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Coal mining

Unsplash / Dominik Vanyi

The current COVID-19 crisis has shown that governments can act quickly and decisively if needed and collaborate to work collectively. So, why are governments not acting as quickly and decisively in regard to the biggest crisis and challenge humanity will face for decades to come – climate change?

The short answer is vested interests of governments in carbon-intensive industries, as highlighted in ESCAP’s Survey 2020. This is due to many apprehensions – mostly financial but also social:

First, the fear of loss of direct revenues. Compared to a global average share of 8 per cent of GDP, the governments of the Russian Federation (33 per cent), Indonesia (22 per cent) and India (10 per cent) are particularly dependent on revenues from fossil fuels. In several Asia-Pacific countries, State-owned enterprises (SOEs) have a central role in power generation and fossil fuel extraction. Reducing reliance on fossil fuels in these economies built on SOEs is costly and difficult. For example, in India, the Government owns more than 70 per cent of Coal India, a mining SOE that produces most of the country’s coal. Additionally, India’s state-owned railways depend on cash generated by transporting coal (44 per cent of total freight revenues) to subsidize passenger tickets.

Second, the fear of loss of return on foreign investments. Governments, public banks and public investment funds pour massive investments into carbon-intensive projects, both domestically and internationally. Chinese banks have a staggering share of 72 per cent in financing all overseas coal plants. Ranking second and third are two other Asian powerhouses, Japan (12 per cent) and the Republic of Korea (10 per cent).

Third, the fear of devaluation of assets such as fossil fuel resources and coal power plants, in which governments have a financial stake. Reasons for devaluation include gradual uptake of renewables, natural disasters, policy and regulatory changes, technological change and changing consumer demands. This would indirectly threaten government revenues and even the stability of the financial system.

Fourth, the fear that it can cause mass unemployment, in “brown” sectors such as mining, oil production and coal power plants. The ILO estimates a net loss of 400,000 jobs by 2030 in fossil fuel-based electricity generation in our region. This is especially challenging if complementary actions such as retraining programmes are not provided to support workers in developing necessary skills and knowledge to take up new jobs in other sectors.

As much as these fears are justified, they are also overblown. On the financial side, by introducing carbon pricing and carbon tax, governments can at least partially offset both the loss of fossil fuel-based direct revenues and decrease in return on devalued carbon assets. Carbon pricing and taxes will also discourage the use of carbon-based production and consumption by nudging the industries and people towards greener alternatives. On the social side, while it is true that some sectors will experience job losses, these losses could be compensated by thriving greener sectors. For instance, losses in the mining of fossil fuels will be compensated by increased demand for electric vehicles and machinery resources like copper and nickel. ILO expects net creation of 2.5 million jobs in renewable energy generation alone as shutting down of coal-fired power does not mean loss of electricity demand. Overall, the green transition is expected to yield a net gain of 18 million jobs globally, of which Asia-Pacific is poised to benefit the most, with a net gain of 14 million jobs.

Vested interests in carbon intensive industries will need to be dealt with, assets will need to be revalued by taking climate-related risks into account and jobs will need to be shifted away from carbon intensive industries with ‘just transition’ policies. Additional funds for such measures can be generated by phasing out fossil-fuel subsidies. In the Asia-Pacific region alone, these amount to USD 242 billion (overpowering renewable energy investments by nearly USD 100 million), according to Survey 2020. These measures will undoubtedly be costly in the short run. But only by doing so, governments can ensure aligning their interests with the long-term interests of people and the planet, providing us with a fighting chance to prevent the worst impacts climate change has yet to bring.

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Jyoti Bisbey
Economics Affairs Officer
Macroeconomic Policy and Financing for Development +66 2 288-1234 [email protected]