Too hot to grow

Global warming is putting a damper on economic development in Asia

As the wild card in the future of the Asia Pacific's economic development, climate change is emerging as one of the most significant priorities for policymakers.

Weather-related insurance losses have increased around the world, but most visibly in North America and Asia. In eastern Asia, average losses every year have doubled over the last decade to more than $20 billion, according to Munich Re, a reinsurance company.

Since 1970, climate-related natural disasters have cost $259 billion to China, $64 billion to Japan and $15 billion in South Korea, according to the Economics of Climate Change in East Asia report released last year by the Asian Development Bank.

That's less than 0.2 percent of GDP, but the incidence of natural disasters and their cost is rising.

According to the World Bank, climate change can: Decrease the amount of water available and its quality; lead to more floods or droughts; cut water regulation in mountains; make hydropower less reliable and limit biomass production; lead to more waterborne diseases like malaria, dengue and cholera; increase the number of deaths from extreme weather events and the destruction they cause; hurt fisheries and damage ecosystems.

Earlier this year, climate change was a major discussion point at the World Economic Forum in Davos, and is likely to be part of the agenda during another meeting in Tianjin in September, says Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. Lin was part of a panel at the WEF to consider the challenges and possible solutions to deal with climate and resource risks.

The context is significant. A new report by the Intergovernmental Panel on Climate Change released this year by the United Nations said that it may be difficult to stop mean temperatures from rising by 2 C.

"When you talk about Asia, it is mainly talking about China. No countries can compete with China in terms of scale. Though India has a large population, its energy consumption is low, so its contribution to emissions is limited," says Lin.

"Those dynamic increases (of carbon emissions) are mainly from China, so China's problem is also the world's problem."

Lin says China can be more confident on this issue now, since it has taken action to tackle smog and its environment is getting better.

"The policies against the smog problem basically target the energy industry－more specifically, coal. The contribution from coal to the economy must decline annually. This is in line with the reduction of CO2 emissions.

"We have been talking about rejecting economic structure and reducing CO2 emissions for a long time, but the real economy would always choose the most cost-effective way－that is coal. It has no motive to make the change as any alternation is more expensive than coal," Lin says.

But the problem goes beyond China. Other economies are growing and their emissions are increasingly significant. Indonesia and Vietnam, for example, are increasingly industrialized.

Annie Koh, associate professor of finance at Singapore Management University, believes Asia has recognized the need to implement climate-smart growth. "Government, the private sector and civil society in Asia agree that Asia can no longer ignore the evidence pointing to how rapid growth can deplete natural capital and resources," she says.

"Governments across the region have recognized the need to have shared vision and shared responsibilities for driving change in the area of climactic catastrophes."

For Asian countries, the reality is that a coordinated approach is needed to deal with the causes of climate change, such as emissions of greenhouse gases, and the devastating natural disasters that are its effects.

"These days, the conversation is no longer about growth at all expense, but to have sustainable inclusive growth," says Koh. "ASEAN and East Asia need to ensure that we all grow as a region," she says, referring to the Association of Southeast Asian Nations.

But, says Renat Heuberger, CEO of South Pole Carbon, a social enterprise focused on environmental sustainability, Asia is also the biggest investor in the world in clean technology, which is seen as the best hope of reducing emissions.

"So in both problem and solution of climate change, Asia plays a very important role today," Heuberger says. "On one side, we see Asia exposed to climate change, especially the coastal areas. On the other side, the solution to climate change is in Asia, simply because this area is developing fast, a lot of cash is available, and it is possible to generate profit by solving climate change."

A new report by ratings agency Standard & Poor's said climate change－and global warming in particular－is the second most significant major trend likely to impact sovereign credit risk this century. And the impact is not likely to be positive. For example, Typhoon Haiyan, which hit the Philippines last year, was hugely destructive and had a direct impact on economic growth.

"We have taken a view that the size of devastation, while large in absolute terms, has not been sufficient to impact a rating overall," said S&P in the report. "However, assuming that extreme weather events are on the rise in terms of frequency and destruction, how this trend could feed through to our ratings on sovereign states bears consideration."