A Lower-Carbon Economy: The Direction of World Investment in the Future (Part 1/2)

Reading through the July 2010 edition of the World Investment Report, I found one useful point to have substance, and worth my comment on it.

According to this report, foreign direct investment has experienced moderate expansion worldwide. UNCTAD has predicted global foreign direct investment to be about 1.2 billion US dollars in 2010, increasing to 1.3-1.5 billion US dollars and 1.6-2 billion US dollars in 2011 and 2012 respectively, even with world investment still uncertain and at risk due to the fragile recovery of the world economy.

When it comes to the direction of investment, the developing countries attract half of global foreign direct investment and more importantly are also investors abroad, investing in one-fourth of the world’s countries. As we can see Africa now becomes a new destination for foreign direct investment or Latin American multinational companies have also become important world players, as well as Asia that is penetrating the direct investment in order to develop industry more in many industries and many countries.

Investment policy moves in either of two directions, between further investment liberalization and promotion on the one hand, and increased investment regulation in response to certain public policy objectives, on the other hand. Various global initiatives are also relevant, such as agricultural investment or the reform of the world’s financial system.

The challenge for many countries worldwide at this time is how to attract as much foreign direct investment as possible into the country. One possible suggestion to attract foreign direct investment is to penetrate the Key Niche Sector industries, for example those participating in the Low-Carbon Economy. UNCTAD has estimated that in 2009 foreign direct investment valued to as high as 90,000 million US dollars was targeted to lower carbon levels, especially in the three main business domains of renewable energy, recycling, and technology production based on low carbon usage. We can see that low-carbon business and the trans-national economy have high potential because the world is changing to embrace a low-carbon economy.

As for investments made to lower carbon emissions in Thailand, many large companies, in response to the public’s increased awareness of environmental issues, invest evidently in their organizations in order to achieve this goal, attempting to organize environmentally-friendly activities. Businesses are also pressured to be more responsible, while SMEs might not be so concerned about this issue due to their lack of understanding or awareness of how important the problem is.

The State tries to play an encouraging role in this issue by supporting investment in alternative energy business, and giving tax incentives to business invested in energy saving equipment. There is also support for investment and trade in carbon that uses the Clean Development Mechanism (CDM).

I consider State support for this issue to be insufficient compared to the quantity of greenhouse gas emissions released by Thailand; now ranked third for countries in South East Asia, and the 26th of 186 countries that are members of the United Nation Framework Convention on Climate Change (UNFCCC). If the situation continues like this, Thailand might face a future problem, particularly in international trade where developed countries bring environmental issues up as trade barriers. For example, the Border Carbon Adjustments (BCA) policy in which more restrictive countries, having cost disadvantages due to their more restrictive measures, will impose tax from import products of the countries that have less restrictive measures to lower carbon levels.

In my opinion, Thailand seriously needs to make a new start today, rather than being forced into it in the future because it will be too late when that day arrives. Thailand might lose competitiveness on the world market and also lose its export market share to other countries.

In my opinion, the government can support more investment to lower carbon emissions, being sure to:

1. Establish a clear vision on environmental issues

For example, the Swedish government declared its vision to develop Sweden by the year 2020 to be an ‘Oil-Free Economy’ (not that oil is no longer used there, but that the least reliance is place on oil). This is the first country in the world that has declared this challenging vision.

Thailand’s government must dare to declare a clear and challenging vision to restore the country, for example, by making it to be a Zero Waste Economy, the world leader in environmental technology, a Carbon-Free Society, or the Coolest Country in the world.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com