The East Asia and Pacific (EAP) region has made notable contributions to the development and global spread of green technologies, with countries like China playing a significant role. The region's division of labor and competition have led to reduced costs in sectors such as solar panels in Vietnam and vehicle components in Thailand. As a major manufacturing hub, EAP is well-positioned to leverage the green transition for economic growth.
However, progress within the region towards decarbonization is inconsistent. While some countries have rapidly adopted solar and wind energy, others lag behind. Policies that hinder the diffusion of green technologies, such as fossil fuel subsidies and tariffs on green imports, are partly responsible for this uneven progress. Additionally, there is reluctance to implement measures like carbon taxes that could promote non-viable green technologies.
Market failures also limit the spread of green technology in EAP countries. These include issues related to imperfect information in capital markets and inadequate coordination in infrastructure and skills development. Such challenges affect private investment necessary for producing and using green goods.
Policy reforms can facilitate domestic diffusion of cleaner technologies while fostering international cooperation. Addressing path dependence requires multiple policy instruments, including removing biases favoring coal, setting standards for new technologies like solar power, introducing carbon taxes, and providing green subsidies.
Eliminating distortionary policies could yield both economic and environmental benefits. Complementary measures—such as support for low-income beneficiaries affected by fuel subsidy removal or retraining workers from fossil fuel industries—could enhance these benefits while easing political challenges.
Addressing market imperfections unilaterally may be difficult for smaller low-income countries lacking institutional capacity; they will require external support. Moving toward adopting non-viable technologies through carbon taxes or subsidies involves an economic cost but offers environmental gains.
The extent to which EAP countries pursue these actions depends on their existing commitments and potential benefits from emission reductions or technology transfers from other nations. Unilateral actions that increase national welfare can proceed once complementary reforms are established. Whether further actions improve welfare depends on international cooperation levels based on past commitments.
Overall, deeper reform across climate-related trade, industrial policy innovation is likely needed to encourage mutually beneficial international cooperation across these areas.
"Francesca de Nicola," "Aaditya Mattoo," and "Trang Thu Tran" contributed as authors of this analysis.