POLICY BRIEF

Green Policies for Post-COVID-19 Economic Recovery in Southeast Asia

The Asian Development Bank-supported Green Recovery Program bridges the financing gap for green infrastructure, such as clean energy production, in Southeast Asia. Photo credit: ADB.
The Asian Development Bank-supported Green Recovery Program bridges the financing gap for green infrastructure, such as clean energy production, in Southeast Asia. Photo credit: ADB.

Published: 07 September 2021

Green finance can provide the fiscal firepower to manage the impact of the crisis and steer economies toward resource-efficient and low-carbon growth.

Introduction

ASEAN countries need to scale up green infrastructure. To enhance connectivity in Southeast Asia, investing in infrastructure is critical and has a vital role in reducing poverty and achieving development outcomes. While infrastructure is the backbone of economic growth in the region, its environmental costs remain particularly high.

The Asian Development Bank (ADB) estimates that Southeast Asia will require $210 billion per year between 2016 until 2030 to support investment in vital climate-resilient infrastructure. Prior to the coronavirus disease (COVID-19) pandemic, infrastructure investment, particularly from private capital sources, was far below the levels required. Taking into account climate change, the investment gap was estimated between 3.8% and 4.1% of the gross domestic product (GDP) from 2016 until 2020 in some ASEAN countries.

COVID-19 has had a major impact in Southeast Asia with economic contraction at 4.0% in 2020, according to ADB estimates. Post-COVID-19 policies and investments need to achieve socioeconomic and environmental outcomes to enhance sustainability and resilience of economies in the medium to long term. Pursuing a green recovery will be critical to ensure an environmentally resilient future in Southeast Asia.

This policy brief is based on the presentations at the 15th Policy Actions for COVID-19 Economic Recovery (PACER) Dialogue organized by ADB.

Why a Green Recovery?

The United Nation’s Sustainable Development Goals (SDGs) Report 2020 estimates around 71 million people were pushed back into extreme poverty in 2020, confirming the scope and scale of setbacks for achieving the SDGs across the world.

Meanwhile, individual country contributions submitted to date would only cut about 1% of global greenhouse gas emissions (GHGs)—a far cry from the 45% cut needed by 2030 to meet the 1.5-degrees Celsius goal set by the Intergovernmental Panel on Climate Change (IPCC).

The 10 member states of ASEAN have all ratified the Paris Agreement under the United Nations Framework Convention on Climate Change (Paris Agreement) and committed to their Nationally Determined Contributions (NDCs). They already set a target of generating 23% of their primary energy from renewable sources by 2025. A comparison between expected emissions that would occur by meeting NDC targets and the emission targets needed to meet Paris goals reveals an estimated gap of 415 metric tons of carbon dioxide equivalent (mtCO2e). This means that emissions need to be reduced by an additional 11%. NDC targets in the ASEAN region remain highly dependent on external investment and support.

Globally, investors are calling on governments to put in place green recovery plans. While significant progress has been made in Southeast Asia to scale up green infrastructure prior to the pandemic, the COVID-19 crisis has slowed down the momentum on climate action. Resource allocations originally intended for climate action had to be redirected as public budgets face increasing pressure and private investments took the back seat. Clear and robust low-carbon policies and green national recovery strategies are needed to reduce the risk of future pandemics, mitigate and adapt to the impact of climate change, and improve competitiveness. Green policies and strategies will also guide investors, businesses, workers, and consumers toward sustainability, such as through frameworks for sustainable finance and taxonomy principles.

A green recovery approach from the COVID-19 crisis is crucial for four reasons.

  1. Safeguard the environment for enhancing resilience against future pandemics.
  2. Address the worsening impacts of climate change and biodiversity loss and their economic consequences.
  3. Boost economies through green stimulus policies (as demonstrated in past crises).
  4. Strengthen Southeast Asia’s long-term economic competitiveness through a green recovery approach.

Policy Options

Countries recognize the need to create longer-term economic recovery packages to address the challenges and mitigate the risks brought about by the pandemic. This involves balancing economic growth with safeguarding natural capital. The three pillars to balance green recovery strategies are

  1. Leverage scarce government funds as best as possible.
  2. Mitigate heightened project risk perception to catalyze private finance.
  3. Accelerate protection of natural resources and climate resilience

In designing green recovery strategies, governments can consider nine policy levers to influence significant environmental outcomes.

1​. Pricing of externalities. Put a price on environmental externalities of activities to influence market decisions (e.g., carbon taxes)​.

2. Financial support for green products and services. Provide loans and grants for products and services with environmental impacts (e.g., energy-efficiency retrofits in the construction sector), disbursing public funds to private corporations after environmental actions are taken, and green public procurement.

3. Catalyzing private sector financing. Mobilize private sector investments in areas with environmental implications (e.g., green financing approaches).

4. Public investments in supporting infrastructure​. Invest in projects with specific environmental outcomes (e.g., renewable energy projects, responsible mining activities).

5. Support for innovation: Finance the development of new technologies with implications for the environment (e.g., research and development for electric vehicle deployment)​.

6. Addressing non-price market failures. Impose environmental standards and regulations (e.g., property rights) in specific industries or on activities with environmental impacts or their reversal (deregulation).

7. Behavioural change and skills development programs. Trigger behavioural changes (e.g., “nudge” policies to alter consumer preferences toward sustainability) and create skills programs to build capacity for green projects (e.g., regenerative agricultural techniques).

8. New collaborations. Foster collaborations within industry or between industry and other actors (government, civil society, etc.) to influence environmental outcomes.

9. New information systems. Address information asymmetries by alerting businesses to risks, providing information to consumers, and driving transparency in environmental performance.

Three Steps toward a Green Recovery

Implementing a green recovery in Southeast Asia requires taking three key steps. Policy actions for Southeast Asia to consider include the following:

Step 1: Build mechanisms that can produce a lasting shift toward ecosystem resilience.

There are four mechanisms that policy makers can use to incorporate green objectives into government policies:

  1. Develop a more integrated approach toward green growth, working across government agencies to assess tradeoffs or possible shared benefits of green policies pursued by different agencies.
  2. Assess all policy interventions with a green lens.
  3. Build a rigorous approach to data collection and target setting.
  4. Ensure government agencies have the right skills to execute a green growth agenda.

Step 2: Implement targeted policy interventions focused on five areas of opportunity.

There are five green growth opportunities in areas that are most relevant for Southeast Asia.

  1. Productive and regenerative agriculture
  2. Sustainable urban development and transport models
  3. Clean energy transition
  4. Circular economy models
  5. Healthy and productive oceans

If leveraged fully, these five areas will require $172 billion in capital investment and can create 30 million jobs in Southeast Asia by 2030. These opportunities can also help toward meeting the SDGs.

Step 3: Identify sustainable sources of financing.

Governments must determine at the outset how they will finance investments in these five areas. Options include collecting green taxes (e.g., carbon taxes), removing brown subsidies (e.g., fossil fuel subsidies), mobilizing private sector finance (e.g., green finance catalytic facilities and sustainable impact bonds), and leveraging international finance sources. In particular, Southeast Asian countries can use the ASEAN Catalytic Green Finance Facility (ACGF) to acquire sovereign loans and technical assistance for green infrastructure projects on sustainable transport, clean energy, and resilient water systems.

Regional and Country Strategies

Support for a green recovery approach is evident in regional strategies. The ASEAN Comprehensive Recovery Framework (ASEAN Secretariat 2020) emphasizes environmental sustainability as a key component of the region’s post-pandemic economic recovery process. The Greater Mekong Subregion’s COVID-19 Response and Recovery Plan 2021–2023 includes a focus on developing healthy cities, crops, livestock, and communities as part of its overall strategy to enhance resilience against future pandemics (Greater Mekong Subregion Secretariat 2020).

Individual countries in Southeast Asia have also developed their own policy responses.

The Philippines continues to spend efforts in mobilizing financing for green and sustainable projects. These include the following:

  • establishment of the interagency technical working group on sustainable finance (CCC Resolution No. 2021-002),
  • development of the Sustainable Finance Roadmap,
  • development of the NDC Financial Plan,
  • development of Green and Sustainable Bonds Standards (SEC Memorandum Circular No. 8), and
  • Sustainable Finance Framework (BSP Circular No. 1085).

Implemented policies in the Philippines include the following:

  • First NDC: Cumulative economy-wide GHG emission reduction and avoidance from business-as-usual scenario of 75% (2.71% unconditional, 72.29% condition).
  • Moratorium for Greenfield Coal-fired Projects: New planned coal projects will no longer receive permits from the Department of Energy.

Thailand is committed to deal with climate change following the Paris Agreement and support the SDGs. Thailand, acting through its Ministry of Finance, issued a benchmark bond series under its Sustainable Financing Framework, accessing the capital markets for a post- COVID-19 green recovery in August 2020. It is one of the first such sovereign bonds globally that combines green as well as social impacts with COVID-19 recovery. The bond was oversubscribed three times and its proceeds will be used to finance green infrastructure and social projects supporting the country’s COVID-19 recovery and SDGs 3 and 8, including public health care and employment generation. It will fund Bangkok’s Mass Rapid Transit Orange Line (East) Project, which was certified as low-carbon transport by the Climate Bonds Standards and Certification Scheme.

ADB’s commitment to help Southeast Asia shape a climate-resilient and environmentally sustainable economic recovery from the COVID-19 pandemic includes the ACGF-managed Green Recovery Program, which is providing technical assistance and concessional loans to about 25 green infrastructure projects across Southeast Asia in key sectors, such as sustainable transport, renewable energy and energy efficient systems, and low-carbon agriculture and natural resources.

Policy Recommendations

Some cross-cutting policy recommendations to implement a green recovery would include the following:

Subsidy reform and carbon pricing. Thailand’s Climate Change Master Plan 2015–2050 intends to use taxes to curb carbon emissions and an emissions trading market as policy tools to reduce GHG emissions in 2030 to 20.8%, which is below the business-as-usual levels.

Similarly, Indonesia implemented subsidy reforms in 2015 to remove fuel subsidies for gasoline and diesel, saving the government 211 trillion rupiah ($15.6 billion) or 10% of all government expenditure.

Accelerate research and innovation in green technologies. Thailand’s Climate Change Master Plan 2015–2050 identified adaptation and risk management for water, agriculture, and energy sectors as areas to develop an enabling environment for climate change management.

Beyond the environmental benefits, the Global Green Growth Institute, for example, estimated that incorporating green technologies to enhance circularity in four industries in Cambodia (garments, food and beverage processing, electronics manufacturing, and brick manufacturing) could translate into increased GDP contributions of between 14.7% (for brick manufacturing) and 35.5% (for electronics) and create 512,000 jobs.

Gender-specific entrepreneurship programs for green opportunities. The United Nations Development Program’s Women’s Green Business Initiative addresses existing structural barriers to women’s economic advancement and facilitates equal opportunities for them to participate in the green economy.

Some countries in Southeast Asia have begun acknowledging the issue. Myanmar’s Climate Change Strategy 2018–2030, for example, acknowledges that women are disproportionately affected by the effects of climate change and recognizes the potential positive impact that women entrepreneurs could play in promoting climate mitigation practices.

Green finance

Focusing on green finance, which is the core area of expertise of this author, the main policy recommendations to bridge the bankability gap and achieve an effective green economic recovery in the region would be the following:

  • Encourage access to green funds by increasing the amount of concessional funds and incentivizing green investments from the public and private sectors.
  • Develop and promote capacity building programs on green and innovative finance approaches to help countries identify dark green projects and financially structure them to attract private capital and create innovative bankable models, which will be key to develop green project pipelines.
  • Create new catalytic facilities at national and/or regional level that can transition green infrastructure projects across the bankability gap, hence attracting private finance (e.g., SDG Indonesia One—Green Finance Facility; ACGF), and mainstream new innovative finance instruments (e.g., SDG Accelerator Bond).

Resources

A. Mehta. 2021. Mainstream Green Finance. Presented at the Policy Actions for COVID-19 Economic Recovery Dialogues of the Asian Development Bank. 8 July.

Asian Development Bank (ADB). ASEAN Catalytic Green Finance Facility (ACGF).

ADB. 2021. Accelerating Sustainable Development after COVID-19: The Role of SDG Bonds. Manila.

ADB. 2021. ASEAN Catalytic Green Finance Facility 2019-2020 Accelerating Green Finance in Southeast Asia. Manila.

ADB. 2021. Asian Development Outlook (ADO) 2021: Financing a Green and Inclusive Recovery. Manila.

ADB. 2021. Implementing a Green Recovery in Southeast Asia. ADB Briefs. No. 173. Manila.

ADB. 2020. ASEAN Catalytic Green Finance Facility Operations Plan 2019–2021. Manila.

ADB. 2020. Green Finance Strategies for Post-COVID-19 Economic Recovery in Southeast Asia: Greening Recoveries for Planet and People. Manila.

AlphaBeta. 2021. Policy Advice for COVID-19 Economic Recovery in Southeast Asia: Green Recovery.

Green Climate Fund. 2021. FP156. ASEAN Catalytic Green Finance Facility (ACGF): Green Recovery Program.  

P. Alvarez. 2021. Mobilizing Finance for Green Projects in the Philippines. Presented at the Policy Actions for COVID-19 Economic Recovery Dialogues of the Asian Development Bank. 8 July.

P. Hutcahroen. 2021. Green Policies for Post-COVID-19 Recovery. Presented at the Policy Actions for COVID-19 Economic Recovery Dialogues of the Asian Development. 8 July.

United Nations. 2020. The Sustainable Development Goals Report 2020.

Ask the Experts

  • Anouj Mehta
    Unit Head, Green and Innovative Finance and the ACGF, Southeast Asia Department, Asian Development Bank

    Anouj focuses on innovative and green finance across Southeast Asia and manages the ASEAN Catalytic Green Finance Facility (ACGF), including the Green Climate Fund-approved "Green Recovery Program," under the Asian Development Bank. He also leads other initiatives and partnerships aimed at developing green recovery and financing strategies post-COVID-19.

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  • Asian Development Bank (ADB)

    The Asian Development Bank is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

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The views expressed on this website are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.




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