenhouse gas (GHG) emissions will be successfully implemented.
Global agreements on GHG emission reductions do not take the
interactions between states within different regions sufficiently into
consideration. Regional forums are well equipped to encourage suitable
mitigation actions and in fact financing arrangements on climate change
have already started at the regional level. More attention needs to be
paid to such arrangements.
Other than those offered by ADB, there are no significant financing
arrangements by truly Asian institutions on climate change in the Asia
region. In addition to its regular financing as a regional development
bank placing increasing emphasis on climate change, ADB has several
dedicated funds for financing climate change mitigation and adaptation
in the Asia and Pacific region (ADB 2009). They perform a variety of
functions, including mobilizing concessional resources, catalyzing
private capital, and maximizing market mechanisms. All are regional in
coverage (with activities limited to Asia) and based on a mix of regional
and global financing.
APEC, ASEAN, and SAARC have adopted action plans on climate
change, including attempts to reduce CO2 emissions by acknowledging
the importance of improvements in energy efficiency and commitment
for deployment of renewable energy sources. However, most of
these pledges are not specific as there is no mechanism for enforcing
them. Apart from regional cooperation between states, there are also
numerous international organizations supporting reductions in the
carbon intensity of Asian states. Nevertheless, there is a need for a strong
regional financial organization to coordinate investment in clean energy
production and energy efficiency projects as, despite the many bilateral
and international initiatives promoting investments in GHG reduction
in Asia, they are not coordinated and often overlap.
11.3.1Regional Institutions in Asia Involved in Climate

Change Mitigation
The United Nations Framework Convention on Climate Change
(UNFCCC) framework is suited to forging consensus on key issues, such
as emissions targets and an equitable distribution of obligations among
countries. At the regional level ASEAN, APEC, and SAARC are also
interested in climate change mitigation.
Although ASEAN still has a long way to go before it achieves the level of
integration achieved by the EU, there is no better alternative for regional
cooperation in Southeast Asia.
ASEAN leaders have committed ASEAN to playing a proactive role
in addressing climate change. The ASEAN environment ministers meet
on a formal basis once every 3 years and, since 1994, have also been
meeting on an informal basis annually, while the ASEAN Senior Officials
on the Environment (ASOEN) meet annually and are responsible for
supporting the ASEAN environment ministers in terms of formulating,
implementing, and monitoring regional programs and activities. ASOEN
comprises the heads of ministries, departments, or agencies who are
responsible for environmental matters in their countries. ASOEN is
assisted by six working groups (Figure 11.1).
Figure 11.1: Institutional Framework of ASEAN for

Environmental Issues
ASEAN Summit
(ASEAN Heads of State/Government)
(Thailand)
Multilateral
Environmental
Agreements
ASEAN Socio-Cultural Community

Council
ASEAN Coordinating
Council
ASEAN Ministerial Meeting on

Environment (AMME)
Secretary General of
ASEAN
ASEAN Senior Officials on the

Environment (ASOEN)
ASEAN Secretariat
(ASCC Department)
(Thailand)
Nature
Conservation
and
Biodiversity
(Brunei
Darussalam)
Environmental
Education
(Philippines)
Water
Resources
Management
(Indonesia)
Environmentally
Sustainable
Cities
(Thailand)
Climate
Change
(Viet Nam)
Costal and
Marine
Environment
Other
Environmental
Activities (ASEAN
Secretariat)
ASEAN = Association of Southeast Asian Nations.

Source: Letchumanan (2010).
Recognizing the importance of environmental cooperation for

sustainable and regional integration, since 1977 ASEAN has cooperated
closely in promoting environmental cooperation focusing on 10 priority
areas of regional importance as reflected in the ASEAN Socio-Cultural
Community Blueprint 20092015 (Figure 11.2).
The ASEAN Blueprint (2009) is designed to enhance regional and
international cooperation to address climate change and its impacts on
socioeconomic development, health, and the environment in ASEAN
member states. It is based on a mixture of mitigation and adaptation
measures, based on the principles of equity, flexibility, effectiveness,
common but differentiated responsibilities, and respective capabilities,
and reflects the different social and economic conditions in ASEAN.
It identifies 11 priority actions in response to climate change to be
implemented by ASEAN member states during 20102015, including:
Figure 11.2: Structure of ASEAN Legislation on

Environmental Issues
ASEAN Community (2015)
ASEAN Economic
Community (AEC)
ASEAN Socio-Cultural
Community
ASEAN Political Security

Community (APSC)
AEC Blueprint
(Nov 2007)
ASCC Blueprint
(Mar 2009)
APSC Blueprint
(Mar 2009)
Initiative for ASEAN

Integration (AI)
IAI Work Plan 20092015

(Mar 2009)
4.1 Global Environmental Issues

1. Human Development
2. Social Welfare and Protection
3. Social Justice and Rights
4.2 Transboundary Environmental Pollution

4.3 Environmental Education
4.4 Environmentally Sound Technology
4.5 Environmentally Sustainable Cities
4.6 Harmonization of Environmental Policies and Databases
4. Environmental Sustainability
4.7 Costal and Marine Environment
5. ASEAN Identity
4.9 Freshwater Resources
4.8 Natural Resources and Biodiversity
6. Narrowing the Development Gap
4.10 Climate Change

4.11 Forestry
ASEAN = Association of Southeast Asian Nations.

Source: Letchumanan (2010).
Develop regional strategies to enhance capacity for adaptation,

a low-carbon economy, and promote public awareness to
address the effects of climate change.
Enhance collaboration among ASEAN Member States and
partner organizations to address climate-related hazards, and
scenarios for climate change.
Develop a regional systematic observation system to monitor
the impact of climate change on vulnerable ecosystems in
ASEAN.
Conduct regional policy, scientific and related studies, to
facilitate the implementation of the UNFCCC and related
conventions.
ASEAN is committed to pursuing a broader approach and to

taking voluntary and appropriate mitigation and adaptation measures.
Technology transfer, provision of concessionary financial assistance,
and capacity building are all part of its efforts to address climate change
issues in a proactive and responsible manner.
SAARC is another regional political organization in Asia with potential

to influence countries within the region to take action for climate
change mitigation. The sixteenth SAARC Summit in Thimpu, Bhutan in
April 2010 was dedicated to the theme of climate change. The Thimpu
Statement committed countries to comprehensive regional self-reliance
efforts and to linking national institutions to facilitate sharing of
knowledge, information, and capacity building programs in climatechange-related areas.
APEC has aspirations to become the leading regional organization and

the biggest free trade market in the world. The organization is trying to
address climate change mainly by increasing cooperation in the energy
market (APEC Yokohama Declaration 2010). The association assists
member economies to meet their climate change goals through the
APEC working groups:

Energy Working Group: informs energy policy makers, draws

advice from the business community, and industry experts
and collaborates with other international bodies including the
International Energy Agency, the Renewable Energy and Energy
Efficiency Partnership, and the Energy Charter Secretariat.
Asia-Pacific Network for Energy Technology: enables
member countries to collaborate in energy research across the
region, particularly in areas such as clean fossil energy and
renewable energy resources.
Energy Security Initiative: comprises short-term measures
and long-term policy responses to address the challenges faced
by the regions energy supply.
Another significant initiative is APECs Environmental Goods

and Services Work Program. The APEC Trade Ministers recognized
climate change as one of the biggest challenges confronting the world
and determined to ensure that economic growth is consistent with
environmental sustainability.
11.3.2Regional Financial Institutions Involved in

Climate Change Mitigation in Asia
The financing needs for climate change mitigation and adaptation are
large. Reflecting the uncertainties associated with potential climate
change scenarios and their likely impact, estimates of these needs for
climate change mitigation and adaptation vary widely. The first of the
ADB funds described below covers both mitigation and adaptation, the
other three focus mainly on mitigation.
Climate Change Fund (CCF)
The CCF was established in May 2008 to provide grant financing

for projects, research, and other activities to address the causes and
consequences of climate change in ADBs developing member countries.
The CCF invests in projects that lead to a reduction of GHG emissions or
climate change adaptation. It seeks to address climate change by scaling
up mitigation and adaptation activities in such areas as forest and landuse management.
Clean Energy Financing Partnership Facility (CEFPF)
The CEFPF was established in April 2007. It provides grant financing to

ADBs DMCs for energy security improvements and transition to lowcarbon economies through cost-effective investments in technologies
and practices. In addition, CEFPF resources finance policy, regulatory,
and institutional reforms that encourage clean energy development.
Asia Pacific Carbon Fund (APCF)
The APCF was established as a part of ADBs carbon market initiative

(CMI) in May 2007. It provides ADBs DMCs with additional financial
resources for clean energy projects. The APCF provides upfront finance
for projects eligible for CDM in return for a proportion of certified
emissions reduction to be generated until 2012.
Future Carbon Fund (FCF)
This is a fund for projects that will generate carbon credits after 2012. The
FCF will enable clean energy project developers to benefit even for post2012 GHG reductions, thereby inducing more investments into energy
efficiency and renewable energy. It became operational in early 2009.
Poverty and Environment Fund (PEF)
The PEF is a multidonor trust fund administered by ADB that promotes

mainstreaming of environmental considerations, including climate change
considerations into development strategies, plans, programs, and projects.
11.4Regional Monitoring Reporting and

Verifying (MRV) Systems
There is an increasing need for integrated regional systems to verify
the voluntary pledges that are already in place and to plan for a better
future strategy to mitigate the damaging impacts of climate change. The
monitoring, reporting, and verification (MRV) concept was introduced

within the framework of the Bali Action Plan under the UNFCCC. The
Bali Action Plan foresees MRV of nationally appropriate mitigation
commitments or actions for developed countries and developing
countries and of financial and technical support for these commitments.
When it comes to the regional MRV, the situation becomes more
complex. Any such system has to be built from the bottom up. It is not
possible to maintain well-functioning MRV at the regional scale if it
does not operate properly at national and local levels.
11.4.1Integrated Regional MRV Systems

A regional MRV structure could include generating a more timely picture
of regional GHG emissions trends; collecting qualitative or quantitative
information on what GHG mitigation actions different regions or
countries are taking, e.g., in order to provide international recognition
for these actions; quantifying the GHG impact of such actions (i.e.
calculating the difference between performance and baseline); and
identifying promising areas for future GHG mitigation action in the
regional scope.
While these options are not mutually exclusive, they do differ from
each other, sometimes substantially. The design of any regional MRV
systems will therefore depend on which of the above aims they are
trying to fulfill. Agreement on which the MRV provisions will focus on
will need to be made during the negotiation process.
The process of carrying out MRV of mitigation actions can also vary.
Countries will need to agree on such specific issues as:

Measurement: What guidelines, rules, and best practices

should be followed when estimating the impacts of measures
that mitigate GHG emissions? Agreement will be needed on
whether measurement or monitoring requirements should
vary, for example according to the type of action. Alternatively,
country- and action-specific estimation methodologies and
processes could be used.
Reporting: Common reporting formats and guidelines
outlining how actions are reported (which language, what
units, what timing, where are reports to be collected, what
should be reported and when reporting should take place) need
to be established.
Verification: What types of verification body or bodies (national
or international) are needed, what verification process should
be followed, how should results be reported, and should

adjustments in reports on GHG mitigation be made? Agreement
will also be needed on the consequences of problems raised at
the verification stage.
Countries may also need to agree on some more general issues, such
as whether measurement, reporting, and verification issues should be
considered separately.
The types of actions or commitments considered by the regional
MRV can also differ (UNFCCC 2009). They can vary from soft actions
(non-binding) to hard actions (binding national targets), with each
presenting different MRV-related challenges. These actions can be
grouped into five major categories:

national emission targets (binding or non-binding);

other forms of national commitments or actions (e.g., GHGintensity or energy-intensity targets);
sectoral emissions targets (binding or non-binding);
CDM and/or other crediting mechanisms; and
domestic policies and measures or other non-crediting
approaches.
In order to assess the progress of different types of actions or

commitments, different requirements for MRV are needed both between
and potentially also within categories.
11.4.2Challenges with Regional MRV Systems

One of the biggest issues with regional MRV systems is the transparency
of data and its reliability. Another constraint is institutional capacity at
the national level. Estimating a countrys emissions will require some
country-specific activity data, e.g., on energy use. Obtaining such data
and information on country-specific emission factors, requires both time
and resources. The cost of establishing a countrys emissions inventory
can vary widely, depending on the country and its economy.
It will require a lot of effort and time to create a regional MRV
institution and even more time to make it efficient. A broad regional
consensus on the need for creating such an external institution will
be needed. Most countries in Asia do not have experience of data
collecting, processing, and sharing. A platform for introducing a
regional MRV system in Asia could be provided by ASEAN, which has
already established regional structures and is making on-going efforts to
harmonize legislation.
There is also an opportunity for greater involvement of ADB in

establishing a regional MRV scheme among its members. ADB could
encourage and support its members to develop national MRVs and to
try to use regional platforms to promote data collection in a transparent,
consistent, and integrated way.
11.5National Policy Actions

11.5.1Operational Principles for Regional Institutions
Asia has in recent years taken actions to adapt to climate change
impacts and to mitigate GHG emissions. Many Asian countries have
developed national plans or strategies for climate change, established
a ministry or agency as the central point to deal with climate change
and its impact, and implemented programs to support adaptation
and mitigation activities. But there are still many gaps that need to be
addressed by national legislation. There is an urgent need to raise the
awareness of climate change impacts and risks, incorporating climate
change in development planning and policy making and creating an
effective institutional framework for better policy coordination. There
is an increasing need to invest more resources in climate adaptation
and mitigation and to eliminate market distortions which hinder
the implementation of such actions. Asian states need to strengthen
international and regional cooperation in knowledge, technology, and
financial transfers and to undertake more research to fill knowledge
gaps on climate-change-related challenges and solutions at local levels,
on their way toward sustainable development and mitigation of climatechange-related threats.
11.5.2National Policy Measures on Adaptation to

Climate Change
At the national level, the most important step for Asian economies is
to establish institutions that support structural reform and to continue
efforts to strengthen climate change resilience by improving adaptive
capacity and taking technical and non-technical adaptation measures
in climate-sensitive sectors. A countrys resilience to climate change
depends principally on its adaptive capacity (ADB 2009a), which
is subject to the states economic, social, and human development
activities, and closely related to:
income, inequality, poverty, literacy, and regional disparity;

capacity and governance of public institutions and public
finance;
availability or adequacy of public services including education,
health, and social protection; and
capacity for economic diversification, especially at local levels.

Strengthening adaptive capacity also requires incorporating climate
change adaptation in development planning. Adaptation should be
considered an integral part of sustainable development and poverty
reduction strategies.
Many sectors have adaptation needs but water, agriculture,
forestry, and health require particular attention. However, adaptation
measures have suffered from ambiguous information associated
with large-scale, long-term investments such as climate proofing of
buildings and defensive infrastructure, and the need to coordinate
large number of stakeholders. As a result, the private sector is not
taking a leading role; the main measures need to be driven by public
policy and government interventions. There is an urgent need for Asian
governments to develop and adopt more proactive, systematic, and
integrated legislation on adaptation in key sectors. Their policies need
to lead toward cost-effective, durable, and long-term solutions, as well
as focusing on the specific countrys circumstances in the following
sectors (Brmmelhrster 2010):

Water resources: scale up existing good practices of water

conservation and management and apply integrated water
management more widely, including flood control prevention,
early warning flood systems, and irrigation improvements.
Agriculture: strengthen local adaptive capacity by improving
public services for climate change forecasts, research and
development on heat-resistant crops, early warning systems,
efficient irrigation systems, and risk-sharing instruments such
as insurance schemes.
Forestry: improve early warning systems and awarenessraising programs to strengthen local communities capacity to
cope with increasing risk of forest fires due to shifting climatic
patterns, implement aggressive publicprivate partnerships for
reforestation and afforestation.
Coastal and marine resources: implement integrated coastal
zone management plans, including mangrove conservation and
planting.
Health: focus on expanding or establishing early warning

systems for disease outbreaks, health surveillance, awareness
raising campaigns, and communicable disease control programs.
Infrastructure: introduce policy regulations, introducing
climate proofing of transport- related investments and
infrastructure.
11.5.3National Policy Measures to Mitigate Climate

Change
The Asian region plays a crucial role in global attempts to stabilize GHG
concentrations in the atmosphere. While the response of the largest
GHG-emitting developed economies under the UNFCCC is key to a
successful global solution, Asian governments will also need to play
an important role in the global solution, given that the regions rapid
economic and population growth will likely cause its GHG emissions
to grow further, and because a low-carbon growth path can bring
significant economic benefits. Mitigation should target land use change
and forestry, energy, and agriculture.
The forestry sector is one of the largest contributors of GHGs
emission in Asia, so special attention needs to be given to maintaining
or increasing forest areas by implementing REDD standards and
improving forest management. Reducing or preventing deforestation
has the largest potential for mitigation in the short run.
Asian governments should step up efforts to reduce deforestation,
support reforestation and afforestation, and enhance national and
provincial governance systems for sustainable forest management.
These require policy reforms including:

monitoring and controlling illegal logging,

increasing governmental rent received for the forest
concessions,
lengthening the concession cycle and lease security, and
stimulating greater competition in accessing concessions.
Since forests are also home to many indigenous communities,

policies must be designed to fully recognize and respect their rights
and priorities, and to ensure their participation in the design and
implementation of REDD policies (Yurdi et al. 2010).
Mitigation in the energy sector can be achieved at a relatively
low cost or even a negative net cost. Asian countries have significant
mitigation potential in both the energy supply and demand sectors

(ADB 2009).

On the supply side, the major mitigation options are policies

to promote efficiency improvement in power generation,
fuel switching from coal to natural gas, and use of renewable
energy, including biomass, solar, wind, hydro, and geothermal
resources.
On the demand side, policies are needed to reduce GHG
emissions by regulating improvement of energy efficiency in
the most energy-intensive sectors, such as the residential and
commercial building, industry, and transport sectors.
There are many winwin mitigation options in Asia, with cost

savings from mitigation exceeding expenses. Energy efficiency
improvement measures fall in this category. However, there are also
numerous constraints on adopting these options. These can be overcome
by national legislation aimed at:

addressing information, knowledge, and technology gaps;

reducing market and price distortions;
easing policy, regulatory, and behavioral barriers; and
resolving deficiencies in the necessary finance for investments
in the energy sector
Moreover, policies to increase climate change mitigation in the

energy sector have to address a prominent market distortion in the
energy sector, which is present in many Asian countries; subsidies for
fossil fuels and electricity generated from such fuels. Governments must
gradually reduce general fuel subsidies and provide targeted subventions
only to the poor and vulnerable.
Given its rapid economic and population growth, Asias energy
demand is likely to continue to expand, and new sources of energy
supply will have to be addressed in the longer term. With the support
of existing financial transfer and technology cooperation mechanisms,
Asian governments should step up their efforts to develop and use
clean, renewable, and low-carbon energy sources, as well as clean
and sustainable transport systems. Governments should support the
greening of energy and transportation industries by putting in place
or further strengthening appropriate policy frameworks, creating
appropriate financial and tax incentives, and supporting research and
development. Public sector energy investment should incorporate
the negative externalities of GHG emissions in costbenefit analysis
(Renewable Energy and Energy Efficiency Partnership 2008).
Asia has significant potential for carbon sequestration in agriculture

if legislation in the following areas is adopted (IPCC 2007):

improved crop and grazing land management;

restoration of organic soils (including peatland) that are drained
for crop production, and restoration of degraded lands;
livestock management; and
manure and bio-solid management, and bioenergy use.
These measures can lead to a reduction in fertilizer and methanerelated emissions, a reversal of emissions from land use change, and
greater sequestration of carbon in the agro-ecosystem. However, the
development and implementation of such measures in Asia has been
very slow so far.
Measures for reducing GHG emissions from agriculture can be
explored through a combination of market-based programs, regulatory
measures, voluntary agreements, and international programs. Examples
of market-based programs include taxes on the use of nitrogen fertilizers,
and reform of agricultural support policies. Regulatory measures could
include limits on the use of nitrogen fertilizers and thus ensure the
compliance of agricultural activities with environmental objectives.
Voluntary agreements on better farm management practices could
be promoted, alongside labelling of organic products. International
programs could support technology transfer in agriculture.
Corruption strongly undermines trust in the democracies of the
region (Chang and Chu 2006). Bureaucratic and political elites often
carry out reforms with the purpose of safeguarding their own interests
and the ultimate outcome is often different from the initial plan (Cheung
2005).
Another element that hinders a straightforward approach to
reforms and adaptation policies is insufficient training of assigned staff.
In the developing countries of Asia, reforms are usually developed
by international agencies, leaving citizens outside the decision-making
process and unable to understand or adopt an appropriate course of
action. Sometimes reform packages are based on assumptions that
are valid only for developed countries and therefore irrelevant to
the developing country they are addressed to (Bowornwathana and
Wescott 2008). Asian countries are diverse and approaches need
to take into consideration the specifics of every country, otherwise
results will be unsatisfactory. This has to take place not only at local,
national, and regional levels; countries need to better understand the
needs and constraints of their neighbors and be ready to make balanced
compromises.
Finally, a problem regularly met in Asia is the superficial nature of

reforms that are mostly conducted at a fast pace, often leading to failures
because the structural improvements that are required must take place
at a much slower rate.
11.6Conclusion
Despite evidence of greater economic integration and expanding
regional cooperation, Asias diverse geography, culture, and political
norms have complicated progress toward a single regional arrangement
comparable to the EU or the North American Free Trade Agreement.
Countries are further divided by different religious, ethnographic,
and cultural identities. Politically, they range from democracies to
autocracies. Moreover, a long history of cultural rivalry continues to cast
a shadow over the region.
Unlike Europe, which integrated in common defense against an
external threat and in the shared conviction that state rivalry must be
replaced by regional cooperation, Asia does not have a natural set of
organizing principles that could drive the continent toward political
integration. Indeed, with Asian peace and security largely guaranteed
by the US presence in Asia and the Pacific even after the end of the Cold
War, neither concerns over internal friction nor over external challenges
act as a sufficient catalyst for integration.
A focus on the EU as a potential model for Asian integration is
probably inappropriate: the conditions that would favor such a structure
are not present at this time in Asia. Given the diverse threat perceptions,
political norms, and levels of economic development, the process of
integration in Asia is likely to remain fluid and unbalanced for some
time to come. European integration was largely initiated by a topdown
design by a handful of visionaries from German and French elites who
shared a common vision for the future, but Asian integration is much
more likely to result from a networking of multilateral cooperation from
the bottom upoften in spite of rivalry and competition among the
regions leaders.
Climate change is a huge challenge in Asia, not only because of
the number of emitters and the contradictory national motivations for
mitigation and adaptation strategies, but also because Asia is likely to be
significantly affected by the consequences of climate change. Areas with
high population densities, relatively low economic development, and
geographical sensitivities will make it particularly difficult for Asia to
deal with the impacts of climate change. The melting of the Himalayan
glaciers due to global warming could cause floods followed by water
shortages and land degradation that would affect 1 billion people. In

Central and South Asia, crop yields could decrease by 30%, creating
food insecurity in predominantly agricultural economies. Today, in Asia,
1.4 billion people live in low-lying regions. With rising sea levels, these
populations face the threat of permanently losing the coastal land on
which they reside and make their livelihoods. Combating the adverse
effects of climate change is an urgent issue and the way Asia addresses
the interconnected problems of energy, climate change, disaster relief,
and growth will have profound implications for the region and the world.
Although regional organizations have begun to serve as consensus
builders on the desirability of addressing climate change, they have yet
to develop much of a profile in creating common policies or response
mechanisms. Because Asia does not have a single dominant institutional
architecture, this consensus building role is diffused over a variety
of organizations and discussion channels with different degrees of
authority and varied memberships.
Regional organizations have been less effective as mobilizers, and
their role on climate change noticeably less concrete and operational
than, for example, their role in disaster relief. If the vigor and
effectiveness of regional organizations derive from their track record
on bringing together officials and leaders with a common purpose, the
climate change issue may help to advance that dynamic. Based on the
experience of the past decade, Asian institutions are likely to intensify
their consensus building role and expand their work in developing
practical approaches to specific problems or sectors; however, regulatory
harmonization or collective standard setting are likely to prove more
difficult.
Discussions of international cooperation on climate change operate
at two very different levels. The one most often in the headlines is the
effort to establish global norms and targets to mitigate climate change,
controlling emissions, adapting to the change that is already inevitable,
and paying for both mitigation and adaptation. Those efforts are the
focus of the UNFCCC and of the major conferences of its member states,
including the Bali conference in December 2008 and the Copenhagen
conference in December 2009. Thus far, regional organizations in Asia
have played a relatively small role in these negotiations, in spite of an
effort by ASEAN and APEC to organize its members preparations for
Copenhagen.
The most developed regional cooperation in Asia is by ASEAN, which
is on the way to achieving a degree of economic and social integration
and cooperation and which also pays close attention to environmental
issues that affect the wellbeing of its citizens. ASEAN could serve as a
model for regional integration for the rest of the continent, which can
learn from its successes and mistakes. SAARC, Central Asia Regional
Economic Cooperation (CAREC), and the Regional Environmental
Centre for Central Asia also have great potential for integrating Asian
countries in regional groupings that will serve as a platform for pursuing
green development and strengthen the Asian voice in the international
arena. The process of integration in Asia is progressing slowly and will
take its time before it can be considered successful.
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APPENDIX
Low-Carbon Green
Growth in Asia:
Policies and Practices
Executive Summary of the Companion Book
Asia is at a crossroads. Robust economic growth is lifting millions
of people out of poverty, but is also driving resource and energy
consumption to unsustainable levels. Climate change exacerbates the
challenges of growth and development. The developing economies of
Asia are highly vulnerable to changing climate. A global warming of the
atmosphere of up to 2C would lead to losses in high-income countries
and a global loss of about 1% to 2% of gross domestic product (GDP),
but Asias middle- and low-income countries could lose as much as
6% of GDP. Climate change is harming many economies in the region,
diverting resources from development programs, and making it more
difficult for people to escape poverty.
Asia accounts for about 40% of global greenhouse gas (GHG)
emissions and this share will rise to almost 50% by 2030 in a businessas-usual scenario. Yet some 650 million people in Asia lack access to
clean fuels for cooking and heating, and millions more lack electricity.
However, developing countries cannot simply follow the carbonintensive development path taken by industrialized countries. It is
estimated that, by 2050, 67% of the people in Asia will live in cities.
This increasing urbanization will require a massive expansion in
transportation infrastructure, urban development, energy production,
and agricultural output. This is a forceful reminder that finding lowcarbon solutions for Asia is neither a luxury problem nor a climate
problem. It is foremost a reality that will require a new development
paradigm.
Low-carbon green growth is an avenue toward development
that decouples economic growth from carbon emissions, pollution,
381
and resource use, and promotes growth through the creation of new
environment-friendly products, industries, and business models that
also improve the quality of life. Thus, low-carbon green growth entails:
(i) using less energy, improving the efficiency with which resources
are used, and moving to low-carbon energy sources; (ii) protecting and
promoting the sustainable use of natural resources such as forests and
peat lands; (iii) designing and disseminating low-carbon technologies
and business models to reinvigorate local economies; and (iv)
implementing policies and incentives that discourage carbon intensive
practices.
How close are the emerging economies of Asia to turning their
aspirations for a new development paradigm into a reality? What
policies, institutions, and financial factors accelerate or inhibit a shift
to resource-efficient green growth? What is the potential for the private
sector, technology, financing, and regional cooperation to become
drivers for future economic growth? This book aims to answer these
questions by reviewing the low-carbon policy initiatives taken by Asian
countries at the national, sectoral, and local levels, while assessing the
achievements, identifying the gaps, and examining new opportunities
for low-carbon green growth. The goal of this study is to share the
experiences and lessons of several Asian countries with other developing
nations and to make recommendations for actions by the countries in
the region, while deepening the actions of leading economies. This book
is based on the recognition that benefits from low-carbon green growth
are an imperative, not a luxury, for developing Asia. Asia must also find
an answer to the mounting international competition for resources
energy, raw materials, water, and fertile agricultural landthat will
dominate the coming decades.
Changing Perspectives, Converging Policies, and

Transformation Strategies
On the move toward low-carbon green growth, a great deal is happening
in Asia. Compared to the economies of other regions, Asia has the
highest rate of policy innovations and commitments to low-carbon
economic development. Many countries of the region have incorporated
low-carbon growth components in their national development plans
to attain a better balance between the environment, the economy, and
social welfare. Heavily dependent on imported resources and energy,
the emerging economies of Asia have been pursuing a new, low-carbon
development paradigm that is improving industrial competitiveness and
serving burgeoning green technology markets. The Peoples Republic of

China, India, and Indonesia, for example, are becoming market leaders
in a variety of low-carbon technologies such as wind turbines, solar
cells, electric vehicles, and biofuels, among others.
Given the great potential of renewable energy sources and energy
efficiency in most Asian countries, feed-in-tariffs and renewable
energy portfolio standards could serve to attract investment and
promote a national energy transition. Other policy innovations in
industry, transportation, and urban sectors are also making low-carbon
technologies affordable for many middle- and low-income countries.
Asias policy experiences and aspirations in tackling climate change
through multi-sectoral, multi-level approaches show that there are
co-benefits from these approaches in the short term, as well as in the
medium to long term.
The following summarizes actions some countries are taking that
could be rolled out across the region:
National Sector-Specific Policy Actions for Accelerating

Energy
Seek cost-effective, market-based solutions for the uptake of existing
technologies
Invest in reducing the cost of existing low-carbon technologies such
as solar, wind, and bio-energy
Continue to focus on lowering energy intensity and improving carbon
productivity by changing the energy mix away from an over-reliance
on fossil fuels
Gradually remove fossil fuel subsidies, introduce true energy pricing,
and promote mechanisms such as feed-in tariffs and renewable
portfolio standards
Progressively amend laws in order to scale up renewable energy in a
competitive market dominated by fossil fuels
Energy Efficiency
Improve energy efficiency through a combination of regulations and marketbased instruments
Launch top-runner programs for industrial technologies and
electrical appliances
Expand energy-saving labeling programs and begin to test carbon
labeling programs
Develop a focused and well-packaged regulatory system for small
and medium-sized enterprises (SMEs) that integrates efficiency

Box continued
standards and targets by assisting with compliance mechanisms,

including providing funds and matching grants with goals
Develop sectoral guidelines and training to achieve energy efficiency
standards
Transport
Develop new regulations, policies, and financing mechanisms to alter current
fleet growth patterns
Introduce new performance-based targets and incentive systems,
such as tax exemption for low-carbon vehicles for the transport
sector
Progressively improve the fuel efficiency and pollution standards for
passenger cars and light-duty vehicles
Introduce retail sales of biofuels such as ethanol in urban and rural
markets
Develop a consistent framework for integrating externalities such as
local air pollution and use to promote efficient and seamless multimodal transport systems
Agriculture and Forestry
Identify and implement the immediate actions needed to restore carbon
sinks
Introduce new market-based incentives for restoring degraded
forests and providing rural employment
Increase inspection capacity and tighten penalties for illegal logging
Scale up pilot schemes for enhancing carbon stock such as land
sequestration and reduction of water and fertilizer use
Extend awareness of market-based instruments to isolated
communities and poor farmers
Urban Sector
Scale up coordinated policies for land use planning, urban infrastructure,
and finance
Change regulations and standards in buildings that lead to the
inefficient use of energy and materials
Pilot market-based mechanisms such as carbon pricing and cap-andtrade to encourage the efficient use of public resources
Encourage and provide advice on low-carbon life style choices and
mentoring programs for neighborhoods
Remove barriers to mass transit networks, improving intermodality
of transport and urban freight solutions
Box continued
Industry and Trade

Create competitive markets focused on high value added, low-carbon
products and services
Integrate low-carbon targets and objectives into central and local
level industrial policy
Link industrial promotion incentives and private sector innovations
to carbon performance
Reduce the tariff rate for low-carbon environmental goods and
services and strengthen intellectual property regimes
Provide information and training on existing and emerging
technologies, management practices, and related green business
opportunities available internationally
Fiscal
Identify and implement immediate actions needed to introduce marketbased instruments
Pilot budgetary reforms and gradually increase energy taxes or
carbon pricing
Introduce performance-based tax incentive systems for achieving
sectoral emission targets
Explore innovative financing instruments and accelerate R&D
support for future industries
Improve efficiency, transparency, and accountability in the financial
sector by including rating programs and/or carbon credit schemes
with measuring, reporting, and verification requirements
Asias experience across different sectors shows that technological

innovation for increased resource efficiency is a catalyst for change.
To encourage this change, governments should reduce the cost of
technologies, support research and development (R&D), and improve
education to generate low-carbon green growth. To conquer the cost
barrier of new technologies, several Asian governments and industries
have cooperated successfully in generating a mutually reinforcing cycle
of market expansion and cost reduction. This has not only resulted in
large-scale deployment of low-carbon technologies but has also provided
the means for other countries to overcome cost barriers. A strong
partnership between the public and private sector ensures an effective
flow of financial resources to firms and households that reinforce the
long-term implementation of programs organized around market-based
incentives. Most of the finance required will be for investment in new or
improved infrastructure. This means these public finance mechanisms
must facilitate investment in productive capital with a long life span

where costs can be amortized over the life of the assets. The key will
be to link public finance mechanisms to sources of private finance
suitable for low-carbon infrastructure investment. The private sector
is also partnering with governments to ensure appropriate monitoring
and reporting activities. Low-carbon development thus involves not
just environmental policy, but also finance, trade, science, technology,
governance, and other policy areas.
The analysis also shows that developing Asia needs to worry not
only about the effects of climate change, but also whether countries are
locking themselves into a high-carbon future. Emerging Asia is growing
faster than other regions of the world. The infrastructure resulting from
the high growth era risks locking in carbon footprints for many years.
Power plants and factories have lifetimes of between 15 and 40 years,
while road, rail, and power distribution networks can last 40 to 75 years,
or more. Decisions on land use and urban planning have effects that
can last more than a century. Opportunities to shift from high- to lowcarbon infrastructure must be seized sooner rather than later. Delaying
action by a decade could increase the cost of mitigation two to five times.
Going Green as an Inclusive Growth Strategy

The outlook for developing Asias carbon emission growth is substantial
in absolute terms. Many inefficiencies drive todays high-carbon
intensity. High-carbon energy consumption could be cut by 45% by
changing lifestyle choices and improving energy efficiency in factories,
buildings, transportation, agriculture, and electricity generation. Such
climate-smart development initiatives would trigger investments in
new technologies and create green jobs. These green jobs could employ
as much as 1% to 2% of Asias workforce. This figure could be even
higher in poorer countries because of the greater need to improve the
environment and adopt more sustainable infrastructure, as well as the
greater scope for increasing employment in forestry and agriculture.
If countries are to achieve major benefits from green jobs, active
labor market policies will be required, not least to cushion the potential
impact of green growth policies on employment in high-polluting and
resource-intensive sectors. Macroeconomic policies must stimulate
demand while ensuring that debt-financed spending supports economic
activities with high social returns.
Inclusive growth remains the foremost goal for emerging Asia.
Many of the great benefits of low-carbon green growth are rarely
quantified. Providing access to clean energy will vastly improve peoples

education, employment, and quality of lifein particular, cleaner, more
affordable energy for cooking will reduce the toil of women and the
devastating health effects of indoor air pollution among the 600 million
people in developing Asia. Lower emissions from transport will improve
air quality and lead to health benefits in urban areas. Large populations
in developing countries depend on climate-sensitive sectors such as
agriculture, forestry, and animal husbandry: the natural resources that
underpin these, such as soil, water, grazing land, biodiversity, and forests,
are subject to degradation as a result of the changing climate and their
exploitation for short-term benefits. There are several measures, such
as low-till agriculture, afforestation, and community forest management
that simultaneously reduce degradation, sustain the livelihoods of the
rural poor, cut emissions, and increase forest carbon stocks.
Regional Cooperation for Seizing the

Opportunities
Scientists argue that delaying climate change mitigation by 10 years
would likely make it impossible to keep global warming from exceeding
2C. Carbon dioxide emitted today will remain in the atmosphere for a
century and temperatures will continue to rise for a few centuries after
GHG emissions in the atmosphere have stabilized. Therefore, todays
decisions will determine tomorrows options. Action to limit global
warming to 2C by the end of this century will be feasible only if all
countries play their part in mitigation.
The international climate financing architecture currently delivers
an estimated $171 billion annually to projects in developing countries,
from sources including development finance institutions ($70 billion),
project developers ($65 billion), corporate actors ($13 billion), and
commercial financial banks ($12 billion). The private sector share
of climate finance in developing countries is around 57%. However,
investment of more than $6 trillion will be needed in the region by
2030 in the energy sector alone. Filling the financing gap will require
all the tools at our disposal, spanning efficiency gains, reform and
integration of carbon markets, and the creation of innovative financing
instruments. The Clean Development Mechanism (CDM), among other
carbon market mechanisms, can be termed a success, but it is still very
uncertain whether it can deliver the required financial resources to
developing countries because of oversupply and the low demand caused
by international and national policies and financial and economic crisis.
As agreed at the Copenhagen Climate Change Conference in 2009, longterm funding to support climate action in developing countries should
reach $100 billion annually by 2020 through various sources. Therefore,
climate finance must be scaled up significantly through all possible ways
and means.
Financing from developed countries will be key as it is also in
the global communitys interest for developing Asia to cut emissions.
From the perspective of equity and historical responsibility, developed
countries should show leadership and share responsibility in filling
the significant financing gap. This must be done in addition to official
development assistance, if growth and development are not to suffer.
Effectively engaging the private sector is crucial to filling the
financing gap for mitigation. The pricing of carbon through taxes or
implementation of emissions trading schemes can provide strong
incentives to improve efficiency as market participants seek the
lowest cost abatement options wherever they occur. Setting a price on
carbon will also influence the consumption and investment decisions
of billions of households and firms that are consuming subsidized
high-carbon fuels. As many low-carbon projects have a long payback
time, governments can play a catalytic role by setting up guarantee
mechanisms, risk sharing schemes, and low-carbon funds, and changing
tax policies and subsidies to mitigate private investment risks.
But carbon pricing alone will not generate the needed flows
of technology across borders. Developing Asia and other advanced
economies need to work together to embrace the challenge of diffusing
low-carbon products, services, and innovations. Liberalization of
trade and reduced tariff rates for low-carbon green products and
services would accelerate technology transfer, and developing Asia
would benefit too from the knowledge created by emissions reduction
activities in advanced economies such as Japan, the Republic of Korea,
and Singapore.
Cooperative action in this region would be in the political interest
of all governments for the following reasons. First, a more direct,
region-wide push for energy efficiency, technology, investment, and
deforestation is essential to add credibility to the voluntary pledges and
national targets without losing economic competiveness. Second, given
the scale of investment required and the deterioration of public finances
in many countries, cooperation, consultation, and coordination among
governments in this region can leverage private sector capital. Third,
because it will take time to agree on the details to implement a global
climate deal, it is important to advance with concrete actions to provide
the international community with experience and lessons for increased
financial and technical assistance to developing Asia.
Developing Asia is expected to be at the center of the global agenda

on low-carbon green growth. Asia has much at stake in the fight against
climate change as the region is the worlds most populous and has had
high economic growth with a rising share of global GHG emissions, and
parts of Asia are among the most vulnerable to looming climate risks.
Nowhere are production, resource consumption, and emissions growing
faster than in developing Asia.
Action on the following ten key issues is crucial to achieving lowcarbon green growth in Asia.
Regional Actions for Accelerating Low-Carbon Green
Growth in Asia
Regional Carbon Market
Promote the links between national carbon trade schemes, which
will require the creation of a regional publicprivate policy dialogue
and framework to prepare the ground. Links will include transparent
agreements and rules (for instance, measuring, reporting, and
verification systems) and institutional arrangements.
Encourage investment in cross-border low-carbon energy
infrastructure and transport projects.
Regional Energy Partnership
Promote a regional partnership on renewable energy, setting national
renewable energy targets, and favorable feed-in tariffs and renewable
energy portfolio standards.
Promote setting of national efficiency standards for a limited but
critical range of energy-intensive industrial and consumer goods,
and buildings. Develop energy efficiency labeling for electrical
appliances, consumer products, and industrial manufacturing
processes, building on work currently under way according to a
mutually agreed timetable.
Private Sector Participation
Implement effective capacity development programs regionally or
subregionally to help create an enabling policy and legal environment
to attract private sector participation. International development
institutions, national governments, and financial institutions should
use risk-mitigating products (e.g., political risk guarantees and credit
risk guarantees) to encourage private sector investment in lowcarbon infrastructure development.
Promote a regional publicprivate portfolio of several large-scale
integrated smart city and smart grid demonstration projects across
different regulatory regimes.

Box continued
Technology Transfer
Establish a network of regional low-carbon innovation centers
modeled on the Consultative Group on International Agricultural
Research, to help developing countries accelerate the uptake of lowcarbon technology. Regional development institutions such as ADB
may play a leading role in promoting climate technology transfer and
diffusion, helping countries learn from each other.
Forge a free-trade agreement within Asia for high-impact green and
low-carbon technologies and services.
Finance
Encourage the phasing out of fossil fuel subsidies, using a regionally
coordinated approach. This should be done as a prelude to introducing
fiscal reforms that encompass a range of pricing and taxation
instruments, including taxes on fossil fuels and other resources
Set up a regional platform to encourage reducing emissions from
deforestation and degradation (REDD+) projects. This should
be hosted by key forest nations of the region and involve the
international community, regional financial institutions, civil society,
and the private sector.
The full volume of the book Low-Carbon Green Growth in Asia: Policies
and Practices, can be download from
http://www.adb.org/publications/low-carbon-green-growth-asiapolicies-and-practices-0
Perspectives, Policies, and Practices from Asia

Asia must be at the center of the global
fight against climate change. It is the
worlds most populous region, with high
economic growth, a rising share of global
greenhouse gas emissions, and the most
vulnerability to climate risks. Its current
resource- and emission-intensive growth
pattern is not sustainable. This study
recognizes low-carbon green growth
as an imperativenot an optionfor
developing Asia.
Asia has already started to move toward
low-carbon green growth. Many emerging
economies have started to use sustainable
development to bring competitiveness to
their industries and to serve growing green
technology markets.
The aim of this study is to share the
experiences of developed Asian economies
and the lessons they have learned. The book
assesses the low-carbon and green policies
and practices taken by developed Asian
countries, identifies gaps, and examines
new opportunities for low-carbon
green growth.

6 ADB Avenue
Mandaluyong, 1550 Metro Manila
Philippines
Tel: +632 632 4444
adbpubs@adb.org
www.adb.org
About the Asian Development Bank

ADBs vision is an Asia and Pacific region free
of poverty. Its mission is to help its developing
member countries reduce poverty and improve
the quality of life of their people. Despite the
regions many successes, it remains home
to the majority of the worlds poor. ADB
is committed to reducing poverty through
inclusive economic growth, environmentally
sustainable growth, and regional integration.
Based in Manila, ADB is owned by 67 members,
including 48 from the region.
Its main instruments for helping its developing
member countries are policy dialogue, loans,
equity investments, guarantees, grants, and
technical assistance.
About the Asian Development Bank Institute

from Asia
ADBI, located in Tokyo, is the think tank

of ADB. Its mission is to identify effective
development strategies and improve
development management in ADBs
developing member countries. ADBI has an
extensive network of partners in the Asia and
Pacific region and globally. ADBIs activities
are aligned with ADBs strategic focus, which
includes poverty reduction and inclusive
economic growth, the environment, regional
cooperation and integration, infrastructure
development, middle-income countries, and
private sector development and operations.

3-2-5 Kasumigaseki, Chiyoda-ku
Tokyo 100-6008
Japan
Tel: +813 3593 5500
adbipubs@adbi.org
www.adbi.org
Editors
Venkatachalam Anbumozhi
Masahiro Kawai
Bindu N. Lohani

Managing The Transition To A Low-Carbon Economy: Perspectives, Policies, and Practices From Asia

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Perspectives, Policies, and Practices from Asia

Asia must be at the center of the global

Asian Development Bank

About the Asian Development Bank

Managing the Transition to a Low-Carbon Economy

Managing the Transition to a Low-Carbon Economy

Managing the Transition

ADBI, located in Tokyo, is the think tank

Asian Development Bank Institute

Managing the Transition

2015 Asian Development Bank Institute

Chapter 2: Toward a Low-Carbon Asia: Challenges

Chapter 3: Green Growth and Equity in the Context

Chapter 4: Evaluation of Current Pledges, Actions,

PART II: Driving Forces and Incentives of

Chapter 6: Societal Innovations and Lifestyle Choices

Chapter 7: Reforms for Private Finance toward Green Growth

PART III: Regional Cooperation for Managing

Chapter 10: Regional Cooperation toward a Green Asia: Trade

Chapter 11: Narrowing the Gaps through Regional Cooperation:

Carbon Emissions of Selected Asian Economies

4.1 Projected Energy Demand in the PRC, India, and Other

viFigures, Tables, and Boxes

4.8 The Additional Transformation Required in the Power

Figures, Tables, and Boxes vii

8.1 Carbon Dioxide Emissions and Gross Domestic Product

11.1 Institutional Framework of ASEAN for Environmental Issues 364

2.1 Carbon Dependency of Global and Regional Economies

viiiFigures, Tables, and Boxes

3.1 Estimated Global Macroeconomic Cost Estimates of

4.1 Economic and Social indicators for Developing Asia in Context 86

Lifestyle Changes and Associated Factors for Food 

Figures, Tables, and Boxes ix

7.1 Estimation of Global Investment Cost Requirements

How Japan Achieved Decoupling

4.1 Energy Efficiency in Developing Asia: A Principal Concern

xFigures, Tables, and Boxes

4.3 Modeling of Alternative Scenarios in the World Energy

5.1 Cooking Stoves in India

9.1 Principles of the Paris Declaration on Aid Effectiveness

Low-Carbon Green Growth in Asia

instruments are helping emerging economies to tackle climate change

About This Book: Managing the Transition

assessed the scope and merits of current pledges, programs, and

This volume of edited papers focuses on the importance of adopting

Concepts and Measurement of Low-Carbon

systems and that therefore technological change needs to be induced by

Incentives and Driving Forces of Low-Carbon

financial, and institutional support. Investment in climate change

Regional Cooperation for Managing the

Committee for Global Green Growth Institute, and Technical Evaluation

supervision and the environment, minister of communication, minister

Development Assistance Committee. He was seconded to the African

Asian Development Bank

Asian Development Bank Institute

Asia-Pacific Economic Cooperation

Association of Southeast Asian Nations

Clean Development Mechanism

compact fluorescent lamp

emissions trading scheme

foreign direct investment

fuel flexible vehicles

Green Climate Fund

Chapter 2: Toward a Low-Carbon Asia: Challenges

Chapter 3: Green Growth and Equity in the Context

Chapter 4: Evaluation of Current Pledges, Actions,

PART II: Driving Forces and Incentives of

Chapter 6: Societal Innovations and Lifestyle Choices

Chapter 7: Reforms for Private Finance toward Green Growth

PART III: Regional Cooperation for Managing

Chapter 10: Regional Cooperation toward a Green Asia: Trade

Chapter 11: Narrowing the Gaps through Regional Cooperation:

Carbon Emissions of Selected Asian Economies

11.1 Institutional Framework of ASEAN for Environmental Issues 364

2.1 Carbon Dependency of Global and Regional Economies

4.1 Economic and Social indicators for Developing Asia in Context 86

Lifestyle Changes and Associated Factors for Food

How Japan Achieved Decoupling

5.1 Cooking Stoves in India

9.1 Principles of the Paris Declaration on Aid Effectiveness

OECD Organisation for Economic Co-operation and

REDD Reducing Emissions from Deforestation and Forest

UNESCAP United Nations Economic and Social Commission for Asia

1.2.1Setting the Overall Targets of Sustainable

2.2Cumulative Emissions and Carbon