A Long-term Perspective on Environment and Development in the Asia-Pacific Region

3.2 Eco-Technology and Eco-Investment

3.2.1 Background: Investment for environmental protection and economic growth

Table III-2-1 and Figure III-2-1 shows estimates of the demand for funds associated with environmental measures in the Asia-Pacific region from 1991 to 2025.

It can be seen that the 2025 demand is expected to reach 250 billion dollars (US, 1990 prices), or about 10 times as much as the 1991 demand. About half of this total is occupied by capital investment in electric power plants to keep abreast of electrification and the increase in the demand for electricity.

The question of how these funds are to be raised is bound to assume increasing importance with time. In 1990, Asian countries received a total of 26.3 billion dollars in Japanese financial aid. About 12.4 percent of the Japanese aid or about 3 billion dollars was directed to the environmental protection. This is an extremely low level as compared to the future forecast.

At the same time, however, investment on this order in developing countries may be expected to have a considerable economic effect. Although direct comparison of the two is ruled out by a difference of scope, the figure of 250 billion dollars for environmental measures is about 50 times as large as the investment in Japan for pollution prevention in 1975, its peak year, and would presumably stimulate industrial activities in various fields.

As shown in Figure III-2-1, the impact of environmental investment on economic growth has both a positive and negative effect. Linking environmental investment to economic growth in developing countries would require setting up the flow shown on the figure. (See also Appendix: Japan's Experience.)

3.2.2 Concept behind proposed policy

It is comparatively easy for private enterprises to promote capital investment and incorporate new technology during the phase of high-order growth. It is the aim of the proposed policy to encourage vigorous investment by companies, and incorporation of technology related to the environment in this phase and thereby to achieve both economic growth and environmental protection in the Asia-Pacific region as a whole.

Figure III-2-1 Demand for environment-related funding in the Asia-Pacific region

Table III-2-1 Demand for environment-related funding in the Asia-Pacific region

(Million US$'90)

	1991	1995	2000	2005	2010	2015	2020	2025	Average Growth Raito per year
Water Supply	5,941	6,919	8,924	10,306	11,840	13,291	14,689	16,017	3.0%
Sanitary	3,008	3,340	4,187	4,762	5,404	6,010	6,595	7,150	2.6%
Population	4,233	4,568	5,027	5,421	5,818	6,194	6,555	6,899	1.4%
Education		2,249	2,486	2,993	3,394	3,774	4,140	4,487	3.4%
Agriculture		1,738	2,537	2,995	3,553	4,232	5,059	6,065	8.6%
Transportation		1,875	8,817	13,390	14,806	16,096	17,499	19,054	15.0%
Industrial Waste		1,564	9,039	20,781	26,616	32,460	39,482	48,026	19.5%
Bio-diversity	67	67	67	67	67	67	67	67	0.0%
Forestry	3,701	3,701	3,701	3,701	3,701	3,701	3,701	3,701	0.0%
Electric Power		6,679	19,376	40,969	63,216	82,521	102,979	125,550	12.9%
Acid Rain	407	512	684	887	1,140	1,447	1,822	2,278	5.2%
Global Climate	5,365	5,365	5,365	5,365	5,365	5,365	5,365	5,365	0.0%
Total	22,723	38,577	70,212	111,637	144,921	175,160	207,953	244,650	7.2%

Figure III-2-2 Economic effects of investment for pollution control and environmental preservation by the private sector

Furthermore, the transfer of environmental technology from other countries should not be a matter of mere reliance on aid or import; it is vital to use this technology to promote domestic industry, and also to induce a synergy between environmental investment and economic growth.

Another factor is the advantageous side of a late start that has been mentioned in connection environmental measures in developing countries. In short, developing countries are in the position to learn from the experience of developed countries, and so avoid the waste of time due to a lack of political consensus at the stage of problem perception. During implementation of environmental measures, they can reduce the financial and time cost by incorporating the technology, know-how, and systems of developed countries.

3.2.3 Proposals

Consideration of factors such as the strong economic growth and huge amount of environmental investment required in the Asia-Pacific region, and Japan's experience of the ripple effects of such investment and the growth of eco-industry suggests that the following three measures would be viable means of attaining the policy objectives.

(1) Localization and cultivation of local Eco-Industry by making full use of direct investment from other countries and the rising level of core technology

As noted above, Eco-Industry should be localized so that environmental investment can be positioned as a tool of economic advancement instead of a mere cost. The ends of localization should not be confined to economic stimulation, but should include the development of environmental technology adapted to the actual conditions in the country and the reduction of environmental equipment costs.

The experience of developed countries suggests that appreciation of the importance of the environment rises significantly once the level of GDP per capita of population reaches a few thousand dollars. If so, the burgeoning economic growth should bring about a dramatic deepening of environmental awareness in the region.

One of the factors behind the region's growth is the increase in direct investment from other countries. However, an increase in inbound foreign investment as a whole does not necessarily mean an increase in that part directed to the Eco-Industry. In fact, this investment currently centers around real estate development, export-oriented manufacturing, and manufacturing of consumer goods for the local market. Steps should be taken to foster the growth of the domestic Eco-Industry through active use of foreign investment by offering incentives for investment in this industry and encouraging joint ventures with domestic enterprises in the environmental field.

It is also vital to lay down environmental and energy conservation guidelines for investment from other countries in manufacturing and real estate development.

Japan formerly imported technology from the developed countries of the West to foster the growth of its Eco-Industry (see Figure III-2-3). However, export of such technology to other Asian countries is not necessarily at a high level, and there is a need for studies of transfer of technology that is suitable for the receiving country. Fortunately, Japanese manufacturers appear to be positive about transfer of technology (see Figure III-2-4) as well as export of products, and industrial capabilities for accommodating such transfer are gradually rising in the receiving countries. Governments in the receiving countries should prepare programs for introduction of technology related to environmental protection.

Table III-2-2 Foreign direct investment to Asia countries

 

Country		Direct Foreign Investment to Asian Countries (Unit:million US$)
		1987	1988	1989	1990	1991	1992	1993
Asia NIEs		5,875	6,642	8,154	8,307	9,297	-	-
	Korea	1,060	1,283	1,090	803	1,396	895	1,000
	Singapore	688	824	833	1,224	1,696	1,662	1,064
	Others	4,128	4,536	6,230	6,281	6,205	-	-
China		3,709	5,297	5,600	6,596	11,977	58,124	58,760
ASEAN		4451	13067	16713	30358	20848	27947	7476
	Thai land	1,946	6,249	7,995	14,128	4,988	10,027	2,232
	Philippines	167	473	805	961	763	630	120
	Indonesia	1,520	4,482	4,719	8,751	8,778	10,313	4,296
	Malaysia	818	1,863	3,194	6,517	6,319	6,977	829

Source) China:
Note) The number above are those which are permitted by each The numbers in 1993 are the summation form January to June in 1993.

Figure III-2-3 Introduction and export of environmental technology in Japan

Figure III-2-4 Environmental Technology Transfer in 1993 related to Japan

(2) Promotion of investment in the environmental protection infrastructure

The rapid industrialization of the Asia-Pacific region is accelerating urbanization. In the process, improvement of waterworks, sewerage, waste treatment, urban transit, international air and sea ports, and other elements of the social infrastructure is becoming crucial for continued economic growth.

One of the environmental problems already facing the cities in this region is air pollution. In all of the major cities, motorization is progressing against the background of rapid economic growth, and worsening congestion on roads is aggravating environmental problems. The infrastructure of public transport such as surface and underground railways is underdeveloped, and priority investment in it is essential to increase energy efficiency, reduce environmental impact, and promote urban economic development. The key tasks are formulation of long-term urban transit plans and procurement of the requisite funds.

Recently, the introduction of private-sector funds has been considered even in such public-sector fields. Infrastructural construction can no longer depend entirely on public funding; the future will demand active resort to new financing schemes, such as combinations of private- and public-sector funding through the build-operate-transfer (BOT) arrangement, for example. Such improvement of the mass transit infrastructure may have a important role in reducing environmental impact, and strong economic growth should therefore be used to attract international funding.

(3) Promotion of investment in energy conservation

The Asia-Pacific region requires immense environmental investment, and it is essential for the environmental burden to be mitigated through the market mechanism. It may be inferred from the trend of investment in energy conservation in Japan that a rise in energy prices acts to stimulate investment in energy-saving facilities (see Figure III-2-5).

In many developing countries, on the other hand, prices for electric power and other forms of energy are set at artificially low levels that provide little incentive for investment in energy conservation. There is a need for rationalization of energy prices in the interest of environmental protection as well as other aims. This perspective led to the mention of the importance of energy price rationalization in developing countries at the World Energy Council Congress held in Tokyo in October 1995. The introduction of renewable energy will be encouraged by the rationalization of energy prices, at the same time as strong efforts of research and development in this area by the public sector.

Rationalization of energy prices is particularly vital at present, during the rapid expansion of the manufacturing sector. While investment for new facilities is surging, energy-saving technology could be smoothly built into them. Price rationalization during the phase of high-order growth would also have the effect of heightening incentives for investment in energy conservation. (Figures III-2-6, III-2-7, III-2-8, III-2-9 and III-2-10 show energy consumption trends in some Asian countries.)

These three proposals would have even greater impact during rapid economic growth, and their implementation must not be delayed, for the following reasons:

• Full utilization of direct investment from other countries could provide funds for Eco-Investment.
  
• Investment in energy conservation and the environment during the current period of rapid growth of the manufacturing sector is important.
  
• Later investments would ultimately result in higher costs for renovation and improvements required later to improve environmental standards.

  Alternative solutions to environmental problems, which depend on the priorities of each country and resources available, also should be considered. Subject to feasibility, least-cost options may be adopted.

  Figure III-2-5 Investment for energy-saving equipment and crude oil Import price in Japan

  Figure III-2-6 Energy consumption/GDP in Japan

  Figure III-2-7 Energy consumption/GDP in NIEs

  Figure III-2-8 Energy consumption/GDP in ASEAN

  Figure III-2-9 Energy consumption/GDP in China

  Figure III-2-10 GDP and energy consumption per capita

  Note: Estimate of the funding demand associated with environmental measures in the Asia-Pacific region

  As used here, the term "funds for environmental measures" refers to funding for electric power plant development needed to meet the expanding demand for electrical power.

• The term encompasses such things as improvement of management and expansion of the share of all power generation capacity occupied by new facilities equipped with anti-pollution technology.
  
• The term does not include the cost of environmental improvement or technological development; it indicates investment needed to meet the electrical power demand while incorporating environmental measures.
  
• More specifically, the estimate is based on the following two assumptions:

  1) The investment required per kilowatt of capacity is 2,500 dollars. Inefficient management increases this by 50 percent, to 3,750 dollars. The requirement will decrease by 15 percent by 2000. (These assumptions are based on a World Bank report.)
  2) The share of total capacity occupied by new facilities equipped with pollution-reducing technology will rise from 5 percent in 1991 to 50 percent in 2000.

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