ADB sees carbon pricing as key to meeting climate goals

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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