The answer to surviving climate change: a paradigm shift in economics

How can we mitigate the effects of climate change while still ensuring economic progress? Professor Dodo J Thampapillai from the LKYSPP urges to incorporate sustainability in the current economic systems, and here is how.

The impending withdrawal of the US from the Paris climate accord has caused widespread alarm in recent months. President Donald Trump is standing firm on his decision made in June, claiming that the deal would have a negative economic effect on the country. With the US being the second-largest global emitter of greenhouse gases (GHG), its absence in the agreement would undermine the world’s efforts to reduce transmissions and transition to renewable energy sources.

In Asia alone, climate change is predicted to cause rising temperatures, irregular rainfall patterns, lower crop yields and coral reef collapse. These occurrences would then affect key industries such as agriculture and cause mass migration of populations that live along coastlines.

 Already, the effects of GHG emissions can be seen. Seven million people in Asia-Pacific die from air pollution each year. Climate change could also affect food production and therefore food security. Why, then, has the world not taken urgent steps to prevent what appears to be an inevitable descent into devastation?

This is most likely because countries are unwilling to allocate resources to measures that comply with environmental standards, as doing so may curb economic growth. In reality, unless countries ensure their commitment to the Paris accord, the effects of climate change would be even more devastating to economies. Are there ways to deal with climate change without affecting economic progress?

Asia’s efforts in mitigating climate change

In Asia, several countries have already taken steps towards mitigating climate change without jeopardising their own economies.

Cleaner energy

Clean, renewable energy sources such as wind and solar power provide long-term certainty, and are proving to be cheaper than fossil fuels and perhaps even nuclear power in the future.

India, the world’s third-largest producer of carbon emissions by country, has quadrupled its solar power capacity in the last three years to 12 gigawatts. As a result, solar power prices have dropped 40 per cent to Rs 2.62 (US$0.04) per kilowatt-hour of electricity, providing steep competition to fossil fuel prices and attracting a rush of international investment into the country.

Eco-friendly Transport

Transport produces almost one-quarter of GHG emissions, with one-fifth of transport emissions coming from developing Asia. Governments are under pressure to manage transport systems without increasing carbon emissions.

In Indonesia, the use of environmentally friendly cars such as electric and hybrid vehicles is being encouraged. The government has provided tax breaks which will make eco-friendly vehicles more affordable, thus fulfilling the demand for car ownership without increasing gasoline consumption.

In addition, bicycle-sharing initiatives are also popping up in an effort to provide a low-cost, short-commute transport option with a low carbon footprint. Chinese bike-sharing company Ofo has served over 100 million users across five countries and has raised US$700 million in its latest round of funding. To date, Singapore and China have issued regulations on how these bikes can be used and stored so that safety and management can be improved. With such government support, bike-sharing can be further integrated into the public transport system, making its success more sustainable.

Green architecture

As housing and urbanisation are key drivers of economic growth, governments may find it difficult to dedicate prime land to green spaces. However, more cities in Asia are keen on eco-friendly, sustainable architecture for new urban developments.

Singapore has been working towards furthering its Garden City status, with a number of commercial buildings such as PARKROYAL on Pickering and Asia Square incorporating resource-efficient elements to improve sustainability. These include the use of smart lighting, solar power and recyclable materials.

In countries notorious for air pollution such as China, plans for ‘vertical forests’, whereby buildings are fully decked with trees and plants, could also be the solution to cleaning the air, absorbing carbon dioxide and producing more oxygen.

The missing condition in perfect competition

The initiatives above are small strides towards dealing with climate change, but in order to mitigate it effectively, a paradigm shift in how economies work is essential. This is because climate change itself is a result of economic mismanagement, according to Dodo J Thampapillai, Visiting Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.

In economics, it is argued that a state of perfect competition, whereby competition between actors is at its highest possible level, would produce the best outcomes for society. As Thampapillai states in his paper The Need for a Serious Rethink on Economics, this model sees economists espouse self-interest and present aims, thus explaining the lack of social stewardship and altruism in current economic structures. By prioritising self-serving, short-term economic gains, the US is walking away from a problem that it is largely responsible for, leaving the countries that have done the least to suffer the most.

As an example of most economists’ beliefs, he mentions N G Mankiw, who states in his book Principles of Macroeconomics that natural resources are not necessary for a country to be economically productive, as international trade facilitates the import of resources. Mankiw cites Japan as a wealthy country with few natural resources.

Thampapillai argues that Mankiw fails to acknowledge the reality of global ecosystems. Nature provides basic resources for the economy, and if these resources are not preserved, economies cannot be sustained. Current cost-benefit calculations such as Trump’s are therefore flawed as they fail to take into account links between the ecosystem and economy.

As Thampapillai suggests, the theory of perfect competition must be extended to include sustainability as a condition. This entails a rethink of current economic systems.

The future: Creating new economic systems

Restructuring economies can be a daunting task for policymakers and governments. How can sustainability be feasibly incorporated into current economic structures?

One way of doing this is to promote closed-loop systems so that waste or pollution is eliminated and resources can be fully utilised. Thampapillai provided the example of an eco-industrial park in Kalundborg, Denmark, which sees companies swapping waste and byproducts to slash costs and reduce carbon dioxide emissions. For example, steam emitted from a power station is pumped through pipelines to other plants, where it is used as a cleaning agent.

There are similar initiatives in Asia. In Johor Bahru, Malaysia, Folo Farms works with local partners such as hotels and restaurants to collect food waste and turn it into compost for fertilising the farm and growing organic vegetables.

Another solution suggested by Thampapillai is investing in the restoration of natural ecosystems and resources. In Singapore, for example, advances in ecological science have created the possibility of recreating coastal mangrove ecosystems. This in turn would help to regulate ambient temperature, whilst still providing employment opportunities in the process.

On a regional scale, organisations such as the Association of Southeast Asian Nations and Asian Development Bank are constantly looking into ways of dealing with climate change by encouraging cooperation between neighbouring countries and providing support for mechanisms that allow for green growth. An example of such a mechanism is the Asian Super Grid, which would allow for excess renewable energy to be transmitted to locations on demand.

According to Thampapillai, an important point to note when considering the adoption of all these initiatives is the employment opportunities they provide to the region’s poor. Providing training to unskilled individuals would allow the segment of the population living in poverty to participate in modern economic systems. This in turn reduces their susceptibility to the possible effects of climate change.

To minimise the impact of climate change, we need to act immediately to strengthen the global response. After all, by the time its worst possible effects occur, salvaging the economy will be the least of our concerns.


This piece was written by Prethika Nair.