BY JOTISRI VASUDEVAN
IN A world grappling with the urgent need for climate action, two major players, The United States (US) presents the “Inflation Reduction Act (IRA)”, while Europe Reunion (EU) presents its pioneering “Green Deal and Carbon Border Adjustment Mechanism (CBAM).”
These climate policies of the US and EU are often referred to as “carrots” and “sticks,” respectively.
“We acknowledge that these policies from the US and EU are very laudable to achieve goals in climate change in their regions.”
“It definitely has an impact on the world due to the huge footprint that these two regions have,” aptly pointed out YB Nik Nazmi Nik Ahmad, Minister of Natural Resources, Environment, and Climate Change of Malaysia (NRECC) at the plenary session of Energy Asia Conference 2023, on June 26.
The plenary session, “IRA, EU Green Deal and CBAM: Changing the Game, Altering Expectations,” hosted by Petronas, convened prominent voices who cast light upon these global climate policies that are steering the course of nations and shaping the future of Asia’s energy landscape.
Understanding “Carrots”
In simple terms, “carrots” represent positive incentives or rewards used to encourage specific behaviours. Imagine dangling a delicious carrot in front of a horse to encourage it to move forward.
Similarly, these incentives, within the context of energy and climate policies, take the form of financial rewards, tax breaks, grants and subsidies.
“In IRA, there exists a combination of such incentives designed to stimulate private capital investment in clean energy projects,” highlighted Brad Crabtree, Assistant Secretary of Fossil Energy and Carbon Management at the U.S. Department of Energy.
This indicates that the government is offering attractive “carrots” (benefits) to domestic companies to motivate them to contribute to environmentally friendly initiatives.
“By reducing the costs of technologies and infrastructure related to clean energy, we can make it more feasible for countries like Malaysia and others in Asia to embark on projects on the basis of these policies.”
“I hope this is an important outcome of this policy for Asia,” said Crabtree.
Understanding “Sticks”
On the other side of the spectrum are “sticks,” which symbolise negative consequences or penalties.
Imagine using a stick to steer or control a horse that goes off track.
Karen Andries, Vice President of Asia-Pacific Exploration and Production at TotalEnergies, outlined a prime example of the “stick” approach through EU Green Deal and CBAM policies that implement a tariff-based mechanism to tackle carbon leakage and protect industries from less eco-friendly imports.
She enumerated the pillars of this approach that “stick” (pressure) to adopt greener practices: “Simplified regulations, faster access to funding, enhanced skills, and maintaining trade openness.”
Andries pointed out: “Opposite to Europe and the US, Asia emits more carbon dioxide. If Asian countries fail to meet European standards, there will be an increase in tariffs on goods.”
“So, it’s very important that Asian nations design policies and strategies that consider their own infrastructure, energy, resources, and local context,” she emphasised.
Asia’s Response and the Path Forward
Nik Nazmi gracefully acknowledged, “We appreciate the significance of the impact, whether presented as a ‘carrot’ or a ‘stick,’ and recognise that it will play a role in how we shape our policy.”
Certain nations, confronted with restricted resources, limited infrastructure and constrained capacity, find themselves navigating the intricate terrain of energy and climate policies with unique challenges.
In that context, he expressed that Asia must consider its unique circumstances in pursuing a just and equitable energy transition that is crucial to reflect the national and social realities.
“We hope that there will be room for developing countries to be able to pursue slightly differentiated approaches,” he said.
The Minister of NRECC articulated that within this transition’s pathway lies paramount significance—a chance to sculpt and oversee it in a manner that extends its helping hand to those who are less privileged.
“Asia’s diversity is not just monetary; it encompasses a wealth of commodities, natural resources, and talent. To accelerate progress in energy transition, we must work together collaboratively” he said.
“Collaboration between nations needs to be there for us to resolve this because energy transition and climate change are global matters.”
It cannot be regionalised, and it must transcend borders,” he underscored. Mazuin Ismail, Senior Vice President of Corporate Strategy at Petronas urged nations to collaborate, build a policy that has absolute clarity and learn from one another to create a harmonious transition that uplifts all segments of society.
