PS: At the upcoming Building the Green Consensus event, you will participate in a panel discussion on the Green Power of Public Finance. You have often advocated for the creation of a World Carbon Bank “that provides a vehicle for advanced economies to coordinate aid and technical transfer, and that is not simultaneously trying to solve every other development problem.” With what incentives should such an institution start? Do you see other options for establishing the right incentives for large developing countries to decarbonize?
Kenneth Rogoff: The progressive climate agenda in the United States has blinders on when it comes to the global nature of the carbon problem, and the imperative of finding ways to secure the buy-in of emerging-market and developing economies, which are by far the main source of carbon-emission growth.
In many parts of Asia – not least China and India – coal is plentiful and cheap. While carbon emissions in the US and Europe have been flatlining, they are still soaring in Asia, despite being briefly interrupted by the pandemic. Moreover, the average age of a coal plant in the advanced economies is more than 45 years. With many nearing the end of their useful lifespan, it is natural to start shutting them down. In Asia, the average age is 12 years, and there is no quick substitute.
Given this, the advanced economies need to take concerted action to support an energy transition in the emerging markets. The European Union plans to impose a carbon border tax on imports from countries that do not have in place their own carbon-pricing scheme (either a carbon tax or a carbon-pricing mechanism). This will provide an incentive for emerging markets to accelerate their decarbonization plans. But with limited energy alternatives – Africa is in even more dire straits – the transition will very painful. Easing this pain should a top priority for targeted Western assistance. A World Carbon Bank would be a valuable vehicle for achieving this.