Flexible fiscal incentives and policy reforms: What works for climate change investments?

A growing number of countries in Asia are seeking to chart a course of sustainable development through strategies for low-carbon green growth. As they are looking for solutions to climate change mitigation, they do recognize, new economic opportunities to develop clean energy markets through fiscal policy reforms.  This paper reviews the successful experiences of how China, India and Viet Nam have accelerated clean energy investment, in comparison with Japan through fiscal policy reform. It applies a meta-policy analysis approach to study the multi-country/sectoral policy performance, on the basis of historical data and stimulus measures implemented as a part of the Green New Deal program. The meta- policy analysis approach is similar to comparative research method. Instead of utilizing statistical analysis to examine variables for comparative analysis or using fuzzy-logic theory, the meta-policy analysis involves in-depth, longitudinal assessments for a group of countries and sectors. This paper covers a number of economies in Asia such as China, India, Viet Nam, Thailand and Singapore. The policy experiences in these countries are reviewed in reference to Japan and Korea. Drawing on lessons learned in selected European countries, this paper also indicates how fiscal policy actions could be usefully combined with other market-based mechanisms such as emission trading to achieve the goals of low-carbon green growth.

This paper fills that knowledge gap, especially comparative policy performance in a multi-country/sector framework. Thus, the paper seeks to answer important questions for policy making such as: what was the impact of perverse subsidies, green incentives and carbon taxes on economic performance? To what extent can the public sector use the stimulus measure to promote new green industries? How are the concepts of revenue neutrality and double dividends incorporated into the fiscal policy design? Do the emerging economies of Asia have the fiscal space and political will to introduce reforms?

The preliminary findings from the cross-country analysis are i)  Fiscal policy instruments: Incentives and subsides as well as structural reforms are necessary to adopt new clean energy technologies, to overcome micro-economic barriers to change, and to generate expectation that there will be markets for low-carbon clean energy  ii)  Implementing a broader and robust carbon pricing and taxation will bring revenue neutrality as well as double dividends and iii) A combination of policies and financing instruments, which are mutually supporting, employed at different stages in the low-carbon energy uptake process is required for each different market.