The Need for a Green Economic Recovery

To date, the COVID-19 pandemic has spread to every continent except Antarctica. More than a global health crisis, the pandemic also represents a daunting socio-economic crisis that will leave deep, long lasting social, economic and political effects in every country worldwide. Governments around the world are taking unprecedented measures to limit the spread of the virus and support their economies which have been severely disrupted by the virus. While various economic recovery packages have been introduced, only a handful of decisions took into account measures that target post-carbon economic priorities. 

ASEAN is slow to go green

ASEAN countries adopted a regional agenda in 2015, known as the ASEAN Community Vision 2025, which sets out the path for an ASEAN community that is politically cohesive, economically integrated and socially responsible and therefore has significant parallels with the United Nations 2030 Agenda for Sustainable Development. Whilst advances have been made towards some Sustainable Development Goals (SDGs) in Asia and the Pacific, the rate of progress is insufficient to meet any of the 17 SDGs by 2030. The Asian Development Bank estimates that ASEAN nations will need between USD2.8tn and USD3.1tn in infrastructure investment from 2016 to 2030, hence implying an annual average investment need of USD185bn to USD210bn. Since the launch of the ASEAN Green Bond Standards, ASEAN Social Bond Standards and ASEAN Sustainability Bond Standards in 2017 up to June 2020, a total of only USD 5.41bn in bonds have been issued under the standards from 4 member countries, with Malaysia in second in terms of bonds issued, at a total of USD1.43bn (52% Sustainability, 48% Green). The Philippines leads the pack at USD2.37bn (66% Green, 34% Sustainability) in green bonds.

The recent mobilization of fiscal and monetary measures among ASEAN Member States (AMS) to mitigate the economic impact are all national strategies in the midst of the negative effects of global trade tensions and the very real prospect of recession due to the COVID-19 pandemic. The stimulus packages introduced by the AMS entail several overarching key measures such as health systems, income support, taxes, leases, loans, and business upgrading. Despite the promising trend in fixing the economy, green stimulus packages are nowhere to be found in the region. While Malaysia’s own PENJANA package rightfully focuses on protecting jobs, FDI and SMEs, it could do with more green commitment. Scientists and researchers have been emphasizing this chance to start rebuilding the economy after COVID-19 in a greener direction. The capacity of Malaysia to deploy holistic stimulus packages portrays our capability to be the trailblazer for green packages in ASEAN.

Economic growth and green policies go together

Before getting into the details of a green economic recovery package, we must first address the elephant in the room. What about economic growth? For decades, it has been generally accepted that there is some sort of trade-off between economic growth and environmental sustainability. However, the idea that both economic growth and environmental sustainability can go hand in hand has been growing since the mid-2000s. There has been a recent study in the UK by Oxford University regarding the impact of a traditional COVID-19 economic recovery package compared to a ‘green’ economic recovery package, with results showing that a greener package can in fact be more beneficial to economic growth in regards to creating more jobs and a long term increase in cost savings. Furthermore, the discourse caused by the COVID-19 pandemic within economies of the world is the most opportune time to transition into a greener economic growth model.

Why would a greener package be better?

 

Firstly, let us address the misconception that green investments generate less returns. There is no clear evidence that green investments come at the expense of generating returns. In the IMF’s 2019 Global Financial Stability Report, researchers found that the performance of sustainable funds is comparable to that of conventional equity funds. The report estimates that more than 1,500 equity funds now have an “explicit sustainability mandate”, controlling nearly $600 billion in assets. However, this still only represents 2% of the total investment fund universe. Norway’s Government Pension Fund Global (GPFG), also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. Owning over US$1 trillion in assets, it is the world’s largest sovereign wealth fund. In 2019, GPFG committed to divest from firms that explore for oil and gas, leading to a £130m share price drop off several UK-listed firms.

With the cost of renewables coming down, it is also becoming increasingly attractive to invest in green tech through various financial structures. In fact, the supply and prices for renewables are more stable than for oil and gas, which recently traded at negative prices. Tesla’s stock price continues to skyrocket, while 2019 saw a total of 479 green bonds issued worldwide, up by a quarter compared to the previous year. Whether through equities, bonds, ETFs, or hedge funds, the demand for ESG investing is also on the rise. 

In fact, governments now have an even stronger incentive to invest green to mitigate climate change. While private investors only seek maximum returns, governments have the responsibility to ensure the welfare of its current and future citizens. There are wide-ranging catastrophic consequences to climate change, from the sinking of capital cities to extreme weather conditions that will wreak havoc on communities all over the world. Since governments are already being forced to inject economic stimulus to sustain economies through the ongoing COVID-19 pandemic, they should be using this opportunity to target environmentally friendly policies. This will help slow the rate of climate change and lower our global carbon footprint. 

Malaysia can lead ASEAN in adopting more progressive green policies

 A common theme seen across green COVID-19 economic stimulus around the world is increased priority on renewable energy. Countries like Luxembourg, Norway, Lithuania and South Korea offered various forms of support for installations of renewable energy sources in households, industrial or public buildings. In Malaysia, ongoing initiatives and incentives in the renewable energy sector include feed-in tariff programme, extension of green investment tax allowance and green income tax exemption until 2023, Green Technology Financing Scheme 2.0 and competitive open tenders for large scale solar (LSS) plants. In fact, the ongoing fourth round of LSS bidding process – LSS@MenTARI – which offers up to 1,000 MWac represents the largest tender to date since the LSS programme commenced in 2016. The Ministry of Energy and Natural Resources (KeTSA) expects LSS@MenTARI to generate 12,000 job opportunities as 1MW of solar can create 12 jobs. While the aforementioned measures contribute towards Malaysia’s aspiration of 20% renewable energy capacity mix by 2025, more comprehensive and ambitious plans need to be implemented in order to escalate the pace of renewable energy adoption in Malaysia’s energy mix which is still reliant on fossil fuels.

Another potential industry that Malaysia could delve into is the market for hybrid and electric-vehicles (EV). This industry is gaining traction fast, with a few countries such as Germany planning to upgrade their city infrastructure with charging stations to facilitate the shift to EVs, and include incentives for EVs in their COVID-19 stimulus package.The total sales for EV in Malaysia are far cry from the volume in the advanced market due to the exorbitant price tag and limited charging stations across the country. By incorporating policies for the EV industry in the stimulus package, large investment in advanced technologies could allow Malaysia to prioritise the development and manufacturing of EV and enhance the infrastructure and support for the vehicles. This will set precedent to the region and allow a green economy to flourish through the creation of green jobs.

To conclude, green policies and investments are the way forward in moving towards a resilient economy in a post-COVID world. With the ongoing COVID-19 pandemic, this is the most opportune time to rebuild Malaysia’s economy in a green direction. We strongly urge the government to incorporate environmental considerations in Malaysia’s next stimulus package, be it in response to COVID-19 or recession, creating a sustainable future for both Malaysia, and the world.

References

ASIA AND THE PACIFIC SDG PROGRESS REPORT (2019) UNESCAP. Available at: https://www.unescap.org/sites/default/files/Executive_Summary_Asia-Pacific_SDG_Progress_Report2019.pdf.

Building back better: Green COVID-19 recovery packages will boost economic growth and stop climate change (2020) University of Oxford. Available at: http://www.ox.ac.uk/news/2020-05-05-building-back-better-green-covid-19-recovery-packages-will-boost-economic-growth-and.

Davies, R. (2019) Norway’s $1tn wealth fund to divest from oil and gas exploration, The Guardian. Available at: https://www.theguardian.com/world/2019/mar/08/norways-1tn-wealth-fund-to-divest-from-oil-and-gas-exploration.

Gek, S. K. (2020) Views on the PENJANA Stimulus Package, Deloitte. Available at: https://www2.deloitte.com/my/en/pages/tax/articles/penjana-stimulus-package.html.

Lakritz, T. (2019) These 11 sinking cities could disappear by 2100, World Economic Forum. Available at: https://www.weforum.org/agenda/2019/09/11-sinking-cities-that-could-soon-be-underwater/.

Meckling, J. and Allan, B. B. (2020) ‘The evolution of ideas in global climate policy’, Nature Climate Change, 10(5), pp. 434–438. doi: 10.1038/s41558-020-0739-7.

Meeting Asia’s Infrastructure Needs (2017) Asian Development Bank. Available at: https://www.adb.org/sites/default/files/publication/227496/special-report-infrastructure.pdf.

NST Business (2020) Malaysia can be electric car hub, New Straits Times. Available at: https://www.nst.com.my/business/2020/02/567302/malaysia-can-be-electric-car-hub.

ROADMAP FOR ASEAN SUSTAINABLE CAPITAL MARKETS (2020) ASEAN Capital Markets Forum. Available at: https://www.theacmf.org/images/downloads/pdf/ACMF_Roadmap_high.resolution.pdf.

Schulze, E. (2019) ‘Sustainable’ investors match the performance of regular investors, new IMF research finds, CNBC. Available at: https://www.cnbc.com/2019/10/10/imf-research-finds-esg-sustainable-investment-funds-dont-underperform.html.

Smith, E. (2020) The numbers suggest the green investing ‘mega trend’ is here to stay, CNBC. Available at: https://www.cnbc.com/2020/02/14/esg-investing-numbers-suggest-green-investing-mega-trend-is-here.html.

Wehrmann, B. and Wettengel, J. (2020) Germany gives energy transition mild boost with economic stimulus programme, Clean Energy Wire. Available at: https://www.cleanenergywire.org/news/germany-gives-energy-transition-some-extra-boost-economic-stimulus-programme.

Written by: Abdul Rahim Ismail, Chew Ai Hui, Justin Liew Jin Soong, Robin Goon Wooi Yeang