Chaoni Huang is Head of Sustainable Capital Markets, Asia-Pacific at BNP Paribas.
South Korea is winning plaudits for its approach to containing the COVID-19 pandemic, which has allowed daily life to remain much more like normal than in most other countries. But it is also taking the opportunity, through its coronavirus stimulus, to remake its economy in a cleaner, greener way.
South Korea's New Green Deal is part of its plans to spend around $110 billion to save the country from recession. The New Green Deal includes substantial investment in renewable energy, the introduction of a carbon tax and the phasing out of domestic and overseas coal financing by public sector institutions.
South Korea will also establish a Regional Energy Transition Centre to support workers as they move to jobs in more sustainable sectors. While there is not yet a timeline for implementation, President Moon Jae-in's Democratic Party has pledged to develop a medium to long-term road map toward achieving its 2050 target of net zero emissions -- a radical departure for Asia.
This bold commitment, now backed by significant money, brings South Korea into line with the targets of the EU and U.K. and challenges other major Asian economies like China, India and Japan to demonstrate similar courage. South Korea is about to lead Asia in charting a course away from an energy mix that has fueled unprecedented growth but also accelerated climate change.
So far, governments have naturally focused on the urgent task of limiting the spread of the virus and providing short-term liquidity to businesses and households. But in the longer term, shifting stimulus capital toward sectors like renewable energy, electric vehicles, battery storage, recycling plants and affordable, energy-efficient housing can help ensure a more sustainable recovery.
This is the beginning of the process for South Korea, the world's 12th largest economy but its seventh-biggest carbon emitter. The country's 60 coal-fired plants -- with another seven under construction -- account for about 40% of its energy mix. It has not yet set a date for phasing out coal nationally and or revised its unambitious 2030 target of cutting emissions to 37% below projected business-as-usual volumes.
There is evidence that jobs in the green economy offer better and more equitable pay than is found in the economy as a whole. For example, a 2019 Brookings Institution study identified that mean hourly wages for American clean energy workers exceeded national averages by 8%-19%. The study also found that lower-income workers in clean energy still earned $5-$10 per hour more than in other jobs.
Government policy and investment are vital in setting a country's direction toward a lower carbon economy. But private sector companies will need to finance colossal spending on technologies that can help achieve the Paris Agreement on climate change's target: limiting increases in average global temperatures to two degrees Celsius or less above preindustrial times.
If more Asian economies move in the same direction as South Korea, this would require hundreds of billions of dollars of investment over the years to come -- but this could readily be financed by the expansion of the green bond market in the region.
Asia-Pacific accounted for a quarter of global green financing of $258 billion in 2019, according to the Climate Bonds Initiative, which had forecast rapid growth in 2020 before the pandemic. Asian green bond issuance had slowed to a trickle in volatile markets so far this year but was given new momentum in April by a transaction for the Export-Import Bank of Korea that included a 700 million euro ($760 million) green portion.
These green bonds attracted orders worth more than 3 billion euros from some of the world's leading institutional investors, demonstrating the enduring strength of global demand to finance the shift toward a more sustainable economy in Asia.
I am confident that demand for green bonds can continue to support the investment requirements of the region as a whole if more countries respond to South Korea's challenge -- particularly as sustainable investment assets under management already stand at over $30 trillion globally and have continued to grow during the pandemic.
Every economy will have to find a path to net zero emissions if we are to prevent devastating impacts from climate change that will affect the world as a whole. I believe Asia will rise to this challenge and act sooner rather than later for the benefit of us all.