Tuesday, 19 October, 2021

Greening Asia’s economies will cost over $12tn: ING

Greening Asia’s economies will cost over $12tn: ING

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SEOUL: The cost of “greening” the transport and generation capacity of three of Asia’s largest economies - China, Japan and South Korea - will amount to a whopping $12.4 trillion. And that is just for one part of the transition process in one sector.

This sobering estimation of what would be involved in moving the world’s economies to a cleaner emissions platform was encapsulated in ING’s report, Asia’s race to net-zero carbon: $12.4 trillion and counting, out on Tuesday, report agencies.

The report, authored by ING’s Asia-Pacific head of research Robert Carnell, focused on the three Asian economies that have made firm commitments to achieving a net-zero carbon future, and estimated a portion of the costs that achieving that would involve. Specifically, it looked at the costs of supplying a new generation of net-zero carbon transport with the clean and green electricity it will need if these targets are to be met.

“Fifty-nine countries have so far made net-zero carbon pledges, including from Asia, China, Japan and South Korea. These three economies account for about two-thirds of total Asian emissions,” Carnell said.

“But making pledges and actually doing what is necessary to achieve net-zero carbon are not the same things. By looking at transport - typically only a small part of the required transition process - we can begin to capture a sense of the daunting scale of what lies ahead.”

He calculated that US$12.4 trillion will cover the electricity generating capacity that will be needed to supply new fleets of battery electric vehicles, electrified rail, hydrogen-powered trucks, sustainable aviation fuelled planes, and ammonia-burning ships that such pledges imply.

It does not cover the costs of upgrading or replacing existing vehicle fleets, provision of charging points, storage of new fuels within the transport sector and the like; neither does it include the bigger and more complicated industrial and household sectors.

But, the US$12.4 trillion is already equivalent to more than 90 per cent of China’s gross domestic product (GDP) in 2020; as an added reference: global GDP in 2019 was just over US$87 trillion.

Diving deeper into each of the three economies, ING’s report said China will bear the brunt of the US$12.4 trillion investment - with its expenditure expected to total some US$11 trillion.

Its marine sector would need the greatest investment to be entirely zero carbon - through substituting diesel and liquefied natural gas (LNG) with green ammonia - followed by its rail, then aviation sectors. “And this only considers investment costs for electricity generation for the transportation industry,” Mr Carnell pointed out.

Japan would need some US$1 trillion to transition to a net-zero carbon transport system, in terms of the electricity generating capacity required. This is estimated to be about 20 per cent of Japan’s current GDP - though, this falls to around 0.6 per cent of GDP per annum when spread over the next 30 years.

South Korea would incur an estimated total green energy capacity cost of US$400 billion to move its transport sector towards a net-zero carbon future; this works out to be about 22 per cent of its current GDP, or 0.6 per cent of its GDP per annum spread over the next 30 years.

With transport accounting for less than a third of the total energy consumption in these economies, however, the cost of transitioning the entire economy would be multiples of what has been calculated.

“Even so, while the sums sound on the margins of credibility, we believe these targets are achievable, though foot-dragging now could put them out of reach.

“If the transition process starts today, then spread over the next 30 years - 40 (years) for China - the annual costs drop to more manageable figures: 0.6 per cent of current GDP per year for Japan and Korea, and 1.8 per cent for China,” Mr Carnell said.

“Most of these costs are likely to be met by the private sector and could be financed with green bonds, other existing sustainability linked instruments, or by green financial tools that have yet to be invented,” he said.

But, he pointed out, “all of this spending is going to show up as GDP”, and that the prospects for growth in sustainable finance to achieve net-zero carbon goals would “know almost no bounds” - with this part of the financial industry likely to grow not just in scale, but also in new and innovative ways to help these goals be achieved.