To Curb Carbon Emissions, Focus on New Consumers on the Move

Published by Caixin Online

November 27, 2015

The conference on climate change in Paris at the end of November will be a success only if the agreed policy measures curb emissions from rising consumption by people in emerging economies. This will be the main source of emissions growth in the decades ahead and thus the key battleground in the fight against climate change. Advanced economies and international lenders need to help emerging economies ensure their expanding consumption is supported by cleaner technologies. For example, incentives must be given for companies to build climate-friendly infrastructure in developing economies.

Notwithstanding this year's recession in Brazil and Russia and a possible slowdown in China's economy, emerging economies will be the main engines of global growth during the next 20 years. Beyond technological catch-up, expanding populations will foster rising spending power in India, parts of Southeast Asia, and especially sub-Saharan Africa, which will account for almost half of net global growth of the working-age population over that period. Despite the onset of population aging in China, household spending will expand further as growth shifts from exports, investment, and industrial production to a model based on private consumption and the service sector.

Spending on transportation in emerging Asia and sub-Saharan Africa will treble or quadruple during the next two decades.

Thus far, both public discourse and policy measures have placed emphasis on production-related emissions. The image in the public's mind is that of a polluting coal plant in an emerging economy powering the production of manufactures destined for advanced economies. That image needs to be complemented by the prospect of growing numbers of emerging-market consumers driving a car or traveling internationally by air. This is a welcome and natural part of the development process, but its sheer scale will present policy challenges, not least with respect to climate change.

Household surveys show the share of spending on transportation—an energy-intensive category—rises as incomes grow. This universal regularity holds across cultures—not unlike the well-known Engel curve, whereby the share of food in total consumption declines as individuals become more affluent. Put this result together with information on income distribution as well as consensus projections of economic growth and population for most countries in the world, and it becomes clear that hundreds of millions of people in emerging economies are on the cusp of being able to afford a car or to travel internationally for the first time.

Tomas Hellebrandt and I project that spending on transportation in emerging Asia and sub-Saharan Africa will treble or quadruple during the next two decades, well in excess of total consumption. Indeed, the combined dollar increase for both total consumption and transportation spending in emerging economies will be far larger than for rich countries. And for many emerging economies, the transportation sector will account for more than one-quarter of the increase in total consumption in the next 20 years—about the same as in advanced economies. This marks a change from the past. In several emerging economies, including China and India, the share of CO2 emissions attributable to transportation was one-tenth or less in 2012. Focusing on air travel, industry specialists consider that people start flying when their total consumption passes the threshold of US$20,000 per household. In our projections, the population above this threshold will rise from 2.5 billion in 2013 to 4.7 billion in 2035 globally, with 90 percent of the increase coming from the emerging economies, mostly in Asia.

These results point to the need for greater policy emphasis on three areas:

  • First, higher carbon taxation and lower subsidies for fuel and energy, to discourage emissions and to raise proceeds for research and development of green technologies.
  • Second, international air travel, which was not covered by Kyoto emission limits, and where higher taxation or inclusion in emission limits will be needed in light of projected rapid growth in the next two decades.
  • Third, making climate-friendly choices in infrastructure to meet new demand for transportation, such as metro rail rather than cars, renewable energy and more. In this regard, the priorities are incentives from international financial institutions, including those whose establishment has been spurred by China, such as the Asian Infrastructure Investment Bank, and internationally open procurement of infrastructure projects, to ensure that the most efficient technologies are used worldwide. Similarly, export credit agencies should not only stop funding new coal plants, unless they have capture and storage technology, but also give financial incentives for choosing climate-friendly infrastructure, including in the transportation sector.

More generally, advanced economies must be mindful that they developed at a time when the harmful effects of carbon emissions were not known, whereas today's low-income and emerging economies need to develop under more challenging circumstances and to adapt to a changing climate. It is thus not only economically sensible but also morally fair for advanced economies to contribute generously to efforts such as a global climate adaptation fund and the public funding for a global research and development program to reduce the cost of renewable energy.

Although the developing world's prowess in production manifestly underlies its rising affluence, policymakers must not lose sight of the implications of such affluence for greater consumption and for meeting universal human desires to travel, leading to excessive carbon emissions unless serious action is taken.