Sustainable Development and Energy Transition in Europe and Asia 9781119705178, 9781786305701

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Sustainable Development and Energy Transition in Europe and Asia

Innovation and Technology Set coordinated by Chantal Ammi

Volume 9

Sustainable Development and Energy Transition in Europe and Asia

Edited by

Bernadette Andreosso-O’Callaghan Sam Dzever Jacques Jaussaud Robert Taylor

First published 2020 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address: ISTE Ltd 27-37 St George’s Road London SW19 4EU UK

John Wiley & Sons, Inc. 111 River Street Hoboken, NJ 07030 USA

www.iste.co.uk

www.wiley.com

© ISTE Ltd 2020 The rights of Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Library of Congress Control Number: 2019952963 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library ISBN 978-1-78630-570-1

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Robert TAYLOR Chapter 1. The Role of Microfinance in Women Empowerment: Global Sustainable Perspectives in the Case of Vietnam . . . . . . . . . . . . . . . . . . . . . . . . Long Bui THANH, Lucía MORALES and Bernadette ANDREOSSO-O’CALLAGHAN 1.1. Introduction . . . . . . . . . . . . . . . . 1.2. MF and women empowerment . . . . 1.3. Data and research methods . . . . . . . 1.4. Research findings and discussion . . . 1.4.1. Economic empowerment . . . . . . 1.4.2. Feminist and legal empowerment 1.5. Conclusion . . . . . . . . . . . . . . . . . 1.6. References . . . . . . . . . . . . . . . . .

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Chapter 2. Is China’s Dependency on Coal a Threat to Its Economic Development? . . . . . . . . . . . Miroslava ZAVADSKA, Lucía MORALES and Bernadette ANDREOSSO-O’CALLAGHAN 2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 2.2. Coal consumption and environmental implications in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3. Coal demand and economic growth in China . . . . 2.4. Methodological framework and findings . . . . . . .

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2.5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 3. China’s “Ecological Civilization”: Geopolitical and Geo-economic Insights . . . . . . . . . . Daniel RAJMIL, Lucía MORALES and Bernadette ANDREOSSO-O’CALLAGHAN 3.1. Introduction . . . . . . . . . . . . . . . . . . . 3.2. A tale of explosive economic growth . . . 3.2.1. China’s economic model . . . . . . . . 3.2.2. Critiques to China’s growth strategy . 3.3. China’s environmental degradation . . . . 3.4. The battle for “blue skies” and the BRI . . 3.5. Conclusion . . . . . . . . . . . . . . . . . . . . 3.6. References . . . . . . . . . . . . . . . . . . . .

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Chapter 4. City Logistics Foundation: Japan at the Forefront . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gilles PACHÉ

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4.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . 4.2. City logistics: issues and stakeholders . . . . . . . 4.2.1. Economic and societal stakes . . . . . . . . . . 4.2.2. Diversity of stakeholders . . . . . . . . . . . . . 4.2.3. A potential development for the wholesaler? 4.3. Japan: a favorable context for research on city logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1. Main areas of logistics innovation . . . . . . . 4.3.2. From logistics innovations to theoretical formalizations . . . . . . . . . . . . . . . . . . . . . . . . 4.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 4.5. Acknowledgments . . . . . . . . . . . . . . . . . . . . 4.6. References . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 5. The EU-Japan Economic Partnership Agreement as a Norm Model for Sustainable Development Issues in the Future EU FTAs in Asia . . . Erja KETTUNEN and Claes G. ALVSTAM 5.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Contents

5.2. The EU as a norm promoter in sustainable development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3. EU-Japan trade and investment imbalances . . . . . 5.4. The context of the EU’s free trade negotiations with Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5. The EU-Japan EPA and sustainable development issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.1. The EU’s aims in the EPA negotiations . . . . . 5.5.2. Trade and sustainable development issues . . . . 5.5.3. Other issues in the negotiations and reflections from the field . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7. Acknowledgments . . . . . . . . . . . . . . . . . . . . . 5.8. References . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 6. The Relationship Between Shareholder Value and International Transfer of Environmental Management Practices . . . . . . . . . . . . . . . . . . . . . . . . Kazuma MURAKAMI and Tatsuo KIMBARA 6.1. Introduction . . . . . . . . . . . . . . . . . . . 6.2. Literature review . . . . . . . . . . . . . . . . 6.2.1. Shareholder value and environmental performance . . . . . . . . . . . . . . . . . . . . . 6.2.2. Environmental management transfer . 6.3. Methodology . . . . . . . . . . . . . . . . . . . 6.3.1. Data . . . . . . . . . . . . . . . . . . . . . . 6.3.2. Analytical framework and hypothesis. 6.3.3. Variables . . . . . . . . . . . . . . . . . . . 6.4. Results of analysis . . . . . . . . . . . . . . . 6.5. Discussion . . . . . . . . . . . . . . . . . . . . 6.6. Conclusion . . . . . . . . . . . . . . . . . . . . 6.7. References . . . . . . . . . . . . . . . . . . . .

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Chapter 7. Global Crisis of Sustainable Development and Global Warming: A Case Analysis of Indonesia and Laos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jasmeet LAMBA, Bhumika GUPTA and Sam DZEVER 7.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2. Background for climate change policy . . . . . . . . . . . 7.3. Literature review . . . . . . . . . . . . . . . . . . . . . . . . .

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7.4. Research objectives . . . . . . . . . . . 7.4.1. Major objectives of the research . 7.5. Case studies . . . . . . . . . . . . . . . . 7.5.1. The case of Indonesia . . . . . . . 7.5.2. The case of Laos . . . . . . . . . . 7.6. The 2015 Paris climate agreement . . 7.7. Regression analysis . . . . . . . . . . . 7.8. Conclusion . . . . . . . . . . . . . . . . . 7.9. References . . . . . . . . . . . . . . . . .

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Chapter 8. Southeast Asian Energy Transformation: Is It Enough and Sustainable? . . . . . . . . . . . . . . . . . . Lucía MORALES and Bernadette ANDREOSSO-O’CALLAGHAN

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8.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 8.2. Southeast Asia’s energy strategy . . . . . . . . . . . . 8.3. Energy consumption – dependency on fossil fuels . 8.4. The Southeast Asia energy dilemma . . . . . . . . . 8.5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6. References . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 9. Analyzing the Reasons for the Low Ratio of Female Researchers in Japan: An Exploration of the Issue of Diversity and Sustainability in Japanese Academia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shiho FUTAGAMI 9.1. Current situation of female researchers in Japan . . . 9.2. Research method . . . . . . . . . . . . . . . . . . . . . . . 9.2.1. Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.2. Profile of respondents . . . . . . . . . . . . . . . . . 9.3. Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.1. Purpose of analysis . . . . . . . . . . . . . . . . . . . 9.3.2. Reasons for the low ratio of female researchers . 9.3.3. Reasons for the low ratio of female researchers in leading positions . . . . . . . . . . . . . . . . . . . . . . . 9.3.4. Remedial actions for the low ratio of female researchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.5. Research performance to be evaluated in the recruitment process . . . . . . . . . . . . . . . . . . . . . . . 9.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5. References . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Contents

Chapter 10. Sustainable Agricultural Development and Rural Poverty in India . . . . . . . . . . . . . . . . . . . . . Jasmeet LAMBA, Bhumika GUPTA and Sam DZEVER 10.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2. Objective and methodology of the research . . . . . . . 10.3. Review of literature on agricultural development, credit flows, and rural poverty . . . . . . . . . . . . . . . . . . 10.4. Pattern of agricultural development in India . . . . . . 10.5. Classification of Indian States in context with CIAD and rural poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6. The model: relationship between agricultural development and rural poverty in India . . . . . . . . . . . . . 10.7. Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8. References . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 11. European and Chinese Consumers’ Attitude for Food with Reduced Use of Chemicals: Results from a Survey . . . . . . . . . . . . . . . . . . . . . . . . Martina MAZZAROLO, Giacomo FERRARO, Ilda MANNINO and M. Bruna ZOLIN

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11.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3. Data and methodology . . . . . . . . . . . . . . . . . . . . 11.3.1. The sample. . . . . . . . . . . . . . . . . . . . . . . . . 11.4. Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4.1. Descriptive analysis on consumers’ behavior on food choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4.2. Regression analysis . . . . . . . . . . . . . . . . . . . 11.4.3. Descriptive analysis on different patterns of behavior on food choice between European and Chinese respondents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5. Discussion and conclusion . . . . . . . . . . . . . . . . . 11.6. References . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bernadette ANDREOSSO-O’CALLAGHAN, Sam DZEVER, Jacques JAUSSAUD and Robert TAYLOR

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List of Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Introduction Sustainable Development and Energy Transition: Introduction and Overview

The book chapters, derived mainly from the revised versions of the papers presented at the 24th International Euro-Asia Research Conference held in Barsac, France, in May 2019, focus on sustainable development and energy transition. In the face of industrial pollution, environmental degradation and resulting climate change in the form of global warming, Western governments – at least partly in response to public protest – have become committed, through international agreements like the Paris Accord, to sustainable development. In contrast, the leaders of developing countries, for example, those of Southeast Asia, have prioritized economic growth, even at the cost of ecological damage, and have only lately become cognizant of environmental cost. The adverse effects of pollution and unrestrained carbon emissions are global, overriding national boundaries, and – accordingly the definition of sustainable development goals – has had to be extended, encompassing factors such as health, education, gender equality, action on climate change, and regional peace and stability, particularly in Asia. Following the implementation of International Health Regulations in 2010 and the submission of reports by subscribing countries, there is, for example, a designated need for a collaborative response to chemical safety and radiological emergencies. Given the challenges presented by migration, for instance, Rohingya refugees from Myanmar, a premium is placed on                                        Introduction written by Robert TAYLOR.

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the provision of educational opportunities for migrants to ensure their social integration into countries receiving them. Gender equality is crucial in employment, given forms of discrimination against migrant women who are vulnerable to trafficking and gender-based violence. Women may also witness a disproportionate share of unpaid care and domestic work. In addition, given globalization and transnational supply chains, production and consumption in a number of countries may be adversely affected by national disasters, as witnessed in the 2011 Japanese Tohoku earthquake and tsunami [RAJ 19, TRI 19]. The above categories lead to the discussions described below relating to sustainable development policies in China and Southeast Asia. As the world’s second largest economy and the major user of fossil fuels, China’s policy may be seen as providing a template against which approaches in other Asian countries may be judged. China and India, in addition to the United States, may be considered pacesetters in renewable energy development, whereas Southeast Asian states lag behind, even though, as indicated below, the latter have enormous potential for solar, wind, ocean, river, or geothermal energy [MAS 18]. China’s moves to protect the environment have been in response to pressure from both global institutions and local people, incensed by the effect of pollution on health, and this represents a radical departure on the part of the Chinese government which, until recently, saw foreign blandishments as a Western conspiracy to inhibit the country’s economic growth [CLA 17]. In response to public concern, in 2014, Chinese Premier Li Keqiang declared war on pollution and inefficient and blind development, but Chinese policymakers are still mindful of any adverse impact of sustainable developments on economic growth [US 19a]. The following indicates the magnitude of the Chinese task. China burns 47% of the world’s coal, with consequent effect on air quality in Beijing which is surrounded by coal-burning power plants. Similarly, it is estimated that more than half of China’s surface water is so polluted and undrinkable, and 90% of underground water for irrigating farmland is polluted. The increasing demands of agriculture have led to deforestation and desertification, as well as a drop in biodiversity. Even more alarming has been the emergence of the so-called “cancer

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villages,” due to chemical and heavy metal pollution. These trends have been exacerbated by increasing middle-class consumer demands, whether for diversified diet, say in the form of beef, as well as by expanded fuel usage for growing car ownership [LAL 13]. Especially since the introduction of reform initiatives by Deng Xiaoping in 1978, a major obstacle faced by Chinese lawmakers has been the local implementation of legislation, following the traditional and often fraught relationship between the central government and the provinces. Specifically, local governments have often been loath to enforce health, safety, and environmental laws, given the need to avoid unemployment and resulting social unrest which potentially threatens social stability. One hidden agenda in the Environmental Protection Tax Law of China being implemented since January 2018 is to provide incentives for local enforcement. The law includes air pollution, water pollution, solid waste, and noise as the four major categories of taxable emissions. The law specifically designates the local tax bureaus as collectors of the new environmental protection tax. Local governments have discretion regarding the tax rate within a range specified by the central government. The whole amount collected will become part of local tax revenue. In addition, the unleashing of local government initiative and responsibility is indicated by the enactment of the Water Pollution Prevention and Control Law to be implemented nationally through the “river chief” system, originally piloted in Jiangsu. In an industrial context, there are increased penalties for breaking the law in the discharge of pollutants [COR 17]. Finally, the Law on the Prevention and Control of Soil Pollution continues the focus on cleaning the environment [ZHA 18a, ZHA 18b]. The above environmental legislation officially makes no distinction between Chinese and foreign companies, with implications additionally for supply chain management [COR 17]. The above discussion regarding the implementation of China’s environmental legislation, including lately a carbon emissions trading scheme being piloted experimentally in several provinces, may be summarized as the remedial action being taken by the Chinese authorities [CLA 17]. The Chinese leaders have, in commitment to the 2015 global accord aimed at curbing temperature rises, pledged to bring down

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China’s total emissions to a peak around 2030. A Chinese climate experts source, however, claims that this goal will not be achieved unless limits on carbon emissions are included in the forthcoming 2021–2025 Five-Year Plan. According to the source, on a business as usual trajectory, annual CO2 emissions would grow from 11 gigatons in 2020 to 14.3 gigatons in 2030 and would still be rising [US 19b]. Such goals, however, demand not only the kind of remedial action outlined earlier, but also a constructive innovative policy based on renewable energy. Integral to moves toward the use of renewable sources is an increase in energy efficiency as China moves away from being the world’s workshop, especially for labor-intensive goods, toward an expanding service sector. Avoidance of unnecessary waste will foster a sustainable economy and encourage renewable energy use. Energy efficiency relates not only to consumption of energy, but also its production; the rate of recovery in coal mining is low since much extraction comes from inefficient small-scale coal mines. In line with this focus on efficiency is the emphasis on green energy, a priority of the current 12th Five-Year Plan, as stressed, for instance, in the Renewable Energy Law. An indication of the Chinese lead in renewable energy is research into underlying technology, with the Chinese having a total of 29% of the global patent. China, for example, is the leading country in the world in electricity products from renewable energy resources, double that of the second ranked United States, with renewable power coming mainly from hydroelectricity and wind, such growth being faster than that of fossil fuels and nuclear power capacity. While domestic demand is such that coal-powered plants still satisfy many of China’s energy needs, in 2017, renewable energy represented 36.6% of China’s total installed power capacity and 26.4% of total power generation. The rise in the share of renewable resources in energy is also a national security issue, given the possibility of interception of imports. China’s investment in renewable resources will now be placed in a global context through invested sectors. In 2007, China accounted for US $126.6 billion or 45% of the global total of US$279.8 billion invested in renewable energy. An example of hydropower development is the Gansu Dang River Hydropower Project, which, in

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2007, was registered as a Clean Development Mechanism project in accordance with the requirements of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. More hydropower projects are being approved. Global perspective also reveals China’s production of wind power, with the country being the largest producer after the United States, Germany, and Spain in 2008. There has also been a spin off for industry, with the commercial production of turbines and components. The Chinese government has also created an incentive scheme for the technological development of solar power, with China becoming a world leader in the manufacture of solar photovoltaic technology. While the production of fuel is far more contentious, given global concerns about the competition between corn, both as an energy source and as a food, with the potential for price rises, China has become, like the United States, and Brazil, a major producer of ethanol. Perhaps, geothermal power is more environment-friendly, which has considerable potential in China as an renewable energy resource [DUD 19, WIK ND]. In pursuit of renewable energy objectives, more challenging than green power generation is the fueling of vehicles environmentally because, in China as elsewhere in Asia, with a rising middle class, car ownership is also increasing, with potential for resulting deterioration in air quality. In spite of the current quality issues discussed below, Chinese leaders seek to dominate the global New Energy Vehicles (NEV) industry. Since 2015, the Chinese government has, through subsidies to car makers, battery manufacturers, and vehicle purchasers, supported the industry, prioritizing research and development (R&D) and obtaining technology from foreign joint ventures. Significantly, China’s largest electric vehicle maker is BYD, backed by the American Warren Buffett organization. Additionally, several city authorities have restricted the issue of license plates for traditional cars, thus encouraging drivers to buy electric vehicles. Consequently, in 2018, Chinese manufacturers sold 1,256 million NEVs, mainly electric cars, with China accounting for more than half of such global sales. In June 2019, Chinese government policy changed; subsidies relating to consumer purchasing fell at least 65%, resulting in lower profit margins for manufacturers, the intention being to force automakers to produce better quality electric vehicles. Lack of quality control is indicated by the recall to manufacturers of

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135,700 electric vehicles in 2018, representing an industry wide rate of 10.8%. Faults include low-quality batteries, motors, and transmission systems. In response, the government’s steps to eliminate subsidies have been designed to restrict the growing number of lowquality entrants to manufacturing. Closely linked is inferior battery performance on the road which can only be remedied by better industrial standards and certification [MIN 19, US 19c]. In addition, Chinese government policy has also sought to support the fledgling hydrogen-powered industry. The newly established Anhui Mingtian Hydrogen Energy Technology Company, for example, manufactures fuel stacks for vehicles powered by the element which produces no emissions from the tail pipe. According to BloombergNEF, the fuel-cell vehicle industry has received more than US $1 billion worth investments from Chinese companies. For the time being, government support for fuel-cell vehicles may well remain, even while subsidies for the electric car industry are being cut [US 19d]. Within this overall context of remedial and constructive innovative action, attention is now turned to Southeast Asia. Current economic and social trends suggest that the states of the region will, even though belatedly, follow a sustainable development trajectory similar to that of China. Energy consumption in Southeast Asia has doubled in the last two decades, with heavy reliance on fossil fuels, especially coal, both for power generation and transportation [IRE 18]. Demand is likely to increase, with an increasing number of middle-class consumers enjoying rising living standards. This has resulted in the greater accumulation of waste. Significantly, individual Southeast Asian countries, like China, have taken steps to limit the importation of waste, Malaysia and Vietnam being examples. Ironically, advanced economies exporting waste are in a much better position to develop environmentally recycling technologies, even though businesses, for instance, in Indonesia, have gained a profitable source of income by such measures [SEM 19]. Although the above has outlined some initiatives by individual Southeast Asian countries, there is a growing acceptance that waste management must proceed at a regional level, an instance being the recently adopted Bangkok Declaration on Combating Marine Debris at the Association of Southeast Nations (ASEAN) Summit in Bangkok

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in June 2019. Although the agreement is a major step forward, it does require policy coordination between countries, which often lack proper disposal facilities to curb, say, plastic pollution. Moreover, shared river systems, like that of the Mekong, are the conduits for ocean plastic pollution, land-based activities being a major source of marine debris. One solution is the circular economy model, currently being developed by Singapore and Thailand, through which the disposal of waste and the need for raw materials is lessened by implanting the system of reduce, reuse, recycle, refurbish, and remanufacture in the production, distribution, and consumption processes [TRA 19]. Although remedial measures are crucial in the short term, in the long run the key lies in the development of sustainable energy sources. In fact, Southeast Asia’s renewable energy potential is still largely untapped. This potential was implicitly acknowledged in the establishment of the ASEAN Centre for Sustainable Development (ACSDSD) in Thailand, signaling growing cooperation among regional countries [PIT 19]. Although there is still a greater need for policy coordination at a regional level, national initiatives have led to cumulative investment in renewable energy amounting to US$27 billion between 2006 and 2016 [IRE 18]. It is realized at regional levels that energy demand now exceeds supply and, given environmental degradation, renewable resources are the preferred sources to reduce greenhouse gas emissions, lest future economic and social development be impeded. Importantly, energy demand has increased by 60% in Southeast Asian countries in the last 15 years, challenging the availability of existing energy resources, especially in relation to the dominant transportation sector. Most Southeast Asian countries remain heavily dependent on fossil fuels for energy needs, but national governments are seeking to develop environment-friendly energy sources through incentives and carbon taxes. ASEAN has agreed on a 23% target for sustainable renewable resources by 2025. The following national examples will briefly illustrate progress to date. In Indonesia, the government’s target is the achievement of optimal energy use nationally by 2025, the objective being to reduce dependency on oil, gas, and coal which are in danger of not coping with future demand. Similarly, the Philippine

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government has introduced legislation to promote the use of renewable energy by developing resources and organizing management to support policy implementation. Singapore, a regional pacesetter in many policy areas, has a strategy to achieve efficient renewable energy, with the aim of reducing emissions at the business as usual level between 7% and 11% by 2020. Likewise, the Vietnamese have a target to increase the share of renewable energy by 5% in 2020, with an estimated increase of 11% in 2050. Malaysia’s policy is to achieve 5% renewable energy use for nationwide electrical energy needs by 2030. The Malaysian authorities are instigating surveillance concerning marine energy potential. Lastly, to promote energy conservation, the Thai government has a target of 3%–5% renewable energy use for all power-generation capacity projects. Geothermal and marine energy have also been slated as renewable energy sources in Thailand. In summary, these targets, while presenting challenges, also offer opportunities. Policies require investors who may reap substantial returns. The development of renewable resources locally may not only help to ensure local control over energy supply, but also provide employment through job creation, with attendant revenue generation. Nevertheless, national subsidies for fossil fuels and slow implementation of supporting policies in individual countries as yet preclude regionally integrated commitment to sustainable development. The large-scale development of renewable resources may be furthered through national and regional measures. National governments can target a long-term energy mix including renewable resources. In the implementation of energy policies in individual countries, incentives are crucial for financing the development of renewable resources and involve financial policy instruments. Exchange of information and expertise between states to enforce sustainable energy standards is also necessary. The expansion of the ASEAN Power Grid will link the energy resource endowments in the region as a whole [ERD 19]. Concluding remarks In conclusion, this overview serves as an introduction to the general rubric of sustainable development and energy transition,

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discussed in the following chapters. The leaders of China, still often categorized as a developing country, have, in recent decades, become increasingly aware of the adverse environmental effects of unfettered economic growth. Accordingly, under pressure from global institutions and in the face of domestic public opinion incensed by the damage done to health, the Chinese authorities have taken remedial action to stem, for example, the harm caused by air and water pollution as well as by the effects of deforestation and desertification. A major problem, however, is local implementation, given the regional government’s fear that strict enforcement will affect employment and result in social unrest. Changes in tax laws have, however, been designed as incentives for local authorities. The above constitutes the remedial action. Reducing the effects of climate change and global warming demands more affirmative action in the form of a constructive innovative policy based on renewable energy, with priority given, for instance, to the development of electric vehicles, hydroelectricity, and wind and solar power. Given that carbon emissions in transportation are a cause of global warming, the Chinese leaders have sought domination of the electric vehicles industry, even though there are quality issues. The Chinese approach may serve as a template for Southeast Asian countries which are still heavily reliant on fossil fuels, given demand from increasingly affluent middle-class consumers. Although there are initiatives by individual countries, the key to successful remedial waste management may well best proceed at a regional level; river systems like the Mekong are conduits for ocean-based pollution. Because of heavy dependence to date on fossil fuels, some Southeast Asian countries have targeted the development of, for instance, geothermal and marine energy sources. Regionally integrated commitment to sustainable development via renewable resources has been hindered by national subsidies for fossil fuels and ineffective supporting policies in individual Asian states. Exchange of expertise between states and the expansion of the ASEAN Power Grid will further regional-level coordination. The chapters in this volume offer a wide-ranging perspective relating to sustainable development and energy transition in Asia. The

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Chinese case is examined in Chapters 2 and 3. In particular, Chapter 2 investigates China’s coal dependency by looking at the short- to medium-run dynamics existing between coal price volatility and sectoral stock exchange performance. Chapter 3 discusses the steps that the Chinese government is taking in order to implement a clean energy strategy with the idea of “ecological civilization” in mind. Energy transformation and the move toward a sustainable green energy sector are also issues dealt with in Chapter 8 which considers the case of Southeast Asian countries. Chapter 7, focusing on Indonesia and Laos, analyzes the effects of the rapid expansion of palm oil production in both countries. The notion of “ecological economics” is also explained and developed in Chapter 4 in the context of urban logistics in the case of Japan. The international dimension of sustainable development is covered in Chapter 5 which investigates whether the recent EU–Japan free trade area (FTA) can be regarded as a norm-setter regarding sustainable development issues in the future FTAs that the EU will/might sign with other countries in Asia. Chapters 1 and 9 deal with a socioeconomic issue of sustainable development, namely the role of women in economic growth: Chapter 1 from the perspective of microfinance in Vietnam and Chapter 9 from the viewpoint of female researchers in Japan. Chapter 6 provides an analysis of the relationship between shareholder value within multinational firms and the international transfer of environmental management practices. Finally, the central issue of food and agricultural development is explored in Chapters 10 and 11. Chapter 10 is devoted to sustainable agricultural development and rural poverty in India, whereas Chapter 11 is on consumers’ attitudes toward food products containing a low level of chemicals in China when compared to the EU. References [CLA 17] CLARK A., “Opinion beyond brics. China’s environmental clean-up to have big impact on industry”, Financial Times, May 22, 2017. [COR 17] CORNE P., BROWAEYS J., “China cleans up its act on environmental enforcement”, The Diplomat, December 9, 2017.

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[DUD 19] DUDLEY D., “China is set to become the world’s renewable energy superpower, according to new report”, Forbes, available at: www. forbes.com/sites/2019/01/11 [accessed August 24, 2019], January 11, 2019. [ERD 19] ERDIWANSYAH, MAMAT R., SANI M.S.M., et al., “Renewable energy in Southeast Asia: policies and recommendations”, Science of the Total Environment, vol. 670, pp. 1095–1102, 2019. [IRE 18] IRENA AGENCY PUBLICATION, Renewable energy market analysis: Southeast Asia [accessed August 24, 2019], 2018. [LAL 13] LALLANILLA M., “China’s top 6 environmental concerns”, Expi CHO Thermo Fisher Scientific, available at: http://irena.org/publications/ 2018/Jan/RenewableEnergy MarketAnalysisinSoutheastAsia, 2013. [MAS 18] MASLOG C., “ASEAN countries lag on renewable energy”, SciDEVNet, July 30, available at: https:www.scidev.net/asia-pacific/energy/ columns/aseancountrieslagonrenewables, 2018. [MIN 19] MINTER A., “Electric car fires in China should set off alarms”, Bloomberg, L.P., March 20, 2019. [PIT 19] PITAKDUMRONGKIT K., 34th ASEAN Summit and Thailand: headway or uncertainty? Rajaratnam School of International Studies (RSIS) Commentary No. 133/2019, July 3, 2019. [RAJ 19] Rajaratnam School of International Studies (RSIS) NTS Bulletin, The final countdown – ten years to achieve the sustainable development goals [accessed August 22, 2019], available at: https:mail.google.com/mail/ u/o?ik=b6fa8ceda&view=pt&search=all & permthid=thr, 2019. [SEM 19] SEMBIRING M., Global waste trade chaos: rising environmentalism or cost–benefit analysis? Rajaratnam School of International Studies (RSIS) NTS Insight, No. IN19-02, July 2019. [TRA 19] TRAJANO J., GONG L., Combating marine debris: what after the Bangkok declaration? Rajaratnam School of International Studies (RSIS) Commentary No. 136/2019, July 8, 2019. [TRI 19] TRIAS A.P.L., Managing disasters 4.0: need for new thinking, Rajaratnam School of International Studies (RSIS) Commentary, No. 166/2019, August 23, 2019. [US 19a] US-China Trade Council News Overview, “China has made major progress on air pollution: Wuhan protests show there is still a long way to go”, CNN, July 11, 2019. [US 19b] US-China Trade Council News Overview, “China’s government think tank presses for 2025 CO2 cap”, Reuters, August 14, 2019.

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[US 19c] US-China Trade Council News Overview, “Electric vehicles run into China’s regulatory change”, WSJ, August 22, 2019. [US 19d] US-China Trade Council News Overview, August 23, 2019. [WIK ND] Wikipedia, Renewable energy in China, available at: en.wikipedia. org/wiki [accessed August 24, 2019], n.d. [ZHA 18a] ZHANG J.Q., “Two new environmental laws to go into effect in 2018”, available at: China.org.cn, January 1, 2018. [ZHA 18b] ZHANG Z.Y., New laws in China to impact business, trade from January 1, 2019, available at: www.china-briefing.com/, 2018.

1 The Role of Microfinance in Women Empowerment: Global Sustainable Perspectives in the Case of Vietnam

This study analyzes the impact of microfinance (MF) on women empowerment in the context of Vietnam. Our analysis is based on the examination of primary data obtained from the MF organizations and women’s unions in the Tra Vinh province in Vietnam. We interviewed managers from various organizations at district levels to know their insights on how MF services have been made available to female borrowers and to find out the extent to which access to financing through MF products has helped them to develop their economic independence and to strengthen their role in their household and community. This study offers evidence on the positive role played by MF in the empowerment of women and also highlights the importance of economic, feminist and legal factors in the process. The main research findings point out the benefits offered by MF services not only in the context of short-term economic goals for poor women, but also in the long term with regard to improving women’s role so that they become economically more independent and contribute to government planning of sustainable developmental goals.

                                       Chapter written by Long Bui THANH, Lucía MORALES and Bernadette ANDREOSSOO’CALLAGHAN.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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1.1. Introduction Microfinance (MF) tools have been used quite successfully in economic development among disadvantaged social classes that are characterized by high levels of poverty, economic inequality, and social discrimination. In particular, microfinance institutions (MFIs) have been quite focused in offering support to female borrowers, aiming to help them advance and consolidate their economic independence in their families and society by offering them access to needed capital [ADB 00, BAS 07, HAS 96, RAH 17]. The cases of the self-help groups in India and Grameen Bank in Bangladesh are examples of the successful implementation of MF tools to provide loans to the poorest and to support them for the creation of small business activities that help alleviate their social and economic exclusion. The focus of MFIs over the years has been on female borrowers identified as a clear disadvantaged social class. [BAS 07, HAS 96, RAH 17]. Women are regarded as ideal clients, as they are effective in savings and repayments of microloans when compared to men [AGI 13, ILO 08, WEB 14]. In the context of Vietnam, researchers’ findings suggest that women are found to be more responsible with regard to financial affairs, especially in poor families [HOL 12]. However, poor Vietnamese women face significant challenges and disadvantages as they are generally powerless in their families, and also with regard to their social and economic role that is heavily influenced and founded on a patriarchal social system, which does diminish the role of women. In this regard, MF services are of special importance, as they target female clients and offer support that helps them to manage received capital and access non-financial services that contribute to the empowerment of women in the social and family context of Vietnam [ADA 16, DIN 15, LE 13]. For these reasons, many countries across the world have become interested in the role that MF can play as a key component in the development and enhancement of the economic system. Countries have realized that MF can play a valuable role as it can contribute to social cohesion, integration of disfavored groups, and facilitation of financial resources to deprived classes. Moreover, MFIs have also helped to minimize the degree of bureaucracy associated with access to funds that deters the access to needed resources from disfavored and marginalized social classes [ADA 16, ADB 00]. To contribute to this line of research, this

The Role of Microfinance in Women Empowerment

3

study analyzes the roles of MFIs and women’s unions (WUs) in Vietnam. The study explores how MF services have helped to achieve goals of poverty reduction and gender equity in the Tra Vinh (TV) province in Vietnam, a region with a significant representation of poor women. The research is supported by a qualitative approach, with indepth interviews carried out with managers of MFIs and WUs at district levels. The research findings offer insights into the available policies, levels of access to MF services, and the positive impact that MF has on poor women in Vietnam in terms of their social and economic integrity. 1.2. MF and women empowerment In the last 30 years, researchers examining the value of MF as a tool to promote economic development and social integration and cohesion have also considered the important aspects with regard to the role that MF can play in poverty reduction in developing countries [WOL 99, YUN 03]. Most of the poor and low-income people cannot access financial resources due to their limitations on knowledge, information, and resources available. On the other hand, gender inequity in developing countries represents major challenges for socioeconomic sustainable development and for poor women around the world who are being identified to be disadvantaged and vulnerable [ELS 02, HAW 11]. Existing support to women in MF programs come from many organizations, such as governments, societies, and nongovernmental organizations (NGOs) with a variety of political perspectives [HUN 12, KAB 03, WB 12]. According to the current apparent consensus, it is possible to identify three elements with different basic aims and understanding of different policy prescriptions and priorities in relation to both MF and gender policy. The research findings by Mayoux [MAY 05] indicate that when women are empowered to access MF services through WUs, they are able to make a positive economic and social contribution. The author’s findings suggest that women’s contributions can help increase economic well-being and social, political, and legal empowerment. Furthermore, female borrowers can gain access to financial and non-financial services by combining the three main objectives, vis-à-vis, poverty alleviation, financial self-sustainability, and women empowerment [AGI 13, DES 13, NGO 12, WAR 15].

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A close consideration of these three core objectives suggests the following: 1. Women empowerment is considered being an important goal of sustainable development strategies in many countries, as women are able to make a significant contribution to socioeconomic development. However, gender inequity in many countries is driven by culture, religion, social thinking, and beliefs according to which men are preferably the ones that play a central role. As such, men are considered more important than women, leading to neglecting women’s contribution in their family and society [BOS 13]. MF programs focus on the poor women through feminist organizations that have been settling in numbers across countries following movements such as the Self Employed Women’s Association (SEWA) in India, the Consultative Group to Assist the Poor (CGAP) in the USA, the Community Development Centre (CODEC) in Bangladesh, the Grameen Bank in Bangladesh, the Small Foundation (SEF) in South Africa, the Mbonweh Women’s Development Association in Cameroon, Women’s World Banking in the USA, and many more. These organizations foster socioeconomic sustainable development goals (SDGs) such as gender equity and economic empowerment for women [BHA 03, ELS 02, NGO 12, WB 12]. Most of the feminist organizations focus on underdeveloped and developing countries to promote women empowerment through MF solutions, because women in these countries are considered exposed to significant challenges regarding gender inequity. In this regard, MF services are considered the best channel to offer financial opportunities for poor and lowincome people [BAL 15, SHA 07]. In the context of Vietnam, WUs play a significant role in social and political development. The system of WUs integrates four national levels that start from the central level and then go down to provinces, districts, and communes. The presidents of WUs for each level are members of the committee of the communist party of Vietnam who help represent women’s voice in politics and society [LE 13, WU 19]. 2. Poverty reduction is at the center of millennium development goals of the United Nations, aiming to target global sustainable development [KIM 15]. MF programs focus on disadvantaged groups to promote sustainable livelihoods and to enable social services to reach the poor and the poorest and facilitate them access to financial

The Role of Microfinance in Women Empowerment

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opportunities [DAL 06]. Then, poor women are considered the most vulnerable and disadvantaged of the poor group that is dominated by gender inequity in developing and less-developed countries. The combination of MFIs and WUs to outreach poor women and to target socioeconomic development is not only helping women to empower economically, but also supporting them to get out of poverty [REE 11]. At the same time, MF tools are contributing to improve their knowledge in legal and social matters regarding gender education that promotes their roles in the household and society [ADD 17, AJW 17, LE 13]. 3. Financial self-sustainability plays an important role in financial inclusion of relevant stakeholders including MF clients and providers in related organizations. The outreach and efficiency of MF services target poor women to ensure that the right goals on economic empowerment and poverty reduction are achieved. Women’s effective use of financial resources and timely repayment can contribute to ensure financial safety and sustainability for MF clients [HAI 12]. As regards the targets of self-sustainable MF for female borrowers and financial providers, WUs play significant roles when articulating bridges between women and MF providers and by supporting financial and non-financial services. WUs can directly reach out to members on non-financial services through self-help groups such as sharing information, training in business activities, crops, livestock, guidelines for borrowers on using MF tools, and targeting good performance for making repayments on time [ADE 17, ATT 15, SEH 16, TRU 14]. The reviewed literature indicates that women empowerment and poverty reduction are two core objectives of sustainable development planning. In particular, allies of WUs and MFIs focus on providing MF services to poor women that tend to target both gender equity and poverty reduction on SDGs [BOS 13, CAL 06, DRO 10, SAN 09, WES 79]. In the context of Vietnam, the government has been implementing policies, such as the Law on Gender Equality that was introduced in 2006, the Law on Domestic Violence Prevention and Control brought in 2007, and the Law on Marriage and Family introduced in 2014, that help promote gender equity for decades. These laws were aimed at enhancing a more active approach on the efforts that lead toward women empowerment. In particular, the

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Vietnamese Prime Minister issued Decision No. 381/QD-TTg on March 18, 2014, for the establishment of an MF working group to promote and facilitate poor women’s access to effective MF funding through the enablement of MF programs [VIE 14]. 1.3. Data and research methods

Figure 1.1. WUs and MFIs in Vietnam [Source: Authors’ design based on data collection (2019)]

The analysis of the impact of MF on women empowerment through WUs and MFIs in Vietnam is the core of this research study. To offer insights into the issue, primary data was collected by interviewing relevant managers of MFIs and WUs at district levels in the TV province.

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The Government of Vietnam provides MF services to the poor and near-poverty people from public financial resources through Stateowned banks such as the Vietnamese Bank for Social Policies (VBSP) and the Vietnamese Bank for Agriculture and Rural Development (AgriBank) [DIN 15]. In line with the introduced reforms, the Vietnam WUs have been cooperating with formal banks and NGOs to provide MF services to their clients for many years (Figure 1.1).

Figure 1.2. Tra Vinh Map (Source: [VG 19]). For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

This study applies a narrative and content analysis to understand the contribution of MF services for women empowerment in the context of their experience as being exposed to MF. In-depth interviews were conducted with 10 managers of MFIs and WUs who are managing MF programs at district levels in the TV province located in the Mekong delta of the southern region of Vietnam (see Figure 1.2). The population of the TV province is about 1.1 million with three main ethnic groups that include Vietnamese, Chinese, and Khmer. The Khmer group is considered an ethnic minority group in

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Vietnam with a representation of 31% of the provincial population. Women account for 51.2% of TV population with 30.1% being Khmer women. Khmer people face many disadvantages such as poor living conditions as they reside in remote regions far away from the urban areas, often living in shanty villages that are home to many people characterized by significant lack of communications with the outside world. With 75% of the population living in the rural areas of the TV province, the province represents 10% of the poor population nationally as per the 2018 data, ranking TV 31 over 63 provinces in Vietnam in terms of poverty levels. The Khmer group represents more than 52% of poor households in total in the province [GSO 19, WB 19]. Therefore, the TV province was selected as a representative area to support this study. The details of the research sample are given in Table 1.1. Five managers of WUs and MFIs from Tra Vinh City, Chau Thanh, Cau Ngang, Cang Long, and Cau Ke districts were interviewed. Some basic points that need to be considered regarding the research sample and its suitability to this study are outlined as follows: the VBSP–TV brand is considered as being the largest financial provider to 80% of the poor and near-poverty people in the province [VBS 19]. The AgriBank and the Co-opBank also provide loans to the poor, farmers, and small and medium entrepreneurs in the TV province [TRA 19]. In particular, the TVWDF is a social fund under the management of the TV WU that receives support from the International Fund for Agricultural Development (IFAD) that focuses on providing loans to poor women in the TV province. The microcredit project – Tra Vinh University (TVU) – is a donor fund under the supervision and guidelines of the TVU and WU that focuses on providing loans to the poor women in the TV province. The WUs are sociopolitical organizations settled in each district in the TV province. As such, the organizations under study offer a good representation of MFIs that offer their services and that provide insights into their relevant stakeholders with regard to the value of MF in the province.

The Role of Microfinance in Women Empowerment

No.

Position of interviewees

1

Deputy Director

2

Director

3

Director

4

Director

5

Deputy Manager

1

Deputy President

2

Deputy President

3

President

4

President

5

Deputy President

Organizations MFIs Tra Vinh Women Development Fund (TVWDF) Vietnam Bank for Social Policies – Tra Vinh Branch (VBSP) Co-operative Bank of Vietnam – Tra Vinh Branch (Co-opBank) Vietnam Bank for Agriculture and Rural Development – Tra Vinh Branch (AgriBank) Micro credit project – Tra Vinh University WUs Tra Vinh City Women’s Union Chau Thanh District Women’s Union Cang Long District Women’s Union Cau Ngang District Women’s Union Cau Ke District Women’s Union

Staffs

Year of establishment

Interview date

55

2014

August 23, 2018

155

2003

August 24, 2018

32

1994

August 31, 2018

328

1988

August 25, 2018

5

2011

August 30, 2018

5

1930

August 27, 2018

5

1930

August 28, 2018

5

1930

August 29, 2018

5

1930

August 26, 2018

5

1930

August 22, 2018

Table 1.1. List of Interviews from organizations in the TV province [Source: Authors’ data collection process (2019)]

9

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Sustainable Development and Energy Transition in Europe and Asia

1.4. Research findings and discussion The main issues revealed by this study relate to the impact of MF on women empowerment in the areas of economics, labor relations, education, health, and domestic violence. The research findings exposed the effect of existing MF services on economic empowerment, legal empowerment, and feminist factors. Based on the same goals of poverty reduction, gender equity, and financial security, there is evidence of the existence of strong association between WUs and MFIs to provide MF services and non-financial services to women through trust agreements on delegation of authority on finance services in the TV province (Figure 1.2). According to the Deputy Director of the TVWDF: Our fund is managed by the TV WU based on the modelling of a microfinance institution operating in 30 selected communes in seven districts, TV. The fund has been established with the aim to support women on economic development, job creation, and income increase and life improvement by providing credit and savings together with technical assistance and market links in order to contribute to poverty reduction. The fund is financed through the delegation of authority on the roles of the TV WU by Organizations, Terre des Hommes, Switzerland and Unilever Group: 3.75 billion VND,1 IFAD: 33.853 billion VND, and the project for Improving Market Participation of the Poor (IMPP): 23.742 billion VND. The local WUs have responsibilities on confirmation of borrowing objectives and sending lists of requested loans to the fund. Presidents in every district will represent a head of district unit in the fund. The fund is structured around requested loans from female clients. Funds are disbursed to female borrowers that meet local WUs objectives. MFIs provide MF services such as microloans and savings, and WUs reach women with borrowing schemes through guarantees and repayment collections for MFIs. Moreover, WUs provide                                        1 VND is the Vietnamese currency or Vietnam Dong.

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11

non-financial services to women to help them manage their borrowings in an effective manner. WUs cover all information with regard to memberships by centralizing organization systems from local areas through credit groups in the same location. The bridge between WUs and MFIs create an important financial channel to attract members working together by providing simple procedures and ensuring fast financial solutions. WUs offer guidance to their members ensuring that they are able to understand available procedures at the time that provide guarantees on microcredits to female borrowers. Additionally, members in the same area support each other on daily performance issues by sharing information related to their business, crops, and livestock that ensure effectiveness on the use of microloans. In this way, female borrowers are able to become part of the economic and financial system, as they are well-respected and identified as safe clients that will respond to their liabilities. Based on the co-operation of MFIs and WUs presented in Figure 1.1, it is obvious that how MF impacts poor women’s socioeconomic life with increasing income and also their household. By voicing economic concern in the family, women are able to play a more active role in economic affairs, as they are able to create livelihood for their families and improve their position in their family. The related studies by Xia Li [LI 11] in China, Pitt [PIT 03] in Bangladesh, and Moazzam [MOA 15] in Pakistan confirmed that MF has a great impact on combating poverty and gender inequity by allowing women to be an economic player, leading to the reduction of potential cases of domestic violence. 1.4.1. Economic empowerment Most of the interviewees flagged the significant impact of MF on empowering the economic contribution that women can make. When women reach out to microloans to help them develop and engage in activities such as small exchanges of crops and livestock, they are able to improve their income and as such the economic conditions of their families start to improve. There are good examples of a number of successful businesswomen as a direct result of MF programs, and these women have managed to continue to expand their business. Some of them have even contributed to the creation of additional jobs

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Sustainable Development and Energy Transition in Europe and Asia

that are made available to members of the WU. The Deputy Director of TVWDF highlighted: Economic empowerment is considered a key goal of microfinance performance in cooperation between WUs and MFIs. The success of MF programs show up at women’s income generation that will impact other factors of the empowerment process for women. We always make efforts to support economic independency for women. Then, most poor female borrowers took the loans from the available fund, and they also have savings through group savings. Most of the female borrowers are able to use the loans to invest in their existing family businesses with support of WUs. As a result, women are able to visualize their role in the household and to join the decision-making process in the family, important factors with regard to women’s choices about economic activities and their ability to improve and generate income.

Figure 1.3. Economic empowerment [Source: Nvivo Data Analysis (Long, Morales and Andreosso-O’Callaghan 2019)]

Figure 1.3 identifies the economic factor as an important aspect of women empowerment. The word “economic” has been displayed with its link to different terms that were mentioned by the interviewees as they examined the role of MF as part of women economic integration. The text search query shows that interviewees were concerned about

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economic factors. The Director of VBSP–TV Branch offered the following views: There are trust agreements between VBSP and WU in four levels in Vietnam from central, provinces, districts, and communes. The WU will be responsible on submitting requested loans and collecting repayments from women for VBSP. WUs are delegated to allocate loans from VBSP for female borrowers. The WU is considered the best available channel in delegating loans for women with bad debits being under 1% over the total loans. It confirms that the poor female borrowers used loans in an effective manner to improve their income and that they were also on time with regard to repayments. Additionally, The President of Cang Long District WU also mentioned the following: … We target to achieve poverty reduction and the gender equity based on two elements of economic and noneconomic solutions. We need cooperation from financial providers for economic solution, because we have not enough financial resources for our members. MF services are considered appropriate tools for poor women as their business scales are small and mainly based on micro operations. We guarantee and allocate loans for members with our policies of self-help group from loans of MFIs. The number of our membership have successfully improved their income from using borrowings with more than 80% of poor households getting out of poverty over the last 10 years .... The research findings indicate that both WUs and MFIs have made a substantial contribution to women empowering efforts through the economic dimension. As such, MF tools helped in the development of appropriate strategies that facilitate advancing and revealing women’s contributions that are making a positive impact in the household with relevant spillover effects toward society. When women are able to make an economic contribution, they also join the decision-making process in areas that relate to expenditure and investments that can

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Sustainable Development and Energy Transition in Europe and Asia

help ensure that targets of reducing poverty and increasing gender equity in the family are met. In line with the reviewed literature, MF tools have contributed to generate a positive impact on economic empowerment for women in terms of driving women’s economic independence [DES 13, MAY 05, NGO 12]. Women in the TV province have been able to improve their well-being and enjoy an expansion of personal choice and self-reliance of capacities that moved them forward toward gender equity of SDGs as a result of MF availability. 1.4.2. Feminist and legal empowerment Further aspects that need to be considered in the context of MF relate to legal and gender factors that are also identified as significant areas with regard to female borrowers’ needs and their engagement with non-financial services. According to the Deputy Manager of Micro credit project – TVU: … WUs need to show the benefits for their membership in providing financial resources; otherwise MFIs need to outreach female borrowers on goals of safe finance through guarantee and allocating for right objectives. Moreover, both WUs and MFIs ally to ensure targets of poverty reduction and gender equity from the microfinance tools. WUs at local areas have responsibilities on confirming borrowing objectives of clients, borrowing objectives are women in the poor and pre-poor households, and managing female clients on using loans … Based on the borrowing objectives, we conduct two combined trainings of using loans in business, crops, and livestock with gender equity in family and society. Over the period of outreaching microfinance services, women understood completely equity legal rights between men and women by training from us and WUs ... Through the combination of financial and non-financial services, women are able to benefit from services offered by MFIs in parallel to support received from WUs that contribute to their knowledge in

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terms of self-protection and looking after their children from inequity in family and society. Deputy President of Tra Vinh City WU confirms that … We organize credit groups for memberships at local areas on supporting between memberships with special titles such as community health, supports of lonely old women, and talented and educational encouragement from microfinance resources. Especially, we always train women about legal knowledge and feminists with providing micro financial supports on regular meetings. The most of female borrowers recognized the feminist in household and communities … Women’s knowledge of legal factors with regard to their rights on property inheritance from their parents, and sharing facilities for their husbands and themselves allow them to hold a better position in their household. Moreover, women are made aware that they do share the same rights in terms of using public services, joining cultural groups, religious, and political activities, in the same way as men.

Figure 1.4. Text query relates to feminist [Source: Nvivo Data Analysis (Long, Morales and Andreosso-O'Callaghan 2019)]

Figure 1.4 links the word “feminist” to different issues highlighted by the interviewees and also shows how the word “feminist” appeared in relation to MF to empower women. The query shows that “feminist” not only implies a concern with women empowerment, but

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also with regard to development issues and the roles played by MF to enable women’s social and economic integration. To achieve SDGs, MF is striving hard to reduce gender differences and to combat poverty. In related studies by Guérin [GUÉ 13], Le and Dao [LE 13], and Ajwani-Ramchandani [AJW 17], it was clear that MF programs focusing on women have managed to make a significant impact on empowering feminist and legal knowledge for women in enhancing their ability to present individual views in the family and community, and to give advice to others of the same condition. MF performance in the TV province is considered having an important role in empowering women in terms of feminism and legal awareness; this leads to benefits in terms of MF services for increasing gender awareness and the roles of WUs in women empowerment. 1.5. Conclusion This study gathered in-depth information on the achievement of empowering women and the reality of policies in MF for female clients in Vietnam. This study offers evidence on the positive role played by MF in the empowerment of women by considering the MF services in the context of short-term economic goals for poor women in targeting poverty reduction and creating livelihood and also in economic empowerment. The study highlighted the importance of roles such as feminist and legal empowerment with regard to the awareness of equal rights with men with long-term implications. MF facilities have contributed to improve women’s role and to ensure that policies aim to develop more SDGs that do make a contribution to long-term projections with regard to the role of women in the economic and social context. In the context of the TV province, this research study offered evidence of a positive impact that MIFs and WUs are having in terms of effectiveness of using MF services to target poverty reduction, gender equity, and financial sustainability. Therefore, the research outcomes do help outline some initial recommendations with regard to potential policies that can help promote the effective use of MF tools for empowering women. The government of Vietnam could examine how MF tools can contribute to further development of policies that are more active in terms of poverty reduction and gender equity objectives. For example, by

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enabling tax reductions and facilitating interest rates that are suitable to MFIs and WUs, the government could contribute to increasing levels of credit services and facilities that directly target poor women. At the same time, there is a need for monitoring the impact of debt burdens derived from MF funding, and implications for women progression and sustainable development. In the context of economic development and the creation of an equal society, the government could consider advancing the role of WUs in the structure of the government so that they can contribute to build equity rights in the area of socioeconomic policies. As such, the government could consider fostering further engagement with MFIs and WUs that would contribute to alleviate strains on very limited public resources and help in terms of continuity and sustainable economic growth. 1.6. References [ADA 16] ADAMS D.W., VOGEL R.C., “Microfinance dreams”, Enterprise Development and Microfinance, vol. 27, no. 2, pp. 142–154, available at: http://dx.doi.org/10.3362/1755-1986.2016.010, 2016. [ADB 00] ADB, Finance for the Poor: Microfinance Development Strategy, Asian Development Bank, 2000, available at: https://www.adb.org/ documents/finance-poor-microfinance-development-strategy. [ADD 17] ADDAI B., “Women empowerment through microfinance: empirical evidence from Ghana Journal of Finance and Accounting”, Journal of Finance and Accounting, vol. 5, no. 1, pp. 1–11, 2017. [ADE 17] ADEOLA O., EVANS O., “The impact of microfinance on financial inclusion in Nigeria”, Journal of Developing Areas, vol. 51, no. 4, pp. 193–206, 2017. [AGI 13] AGIER I., SZAFARZ A., “Microfinance and gender: is there a glass ceiling on loan size?”, World Development, vol. 42, no. 1, pp. 165–181, 2013. [AJW 17] AJWANI-RAMCHANDANI R., The Role of Microfinance in Women’s Empowerment: A Comparative Study of Rural & Urban Groups in India, Emerald Publishing Limited, Bingley, UK, 2017. [ATT 15] ATTANASIO O., AUGSBURG B., DE HAAS R. et al., “The impacts of microfinance: evidence from joint-liability lending in Mongolia”, American Economic Journal-Applied Economics, vol. 7, no. 1, pp. 90–122, 2015.

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[BAL 15] BALI SWAIN R., Can Microfinance Empower Women? Self-Help Groups in India, vol. 37, Appui au Développement Autonome (ADA), Luxembourg, pp. 61–82, 2015. [BAS 07] BASHER M.A., “Empowerment of microcredit participants and its spillover effects: evidence from the Grameen Bank of Bangladesh”, The Journal of Developing Areas, vol. 40, no. 2, pp. 173–183, 2007. [BHA 03] BHATNAGAR D., DEWAN A., MORENO M. et al., Empowerment Case Studies: Consultative Group to Assist the Poorest (CGAP), World Bank, Washington, DC, available at: http://siteresources.worldbank.org, 2003. [BOS 13] BOSERUP E., TAN S.F., TOULMIN C., Woman’s Role in Economic Development, Routledge, London, UK, 2013. [CAL 06] CALÁS M.B., SMIRCICH L., “From the ‘woman’s point of view’ ten years later: towards a feminist organization studies”, in The Sage Handbook of Organization Studies, STEWART R. CLEGG, CYNTHIA HARDY, THOMAS B. LAWRENCE WALTER R. (eds). Nord, available at: doi: http://dx.doi.org/ 10.4135/9781848608030. p. 284, 2006. [DAL 06] DALEY-HARRIS S., LAEGREID L., State of the microcredit summit campaign: report 2006, Microcredit Summit Campaign, Washington, DC, 2006. [DES 13] D’ESPALLIER B., GUERIN Il., MERSLAND R., “Focus on women in microfinance institutions”, Journal of Development Studies, vol. 49, pp. 589–608, 2013. [DIN 15] DINEEN K., LE Q.V., “The impact of an integrated microcredit program on empowerment of women and gender equality in rural Vietnam”, Journal of Developing Areas, vol. 49, pp. 23–38, 2015. [DRO 10] DROLET J., “Feminist perspectives in development: implications for women and microcredit”, Affilia, vol. 25, pp. 212–223, 2010. [ELS 02] ELSON D., KEKLIK H., Progress of the world’s women 2002: gender equality and the millennium development goals, vol. 2, UN Women Headquarters, New York, 2002. [GSO 19] GSO, Information publication [Online], General Statistics Office of Vietnam, Ha Noi, Vietnam, available at: http://www.gso.gov.vn/ Default_en.aspx?tabid=491 [accessed March 9, 2019], 2019. [GUÉ 13] GUÉRIN I., KUMAR S., AGIER I., “Women’s empowerment: power to act or power over other women? Lessons from Indian microfinance”, Oxford Development Studies, vol. 41, no. supp. 1, pp. S76–S94, 2013.

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[HAI 12] HAILEA H.B., BOCKB B., FOLMERC H., “Microfinance and female empowerment: do institutions matter?”, Womens Studies International Forum, vol. 35, pp. 256–265, 2012. [HAS 96] HASHEMI S.M., SCHULER S.R., RILEY A.P., “Rural credit programs and women’s empowerment in Bangladesh”, World Development, vol. 24, pp. 635–653, 1996. [HAW 11] HAWK J.L., WYNHOVEN U., MILLS L. et al., Women’s Empowerment Principles: Equality Means Business, UN Women Headquarters, New York, 2011. [HOL 12] HOLLISTER D.C., NGUYEN H.T., “Microfinance in Vietnam: advantages and disadvantages from the perspectives of women participants”, Social Development Issues, vol. 34, pp. 81–93, 2012. [HUN 12] HUNG G., “Empowering women – Empowering humanity” Campaign [Online]. Hanoi: United Nations in Vietnam, available at: http://www.un.org.vn/en/what-we-do-mainmenu-203/cross-cutting-themesgender/“empowering-women-–-empowering-humanity”-campaign.html [accessed 21 April 2018], 2012. [ILO 08] ILO., Small Change, Big Changes: Women and Microfinance. International Women’s Day 2008: Investing in Decent Work for Women: Not Just Right, but Smart. Geneva, Switzerland: International Labour Organization, 2008. [KAB 03] KABEER N., Gender Mainstreaming in Poverty Eradication and the Millennium Development Goals. A Handbook for Policy-makers and other Stakeholders, 2003. [KHA 03] KHANDKER S.R., PITT M.M., The Impact of Group-Based Credit on Poor Households: An Analysis of Panel Data from Bangladesh, Word Bank, Washington, DC, 2003. [KIM 15] KI-MOON B., The millennium development goals report 2015, United Nations Publications, 2015. [LE 13] LE Q.V., DAO H.T., “Microcredit and women’s empowerment in rural Vietnam”, The International Journal of Interdisciplinary Social and Community Studies, vol. 7, pp. 61–76, 2013. [LI 11] LI X., GAN C., HU B., “The welfare impact of microcredit on rural households in China”, The Journal of Socio-Economics, vol. 40, no. 4, pp. 404–411, 2011. [MAY 05] MAYOUX L., Women’s Empowerment through Sustainable Microfinance: Rethinking ‘Best Practice’. Enterprise Development Impact Assessment Information Service, 2005.

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[MOA 15] MOAZZAM A., REHMAN H., ANSARI N., Role of microfinance institutions in women empowerment: a case study of Akhuwat, Pakistan, South Asian Studies., A Research Journal of South Asian Studies, vol. 30, no. 1, pp. 107–125, 2015. [NGO 12] NGO T.M.-P., WAHHAJ Z., “Microfinance and gender empowerment”, Journal of Development Economics, vol. 99, pp. 1–12, 2012. [RAH 17] RAHMAN M.M., KHANAM R., NGHIEM S.H., “The effects of microfinance on women’s empowerment: new evidence from Bangladesh”, International Journal of Social Economics, vol. 44, no. 12, pp. 1745–1757, 2017. [REE 11] REED L.R., State of the microcredit summit campaign report 2011, Microcredit Summit Campaign, Washington DC, 2011. [SAN 09] SANYAL P., “From credit to collective action: the role of microfinance in promoting women’s social capital and normative influence”, American Sociological Review, vol. 74, pp. 529–550, 2009. [SEH 16] SEHRAWAT M., GIRI A.K., “Financial development and poverty reduction in India: an empirical investigation”, International Journal of Social Economics, vol. 43, pp. 106–122, 2016. [SHA 07] SHARMA P.R., “Micro-finance and women empowerment”, Journal of Nepalese Business Studies, vol. 4, pp. 16–27, 2007. [TRA 19] TRAVINH_PORTAL, Introduction of Tra Vinh province [Online], Information and Communication Service of Tra Vinh Province, Vietnam, Tra Vinh, Vietnam, available at: http://travinh.gov.vn/wps/portal/en [accessed March 10, 2019], 2019. [TRU 14] TRUJILLO V., RODRÍGUEZ-LÓPEZ F., MURIEL-PATINO V., “Microfinance regulation and market development in Latin America”, B.E. Journal of Economic Analysis & Policy, vol. 14, no. 4, pp. 1745–1757, 2014. [VBS 19] VBSP, Published statements 2018 [Online], Vietnam Bank for Social Policies, Ha Noi, Vietnam, available at: http://eng.vbsp.org.vn/ [accessed March 10, 2019], 2019. [VG 19] VG, Vietnam map [Online], Vietnam Government, Ha Noi, Vietnam [accessed March 13, 2019], 2019, available at: https:// www.nationsonline.org/google_map_Hanoi.htm. [VIE 14] Government of Vietnam, “Decision No. 381/QD-TTg dated 18/3/2014 Prime Minister on the establishment of microfinance working group”, in VIETNAM O.O.G.O. (ed.), 2014. [WAR 15] WARNECKE T., “‘Greening’ gender equity: microfinance and the sustainable development agenda”, Journal of Economic Issues, vol. 49, pp. 553–562, 2015.

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[WB 12] WB, World Development Report 2012: Gender Equality and Development. World Bank. © World Bank, available at: https:// openknowledge.worldbank.org/handle/10986/4391 License: CC BY 3.0 IGO, 2012. [WB 19] WB, MapVietnam [Online], World Bank, available at: http://www5.worldbank.org/mapvietnam/ [accessed March 9, 2019], 2019. [WEB 14] WEBER O., AHMAD A., “Empowerment through microfinance: the relation between loan cycle and level of empowerment”, World Development, vol. 62, pp. 75–87, 2014. [WES 79] WESTKOTT M., “Feminist criticism of the social sciences”, Harvard Educational Review, vol. 49, pp. 422–430, 1979. [WOL 99] WOLLER G., DUNFORD C., WOODWORTH W., “Where to microfinance?”, International Journal of Economic Development, vol. 1, pp. 29–64, 1999. [WU 19] WU, Introduction of Vietnam Women’s Union [Online], Vietnam Women’s Union, Ha Noi, Vietnam, available at: http://hoilhpn.org.vn/ ?Lang=EN [accessed March 10, 2019], 2019. [YUN 03] YUNUS M., “Expanding microcredit outreach to reach: the Millennium Development Goal – Some Issues for Attention”, International Seminar on Attacking Poverty with Microcredit, Dhaka, pp. 8–9, 2003.

 

 

2 Is China’s Dependency on Coal a Threat to Its Economic Development?

Coal is one of the prime contributors to China’s economic success. Despite China’s drive toward economic modernization, coal still plays a major role in its economic sectoral performance in electric power generation, the chemical industry, and various other commercial activities. The country’s overreliance on coal and their excessive use of it has had a detrimental impact on the environment, and the sustainability of this resource as the major fuel for economic growth and development is being questioned. Being cognizant of the damaging environmental and health effects of coal, the Chinese government has been trying to reduce coal consumption, and significant efforts are currently underway to find alternative energy sources that contribute to the development of a sustainable and ecofriendly energy model. This chapter examines China’s coal dependency by looking at the short- to medium-run dynamics between coal price volatility and sectoral stock exchange performance.

                                       Chapter written by Miroslava ZAVADSKA, Lucía MORALES and Bernadette ANDREOSSO-O’CALLAGHAN.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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2.1. Introduction Today, coal remains at the heart of the global energy system; it is the core component of fuel supply worldwide and has a close relationship with the Chinese power sector that largely depends on this organic rock. Owing to its abundancy, relatively low price, accessibility, easy storage, and transportation, coal enjoys very attractive characteristics that make it a key resource to support economic development in industrializing economies. In the case of regions/countries that lack economic development and limited access to financial resources, coal is viewed as a vital and strategic energy resource because of the non-availability of other competing alternatives. In South and Southeast Asia, for example, coal plays a very important role in power generation and energy usage across the region, accounting for 27% and 38%, respectively [IEA 18]. In addition, coal is a major raw material in the iron and steel industry. However, coal is also a major source of air pollution and greenhouse emissions, and is the hot topic of debate on energy and climate policy. Coal has contributed to a global division: on the one hand, with countries being very committed to switch over and upgrade from coal power generation processes; on the other hand, for other countries, it is considered a strategic and abundant energy resource that allows rapid access to affordable energy. Indeed, the basic features of coal make it a dominant low-cost energy resource. Furthermore, local power generation supported by renewable resources remains dependent on high levels of investment that many developing economies are unable to sustain. As a result, any action toward a reduction of coal use and the successful introduction of policies that seek to protect the ecosystem lead to hard and very difficult negotiations. The International Energy Agency indicates that global consumption is on the rise, with forecasts indicating that coal consumption in developed regions might remain stable or decline over the next few years. Current trends show evidence of offsetting effects at the global level that are mainly caused by increasing levels of coal consumption in developing economic regions that are followed by decreasing patterns exhibited by the world’s most developed economies. With consumption stability driven by declines in Europe and North America and increases in India and Southeast Asia, it is very clear that the world economy remains rather connected to the

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fortunes of coal. In this regard, analysts’ predictions indicate that over the next few years, there will be an absolute rise in coal consumption, with significant pressures rising in the Asian region as countries seek to secure energy resources that are cheap and that contribute to their economic advancement, whereas declines in developed regions would not be able to contribute to major changes in terms of global consumption patterns. Therefore, the present and near future of Asian energy demand appears to be tightly connected to coal. Although some Asian countries are making significant efforts and progress toward developing an energy mix that is diversified by including solar, wind, biomass, geothermal, and shale gas, they are also facing a crude reality. Developing economies’ efforts to engage and move toward renewable energies lag behind their countries’ fast-growing energy demands. In short, developing economies’ needs are fueled by the necessity of fast economic growth, which is constrained by the lack of capital necessary for research and development in the area of alternative energy resources. Turning our attention to China, there are key issues that need to be considered in the context of this study. China is the world’s largest coal consumer for electricity generation, but due to the country’s environmental degradation and social discontent, it has been forced to implement restrictive policies on coal usage in order to improve air quality. Unfortunately, measuring or quantifying environmental damage in economic terms has been a daunting task. Therefore, it is critical to analyze the way in which China’s dependence on coal can end up damaging its economy as a result of the past and continuous deterioration of its environment. Moreover, it is crucial that political leaders identify accessible and competitive energy options that contribute to sustaining their economic model while transitioning toward an energy mix that is more diversified and sustainable [NEA 17]. Consequently, this research study contributes to the field by examining how the Chinese authorities are carving out their economic growth plan and the role that energy resources are playing in their projections. This is done with the support of an econometric framework that examines causal relationships between coal prices and the performance of Chinese economic sectors, the latter being represented by the SSE 180 Sectoral Price Indexes that encompass the

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blue-chip companies listed on the Shanghai Stock Exchange. This study examines the short-term association between coal price volatility and its implications for sectorial dynamics in the short to medium term. Section 2.2 discusses the environmental implications of coal consumption, whereas section 2.3 discusses the relationship between coal demand and economic growth in the literature. Section 2.4 is devoted to the methodology used and obtained findings, whereas section 2.5 summarizes the main articulations of the work and proffers a number of policy avenues. 2.2. Coal consumption and environmental implications in China China’s policy aiming to win the battle for blue skies  has introduced clean-air measures that aim to reduce the use of coal by switching toward gas to support fuel needs and to diversify energy sources by supporting renewable resources for power generation. Finding alternatives to coal are core policy priorities for the government as it is trying to undo some of the damage already done to the country’s environment. However, China still remains the largest consumer of coal in the world with a 48% share of global consumption and with a high dependency on coal for its electricity energy mix – it accounted for 67% in 2017 [IEA 18]. China’s electricity production using coal remains quite high and has serious implications with regard to carbon dioxide damage and emissions that are following an upward trend, as illustrated in Figure 2.1. The importance of high coal consumption was examined by Steckel et al. [STE 15], who looked at coal as a predominant source of carbon emissions. In their study, they noted that China, as the main coal consumer, is not the only country relying on coal. Coal is viewed as a dominant energy source that is consumed by poor, fast-growing countries. An increasing integration process of the coal market in the Asian region could potentially mean growing global carbon emissions. However, their findings did not show any statistically significant outcomes to confirm this. In contrast, they also pointed out that building new coal power plants, as relatively cheap energy, will put significant pressures on efforts seeking to promote the lowering of carbon emission strategies, patterns that are clearly visualized in the

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carbon plan network in China that keeps growing and is relatively young (on average 12 years old). Therefore, international climate policies must find alternative ways to enable appropriate incentives for developing countries in such a way that they seek to use alternative energy resources as substitutes for cheap coal. China is facing a very difficult situation as it tries to assess the magnitude of the damaging effects on the environment and on the population’s health with unmeasurable future implications. For business corporations, uncertainty is derived from the costs of pollution. However, the costs associated with an energy transition plan also need to be considered carefully. Alternative energies are linked to significant levels of investments that represent a major capital requirement that, alone, act as a significant entry barrier to less-developed economies. Additionally, an energy transition process that is not properly planned can lead to negative economic effects, as industries could end up being impacted upon in terms of productivity and competitiveness. Thus, this is a major area of concern for Chinese authorities in developing their strategies that aim to restructure China’s energy mix, as noted in the last Five-Year Plan [NDR 16].

Figure 2.1. China’s coal electricity production and emissions patterns. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

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In a recent study, Zhang et al. [ZHA 17] analyzed the future of coal in China. One proposed energy transition alternative is to use more efficient coal-generating technologies, which have a positive impact on lowering coal consumption and carbon emissions. In addition to carbon emissions, coal production also has a negative impact on the environment by putting limits on water supply [WAN 18]. The Chinese coal industry is highly dependent on water, with more than half of the industrial water being absorbed by coal production, and with the areas involved in coal mining displaying significant decreases in ground water levels [PAN 12]. Therefore, policies and careful strategic plans must utilize the changes in energy markets to address an important geotechnical factor in order to sustain China’s economic growth. Coal consumption patterns have been studied by Tang et al. [TAN 18], based on coal consumption patterns registered between 2014 and 2015. The key issue here is to understand whether this reduction was associated with China’s economic slowdown or whether structural changes have actually led to a reduction in coal demand. The findings of Tang et al. [TAN 18] showed that structural changes since 2012 have helped significantly in coal reduction. Moreover, they noted that the effects of energy intensity and energy mix have continued to play important roles in coal reduction since 2007. However, China’s coal consumption is still so high that the decreasing trend might not be permanent [TAN 18]. The authors also noted that the continuous efforts in energy restructuring will reduce coal consumption in the future. The environmental impact of coal consumption on China’s economy, provinces, and industries is heavily dependent on coal, which critically influences the level of carbon emissions. Yang and Teng [YAN 18] examined the effects of coal-control strategies in China and found evidence of the importance of coal control for carbon mitigation and local pollutant control. More precisely, their findings indicate that coal control has obvious effects on the optimization of the energy system. Additionally, control measures should significantly reduce local air pollution. However, the reduction must be substantial to achieve the required air quality standards. Therefore, coal consumption, economic growth, and the impact of coal on the environment should go hand in hand with setting up economic and coal-dependent sectoral strategies to mitigate carbon emissions and costs associated with coal-dependent sectors regarding emission trading schemes [WAN 18]. Furthermore, high carbon emissions

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connected with coal production and its extensive use in China’s economy lead not only to environmental issues, but also to health issues. These might end up being too costly, turning into one of the key problems that Chinese authorities are facing at the moment [AND 98, FIN 99, FIN 02, ZHA 07]. For example, Finkelman et al. [FIN 99] pointed out that in some provinces, such as in the Southwest of China, where the use of coal is high, people suffer from dental and skeletal fluorosis. It is also believed that polycyclic aromatic hydrocarbons formed during coal combustion cause esophageal and lung cancers. Also, Zhang and Smith [ZHA 07] observed the effects of coal on health, including respiratory illnesses, lung cancer, weakening of the immune system, and other diseases that have been identified in certain regions of China. They concluded that new technologies, together with coordinated support from the government and the business sector, can help with the new strategies to reduce this problem. On the basis of these facts, understanding the dynamics between coal consumption and China’s economic growth is a matter of importance, as it will help identify the challenges that the Chinese authorities are facing as they seek to transition toward more environment-friendly energy resources. In this regard, the analysis of Chinese economic sectors helps identify coal-dependent sectors and the implications for China’s challenge of finding a new economic model that avoids the middle-income trap while ensuring that the environment is not further damaged. 2.3. Coal demand and economic growth in China For China, coal still remains its primary energy resource, accounting for more than 60% of its energy consumption [REU 18]. Furthermore, coal’s contribution to China’s economic growth is quite significant and is closely linked to many sectors, with a major representation in power generation, the chemical industry, and other commercial activities. The country’s overreliance on coal for power generation and heat, combined with the excessive use of fossil fuels, has led to deteriorating environmental conditions. The detrimental impact on the environment and the sustainability of the resource has had a knock-on effect on the Chinese ecosystem with serious health implications to its population. As already mentioned, many Chinese people are affected by dental fluorosis or skeletal fluorosis, a disease that affects the mouth or bones throughout the body. There is also

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evidence of human selenium, arsenic poisoning, mercury toxicity, hearing loss, respiratory problems, premature deaths, and many other acute diseases connected with the process of burning coal and/or its waste management. Soaring levels of air, water, and soil pollution have imposed paramount social costs to China, with growing health risks and increasing public discontent toward the government’s economic growth model that some perceive as growing at any cost. A World Bank study in 2007 [WOR 07] found that the health costs of air and water pollution in China amounted to about 4.3% of China’s GDP, rising to 10% in 2013 [WOR 13] and with projected costs estimation being again on the rise. As such, China is facing a gridlock as the pollution bill is suffocating its economy while keeping GDP growth as the main pillar of its policy agenda, and coal keeps dominating its economic progress. With Deng Xiaoping’s economic reforms, the Chinese economy has upheld more than 30 years of outstanding growth levels powered by coal. Consequently, coal still remains the major energy source for economic growth and development. China’s pollution problems have accumulated over the years and consequently the country is facing significant difficulties to undo the damage inflicted on its population’s health. This fact is a major area of concern in terms of China’s sustainable growth strategy with environment-friendly energy diversification objectives coming at the forefront of current policy as visible in the latest Five-Year Plan. As such, many policy efforts have been deployed to find alternative energy sources that contribute to the development of a sustainable and eco-friendly energy model that supports the country’s ambition of fast and sustainable economic growth [DON 19]. The latest Five-Year Plan (2016–2020) points to control elements for such actions to eliminate excess coal production. The proposed goal in this plan is to reduce coal consumption below 62% by 2020 [NDR 16] – an objective that appears to be on track. Despite all the efforts to minimize the country’s reliance on coal, its dependency on coal as the main source of power generation and heat is still excessively high, turning into a situation where good intentions to move away from a coal-driven energy model appear quite difficult to materialize.

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The excessive use and exploitation of coal have had a serious impact on carbon emissions that have increased dramatically worldwide over the last decade. When trying to identify the culprits, fingers point to China as one of the major disruptors to climate change issues. In contrast, the global decarbonization trend aiming to reduce carbon emissions will have a significant impact upon the production and use of coal by gradually decreasing its levels and, as such, coaldependent economies do need to identify sustainable, efficient, and competitive alternatives to support their energy demands. A major factor to take into account is the economic costs associated with the decarbonization process and the degree to which it will affect the productivity of Chinese industry and competitiveness levels. As a result, China’s exposure to coal is a major concern, especially when designing future strategic plans that seek to support its economic development [DON 19]. Coal is used in the main energy-dependent sectors that, as a result, have a significant effect on the country’s economic growth. The relationship between coal demand and economic growth has a number of policy implications. There are several types of growth effects associated with coal usage that can be classified as positive or negative depending on the variables under consideration. On the one hand, coal can be viewed as having a positive effect when contributing to economic growth; on the other hand, it can be perceived as having a negative effect due to costs associated with CO2 emissions (positive implications in economic terms due to lowcost association; or negative implications regarding climate change and health issues). In cases where an increase in the levels of coal consumption is associated with economic growth, it would make it very difficult to follow a proposed plan regarding the reduction of carbon emissions connected with coal production and consumption, as it will have a negative effect in terms of growth. On the contrary, if increasing levels of coal consumption are found to have a negative impact on economic growth, then incentives to find alternative energies to substitute coal or to enhance and develop alternatives to coal consumption that are associated with more efficient energy processes would be a must [DON 19]. Moreover, it would speed up the process of lowering carbon emissions by moving toward cleaner renewable power options.

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Apergis and Payne [APE 10b] studied the causal dynamics between coal consumption and economic growth for 15 emerging economies, including China as the highest coal-producing country. They applied Granger causality testing together with cointegration techniques for the period 1980–2006. Their main results using heterogeneous panel cointegration suggest that there is a longrunning relationship between real GDP and coal consumption, with coal consumption having a significant negative impact on real GDP. In contrast, causality tests showed evidence of a bidirectional relationship between coal consumption and economic growth, meaning that these two variables influence each other in both the short and the long run. Their findings offered insights into negative long-run dynamics, with the authors explaining how negative cointegrating relationships could be explained by an inefficient use of coal or by costly carbon emissions. These findings invite concerns regarding the required changes in China’s energy mix and the need for finding alternative renewable and environment-friendly energy resources. Another study conducted by Apergis and Payne [APE 10a] on renewable energy and economic growth analyzes 13 Eurasian countries between 1992 and 2007. The results show that renewable energies do impact economic growth levels in a positive manner, but the progress is slow due to high investment. The advantage of renewable energies such as wind and hydropower lies in a low or zero environmental impact with regard to carbon emissions and atmospheric pollution. Coal consumption in the context of China was studied in a disaggregated manner by Li and Leung [LI 12] who examined coal consumption and economic growth in 23 Chinese provinces using annual data from 1985 to 2008. The causality tests highlighted bidirectional causality between GDP and coal consumption for coastal and central provinces and unidirectional causality running from GDP to coal consumption in the western region. The most intensive coal-consuming industries are located in the coastal and central regions, which help explain the bidirectional causal relationship between real GDP and coal consumption. This means that there are significant connections between economic growth and coal consumption for coal-dependent sectors, leading to higher coal consumption if GDP keeps growing. Figure 2.2 presents GDP growth and consumption patterns that clearly highlight how China’s coal consumption keeps rising while economic growth has

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slowed down. As coal is the main energy source and contributor to high carbon emissions, it restricts the incentives to lower coal production and also makes it very difficult for Chinese authorities to implement their policies seeking to protect the environment.

*Coal consumption: tens of thousands of tons (metric), the data refer to the energy consumption by the production sectors and the households in the country (region) in a given period of time Figure 2.2. China’s GDP growth and coal consumption. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

There is no doubt that renewable energies have a role to play in China’s power structure, as the country starts its transition toward more flexible power sources such as wind or solar energy that are clear alternatives, as they are associated with zero carbon emissions. China’s energy model will need to find a balance between fossil and non-fossil energy sources, such as, for example, wind power, solar power, hydropower, nuclear power, biomass energy, natural gas, and shale gas, which are considered to be cleaner and more efficient energy sources than coal and oil [HE 15]. Although alternative energies can effectively mitigate the problems related to climate

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change, it is important to bear in mind that they also have disadvantages. In particular, solar and wind energies are subject to natural conditions and as such they are uncertain and unpredictable. Uncertainty can easily open the door to negative spillover effects, as a negative impact on power systems will lead to energy-related economic risks with negative implications for macroeconomic fundamentals [DON 19]. Furthermore, the analysis of China’s energy model has implications for corporations linked to sectors and industries that are highly dependent on coal. Therefore, China’s optimal energy strategic planning needs to consider the needs of its highly energy-dependent sectors and the costs that they will face as they adjust their strategies to follow the low-carbon-emissions trend without compromising their productivity and competitiveness [HU 10]. China’s future economic growth depends on its ability to develop an energy-efficient strategy that sustains its economic and social development plans. The county needs to be very careful by not compromising its global competitive position during the transition process. As such, understanding China’s dependency on coal and the implications for its industrial sector is a core academic research interest. 2.4. Methodological framework and findings China’s coal dependency is examined by implementing Granger causality tests to gain further insights into the short- to medium-run dynamics between coal price volatility and China’s sectoral performance. The research sample consists of China’s coal prices (Coal Price Index, Coking Price Index, and the Thermal Coal Price Index), and the performance of the sectors is measured by using the SSE 180 Index that was chosen because it gathers the 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange. The data was retrieved from DataStream; the sectors available in the SSE 180 list are: financials, consumer discretionary, consumer staples, energy, health care, industrials, Info Tech, infrastructure, materials, natural resources, telecom services, transportation, and utilities. The time period under consideration spans from January 2013 until April 2019, for daily data amounting to a total of 1,640 observations to ensure that the data was not affected by the dynamics of the Global Economic and Financial Crisis of 2008. The SSE 180 Sectoral Indices

Threat to Economic Development?

35

aim to reflect the performance of the Shanghai blue chip companies and offer a good overview of the sectors’ short- to medium-term dynamics and interactions with coal price volatility. Each one of the selected indices consists of the largest stocks listed on the Shanghai Stock Exchange, capturing the overall performance of each one of the selected sectors and with a representation of 13 sectors. Figure 2.3 provides a summary of China’s coal prices trends over the period with clear growing patterns.

Figure 2.3. China’s coal prices. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

The research methodology began with initial considerations of stationarity properties of the series under study. As such, standard time-series econometric tests were implemented to ensure that the series are covariance stationary, a basic requirement for the Granger causality test. The augmented Dickey–Fuller test was used in combination with the Phillips–Perron test for robustness, and the Schwarz information criterion (SC) was considered for the identification of the optimal lag selection process in a VAR (vector autoregressive) framework. The Granger causality test is very

36

Sustainable Development and Energy Transition in Europe and Asia

sensitive to the number of lags used, justifying the decision to consider the SC lag selection. Afterward, the traditional Granger causality model was implemented on price volatility to account for the short- to medium-term association between coal and the studied sectors by following Granger’s unrestricted equation. The Granger causality approach was chosen to help understand the potential predictability power of coal prices on the Chinese sectoral performance. These would help gain knowledge on the future implications for the Chinese economy regarding the volatility experienced in the coal market. The model is presented as [2.1]

∅

[2.2]

The Granger causality framework was implemented first by examining the causal relationship between coal price volatility and the selected sectors’ volatility. The initial findings show how coal prices are positively correlated, whereas in the case of thermal price volatility, the findings reveal a low positive association with coal and coking coal price volatility (Tables 2.1 and 2.2).

Coal price

Coal price

Coking coal

Thermal coal

1.00

0.97

0.98

1.00

0.91

Coking coal

1.00

Thermal coal Coal vol.

Coking vol.

Thermal vol.

Coal vol.

1.00

0.99

0.14

Coking vol.

0.99

1.00

0.20

Thermal vol.

0.14

0.20

1.00

Table 2.1. Coal prices and coal volatility matrix

1.00

1.00

1.00

1.00

Cons

Cons.S

Thermal

Coal

Coking

Utilities

Transport

Telecom

Materials

Infra

InfoTech

Industrials

Health

Financials

Energy

0.83

1.00

0.83

Natural

0.20 0.14

0.09 0.99 1.00

0.02 0.08 1.00

0.56 0.73 1.00

0.77 0.57 1.00

0.71 0.69 1.00

0.67 0.80 1.00

0.55 0.83

Table 2.2. Coal and sector price volatilities correlation matrix

0.55

0.66

0.82

0.48

0.73

0.05

0.07

0.00

0.00

0.00

0.02

0.04

0.07

0.00

0.00

0.00

0.01

1.00

0.00

0.01

0.03

0.00

0.02

0.01

0.01

0.02

0.02

0.01

0.53

0.83

0.01

0.00

0.15

1.00

0.71

0.50

0.00

0.14

1.00

0.88

0.62

0.57

0.68

0.93

0.53

0.58

0.69

0.66

0.73

0.66 0.58

0.00

0.00

0.00

1.00

0.59

0.78 0.65

0.06

0.06

0.15

0.63

0.77 0.67

0.05

0.05

0.13

0.69

0.53 0.49

0.64

0.64

0.67

1.00

0.78

0.75

0.75

0.73

0.68

0.66

0.66

0.69

0.58

0.86

0.86

0.93

0.54

0.75

0.75

0.78

0.73

0.74

0.74

0.63

1.00

0.84

0.84

0.84

1.00

0.79

0.79

0.65

0.69

0.69

0.71

0.76

0.76

0.92

Natural Cons Cons.S Energy Financials Health Industrials InfoTech Infra Materials Telecom Transport Utilities Coking Coal Thermal

Threat to Economic Development? 37

(0.7513)

(0.5357)

No causalilty

(0.7513)

(0.5357)

No causalilty

No causalilty

No causalilty

(0.6964)

(0.8070)

Financials

(0.3371)

(0.6995)

(0.6842)

(0.7757) (0.3832)

(0.6314)

No No causalilty causalilty

No causalilty

(0.6546)

(0.5612)

(0.6619)

(0.6560)

(0.7171)

(0.6428)

Bidirectional No No causality causalilty causalilty

(0.0470)

(0.0001)

Bidirectional No No causality causalilty causalilty

(0.0421)

(0.0008)

Energy

Health care

No causalilty

(0.7601)

(0.8785)

No causalilty

(0.9862)

(0.8258)

No causalilty

(0.9932)

(0.8561)

Industrials

No causalilty

(0.7219)

(0.7869)

No causalilty

(0.6382)

(0.6589)

No causalilty

(0.6148)

(0.7059)

InfoTech

No causalilty

(0.8198)

(0.8168)

No causalilty

(0.1831)

(0.7438)

No causalilty

(0.2272)

(0.7861)

Infrastructure

Shanghai 180 volatility

No causalilty

(0.6423)

(0.7255)

Weak unidirectional causality

(0.1444)

(0.0565)

Unidirectional causality weak

(0.1400)

(0.0995)

Materials

No causalilty

(0.6306)

(0.6886)

Bidirectional causality

(0.0148)

(5.E-05)

Bidirectional causality

0.0113

(0.0004)

Natural resources

No causalilty

(0.1774)

(0.8932) No causalilty No causalilty

Weak unidirectional causality (0.7343)

No causalilty

No causalilty

(0.0799)

(0.1139)

(0.6577)

(0.6780)

(0.8461)

(0.7139) (0.4990)

(0.6650)

(0.0905)

(0.1883)

Utilities

No Weak – Causalilty Unidirectional Causality

(0.7041)

(0.7240)

Transport

(0.4900)

No causalilty

(0.4131)

(0.4088)

Telecom services

Table 2.3. Coal price volatility Granger causality

*p-values are presented in brackets. In the case of unidirectional causality the causal effect runs from coal price volatility to the sector under study.

Thermal coal price volatility

Coking coal price volatility

(0.4138)

(0.5925)

No causalilty

No causalilty

(0.5925)

(0.5983)

(0.5983)

(0.4138)

(0.4864)

(0.4864)

Consumer Consumer discretionary staples

 

Coal price volatility

Coal price volatility

38 Sustainable Development and Energy Transition in Europe and Asia

Natural resources volatility

Energy price volatility

(0.0143) (0.000)

(0.0519) (0.000)

(0.000) (0.0170)

n/a

Energy

(0.000) (0.000)

Health care

(0.000) (0.000)

Industrials

(0.000) (0.000)

InfoTech

(0.0006) (0.0036)

(0.000) (0.0002)

(0.0003) (0.0002)

(0.000) (0.000)

Bidirectional Bidirectional Bidirectional Bidirectional causality causality causality causality

(0.000) (0.000)

Financials

(0.000) (0.0170)

Natural resources (0.0725) (0.0001)

Telecom services

(0.0004) (0.0033)

Transport

Unidirectional causality

(0.2040) (0.000) n/a

(0.000) (0.0054)

(0.2441) (0.0007)

Bidirectional causality

(0.0004) (0.0033)

Utilities

Bidirectional Bidirectional Unidirectional causality causality causality

(0.000) (0.0054)

Unidirectional Bidirectional Bidirectional Bidirectional causality causality causality causality

(0.000) (0.1147)

Materials

Table 2.4. Energy prices Granger causality

Bidirectional causality

(0.0151) (0.0002)

Bidirectional causality

(0.0057) (0.0026)

Infrastructure

Shanghai 180 volatility

Bidirectional Bidirectional Bidirectional Bidirectional Bidirectional Bidirectional Bidirectional causality causality causality causality causality causality causality

(0.0519) (0.000)

Bidirectional Bidirectional causality causality

(0.0143) (0.000)

Energy & natural resources Consumer Consumer price discretionary staples volatility

Threat to Economic Development? 39

 

2013

2014

2016

2017

2017

2016

2015

2016

NATURALVOL

2015

2017

2018

2018

2018

2018

2017

INDUSTRIALSVOL

2015

2014

2016

CONSDISVOL

2015

.0 0 0

.0 0 4

.0 0 8

.0 0 0

.0 0 4

.0 0 8

.0 1 2

2014

2016

2015

2017

2015

2016

2018

2018

2018

2017

2017

2018

TELECOMVOL

2016

INFOTECHVOL

2015

2014

2014

2017

ENERGYVOL

2016

THERMALVOL

2015

2013

2013

2014

2013

.0 0 0

.0 0 4

.0 0 8

.0 1 2

2013

.0 1 2

.0 0 0

.0 0 1

.0 0 2

.0 0 3

.0 0 4

.0 0 5

.0 0 6

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

2013

2013

2014

2014

2017

2016

2015

2016

2016

2017

2017

2018

2018

2018

2018

2017

TRANSPORTVOL

2015

INFRAVOL

2015

FINANCIALSVOL

2016

COKINGVOL

2015

2014

2014

2013

2013

.0 1 2

.0 0

.0 4

.0 8

.1 2

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

2013

2013

2013

2013

.0 0 0

.0 0 4

.0 0 8

.0 1 2

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

.0 1 2

2014

2014

2014

2014

2016

2016

2015

2016

2015

2016

UTILITIESVOL

2017

2017

2017

2017

MATERIALSVOL

2015

HEALTHVOL

2015

CONVOL

2018

2018

2018

2018

Figure 2.4. Coal price and sectors volatility. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

(Telecom services); Transport (transportation); Utilities.

Health (health care); Industrials; InfoTech; Infra (infrastructure); Materials; Natural (natural resources); Telecom

*notation: VOL (volatility); Con (consumer staples); Consdis (consumables discretionary); Energy; Financials;

.0 0 0

.0 0 4

.0 0 8

.0 1 2

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

2014

2014

2013

2013

2013

.0 1 0

.0 0 0

.0 0 2

.0 0 4

.0 0 6

.0 0 8

.0 1 0

.0 1 2

.0 0

.0 2

.0 4

.0 6

.0 8

.1 0

COALVOL

40 Sustainable Development and Energy Transition in Europe and Asia

Threat to Economic Development?

41

The outcomes of the Granger causality analysis indicated a lack of causal effects running from coal price volatility (and coking coal price volatility) to the selected sectors; an exception was found for the energy and natural resource sectors that exhibited bidirectional causal effects (see Table 2.3). This implies that the coal, energy, and natural resource sectors are mutually interdependent sectors, confirming the central role of coal in the broad energy sector of China. In the case of the material and utilities sectors, there was evidence of unidirectional causal effects running from coal price volatility to the mentioned sectors. The results for thermal coal price volatility show an overwhelming lack of evidence of short-term dynamics within the studied sectors. These research outcomes led to the need to examine causal dynamics between the energy and natural resource sector volatilities and their association with the remaining sectors (step 2 in our approach corresponding to Figure 2.4). The results point to strong evidence of bidirectional causality in almost every case with the exception of unidirectional causal effects which were registered for just two sectors: materials and utilities. These results ultimately imply that China’s sectors are affected indirectly by coal price volatilities with origins in the coal and coking coal sectors; this sectoral impact is channeled by the broad sector of energy and natural resources. The results indicate that Chinese policymakers need to monitor the volatility of short-term dynamics in the energy and natural resources sectors as they develop their policies. In line with academic research in the field, the main findings just confirm China’s high dependency on coal and the difficulties that the government is facing as it tries to shift toward a different energy model. 2.5. Conclusion In China, three decades of rapid industrialization have been accompanied by unprecedented social costs, as environmental health hazards such as air pollution, water pollution, and soil contamination have been posing serious threats to the health and well-being of the Chinese people and have tended to fuel social discontent. Being still very much involved in the coal sector, the Chinese economy is facing mounting pressures in terms of sustainable economic growth and energy transition. The Chinese government faces a significant

42

Sustainable Development and Energy Transition in Europe and Asia

challenge as it seeks to find an appropriate balance between policies that protect a much damaged environment and an economic model that does not end up being affected by the hefty bill linked to environmental and health costs as well as by the needed investments to support its transition toward renewable energies. This study examined the dynamics that exist between coal prices and sectoral performance. The study found that China’s industrial sectors are affected in the short run to the medium run by coal price volatility through the energy and natural resources sectors that act as a conduit of coal price volatility. This econometric exercise supports the hypothesis of a strong role still played by coal in the Chinese energy and industrial sectors. The findings indicate that government policies aimed to address the environmental and health issues can have significant short-run implications in terms of sustainable GDP growth. The need to find an economic and energy model that is sustainable and that integrates the externalities of economic growth and development has led to a number of policy initiatives along the lines of eco-friendly investments in different sectors, including the energy sector, as the example of the solar panel testifies to. This will have a positive effect on China’s economic growth in the future and help diminish carbon emissions in the country. However, the balance between protecting the environment and the fast economic growth that is needed to avoid the middle-income trap  is, today, one of China’s biggest dilemmas leading to a notable degree of uncertainty. 2.6. References [AND 98] ANDO M., TADANO M., ASANUMA S. et al., “Health effects of indoor fluoride pollution from coal burning in China, Environmental Health Perspectives, vol. 106, no. 5, pp. 239–244, available at: https://doi.org/ 10.1289/ehp.98106239, 1998. [APE 10a] APERGIS N., PAYNE J.E., “Renewable energy consumption and growth in Eurasia”, Energy Economics, vol. 32, no. 6, pp. 1392–1397, available at: https://doi.org/10.1016/j.eneco.2010.06.001, 2010. [APE 10b] APERGIS N., PAYNE J.E., “The causal dynamics between coal consumption and growth: Evidence from emerging market economies”, Applied Energy, vol. 87, no. 6, pp. 1972–1977, available at: https:// doi.org/10.1016/j.apenergy.2009.11.035, 2010.

Threat to Economic Development?

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[DON 19] DONG Y., JIANG X., REN M. et al., “Environmental implications of China’s wind-coal combined power generation system”, Resources, Conservation and Recycling, vol. 142, pp. 24–33, available at: https:// doi.org/10.1016/j.resconrec.2018.11.012, 2019. [FIN 99] FINKELMAN R.B., BELKIN, H.E., ZHENG B., “Health impacts of domestic coal use in China”, Proceedings of the National Academy of Sciences of the United States of America, vol. 96, no. 7, pp. 3427–3431, available at: https://doi.org/10.1073/PNAS.96.7.3427, 1999. [FIN 02] FINKELMAN R.B., OREM W., CASTRANOVA V. et al., “Health impacts of coal and coal use: Possible solutions”, International Journal of Coal Geology, vol. 50, pp. 425–443, available at: www.elsevier.com/ locate/ijcoalgeo, 2002. [HE 15] HE J.K., “China’s INDC and non-fossil energy development”, Advances in Climate Change Research, vol. 6, nos 3–4, pp. 210–215, available at: https://doi.org/10.1016/j.accre.2015.11.007, 2015. [HU 10] HU Z., WEN Q., WANG J. et al., “Integrated resource strategic planning in China”, Energy Policy, vol. 38, no. 8, pp. 4635–4642, available at: https://doi.org/10.1016/j.enpol.2010.04.019, 2010. [IEA 18] IEA, “Coal 2018: Analysis and forecasts to 2023”, available at: https://www.iea.org/coal2018/, 2018. [LI 12] LI R., LEUNG G.C.K., “Coal consumption and economic growth in China”, Energy Policy, vol. 40, no. 1, pp. 438–443, available at: https://doi.org/10.1016/j.enpol.2011.10.034, 2012. [NDR 16] NDRC, “The 13th Five-Year Plan for national economic and social development”, available at: http://en.ndrc.gov.cn/newsrelease/201612/ P020161207645765233498.pdf, 2016. [NEA 17] NEA, “Policy release”, available at: http://en.ndrc.gov.cn/ policyrelease/ [accessed December 11, 2018], 2017. [PAN 12] PAN L., LIU P., MA L. et al., “A supply chain based assessment of water issues in the coal industry in China”, Energy Policy, vol. 48, pp. 93–102, available at: http://dx.doi.org/10.1016/j.enpol.2012.03.063 [accessed May 30, 2014], 2012. [REU 18] REUTERS, “China’s 2017 coal consumption rose after three years”, availabe at: https://www.reuters.com/article/china-energy-coal/correctedchinas-2017-coal-consumption-rose-after-three-year-decline-clean-energyportion-up-idUSL4N1QI48M [accesed December 11, 2018], 2018. [STE 15] STECKEL J.C., EDENHOFER O., JAKOB M., “Drivers for the renaissance of coal”, Proceedings of the National Academy of Sciences, vol. 112, no. 29, pp. E3775–E3781, 2015.

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[TAN 18] TANG X., JIN Y., MCLELLAN B.C. et al., “China’s coal consumption declining: Impermanent or permanent?”, Resources, Conservation and Recycling, vol. 129, pp. 307–313, 2018. [WAN 18] WANG X., TENG F., WANG G. et al., “Carbon leakage scrutiny in ETS and non-ETS industrial sectors in China”, Resources, Conservation and Recycling, vol. 129, pp. 424–431, available at: https://doi.org/10.1016/ J.RESCONREC.2016.09.017, 2018. [WOR 07] WORLD BANK AND STATE ENVIRONMENTAL PROTECTION ADMINISTRATION, “Cost of pollution in China: Economic estimates of physical damages”, World Bank Group, Conference Edition, 2007. [WOR 13] WORLD BANK GROUP, “The cost of air polluting. Strenghtening the economic case for action”, available at: http://documents.worldbank.org/ curated/en/781521473177013155/pdf/108141-REVISED-Cost-of-Pollution WebCORRECTEDfile.pdf, 2013. [YAN 18] YANG X., TENG F., “The air quality co-benefit of coal control strategy in China”, Resources, Conservation and Recycling, vol. 129, pp. 373–382, available at: https://doi.org/10.1016/J.RESCONREC.2016.08. 011, 2018. [ZHA 07] ZHANG J., SMITH K.R., “Household air pollution from coal and biomass fuels in China: Measurements, health impacts, and interventions”, Environmental Health Perspectives, vol. 115, no. 6, pp. 848–855, available at: https://doi.org/10.1289/ehp.9479, 2007. [ZHA 17] ZHANG X., WINCHESTER N., ZHANG X., The future of coal in China. MIT Joint Programe, Global Change, Report 310, pp. 1–13, 2017.

3 China’s “Ecological Civilization”: Geopolitical and Geo-economic Insights

China has begun re-organizing its energy technologies, but the country continues to build on its position as the leader in the global coal market, as it is reaching significant over-capacity levels in coal supply and facing remarkable challenges to diversify its energy sources. The country remains a largely black energy power with the dependence on coal for power generation, which marginally increased in 2017 after successive falls each year since both coal consumption and production peaked in 2013. This chapter presents a critical assessment of the extant literature to help identify geopolitical and geo-economic challenges associated with China’s energy revolution as the country commits to clean energy and the concept of an ecological civilization. 3.1. Introduction While long-time global influential players are abdicating leadership on the issue of climate change, China has moved in the opposite direction. Chinese leaders have taken a proactive stance in the United Nations (UN) climate negotiations, and now the country is                                        Chapter written by Daniel RAJMIL, Lucía MORALES and Bernadette ANDREOSSOO’CALLAGHAN.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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Sustainable Development and Energy Transition in Europe and Asia

leading the world in renewable energy deployment. Chinese authorities’ change of direction has made China one of the world’s leading countries in the fight against climate change under its particular environmental policy view. This follows more than 30 years of Chinese economic success, with the cost of explosive economic growth that neglected economic externalities. The country is facing a conundrum on how it can continue with its growth objectives, gaining international leadership and ensuring fast growth, while protecting its environment. China’s environment has endured immense damage and the authorities are learning this the hard way, as environmental devastation is now materializing as a mounting economic bill, to deal with both environmental and health implications. A heavily polluted environment that has spread its tentacles into the country’s soil, water, flora, fauna and skies is revealing a daunting picture. High levels of pollution through the food chain cause serious health problems for the human population. China’s economic growth remains the top priority in its economic and political agenda, which might lead to a situation where environmental issues are overlooked once more. Several questions arise from this juncture: Can the country, unlike the entire international community, afford to keep ignoring the reality of climate change and its impact on the global economy and the population’s health? To which extent will China’s economic growth interests keep undermining its environment? These are some of the core challenging issues that arise as a consequence, of years of environmental damage, and that need to be reflected upon, as China keeps on track with adjustments to its economic model. The serious lack of engagement with environmental guidelines by global economic and policy leaders and the astonishing lack of political will to engage in constructive dialogs on climate change are quite remarkable. There is a lack of consensus with regard to policies and assurances among the world political leaders that help to find a solution to the current environmental degradation that is generating and will continue to generate paramount costs in the years to come. On the one hand, the current effects on health and wildlife habitat suggest that global leaders are not fully engaged in evaluating and assessing both the costs associated with existing economic models and

China’s “Ecological Civilization”

47

the impact of current business practices on the health of future generations. On the other hand, it is remarkable, and also quite controversial, how the leaders of one of the world’s most polluting economies are stepping into this leadership gap. By championing the concept of an ecological civilization, China is making significant efforts to diversify its energy policy in a context where the country remains the world’s major carbon dioxide emitter. The term ecological civilization was included in the Communist Party of China (CPC) Constitution at the 18th CPC Congress in 2012, and since then, President Xi Jinping has widely endorsed it. Chinese political leaders have envisioned an energy transition process that is developed around an idea that seeks to provide a framework that consolidates the investment and development of everything that involves renewable energy and afforestation. This concept might be proven to have the potential to impact on the global climate agenda and may contribute to reshaping energy markets and strengthening Beijing’s geostrategic positioning. Furthermore, the leadership role on climate change could serve China’s current diplomatic strategy as an international global power. After decades of discreet diplomatic discourse, the country has gradually shaped a scenario that fosters an active role in terms of global international affairs that is raising serious concerns among the leaders of the world’s developed economies. The diplomatic renovation experienced in the 1970s came along with its growing economic model that has helped Chinese diplomats to portray and act as a reemerging power in a global system [CHE 16, p. 351]. Therefore, Chinese efforts to take the lead in international environmental affairs are helping the country to shape its own policy views on green economics with a global impact. In its pursuance of the ecological civilization concept, it appears that China has managed to make some progress in terms of moderating its demand for coal and oil, as it has slowed the rise in electricity consumption by deploying gas and renewable energies and arresting the growth of carbon dioxide emissions. However, are those efforts sufficient? Figure 3.1 shows evidence of a concerning pattern, as coal consumption and import trends are changing over time. Moreover, Figure 3.2 shows how fossil fuels imports are on the rise,

48

Sustainable Development and Energy Transition in Europe and Asia

signaling potential difficulties in slowing down the country’s dependence on fossil fuels.

Figure 3.1. Coal and health trends. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

Figure 3.2. China’s fossil fuels imports. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

China’s “Ecological Civilization”

49

Although there was a small decline in coal consumption and imports between the years 2013 and 2015, the trend has regressed and is on the rise again. Another trend that is worth to mention relates to government expenditure on health, which has experienced a dramatic rise over the past few years, by increasing from 2.5% of GDP in 2005 to 9.67% recorded in 2016, as per the last available records.

Figure 3.3. Carbon dioxide emissions and clean energy production. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

On the other hand, Figure 3.3 shows how the country’s efforts to control carbon dioxide emissions are supported by a slowdown of fossil fuel consumption and significant growth in the production of clean energies. Therefore, the challenges ahead for the Chinese economy are quite daunting as it tries to find an optimal balance between economic growth and the development of economic policies that seek to enforce environmental preservation. In order to contribute to this line of research, this chapter presents a critical assessment of economic patterns and the extant literature to help identify geopolitical and geo-economic challenges associated with China’s energy revolution, as the country commits to clean energy and the concept of an ecological civilization.

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3.2. A tale of explosive economic growth The ecological civilization concept still needs to be aligned with the current international debate. The UN IPCC (Intergovernmental Panel on Climate Change) leads the development in terms of recommendations and guidelines to be considered by global actors as they commit to global objectives identified by the scientific community to fight global change. In this regard, despite the Paris agreement reached in 2015 to limit global warming to increases of 2 C over preindustrial times by 2100, the latest technical report, published in autumn 2018 about warned, the need to further reduce the figure to 1.5 C to avoid future sea-level rise, heat waves and hurricanes [IPC 18]. In this context, energy is identified as a key aspect; the electrical sector and transport emissions are identified as a major issue in the fight against global warming. To achieve such a goal, analysists recommend that by 2050 between 70% and 85% of electricity should come from renewable sources, or in other words, the energy generation process should be free from gas emissions. Natural gas appears as a feasible option, but only if the measurements that enable the capture and storage of carbon dioxide (CO2) are applied, as gas is not exempt from its own emissions. In this context, there is a general agreement that coal is no longer the way forward to support economic growth and development. Overall, the scientific community is trying to increase awareness of the dangers associated with increasing levels of gas emissions and their potential implications with respect to the rise of global temperatures that can be linked to the phenomenon of displaced persons. Considering the enormous harm of climate change in China, the country is developing a new energy supply plan to mitigate both its coal energetic dependency and the climate consequences of its current energy model. In the year 2010, in China alone, floods linked to climate change caused an internal displacement of more than 15,000,000 people1, showing that China is one of the main countries that suffer from the unexpected and uncontrolled effects of climate change.

                                       1 Data obtained from the IDMC database: http://www.internal-displacement.org/ database/displacement-data.

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3.2.1. China’s economic model To understand China’s contemporary environmental struggles, there is a need to revisit the country’s economic performance since it opened up to the world economy. In 1978, with the economic reforms seeking to encourage economic interaction with the global economy, the country was considered to be one of the world’s poorest economies with a GDP per capita similar to that of Zambia. Nowadays, the country displays a GDP of more than 12,238 trillion US$, ranking the country as the second-largest economy in the world [WOR 19]. Such a significant level of achievement has astonished economists and researchers in the field, but it has also raised many questions with regard to its economic sustainability. In this regard, sustainability dilemmas arising from its energy model are just a concrete example of the country’s incredible and unpredictable growth. China’s economic model is characterized by excessive government intervention and a lack of guidelines with regard to the costs associated with fast and uncontrolled economic growth. Early in 2007, Premier Wen Jiabao acknowledged that China’s economic model was facing significant structural problems, with some of the most prominent problems identified as an unsteady, unbalanced, uncoordinated and unsustainable approach to economic growth [JIA 07]. Since the aftermath of the global economic and financial crisis of 2008, China’s economy has been showing clear signs of fatigue, as reflected by a dwindling GDP growth rate, which is predicted to fall below 5% by the year 2020 (see Figure 3.4). On the one hand, the enormous growth experienced by the country can be explained by mounting pressure from its enormous population that needed to be supported by an economic model that fostered rapid economic growth. The nation has managed to achieve high levels of economic performance that have allowed it to position itself as one of the central key players of a much more interconnected economic world scene. On the other hand, Chinese authorities faced a significant challenge as they tried to adapt rigid (and often closed) communist structures to a globalized scenario. As a consequence, the use of five-year centralized plans to preview and design the political economy that the country would develop has helped national economic bodies to envision and modify, “if needed”, the country’s economic performance and its regulations. As a result, the country has developed a particular

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approach to its economic policy by combining today’s global openness with the centrally directed Leninist policy control approach.

Figure 3.4. China’s GDP growth. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

To understand China’s economic model, it is of interest to examine some of the key differences between the economic models that have been followed by core Western economic powers. Such an analysis would help identify some of the principal differences with regard to China’s own understanding of economic development and variations with regard to the views of most advanced economies. The Beijing Consensus was developed as an alternative to the economic and policy recommendations outlined by Williamson in 1989, which are known as the Washington Consensus. Western economic development embraced the ideas of free-market capitalism supported by open trade policies, privatization, deregulation and fiscal austerity, advocated by the IMF, the World Bank and the US Treasury, which were core pillars guiding the response to the Latin American economic crisis [WIL 04]. These ideals were conceived as the effective economic model that would act as a catalyst for growth in developing nations. However, the implementation of the Washington Consensus has been

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subject to significant criticism suggesting that the currency crises, stagnation, severe recessionary periods and financial turmoil experienced since the 1990s can be explained by the core ideals of the Western approach to economic development. The most recent economic and financial crisis that shocked the world, in 2008, led to the collapse of several nations, economic systems and models. The severe effects of the crisis ended up undermining the confidence in the Western neoliberal economic model and acted as a trigger for skepticism toward the dominant and existing economic ideas. In contrast, the East Asian Tigers followed the East Asian Model, while China followed the China Model, also known as the Beijing Consensus, with remarkable success, that seems to have ceased. The “lost decade(s)” in Japan and the GEFC have raised concerns regarding the viability of the existing models and their variants, with a particular interest in China’s dynamics, as analysts have concerns that China may be already caught in the dreaded middle income trap [PEE 15]. When comparing the Washington and Beijing economic paradigms, Beijing’s stance is considered to be a more pragmatic approach that recognizes the need for flexibility to deal with different problems, and is inherently founded on innovation and the development of a Peaceful Rise (Pax Sinica). China is viewed as an alternative model for the developing economies that seek to move away from the priorities imposed by the Western economic interests and that are developed around three core principles that promote market liberalization, privatization and deregulation. On the other hand, China has been an active player to ensure that it is able to guide and promote government-specific goals [HAN 08]. China’s economic miracle was explored by Joshua Cooper in 2006 with the introduction of the Beijing Consensus concept; he identifies a contradiction with regard to China’s economic success due to its economic intervention, but with the most successful Chinese leaders having learnt to adapt to market conditions [RAM 04, p. 4]. From the perspective of the ruling Communist Party of China (CPC), the Beijing Consensus is viewed as the needed diplomatic approach enhanced by the country that prompted both political and economic openness and a certain degree of pragmatism in achieving the country’s goals. This could be done based on core premises with the CPC as a leading and supervising actor: 1) the state party leads the reforms and embeds them all in its

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political system; 2) the party introduces gradual reforms, holding back if needed and ensuring that it maintains its socialist market frame [ZOU 08]. In other words, the system has been based on two pillars: it has been pragmatically implementing a market economy while, at the same time, maintaining a one-party Leninist-inspired political centralism. 3.2.2. Critiques to China’s growth strategy Critics on the viability of the Beijing model are raising concerns regarding a growth model that is excessively supported by heavily subsidized investment and other production factors that boost fast growth rates [FAB 13]. The model is characterized by subsidies introduced to support energy costs for manufacturers is followed by the suppression of wages, and engagement in financial repression practices like inducing artificially low interest rates. Another factor to be considered is the role played by the trading sector. Exports, as a key driver of Chinese expansion, have also been promoted by keeping a weak currency and the rise of powerful interest groups to make it difficult to implement needed reforms that adjust and revamp a fatigued economic model. As a result, state-owned enterprises have been heavily used to implement and direct the national economic policy [KOW 13, p. 23]. The state and other public actors at provincial and county levels all own corporations that follow the directives outlined by the central government to ensure that the government’s interests are well looked after. For example, some Chinese state-owned commercial banks customarily act as conveyors of subsidies in the form of concessionary financing when providing loans to international markets at below-market interest rates [KOW 13, p. 23]. China has become quite active and engaged in global environmental discussions and negotiations. At present, the world economy is facing quite a controversy in terms of China’s dual status, with the country being identified as a key contributor to the world’s environmental problems while taking a strong stance on the green energy revolution. The evolution of China’s diplomacy has brought significant rewards to the People’s Republic of China (PRC) in terms of funding, technology and training opportunities from the international community. In return, the PRC has been in need of

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undertaking only a highly circumscribed set of commitments to respond to the interests of this same international community [KIM 98]. To acknowledge the international approach taken by China, and its intention to develop a green diplomatic strategy based on a low carbon strategy, the nation has moved a step forward in its efforts to clean up its energy sector and to continue with its economic growth [AND 19]. Today, China is identified as a world leader in low carbon electricity and other related manufacturing industries. Considerable progress has been made with regard to the use of fossil fuels and the government is facing up to the challenges in managing the resource nexus. However, these achievements have come at a huge cost and have required sustained political commitment [AND 19]. Once political decisions and steps have been taken, the full policy implementation will come from the development in the sub-regional entities and companies. China has taken a proactive stance in the UN climate negotiations and now leads the world in renewable energy deployment. The Chinese authorities’ change of direction has led China to become one of the world’s leading countries in the fight against climate change. Some evidence of the introduced changes can be found in how, in 2008, the Chinese government has switched to a proactive stance on climate governance and low-carbon development [ENG 18]. For example, since 2007, the government has closed down thousands of inefficient power and industrial facilities, resulting in a decrease in its energy consumption per unit of GDP. Recently, the country has managed to experience a decrease in energy consumption of 19.1% from 2005 to 2010 and of 18.2% from 2010 to 2015, and it targets a further 15% decrease by 2020 in its 13th five-year plan [SUN 16]. China is increasingly perceived as a new low-carbon champion [ENG 18]. In this regard, the country is taking a strategic position as it aspires to become a leader in global climate mitigation. The national green energy strategy has led the country to become the world’s largest player in solar and wind energy, as it continues its fight to reduce both its reliance on fossil fuels and pollution emissions. In addition, China’s choice to manufacture all the devices needed for its renewable energy generation has significant implications in the international context; indeed, economic powers such as the US economy are identifying these changes as threats to its economic leadership, signaling a potential source of future economic frictions

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between the two economic powers as is clearly reflected by the current trade and currency wars. However, China’s reliance on coalfired power stations for electric power remains an area of major concern, as China is still the world’s largest coal-burning country even though its dependence appears to be declining; China’s reliance on fossil fuels (coal, oil and gas) is still quite significant. The country is facing important challenges as the rise of a middle-income class is putting significant pressures on energy consumption levels that spillover toward the sustainability of its energy strategy, with ramifications toward its needed fast economic growth performance. The so-called energy transition has set off a global race for developing and owning the best technologies, and as such, a new battle begins as countries seek to position themselves in the development of renewable energies and a new energy order begins to emerge. The green energy transition can lead toward geopolitical frictions with major challenges to economies that are fossil fuel dependent. China has made a remarkable progress in moderating its demand for coal and oil while increasing its investment in research and development of alternative energies, but its dependency on fossil fuels remains, which is clearly visualized by its high import demands for fossil fuels, which signals a slow progress of the introduced measures and the significant difficulties associated with the aspiration to move toward a more diversified energy model. 3.3. China’s environmental degradation Almost four decades of a fast-growing economy sustained by massive industrial activity in the context of nonexistent environmental regulations has made China the world’s greatest polluter. As shown in Figures 3.5 and 3.6, China’s reliance on fossil fuels (coal, oil and gas) is still quite significant. The Chinese economy’s reliance on fossil fuels is high, as they account for almost 90% of its energy consumption. Coal is the dominant energy resource, counting for 60% of energy consumption, while the remaining 30% is distributed between gas consumption, which counts for 7%, and the remaining allocated to oil consumption, as per data from 2018. Since the late 1990s, gas consumption has been experiencing a significant increase from a

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1.8% registered in the year 1998 to 7% in 2018. There is no doubt that the country is making efforts to diversify its energy mix, but as per available data (see Figure 3.5) the dominance of fossil fuels is quite remarkable and as such serious concerns arise regarding China’s ability to introduce the much-needed changes to its energy mix without damaging its GDP.

Figure 3.5. China’s fossil fuels dependency. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

Figure 3.6. China’s energy patterns. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

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However, the realization of its heavy dependence on fossil fuels has contributed to decisive movements by the Chinese authorities seeking to boost renewable energy production, with China now being a leading player in wind and solar energy development. China’s coaland oil-fueled economic rise has had a negative effect on its environment, with an undeniable knock-on effect on public health, as air, water and soil quality in many of its major cities has deteriorated. At the same time, the pace of its economic transition is a source of major uncertainty for energy markets, and for the country’s energy strategy, that are flagging concerns regarding China’s geopolitical and geo-economic position. China is making substantial efforts to diversify its energy mix and to design a more efficient and sustainable energy strategy that contributes to secure its future energy needs. However, the country still has a towering presence in global coal markets, as it is facing significant overcapacity levels in terms of its coal supply. Existing overcapacity levels developed as a result of heavy coal investments that took place in the early 2000s, combined with the turnaround in demand since 2013 as coal consumption started to decline, which led to the accumulation of coal reserves. However, the country’s trends in terms of coal consumption are changing again, signaling that the efforts to reduce its coal dependence might not be sufficient to help the transition of its existent energy model, due to increasing pressures on the need to maintain high levels of economic growth. The country remains a large black energy power due to its dependence on coal for power generation, which marginally increased in 2017 after successive falls year-on-year since both coal consumption and production peaked, in 2013. As the country has engaged in a rapid change to greening its power system, there are still issues regarding its coal-fired system, which continues to expand after a few years of contraction. This situation is explained by China’s reliance on coal to support its electric power system and on the government’s failure to engage every economic player in the energy shift. In order to tackle this situation, the Chinese leaders have taken a radical approach to decarbonizing the country’s electric power system by decommissioning its carbon-intensive industry and through the promotion of the electric vehicle industry. However, progress is still slow, and China remains subjugated by fossil fuels and, in particular, to highly polluting coal.

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On the other hand, China is considered a major player in the green energy revolution due to its efforts to lead a green shift in power generation. The country’s electric power capacity from renewable resources (water, wind and sun) has increased significantly, with green growth exceeding black growth. 3.4. The battle for “blue skies” and the BRI The Belt and Road Initiative (BRI) is without a doubt a double bet. On the one hand, it represents China’s biggest attempt in its foreign policy project. On the other hand, it is a sign to the international community of China’s possible global leadership in terms of future global logistics. The BRI is a foreign policy initiative to relaunch ancient trade routes that connected China with Europe, Asia and, nowadays, Africa, the Middle East and the Americas. The initiative was announced in 2013 and consists of two complementary investment streams: the Silk Road Economic Belt and the 21st Century Maritime Silk Road. Overall, both China and the funding-accepting countries seem to be more conscious of issues regarding when, where and how funds should be allocated and invested. In this regard, participants are engaging in a bidirectional maturing process, where the Chinese government seems to be more cautious on how to fund foreign investment amid fears of possible future domestic demands. One of the key elements and doubts of the BRI refers to China’s approach to coal investment abroad. Between the years 2013 and 2016, coal investment represented a very high portion of investment projections (US$ 15 billion), a big amount when compared to the just merely five renewable energy investment projects abroad (US$ 600 million). The CPEC (China–Pakistan Economic Corridor) will be, without a doubt, a sign of the real Chinese policy energy policy shift. This is where the UN seems to be interested in pushing the BRI, but with certain sustainability conditions. There are some interlinked objectives and areas of cooperation between the UN sustainability 2030 goals and the BRI: 1) Strong policy implications of the BRI for the implementation of the 2030 Agenda for Sustainable Development.

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2) Macroeconomic implications of the BRI for six Central Asian economies. 3) Strengthen national policy capacity for jointly building the BRI toward Sustainable Development Goals. This makes the cooperation and alignment between the BRI and the UN Agenda more desirable than ever, as it could help to overcome the risk of low environmental requirements from the governments of the countries receiving the investments, as well as the risk of measuring the environmental impact of the international projects. Nevertheless, there is room for optimism, as some cooperation between the UN and the BRI policies on environmental issues has been achieved. For example, the BRI International Green Development Coalition, made by 25 countries and some UN organizations and agencies such as the UN’s Environment Programme, has been established to guide and work on joint objectives. Another good example in this case of a public–private partnership is the BRI Green Investment Principles, announced at the end of 2018 by the City of London Corporation’s Green Finance Initiative (GFI), in partnership with the Chinese Green Finance Committee (GFC) [TRE 19]. 3.5. Conclusion Chinese leaders have made significant efforts to slow down the rise in electricity consumption by deploying gas and renewable energies and arresting the growth of carbon dioxide emissions. China’s coaland oil-fueled economic rise has taken a toll on its environment and public health, as air quality in many of its major cities has deteriorated. At the same time, the pace of its economic transition is a source of major uncertainty for energy markets and for the country’s energy strategy, that are flagging concerns regarding Chinese geopolitical and geo-economic position. While long-time global influential players are abdicating leadership on the issue of climate change, China appears to be making

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movements in the opposite direction. This relates to both economic and geopolitical reasons which are found behind the particular position that the Asian player is taking with regard to its economic sustainability paradigm and the need to protect the environment; as a result, China is becoming a global influential player on climate change. In this context, the BRI appears to be a good economic policy indicator of China’s adherence to new energy trends. The BRI aspires at helping China to become a global policy leader in terms of energy sustainability and ensure efficiency on its domestic economy. China’s strategy regarding coal and energy investments in the domestic and international context is a major aspect that needs to be considered, as the evidence points to difficulties faced in detaching itself from coal as the cheapest energy resource. The BRI road will not be easy, and China will have to demonstrate that it is ready to be a trustable leader in the area of new energy policies. The BRI needs to promote the reduction of coal consumption among those countries that seek to adhere to the BRI as their future development plan. Pakistan and the evolution of the CPEC will show whether China and extension, by Pakistan are able to follow the international needs and curb their original coal demands to the standards, which are more than necessary, in order to reduce global warming. This will be, without a doubt, one of the most interesting challenges of the international energy policy of the forthcoming years. The BRI can be a new cornerstone of China’s new energy policy or, on the contrary, it can end up as another failed initiative in the current arena of international affairs. To gain further understanding of the challenges ahead, future research efforts should aim to explore how other countries are making efforts to adhere to the international protocol on climate change. 3.6. References [AND 19] ANDREWS-SPEED P., ZHANG S., China as a Global Clean Energy Champion: Lifting the Veil. Palgrave Series in Asia and Pacific Series, Palgrave Macmillan, London, 2019. [BHA 19] BHATTACHARYA A., DOLLAR D., DOSHI R. et al., China’s belt and road: the new geopolitics of global infrastructure development, Brookings, available at: https://www.brookings.edu/research/chinas-belt-and-road-thenew-geopolitics-of-global-infrastructure-development/, 2019.

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[CHE 16] CHEN Z., “China’s diplomacy”, in COSTAS M.C., PAULINE K., PAUL S. (eds), SAGE Handbook of Diplomacy, Sage Publications Ltd, London, 2016. [ENG 18] ENGELS A., “Understanding how China is championing climate change mitigation”, Palgrave Communications, Palgrave Macmillan, vol. 4, no. 1, pp. 1–6, 2018. [FAB 13] FABRE G., The lion’s share: What’s behind China’s economic slowdown, Working Paper no. 53, Fondation Maison des Sciences de l’Homme, Paris, October 2013. [GOK 18] GOKKON B., “Environmentalist are raising concerns over China’s Belt and Road Initiative”, Pacific Standard, available at: https://psmag.com/ environment/environmental-concerns-over-chinese-infrastructure-projects. [GOV 13b] GOVERNMENT OF CHINA, President Xi Jinping delivers important speech and proposes to build a silk road economic belt with Central Asian countries, Ministry of Foreign Affairs of the People’s Republic of China, available at: https://www.fmprc.gov.cn/mfa_eng/topics_665678/ xjpfwzysiesgjtfhshzzfh_665686/t1076334.shtml, September 7, 2013b. [HAN 08] HANDELMAN H., The Challenge of Third World Development, 5th Edition, Prentice Hall, Upper Saddle River, NJ, 2008. [IPC 18] IPCC (INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE), Global Warming of 1.5ºC, Special report, UN IPCC, 2018. [JIA 07] JIABAO W., Press Conference of the Fifth Session of the Tenth National People’s Conference, available at http://nz.china-embassy.org/eng/ xw/t304313.htm, 2013. [KIM 98] KIM S.S. (ed.), China and the World: Chinese Foreign Policy Faces the New Millennium, Routledge, London, 1998. [KOW 13] KOWALSKI P., BÜGE M., SZTAJEROWSKA M. et al., State-owned enterprises: trade effects and policy implications, OECD trade policy papers, no. 147, OECD Publishing, 2013. [PEE 14] PEERENBOOM R., “China and the middle-income trap: Toward a Post Washington, Post Beijing Consensus”, The Pacific Review, vol. 27, pp. 651–673, 2014. [PEN 18] PENNINGTON J., “The geopolitical impact of China’s approach to fighting climate change”, World Economic Forum, available at: https://www.weforum.org/agenda/2018/12/the-geopolitical-impact-of-china-sapproach-to-fighting-climate-change/, 2018.

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[RAM 04] RAMO J.C., The Beijing consensus. The Foreign Policy Centre, available at: http://www.chinaelections.org/uploadfile/200909/ 20090918021638239.pdf, 2004. [SUN 16] SUN Y., “The Changing Role of China in Global Environmental Governance”, Rising Powers Quarterly, vol. 1, no. 1, pp. 43–53, available at: http://risingpowersproject.com/quarterly/changing-role-china-globalenvironmental-governance/, 2016. [TRE 19] TREYER S., RANKOVIC A., “Can the belt and road initiative reinforce the multilateral agenda for sustainable development?”, IDDR blog, available at: https://www.iddri.org/en/publications-and-events/blog-post/canbelt-and-road-initiative-reinforce-multilateral-agenda, 2019. [TRI 18] TRICKS H., Clean power is shaking up the global geopolitics of energy, Special Report: The Geopolitics of Energy, The Economist, available at: https://www.economist.com/special-report/2018/03/15/cleanpower-isshaking-up-the-global-geopolitics-of-energy, 2018. [WIL 04] WILLIAMSON J., “A short history of the Washington consensus”, Proceedings From 2004: From the Washington Consensus Towards a New Global Governance, Barcelona, Spain, September 24–25, 2004. [WOR 18] WORLD BANK, ECOFYS, State and Trends of Carbon Pricing 2018. World Bank Publications, Washington DC, available at: https://openknowledge.worldbank.org/handle/10986/29687, 2018. [YAO 10] YAO Y., “The End of the Beijing Consensus: Can China’s Model of Authoritarian Growth Survive?”, Foreign Affairs, February, available at: http://www.foreignaffairs.com/articles/65947/the-end-of-thebeijing-consensus, 2010. [ZOU 08] ZOU J., “National climate change response leadership group”, World Environment, vol. 2, p. 93, 2008.

 

 

4 City Logistics Foundation: Japan at the Forefront

Having faced the environmental challenges threatening the planet, a societal awareness seems to be emerging and gradually gaining momentum. The movement affects many human activities and questions the sustainable nature of logistical processes. This movement, which gives rise to an abundant literature, especially with a perspective of ecological economics, gave rise to studies addressing the city logistics. Japan is at the forefront of city logistics foundation, both in terms of scientific research, and in terms of development and implementation of innovative solutions. After having outlined the challenges of urban logistics, this chapter explores the Japanese context of hyper-urbanization and metropolization, explaining why urban logistics planning should be required, and then adds a synthesis of the most significant works on the subject, first from an optimizing perspective, followed by managerial and societal perspectives. 4.1. Introduction Strategic issues linked to city logistics have gradually emerged in connection with deep societal and urban planning changes. Although the concentration of urban population increases from year to year, it is not necessarily correlated with the presence of economic activities in                                        Chapter written by Gilles PACHÉ.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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urban areas. On the contrary, the high land price often leads some of the economic activities to flee the city to the outskirts [BAL 17], and the activities that remain there must implement just in time (JIT) supply systems, given the scarcity of storage space. The result is a multiplication of small deliveries, whose environmental impacts are now widely known and analyzed. The context in which city logistics evolves is becoming more complex with the emergence of new development frameworks where the level of relevance becomes the district and where urban freight systems must systematically interact with the concerns of the inhabitants. In urban areas, there are many historical, geographical, and regulatory constraints, and the ability to move products in the best possible conditions is becoming essential for business dynamics. This is why the performance of city logistics is nowadays a key element for both public (city managers) and private (professionals in charge of product delivery) actors. For a long time, urban freight systems were considered as a simple result of economic and social organizations. This is no longer the case. All observers of the functioning of territories now agree to recognize their leading role in spatial planning and in the perceived well-being of populations. Clearly, the way city logistics is organized has an impact on the lives of residents, the development of commercial activity, and the productivity of services [OLO 16]. The major role of product deliveries in the animation of the city is found more generally in any urban planning policy since it is the duty of the latter to rationalize flows with ambition: 1) to reduce their negative consequences; 2) to maintain the activities that justify the very notion of living together; 3) to offer the necessary surfaces to companies involved in city logistics; and 4) to implement regulations on the delivery and collection of products. As a result, products are at the crossroads of many issues that concern the public and private spheres. Expectations are naturally diverse since the public sphere will approach city logistics from the perspective of sustainability for the benefit of local residents, whereas the private sphere will focus on economic criteria of profitability. The aim of this chapter is to synthesize both the stakes involved and the stakeholders of city logistics. The theme now occupies a significant part of the work devoted to logistics and supply chain management. Many conferences are specifically dedicated to it, by

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stimulating recurrent debates on the interest of a technical versus managerial orientation of city logistics. This twofold dimension seems relevant insofar as coordination between various stakeholders does not exclude, as a preliminary step, reflecting on the most efficient logistics schemes according to alternative urban freight systems. Moreover, the dual technical/managerial dimension is one of the main characteristics of the contributions of the work of Asian scholars, and particularly that developed under the auspices of Eiichi Taniguchi, who is at the origin of what can be called the Japanese school of city logistics. The chapter thus underlines that, for a number of economic and social reasons, Japan is the major research melting pot on city logistics, being at the origin of one of its very first definitions and the international reference conference on the topic. 4.2. City logistics: issues and stakeholders In the last two decades, issues related to city logistics have given rise to an abundant literature, including international conferences and special issues of academic journals. No real surprise to such an attention. For a long time, city logistics was confined to purely operational aspects: the scheduling of delivery tours in urban areas. At present, city logistics management raises many economic and societal issues that challenge public and private decision-makers. Some European countries have initiated major reflections on improving the circulation of products in the city, probably because of ecological awareness, through the dynamism of the Green movement [O’NE18]. But which stakeholders need to be coordinated in order to avoid an uncontrolled multiplication of individual initiatives? Have some of them taken certain lead in terms of flow management in a city logistics context? These questions call for reflection in order to understand the current challenges of intermediation. 4.2.1. Economic and societal stakes It must be recognized that in the Western societies characterized by overconsumption, the delivery of products to the final consumers has increased considerably. For example, the German Ministry of Transport estimated in 2000 that the transport of products in the

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country would increase by 60% between 1997 and 2015; its forecasts proved to be totally justified. France is also a victim of a similar trend: at the crossroads of the European continent, it supports a large part of its traffic, which increased by 70% between 1990 and 2000, and then again by 50% between 2001 and 2016 [MIN 19]. Statistics show that the final destination of finished products, transported on a massive scale by road transport, is increasingly urban space, both for small stores and for pick-up (self-collection) points and consumers’ homes. This massive penetration of urban areas is reflected in the growing importance given to last mile management [BOY 09, GEV 11]. In other words, the management of logistics operations applied to highly capillary flows (very small parcels, frequent supplies, and diffuse customers), which involves all stakeholders and equipment used in the last segments of the supply chain. Several causes are at the root of this phenomenon: a metropolization movement observed in Western economies in the last 100 years, giving rise to major urban areas where consumers are concentrated [PUM 97]; consumers who, precisely, are less and less willing to travel to hypermarkets in the peripheries of urban areas to shop and rediscover convenient stores [YIL 19]; large food retailers multiplying new concepts of city stores [ZEN 17]; and finally, a rapid increase in e-commerce involving deliveries to the home of e-consumers or in pick-up trucks (self-selection) scattered throughout the city [CAR 17]. These new consumption trends lead to a significant increase in product flows in cities, with their share of nuisances: saturation of urban spaces and pollution, whether measurable in terms of CO2 emissions or noise. Unfortunately, we must admit that the situation is becoming critical, significantly degrading the quality of life of residents, their health, and the image of cities themselves, by creating what Gössling [GÖS 16] calls urban transport injustices. Thus, in some German cities such as Düsseldorf or Dortmund, for example, the maximum annual ultrafine particle emission thresholds imposed by the European directive of January 1, 2005, are now reached in the early days of spring. Figure 4.1 shows that the massive emission of ultrafine particles has become a major problem for a very large number of cities around the world, particularly in Asia [KUM 14]. Having been aware of the situation, local authorities have

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committed themselves to a sustainable city project. Some European local authorities have introduced urban tolls at the gates of the cities, such as Milan, London, and Stockholm, most often with great difficulty (in Stockholm, for example, residents of neighboring municipalities rejected the initiative by referendum, and it was the Swedish government elected in 2006 that chose to impose the project). Other local authorities have launched various initiatives likely to significantly reduce the stock of vehicles in circulation by developing regulatory practices based either on bans (depending on the size, surface area, and weight of the delivery vehicles) or on more or less coercive restrictions (in terms of delivery times).

Figure 4.1. Ultrafine particle levels at the roadside in 42 different cities [KUM 14]. For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

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In addition to the ongoing experiments, new research is expected in the field of city logistics to design and implement completely new logistics schemes, adapted to the considerable increase in product flows in cities, and also to integrate the objectives of sustainable development. These new schemes, based on original storage, transit, and transport systems [KAN 16], require a reconsideration of interorganizational relationships within supply chains to pool certain resources between complementary and/or competing companies and thus avoid costly redundancies, in economic and ecological terms [MON 16, NEU 13]. Indeed, multiple stakeholders are directly involved in the development of new logistics schemes capable of integrating the constraints of space saturation and sustainable development. The current result is a groping governance that allows configurations conducive to experimentation to emerge and raises questions about the role that each stakeholder can play. 4.2.2. Diversity of stakeholders A very large number of stakeholders are involved in the development of new logistics schemes for the transport of products in cities, which complicates the possible reconfigurations and their measurement [RUS 11]. Two stakeholder circles can be distinguished: 1) stakeholders directly involved in the new schemes (main stakeholders); 2) stakeholders supporting companies or representatives of the interests of a particular public (subsidiary stakeholders). Allowing each stakeholder to act freely in terms of logistics will lead to congestion in residential areas with an uncontrolled multiplication of delivery vehicles, the filling rates of which are not always optimized; the environmental impacts (CO2 emissions, recurring traffic jams, etc.) and economic dysfunctions (inability to respect the time windows required by customers) will quickly be considered unbearable. A harmonious combination of private initiatives and public policies therefore seems essential to develop sustainable urban freight systems. Of course, city logistics includes the traditional members of the marketing channel, who constitute the first circle of stakeholders: – First of all, it concerns flow inducers, mainly manufacturers and large retailers: the large retailing industry, mainly located in cities, and shopping centers with its convenience stores; pure players and other

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e-commerce operators; manufacturers, such as breweries that deliver directly to the out-of-home circuit; and wholesalers, who perform a function of continuously purchasing large quantities of products, storing them, possibly incorporating services into them, and ensuring a regular supply to professional users. – Then, there are current or future flow and/or infrastructure managers, that is, traditional logistics service providers, as well as passenger carriers, who have logistic structures that can be transformed into urban distribution centers, such as disused stations. We can add support flows stakeholders, such as energy suppliers and other providers of “clean” transport solutions: car manufacturers likely to offer vehicles that are less polluting in terms of CO2 and noise pollution, but also fleet managers who can provide solutions to optimize the use of vehicles on the road. – Finally, there are flow regulators, with cities and local authorities having a more political role in the urban freight organization. Traditionally in charge of urban planning issues, they have so far let flow-inducing distributors develop logistics structures and schemes in an anarchic way, each supply system deploying its own resources autonomously. Local authorities have recently taken up the issue and could position themselves as a focal point for coordination. Beyond a simple coercive power, by regulating, for example, deliveries in the city, local authorities are also able to promote concerted action with companies in order to pool logistical resources between competitors. In addition to the stakeholders in the first circle, a second circle of stakeholders must be introduced; it also has a power of influence in the sense of Milgrom and Roberts [MIL 92]. There are trade unions, professional federations, and chambers of commerce. As supporting associations of firms, they directly represent the interests of their members; they provide them with a wide range of services in terms of information and advice, training, and consultation. They can play a valuable role in coordinating their members to find innovative solutions and gain support. But the second circle of stakeholders goes much further. It includes associations of residents and consumers, which represent, at the other end of the supply chain, urban users and beneficiaries of deliveries. Finally, research organizations, public or private, are stakeholders that contribute to the city logistics

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organization through their efforts to finance both technical and organizational innovations. They provide companies and local authorities with their expertise and consulting capacities. In the end, the number and diversity of stakeholders make it difficult to find synthetic solutions and coordinate them in order to focus their efforts in the same direction: a sustainable city with perfectly planned product flows, thanks to a well-thought-out design of urban freight systems [CUI 15, QUA 11]. The approach also requires a reconsideration of the performance criteria for logistics in urban areas. In addition to economic criteria (cost, time, and responsiveness), societal criteria such as the reduction of all types of pollution (noise, pollution, infrastructure saturation, and redundancy of resources) must be added. The challenges of the coordinated integration of logistics structures in an urban context can be analyzed concomitantly in terms of economic efficiency, the sharing of the benefits of cooperation and the governance, by one of the stakeholders, of operations related to city logistics. From now on, one of the central questions facing the researcher is the possible role that the various members of the marketing channel, particularly wholesalers, could play in these new schemes. 4.2.3. A potential development for the wholesaler? Among the various logistics activities mastered by wholesalers, many observers stressed the centrality of the expertise linked to the management of delivery routes, to which the delivery driver is directly attached. This delivery driver has an essential mission that of making deliveries under the best conditions of cost and service, fixed on the basis of a schedule. Placed at the interface between the wholesaler and the wholesaler’s customers, particularly small stores in town, they occupy a pivotal position: relying on their know-how and technical expertise in delivery, identified since the 1970s by academic research [AND 71], they are able to collect information from customers and then forward it to the sales representatives. It is possible to add a portfolio of complementary skills associated with main activities (loading and unloading the vehicle, delivering customers, controlling loading, writing the invoice, or delivery note) and secondary activities (preparing orders, organizing deliveries, and determining the delivery route).

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In short, the skills of the delivery driver providing a service to the wholesaler are related to commercial dimensions, namely product knowledge (technical characteristics, prices, range development, etc.) and direct contact with the customer. One explanation is that wholesalers – especially in sectors such as fruits and vegetables – are often small family structures in which, like most small manufacturing companies, the organization is composed of multiskilled people performing several tasks [MIC 14]. However, it is possible to consider the competence of the delivery driver simultaneously from a city logistics perspective. In any case, this is the conclusion that can be drawn from Cholez’s [CHO 11] work. Indeed, the delivery driver crystallizes spatial and social knowledge: – Spatial knowledge translates into detailed expertise in the sectors to be delivered, such as street specificities (one-way streets, pedestrian zones, and lane widths), which facilitate or make it difficult to stop for deliveries and unload trucks. By taking up the work of Nonaka and Takeuchi [NON 95], the delivery driver has at this level an important body of tacit knowledge, little (or not) formalized, which results from a succession of personal experiences; the transformation of this tacit knowledge into formalized knowledge will also be acute in the event of the delivery driver leaving the company. One might think that this is purely anecdotic. However, in a dense urban environment, vehicle stopping always appears to be a particularly crucial and sensitive moment in the process of product delivery or collection, which is widely emphasized in vehicle-routing analysis [KIM 15]. Another major spatial knowledge concerns regulations, sometimes specific to each district, such as spaces under constraint with a specific delivery time, for example, from 9:30 a.m. to 10:30 a.m., from Monday to Friday. The development of intelligent information systems, making it possible to guide any delivery driver, even inexperienced ones, by integrating in real time the latest developments in the field (accidents, traffic jams, etc.), could, however, alter this source of competitive advantage. – Social knowledge is related to interactions with a set of stakeholders in the urban space: road users, on the one hand, and destination customers, on the other hand. Indeed, as Cholez [CHO 11] points out, delivery drivers must both comply with the operating standards in force and provide a service whose content is precisely

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defined when the service contract is drawn up (carrying packages in a certain direction, delivering them to a specific location). Loading the vehicle and anticipating during the course of the tours are two key competencies here. The loading action is not only limited to stacking packages in order of rounds, but it also encapsulates knowledge related to the weight and size of the packages in order to avoid breakage or damage during delivery. As for the delivery driver’s anticipation, it is particularly evident in the event of adaptation of the planned tour. Depending on the fluidity of traffic, the delivery driver will have to be responsive and proactive, directly resulting from their tacit knowledge mentioned above. Of course, it would be misleading to reduce wholesalers’ expertise to the skills of delivery drivers who have assimilated an “intimate” knowledge of the city. The wholesaler is also and above all a dynamic and innovative economic agent who has been able, well before the parcel carriers, to anticipate the importance of logistics optimization issues in urban areas (storage of products in the periphery, particularly near ports and/or industrial areas, adjustment of the capacity of delivery vehicles to spatial constraints, etc.). The research conducted by Cruz [CRU 11] thus indicates that the characteristics of urban freight, particularly in terms of delivery density, favor wholesalers, of which more than 80% of their establishments are located in the city or its immediate surroundings. The wholesaler certainly lives under the constant threat of the integration of the wholesale function by its customers, as has been the case since the late 1970s. But there is no evidence that the large retailers that have reinvested in the city can for long do without the expertise wholesalers have in capillary management, the competency of the delivery driver being one of the singular aspects. 4.3. Japan: a favorable context for research on city logistics A recent systematic literature review, conducted by Dolati Neghabadi et al. [DOL 19] on 310 papers published since 2010 in the field of city logistics (conference papers, journal papers, books, and book chapters), indicates an overwhelming domination of European authors, and it would be misleading to ignore the influence Asian scholars can have in terms of knowledge dissemination. Moreover,

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one of the first definitions of city logistics was given by Taniguchi et al. [TAN 99, p. 4] at the end of the 1990s: “The process of optimizing both logistical and transport activities done by private companies in urban areas while considering the traffic environment, traffic congestion and energy consumption within the framework of a market economy.” On the other hand, it must be acknowledged that Europe has been able to tackle the problems of city logistics in the 2010s, and this movement is largely due to the environmental disruptions that urban areas are increasingly suffering from, and which have given rise to the political emergence of a powerful ecological stream. However, Japan can be considered as a pioneer country in terms of the many innovations in the field of city logistics, and it is undoubtedly this specific context that explains the development of major work on the subject, especially around Eiichi Taniguchi. 4.3.1. Main areas of logistics innovation Japan’s two major specificities are the concentration of its population and the dominant forms of retailing; they have a direct impact on the organization of city logistics. The concentration of the population on a small area is widely publicized (84 million inhabitants, out of a total of 126 million, live in 3.3% of the territory). This results in a very high human density in large coastal cities, such as Tokyo and its 35 million inhabitants. Metropolization results in a very high land price [SAK 16], which represents about 80% of the total cost of any real estate project, compared to only 20% for the construction cost. Optimizing the use of land space is therefore a constant challenge for both households and businesses. The other specificity concerns retailing, with the simultaneous development of the Internet and small convenience stores (like the famous 7-Eleven stores), which generate considerable traffic in urban areas. The Japanese city is thus forced to integrate logistics areas into the heart of the city, even though in Europe, the dominant movement is that of logistics sprawl, which exile urban distribution centers away from commercial activities and residential areas [ALJ 16]. The integration of logistics areas in the heart of cities is often the work of wholesalers, who remain very powerful in Japan. They control the distribution of food products on the domestic market to restaurants

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and small stores. Although the purchasing power that some restaurant owners have acquired allows them to test a new model for eliminating intermediaries, the most powerful wholesalers have responded by adding value through the development of new services, particularly logistics. In addition, the existence of barriers to entry protects them, as is the case for the sale of alcoholic beverages, which requires a special license. As Capo [CAP 16] points out that the power of Japanese wholesalers is part of the country’s history since the Edo era (1603– 1868), when the wholesaler system developed on an unprecedented scale; they gradually regrouped and monopolized certain product and/or destination markets. Grouped around guilds, wholesalers very quickly exert strong lobbying with the various governments, which will never be denied until today. The true symbiosis between logistics and the city, with its ancient origins, is undoubtedly the key to understanding the current Japanese model in terms of city logistics, which can be identified at two complementary levels. 4.3.1.1. Urban distribution centers The implementation of urban distribution centers is now considered as one of the pillars of sustainable city logistics [BOU 14]. From an operational point of view, an urban distribution center is a platform located in the city or in its immediate vicinity, which receives products from different shippers and then carries out operations related to the last mile (storage, order preparation, and deliveries). This organization implements a systematic pooling of activities related to city logistics, which allows cities to strongly limit vehicle entries. Urban distribution centers thus have many advantages, such as reducing noise and atmospheric pollution, on the one hand, and reducing infrastructure congestion, on the other hand. Indeed, products are most often delivered by clean vehicles (electric or gas), smaller in size as less bulky fleets of vans are used to crisscross the streets. In addition, urban distribution centers can play a role in recovering empty packaging, to be recycled or returned to the shipper, as part of an ambitious reverse logistics policy. Although city logistics has, for several years, been based on urban distribution centers, Japan is a pioneer in view of the urban constraints highlighted above. There are two types of logistics platforms: large units located in peripheral areas, known as logistics hotels, and small

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transfer centers, whose size varies from 500 to 3,000 m2, located in the districts. The case of “logistics hotels” is particularly interesting since they are spaces that combine logistics, artisanal, and tertiary activities, while taking into account environmental constraints, in particular, to respect the quality of the living environment of residents [DAB 15]. The IIF Osaka Konohana logistics center (34,000 m2) is an excellent example of this (see Figure 4.2). Built on six levels, with two access ramps, it includes 5-meter high storage areas, vehicle lanes, offices, and living spaces (restaurant, sports facilities, and housing facilities). The result is a real symbiosis between logistics and the city, based on perfect urban integration, including architectural integration.

Figure 4.2. IIF Osaka Konohana logistics center (© Industrial & Infrastructure Fund Investment Corporation, 2019)

However, the major interest of urban distribution centers remains to make the circulation of products in urban areas more fluid by stressing that only coordinated action can achieve this. Traditional logistics models were based on the premise that each company must develop its own competitive advantages, including by relying on the performance of its own and only logistics organization. It is impossible to continue in the same direction with city logistics and the sustainability issues that weigh more and more heavily on it. Indeed, if each shipper supplying the same city relies on their own logistics organization, the result will be a multiplication of vehicles

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synonymous with pollution and congestion. Companies that compete in the same market, such as large retailers, must therefore agree to collaborate in the management of logistics activities linked to the last mile, including by passing their products through a shared urban distribution center, whose interest is to ensure the consolidation of freight transport to the city and the mandatory use of cleaner modes of transport. The collective management of urban freight systems, of which wholesalers could be efficient operators, as we have indicated, is a likely development in the coming years. In Japan, the example of Motomachi is a particularly interesting case of pooling logistics activities around an urban distribution center. Motomachi is a high-end shopping district in central Yokohama. Since 2007, a collective organization has handled 85% of deliveries to retailers in the area; the remaining 15% concern fresh products, furniture, or deliveries organized internally by companies. Three natural gas trucks carry out delivery rounds from a logistics platform (a transfer cell) located 300 meters from the pedestrian area to be served. The collective delivery system set up in Motomachi is optional, and no action by the local authorities has contributed to its development: it is essentially a local initiative of the retailers’ association. The project took more than seven years of negotiations between the various partners to set up, but it is now well-established and well-accepted. This suggests that cooperation between competitors is entirely possible without the use of regulatory constraint, unlike in Europe where policy makers’ interventionism is a key element in the implementation of more sustainable city logistics [SIR 19]. 4.3.1.2. Transport organization The topography of the Japanese cities generates many difficulties that make it difficult to deliver products to stores, pick-up (selfselection) points, or to consumers’ homes. The complexity of addresses is not one of the least difficulties to overcome, especially for Internet orders, since street names do not always exist, except for the main avenues, while numbering is often missing, or simply refers to the date of construction of a building. Nevertheless, city logistics in Japan is by far one of the most mature and efficient in the world [LIB 18]. This is due to the flexibility of the workforce, the use of sophisticated and shared information technologies, allowing perfect

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traceability of flows in real time, and, above all, to the strong specificities of the road transport market. The organization of transport in urban areas thus plays a central role in the emergence of particularly innovative logistics schemes in terms of city logistics. The specialized urban delivery market is an oligopolistic structure shared by three major takkyubin, that is, parcel express companies: Yamato, Sagawa, and Nippon Express. Many small operators are also involved in daily delivery, but they are only a part of the market. Very little known in Europe, takkyubin, which can be translated as fast delivery and home delivery, offer courier services that are unique in the world [DAB 09].This activity was initiated by Yamato in 1976, following the oil crisis and the lack of such service by the Japanese Post Office. If a person has to ship, or receive, a product from home or work, the takkyubin takes care of it all. An employee of the company picks up the parcel and delivers it to the address indicated at the required time, starting the next day. The takkyubin Yamato, recognizable by its black cat kuroneko, has transfer cells in almost every street in Japan. The network is completed by a partnership with konbini chains, convenience stores opened 24 hours a day that serve as pick-up (self-selection) points. The last mile is covered by small electric or hybrid vehicles, or by delivery tricycles. However, logistical choices are different for each takkyubin. For example, the takkyubin Sagawa has a small number of transfer cells in the city, but a relatively large number of “logistics hotels” on the outskirts. Thus, the territorial network is less dense, and deliveries are made by larger vehicles than for the takkyubin Yamato. It focuses on optimizing routes from numerous local logistics areas, with an exceptional level of service: deliveries are made in the evening and at weekends, with a wide choice of six 1- or 2-hour time slots. The takkyubin Yamato is also at the origin of significant innovations in vehicles, which have loading crates of different volumes, or which are able to recover the waste associated with vending machines. In general, Japanese companies are characterized by a real strategic vision in terms of transport organization, which is a natural component of the city and its efficient functioning. The originality of the model is the active participation of associations of store managers, residents, and transporters in the search for projects that can bring about a more

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sustainable city. The dynamism of these initiatives undoubtedly explains the vitality of Asian scholars in the field of city logistics. 4.3.2. From logistics formalizations

innovations

to

theoretical

Research on city logistics is particularly dynamic in Japan. With regard to urban mobility issues in the broad sense, it is mainly concentrated in five universities. The University of Tokyo is undoubtedly the most prolific in terms of publications, which is explained by the presence of two powerful specialized departments on the subject: the Department of Urban Engineering and the Institute of Industrial Science. Table 4.1 provides a summary of the specializations and main topics dealt with in Japan [FEU 17]. It is possible to identify four main themes, whose common point is to value an optimizing (and mathematical) rather than a managerial vision of city logistics: 1) simulation of product and passenger movements; 2) modeling of transport systems; 3) reconfiguration and optimization of transport networks; and 4) challenges in terms of sustainable mobility (or ecomobility). Only Nagoya University has a research center, called Education and Research Center for Sustainable Co-Development, whose aim is to analyze, from a societal point of view, the transport problems that urban areas can face (traffic explosion, capacity for resilience in the event of disasters, pollution peaks, etc.). Its pioneering work on the Asian context since the early 2000s has been authoritative [HAY 04]. The true birth of the Japanese school of city logistics can, however, be attributed to Eiichi Taniguchi, the founder of the Institute for City Logistics, which is located in Kyoto University (even if the institute has no academic link with the university). Eiichi Taniguchi is now Professor Emeritus of Transport and Logistics in Resilience Research Unit at Kyoto University, where he continues to pursue research on city logistics, urban freight transport modeling, and multi-agent simulation. He is best known as the initiator of the International Conference on City Logistics, which has been held every two years since 1999 and is the scientific reference meeting on the subject. The proceedings have been systematically published by three well-known academic publishers: Wiley-ISTE, Elsevier, and Nova Science. Table 4.2 summarizes the

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clear increase in the volume of work on city logistics since the first conferences had about 20 peer-reviewed scientific papers, whereas the very latest conferences have 60–80 papers, bringing together every two years a relatively stable international community of 100–120 researchers from Asia, Oceania, Europe, and America. University

Specialization

Topics

University of Tokyo (Department of Urban Engineering)

Urban transport

– Transport planning methods – User behavior – Links between topography and transport

University of Tokyo (Institute of Industrial Science)

Traffic engineering

– Analysis of traffic flows – Traffic simulations – Driving behavior – Parking management

Kyoto University

Travel behavior analysis and intelligent transport systems

– Simulation of travel dynamics – Modeling of individual behaviors – Pedestrian behavior – Development of reliable road networks – Development of integrated and secure transport systems – Models for estimating transport time

Nagoya University

Sustainable transport and cities

– Transport problems faced by urban centers – Transport and environment – Role of local communities

Kyushu University

Engineering of transport systems

– Transport planning – Expansion of the living space – Crime and transport in urban areas

Osaka University

Transport and urban planning

– Sustainable transport and assistance systems – Congestion and accidentology – Mobility of vulnerable people

Table 4.1. Main points of excellence on Japanese research in urban mobility (adapted from [FEU 17])

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1 2 3 4 5 6 7 8 9 10 11

Year of the conference 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Conference location Cairns (Australia) Okinawa (Japan) Madeira (Portugal) Langkawi (Malaysia) Crete (Greece) Puerto Vallarta (Mexico) Mallorca (Spain) Bali (Indonesia) Tenerife (Spain) Phuket (Thailand) Dubrovnik (Croatia)

Peer-review scientific papers 17 24 33 37 35 40 64 40 80 61 77

Table 4.2. Synthesis of the international conferences on city logistics (1999–2019)

Originally based on urban reality of Japan, before conducting cross-cultural works, particularly in the context of a comparison with France [DIZ 14], Eiichi Taniguchi built a real research program on city logistics that today leads him to be considered as a leading Asian scholar in logistics management. His ResearchGate page reports, in 2019, more than 130 contributions, the majority of which were published in international journals. Certainly, some of the work are not directly related to city logistics; for example, since the mid-1990s, city logistics has been focusing on the location of logistical terminals [TAN 97], while more recently, humanitarian logistics has attracted its attention [QUR 17]. It was in 1992 that the author began to take up the issue of urban freight transport [KOS 92], before making city logistics his major research focus from the year 2000 onward and asserting a strong identity in the scientific community. The richness and diversity of Eiichi Taniguchi’s work in terms of city logistics make any exhaustive bibliometric analysis difficult. However, the author’s main articles make it possible to identify three important research streams, knowing that he has not stopped investigating them, unlike other researchers who have developed work sequentially on different subjects.

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4.3.2.1. Research stream on city logistics modeling Although the scheduling of product collection and delivery in urban areas to reduce costs is at the root of the thinking [TAN 00a], which will continue until the end of the 2010s [FIR 19], it will quickly be expanded, taking into account the sometimes contradictory expectations of the public and private sectors. Thus, shippers seek to reduce their delivery costs, whereas local authorities strive to reduce traffic congestion and environmental problems experienced by local residents, hence the importance of opting for a global modeling vision [TAN 03]. This represents a significant step forward in understanding the challenges related to city logistics: the need to integrate the political dimension of decision-making processes into models, bearing in mind that it is essential to take into account the social acceptance of logistics schemes or the blockages they may create [TAN 12]. One of the most current political dimensions that impacts city logistics choices is undoubtedly the introduction of binding regulations, for example, to limit or prohibit vehicle access to urban areas. Here too, an adapted city logistics modeling is needed to determine the extent to which these regulations are effective or not, both for local authorities (reduction of nuisances) and for companies (reduction of delivery costs, thanks to the use of intelligent transport systems) [QUR 14]. Although city logistics modeling has made significant progress in the past 20 years, further efforts are needed given that urban freight systems must resolve an increasingly delicate cost-service trade-off due to the high service levels expected by customers (availability and reliability) and the reduced costs required by shippers, while cities are experiencing increasing congestion. 4.3.2.2. Research stream on city logistics stakeholders If an efficient organization of city logistics requires a modeling effort, Eiichi Taniguchi’s analytical intelligence quickly leads him to stress the importance of taking into account a set of stakeholders, whose visions can complement or oppose each other. In the same way as research in logistics and supply chain management overlaps, research on city logistics will combine a modeling and optimization dimension with organizational and strategic paradigms. Taniguchi and Tamagawa [TAN 05] thus address two key issues in terms of city

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logistics the banning of heavy goods vehicles from the city and the implementation of urban toll roads by studying the effects on five stakeholders, each with their own evaluation criteria. The conclusion is clear: the implementation of the two measures did not improve the performance of each of the stakeholders, some of whom were more successful than others. However, rather than adopting a static vision, it is necessary to refer to a dynamic vision based on learning phenomena [TAM 10]. Indeed, stakeholders will undoubtedly be able to modify their behavior and tools according to the constraints imposed, particularly at the environmental level. However, it remains to be seen whether the inertia that some stakeholders can show by blocking the spread of city logistics innovations should not be underestimated. As previously mentioned, one of the main innovations is the establishment of urban distribution centers, which requires sharing of logistics resources between competitors (shippers, retailers, wholesalers, etc.). However, the successes after 5 years of operation are much less important than expected and formalized in the academic literature [VAN 12]. The aim is therefore to understand the reasons for the failures, which the models did not anticipate, and to identify the measures that local authorities must take to contribute to the viability of urban distribution centers, for example, by granting subsidies. van Duin et al. [VAN 12] note that city logistics is ultimately based on the interaction between stakeholders, whose behavior may or may not be aligned with a collective strategy. One of the most representative cases is that of deliveries of products ordered on the Internet: while analyses often focus on the last mile issue, it is essential to study the interactions between all supply chain members to identify the bottlenecks to more efficient city logistics [TEO 12]. More than ever, decision support must be formulated for local authorities in order to enable them to take legitimate, coherent and efficient action in the implementation of urban freight systems [TEO 14]. 4.3.2.3. Research stream on sustainable city logistics If sustainable city logistics today constitutes a powerful research stream, having given rise to several tens of thousands of contributions (for a recent synthesis, see for example, [TAN18]), the early nature of Eiichi Taniguchi’s reflections should also be noted. Indeed, since the

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early 2000s, he has felt that this is a major issue with far-reaching repercussions. The angle of attack chosen is particularly original for the time (before becoming commonplace): wouldn’t the coordinated management of flows linked to urban freight systems be of environmental interest? To answer this question, Taniguchi et al. [TAN 00b] conducted an investigation into the cooperative use of the electric van system set up in Osaka. The main idea is that different companies, including competitors, can freely use the vehicles, which are collected and deposited in different public car parks in the city. It is therefore a pooling of logistic resources, with invoicing for each use. The authors find that the system has real benefits in terms of reducing nuisance, but that the low willingness to pay of most users can only make it viable in the presence of public subsidies. For 20 years, this observation has always seemed to be relevant. From the very first work undertaken on city logistics, the environmental dimension systematically remains a key element, even if the modeling approach could lead us to think of optimizations based on purely economic criteria. For example, Taniguchi et al. [TAN 16] paid close attention to new technologies, such as sensors, that make it possible to monitor vehicle movements in real time. Although the authors note that vehicle monitoring systems help improve the urban freight organization, they also point out that new technologies are an important source of increasing the sustainability of city logistics. Quite naturally, in a synthesis article that highlights the key elements to be retained from a research program launched at the end of the 1990s, Eiichi Taniguchi focuses on sustainable city logistics, stressing that the development of innovative technologies (information and intelligent transport systems), the behavior of city stakeholders, and the decisions of policy makers must absolutely converge toward the same goal: the implementation of more environment-friendly urban freight transport systems [TAN 14]. This is the challenge for future generations to live in cities where life, work, and play are balanced. 4.4. Conclusion The relevance of the debates on sustainability in a world with scarce and partly non-renewable resources is no longer in doubt. Since

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the 1970s, with the work of the Club of Rome on the limits to growth [MEA 72], and then in the 1980s, with the Brundtland [BRU 87] report on the importance of meeting the needs of present generations without compromising the ability of future generations to meet their own needs, sustainable development has been at the center of all attention. However, it is regrettable that radical political decisions have not been taken, despite the progress made at COP21 (Paris) in December 2015. However, ecological emergencies are recognized as a major social issue that affects citizens, businesses, and policy makers. The management of the city is no exception to this urgency, insofar as metropolization is leading the majority of humankind to live in confined urban spaces. The city is thus at the crossroads of a multitude of product flows, but also of waste, the management of which constitutes a real challenge to avoid the multiplication of nuisances irreversibly degrading the living environment of residents. This is the mission of current questions relating to city logistics, which is now one of the most dynamic branches of supply chain management research. This chapter has highlighted the contributions of Asian scholars, and, in particular, those of Eiichi Taniguchi, in terms of city logistics. The Japanese context largely explains the author’s interest in city logistics since the 1990s and his concern to explore different aspects of it (modeling, stakeholder perspectives, and sustainable strategies). Through the work carried out at the Institute for City Logistics, and the international conferences it organizes every two years, Eiichi Taniguchi appears as a major player whose contributions are still little known. This relative anonymity is undoubtedly explained by the fact that European researchers have taken the lead over the past 10 years, particularly in addressing urban freight and transport, urban mobility, last mile management, collaborative solutions, and environmental impacts of urban deliveries [DOL 19]. The chapter highlights the contributions of Asian scholars in terms of city logistics, but it would be interesting to continue the bibliometric investigation in order to know if the reflections conducted are universalistic in nature or if, on the contrary, cultural specificities explain the presence of particular themes according to the contexts addressed.

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4.5. Acknowledgments The author is grateful to the Confédération Française du Commerce de Gros et International (CGI), the French Professional Association of Wholesalers and Intermediaries, for its financial support. 4.6. References [ALJ 16] ALJOHANI K., THOMPSON R., “Impacts of logistics sprawl on the urban environment and logistics: taxonomy and review of literature”, Journal of Transport Geography, vol. 57, pp. 255–263, 2016. [AND 71] ANDERSON D., “Problems in delivering food to low income urban areas”, Journal of Food Distribution Research, vol. 2, no. 2, pp. 33–35, 1971. [BAL 17] BALSAS C., “Retail planning in Japan: implications for city centres”, Journal of Urban Regeneration and Renewal, vol. 10, no. 4, pp. 357–368, 2017. [BOU 14] BOUDOUIN D., MOREL C., GARDAT M., “Supply chains and urban logistics platforms”, in GONZALEZ-FELIU J., SEMET F., ROUTHIER J.-L. (eds), Sustainable Urban Logistics: Concepts, Methods and Information Systems, Springer, Heidelberg, pp. 1–20, 2014. [BOY 09] BOYER K., PRUD’HOMME A., CHUNG W., “The last mile challenge: evaluating the effects of customer density and delivery window patterns”, Journal of Business Logistics, vol. 30, no. 1, pp. 185–201, 2009. [BRU 87] BRUNDTLAND G.-O., Our Common Future, Oxford University Press, Oxford, 1987. [CAP 16] CAPO C., “Les relations interorganisationnelles dans la grande distribution: vers des relations claniques modernisées”, in MARTINE J., MALINAS D.-A. (eds), Japon Pluriel 11. Le Japon au début du XXIe siècle: dynamiques et mutations, Editions Philippe Picquier, Arles, pp. 367–375, 2016. [CAR 17] CARDENAS I., DEWULF W., VANELSLANDER T. et al., “The e-commerce parcel delivery market and the implications of home B2C deliveries vs pick-up points”, International Journal of Transport Economics, vol. 44, no. 2, pp. 235–256, 2017. [CHO 11] CHOLEZ C., “Une écologie des activités de travail: les territoires négociés des chauffeurs-livreurs”, Recherches Qualitatives, vol. 30, no. 1, pp. 108–130, 2011.

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[CRU 11] CRUZ C., “How is own account transport well adapted to urban environments?”, Proceedings of the 12th World Conference on Transport Research, Lisbon, pp. 1–19 (CD-rom), 2011. [CUI 15] CUI J., DODSON J., HALL P., “Planning for urban freight transport: an overview”, Transport Reviews, vol. 35, no. 5, pp. 583–598, 2015. [DAB 09] DABLANC L., “Le territoire urbain des konbini et des takkyubin au Japon”, Flux, vol. 78, pp. 68–70, 2009. [DAB 15] DABLANC L., RAIMBAULT N., “Penser autrement la métropole logistique: questions d’aménagement et d’urbanisme”, in DABLANC L., FRÉMONT A. (eds), La métropole logistique: le transport de marchandises et le territoire des grandes villes, Armand Colin, Paris, pp. 270–308, 2015. [DIZ 14] DIZIAIN D., TANIGUCHI E., DABLANC L., “Urban logistics by rail and waterways in France and Japan”, Procedia Social and Behavioral Sciences, vol. 125, pp. 159–170, 2014. [DOL 19] DOLATI NEGHABADI P., EVRARD-SAMUEL K., ESPINOUSE M.-L., “Systematic literature review on city logistics: overview, classification and analysis”, International Journal of Production Research, vol. 57, no. 3, pp. 865–887, 2019. [FEU 17] FEUARDANT P., La recherche sur la ville durable au Japon, Service pour la Science et la Technologie, Ambassade de France au Japon, Tokyo, 2017. [FIR 19] FIRDAUSIYAH N., TANIGUCHI E., QURESHI A., “Modeling city logistics using adaptive dynamic programming based multi-agent simulation”, Transportation Research Part E: Logistics and Transportation Review, vol. 125, pp. 74–96, 2019. [GEV 11] GEVAERS R., VAN DE VOORDE E., VANELSLANDER T., “Characteristics and typology of last-mile logistics from an innovation perspective in an urban context”, in MACHARIS C., MELO S. (eds), City Distribution and Urban Freight Transport: Multiple Perspectives, Edward Elgar, Cheltenham, pp. 56–71, 2011. [GÖS 16] GÖSSLING S., “Urban transport justice”, Journal of Transport Geography, vol. 54, pp. 1–9, 2016. [HAY 04] HAYASHI Y., DOI K., YAGISHITA M. et al., “Urban transport sustainability: Asian trends, problems and policy practices”, European Journal of Transport and Infrastructure Research, vol. 4, no. 1, pp. 27–45, 2004.

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[KAN 16] KANT G., QUAK H., PEETERS R. et al., “Urban freight transportation: challenges, failures and successes”, in ZIJM H., KLUMPP M., CLAUSEN U. et al. (eds), Logistics and Supply Chain Innovation: Bridging the Gap Between Theory and Practice, Springer, Cham, pp.127–139, 2016. [KIM 15] KIM G., ONG Y.-S., HENG C.-K. et al., “City vehicle routing problem (city VRP): a review”, IEEE Transactions on Intelligent Transportation Systems, vol. 16, no. 4, pp. 1654–1666, 2015. [KOS 92] KOSHI M., YAMADA H., TANIGUCHI E., “New urban freight transport system”, Selected Proceedings of the 6th World Conference on Transport Research, Lyon, pp. 2117–2128, 1992. [KUM 14] KUMAR P., MORAWSKA L., BIRMILI W. et al., “Ultrafine particles in cities”, Environment International, vol. 66, pp. 1–10, 2014. [LIB 18] LIBESKIND J., La logistique urbaine au Japon, Logicités, Paris, 2018. [MEA 72] MEADOWS D., MEADOWS D., RANDERS J. et al., The Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of Mankind, Universe Books, New York, NY, 1972. [MIC 14] MICHEL S., “La survie des intermédiaires face au circuit court: le cas des grossistes en fruits et légumes”, Management & Avenir, no. 71, pp. 135–152, 2014. [MIL 92] MILGROM P., ROBERTS J., Economics, Organization and Management, Prentice-Hall, Englewood Cliffs, NJ, 1992. [MIN 19] Ministère de la Transition Ecologique et Solidaire, Chiffres clés du transport, Paris, 2019. [MON 16] MONTOYA-TORRES J., MUÑOZ-VILLAMIZAR A., VEGA-MEJÍA C., “On the impact of collaborative strategies for goods delivery in city logistics”, Production Planning and Control, vol. 27, no. 6, pp. 443–455, 2016. [NEU 13] NEUBERT G., MOUTAOUKIL A., “Logistics pooling for urban freight distribution: a case study”, in BOURAS A., YODMONGKON P., DAHAL K. et al. (eds), Software, Knowledge, Information Management and Applications: Advanced Technology Solutions and Applications in Higher Education and Enterprises, Inderscience, Geneva, pp. 3–10, 2013. [NON 95] NONAKA I., TAKEUCHI H., The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation, Oxford University Press, Oxford, 1995.

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[OLO 16] OLOFSSON Z., HISELIUS L., VÁRHELYI A., “Development of a tool to assess urban transport sustainability: the case of Swedish cities”, International Journal of Sustainable Transportation, vol. 10, no. 7, pp. 645–656, 2016. [ONE 18] O’NEILL M., Green Parties and Political Change in Contemporary Europe: New Politics, Old Predicaments, Routledge, London, 2018. [PUM 97] PUMAIN D., MORICONI-EBRARD F., “City size distributions and metropolisation”, GeoJournal, vol. 43, no. 4, pp. 307–314, 1997. [QUA 11] QUAK H., “Urban freight transport: the challenge of sustainability”, in MACHARIS C., MELO S. (eds), City Distribution and Urban Freight Transport: Multiple Perspectives, Edward Elgar, Cheltenham, pp. 37–55, 2011. [QUR 14] QURESHI A.-G., TANIGUCHI E., THOMPSON R. et al., “Application of exact route optimization for the evaluation of a city logistics truck ban scheme”, International Journal of Urban Sciences, vol. 18, no. 2, pp. 117–132, 2014. [QUR 17] QURESHI A.-G., TANIGUCHI E.,“A multi-period relief distribution model considering limited resources and decreasing resilience of affected population”, Journal of the Eastern Asia Society for Transportation Studies, vol. 12, pp. 57–73, 2017. [RUS 11] RUSSO F., COMI A., “A model system for the ex-ante assessment of city logistics measures”, Research in Transportation Economics, vol. 31, no. 1, pp. 81–87, 2011. [SAK 16] SAKAI T., KAWAMURA K., HYODO T., “Logistics facility distribution in Tokyo metropolitan area: experiences and policy lessons”, Transportation Research Procedia, vol. 12, pp. 263–277, 2016. [SIR 19] SIRJEAN S., MOREL C., PACHÉ G., “Challenges of urban deliveries in the wholesale trade: a comprehensive analysis of policy-makers’ sustainable strategies”, Journal of Supply Chain Management: Research and Practice, vol. 13, no. 1, pp. 1–13, 2019. [TAM 10] TAMAGAWA D., TANIGUCHI E., YAMADA T., “Evaluating city logistics measures using a multi-agent model”, Procedia Social and Behavioral Sciences, vol. 2, no. 3, pp. 6002–6012, 2010. [TAN 97] TANIGUCHI E., NORITAKE M., YAMADA T. et al., “Optimizing the size and location of logistics terminals”, IFAC Proceedings Volumes, vol. 30, no. 8, pp. 741–746, 1997.

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[TAN 99] TANIGUCHI E., THOMPSON R., YAMADA T., “Modelling city logistics”, in TANIGUCHI E., THOMPSON R., YAMADA T. (eds), City Logistics, Institute of Systems Science Research, Kyoto, pp. 3–37,1999. [TAN 00a] TANIGUCHI E., VAN DER HEIJDEN R., “An evaluation methodology for city logistics”, Transport Reviews, vol. 20, no. 1, pp. 65–90, 2000. [TAN 00b] TANIGUCHI E., KAWAKATSU S., TSUJI H., “New co-operative system using electric vans for urban freight transport”, WIT Transactions on the Built Environment, vol. 49, pp. 201–210, 2000. [TAN 03] TANIGUCHI E., THOMPSON R., YAMADA T., “Predicting the effects of city logistics schemes”, Transport Reviews, vol. 23, no. 4, pp. 489–515, 2003. [TAN 05] TANIGUCHI E., TAMAGAWA D., “Evaluating city logistics measures considering the behavior of several stakeholders”, Journal of the Eastern Asia Society for Transportation Studies, vol. 6, pp. 3062–3076, 2005. [TAN 12] TANIGUCHI E., THOMPSON R., YAMADA T., “Emerging techniques for enhancing the practical application of city logistics models”, Procedia Social and Behavioral Sciences, vol. 39, pp. 3–18, 2012. [TAN 14] TANIGUCHI E., “Concepts of city logistics for sustainable and liveable cities”, Procedia Social and Behavioral Sciences, vol. 151, pp. 310–317, 2014. [TAN 16] TANIGUCHI E., THOMPSON R., YAMADA T., “New opportunities and challenges for city logistics”, Transportation Research Procedia, vol. 12, pp. 5–13, 2016. [TAN 18] TANIGUCHI E., THOMPSON R. (eds), City Logistics 3: Towards Sustainable and Liveable Cities, ISTE Ltd, London and John Wiley & Sons, New York, 2018. [TEO 12] TEO J.-S., TANIGUCHI E., QURESHI A.-G., “Evaluating city logistics measure in e-commerce with multi-agent systems”, Procedia Social and Behavioral Sciences, vol. 39, pp. 349–359, 2012. [TEO 14] TEO J.-S., TANIGUCHI E., QURESHI A.-G., “Multi-agent systems modelling approach to evaluate urban motorways for city logistics”, International Journal of Urban Sciences, vol. 18, no. 2, pp. 154–165, 2014.

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5 The EU-Japan Economic Partnership Agreement as a Norm Model for Sustainable Development Issues in the Future EU FTAs in Asia

Abstract Recent research has discussed the relationship between trade governance and sustainable development, for example, the ways that environmental issues can be governed in international settings. Much of the debate is about norms and normative power in trade policy and trade agreements, and a number of studies address the European Union (EU) as a norm promoter. This chapter aims to contribute to this discussion by investigating the EU’s recent free trade agreement (FTA) with Japan and debating whether the EU-Japan FTA can be regarded as a norm setter on sustainable development issues in the EU’s future FTAs in Asia. Based on interviews with trade policy experts, the EU is found to be the promoter of sustainable development issues in the negotiations with Japan. The final FTA text is relatively similar to the EU’s prior agreements in Asia, extending the sustainable development issues, which can be expected to guide the EU’s ongoing negotiations with Southeast Asian countries.                                        Chapter written by Erja KETTUNEN and Claes G. ALVSTAM.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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5.1. Introduction This chapter considers how the issues related to sustainable development are formulated and included in the European Union’s (EU’s) free trade agreements (FTAs) and whether they reflect the aims of the parties in setting norms for international trade. We wish to add to some of the recent research that has discussed the relationship between trade governance and sustainable development. For example, Bernstein and Cashore [BER 12] elaborated on the ways according to which environmental issues can be governed – and influenced – in international settings, and suggest a focus on the promotion of international rules, norms and discourse. Much of the debate within this strand of literature is, indeed, about norms and normative power in trade policy and trade agreements, and a number of studies address the EU as an example of a norm promoter. Therefore, we aim to contribute to this discussion by investigating the EU’s recent FTA with Japan and asking whether the EU-Japan Economic Partnership Agreement (EPA) can be regarded as a norm setter on sustainable development issues in the EU’s future FTAs in Asia. We do this by analyzing the aims, challenges, and reflections from the field related to the EU-Japan negotiations, as well as mirroring the final EPA with the EU’s prior FTAs in Asia. These form a basis to debate on the potential implications of the EPA to the EU’s future and ongoing trade negotiations with Asian countries. The EU-Japan EPA is an example of an FTA that was relatively swiftly negotiated and rapidly put into force. After an impact assessment had been conducted on the EU side, the negotiations were launched in March 2013. The two parties held 18 rounds of negotiations, reaching an agreement “in principle” in July 2017 and finalizing negotiations in December 2017 [DG 18], yet continuing to negotiate a Strategic Partnership Agreement. The EU-Japan EPA came into force on February 1, 2019 [DG 19], which means it “bypassed” the EU’s earlier concluded FTAs with Singapore and Vietnam that are still waiting to be ratified. As our interest lies in the aims and challenges of the EPA talks, interviews of trade policy specialists form the primary source of information. The research question has been explored by interviewing

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public sector representatives from both the EU and national levels, complemented with reflections from the text of the EU-Japan EPA as well as comparisons from the EU’s prior FTAs with Asian countries. Seven interviews were conducted with trade policy officials, as well as representatives of export support organizations in Japan, Finland, Korea and Malaysia. The interviews were done either face-to-face or over the phone/Skype, lasting approximately one hour, and were taperecorded and made notes of. They are referred to anonymously in the text (e.g. “Interview A”) and are listed at the end of the paper. The rest of the paper is structured as follows. We first give a brief overview of the EU-Japan trade and investment flows, noting some of the imbalances in the bilateral economic interaction related to the FTA negotiations. Then we discuss the context of the EU’s prior FTA negotiations with Asia that form a background to the EU-Japan talks. The empirical part focuses on the findings from the interviews as to the aims, challenges, business reflections, and prospects for implementation of the EPA on sustainable development issues. We conclude by discussing the potential of the EU-Japan EPA to become a norm setter for the EU’s future trade negotiations in Asia. 5.2. The EU as a norm promoter in sustainable development The current literature on trade policies and sustainable development considers the ways in which environmental issues can be governed in international settings. In a recent article, Poletti and Sicurelli [POL 18] discussed how the EU advocates FTAs as a means to promote norms such as sustainable development. They debate the EU’s self-representation as an ethical and normative power, as well as the normative aspirations that are manifest in the EU’s negotiations with developing countries since 2010. This is related to the shift of EU trade policy priorities after the Lisbon treaty that has also been increasingly assessed in a growing legal literature (e.g. [BAR 13, CRE 18, HAR 16]) and a general shift from “trade and responsibility” to “trade for responsibility” can be identified in the EU’s external trade policy [ZUR 19]. Indeed, at the level of the FTA texts, trade and sustainable development (TSD) issues are comprehensively included in the EU’s

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trade agreements. For example, the EU’s consecutive agreements with three Asian countries – South Korea, Singapore and Vietnam – show an evolution from vague to more detailed notions of TSD issues in the final FTA texts [KET 18]. This can be seen to give a prospect for harmonizing and potentially agreeing on the TSD issues at the broader multilateral level, which indicates a process of “multilateralizing regionalism” [KET 18]. As the EU is negotiating several consecutive FTAs with Asian countries, the previously concluded ones such as the EU-Singapore FTA can be seen as normative “spearheads” for forthcoming deals [ALV 17]. Some of the prior research remains slightly critical, however, to the success of the EU in promoting TSD issues in its FTAs. For example, Garcia and Masselot [GAR 15] explored human rights issues in the EU’s trade agreements with Asian countries, and argue that the EU has not been successful in pushing social issues in these FTAs and that norm export might be more effective through other means. In comparison, Sicurelli [SIC 15] finds that the EU has been able to “export” regulatory standards in its FTA with Vietnam, but at the same time, the EU is not viewed as internally coherent and univocal by the Vietnamese government and non-governmental actors which is seen to reduce the EU’s credibility as an actor in promoting social rights. It remains a crucial question as to whether the EU can be considered a norm promoter in its EPA with Japan in sustainable development issues. Sustainable development is understood as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”, following the United Nations definition from 1987. It can be regarded as a global countermovement to the “globalization project” that has dominated the debate on development [MC 12]. The concept of sustainable development is closely related to responsible business; in FTAs, it refers to the issues of labor and environmental protection. Typically, developed economies are more prone to promote responsible business in FTAs, compared to developing economies that have been more reluctant to do so. Since both the EU and Japan are highly developed economies, the EPA might serve as a model in sustainable development issues in the EU’s future FTAs with Asian emerging economies.

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5.3. EU-Japan trade and investment imbalances Although Japan is formally ranked as the seventh largest single partner in goods trade for the EU, its share of extra-EU trade is modest and has been deteriorating during the last 10 years1. Japan’s share of EU imports declined from 4.8% in 2008 to only 3.6% in 2018, while its share of EU exports has been stagnant at about 3.2%–3.3% during the whole period. The gap in mutual bilateral trade in Japan’s favor has, though, diminished from an export/import ratio measured from the EU side of 0.55 in 2008 to 0.92 in 2018. This shift is explained by both stagnant imports from Japan in absolute values and growing EU export values. The EU imports from Japan are heavily concentrated in advanced manufactured goods within the machinery and equipment sector. Meanwhile the EU exports to Japan are more diversified and contain primary products at a value of about 14% of total exports, and the imports of primary products from Japan account only for about 3.5%. This difference in the composition of goods was naturally also reflected in different priorities during the negotiations, in which protection of domestic environmental and safety standards in the agricultural sector played a prominent role in the Japanese part. The EU plays a more prominent role in Japan’s external trade in goods with about 11.5% of the total value in 2018. The EU’s share of Japan’s total export value declined from 14% in 2008 to 10% in 2013, but has recovered during the last five years. Also, the share of the EU in Japan’s imports of goods has increased during the last years. It is worth mentioning that Japan does also report a deficit in the mutual balance with the EU since 2012 – an export/import ratio of 0.94 in 2018. These incongruities in trade statistics can be explained by a certain amount of indirect transactions between the two parties [ALV 16]. When it comes to trade in services, the mutual trade is, on the other hand, characterized by a huge EU surplus, reflected by the fact                                        1 Sources used in this section are, for the EU perspective: IMF DOTS Database; European Commission, DG Trade: Trade in goods with Japan. March 19, 2019, available at: https://webgate.ec.europa.eu/isdb_results/factsheets/country/details_ japan_en.pdf (accessed on April 25, 2019). For Japan’s perspective: International Monetary Fund, Direction of Trade Statistics, Yearbook 2015 and 2018.

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that Japan’s record of service exports is traditionally poor, not only to the EU, but to other advanced economies as well. One major concern in the EU-Japan economic partnership negotiations, related to both sustainability issues and corporate social responsibility (CSR) practices, has been the huge imbalance in foreign direct investment. The outward/inward ratio of FDI stock between the EU and Japan amounted to 0.40 or about €123 billion in 2016. This imbalance in favor of Japan is explained by the traditionally high entry barriers facing foreign firms in Japan, and it was accordingly a high priority of the EU side in the negotiations to lower this barrier. The formal/legal technical barriers to foreign direct investment in Japan are indeed low, while the real/mental barrier is conspicuous. 5.4. The context of the EU’s free trade negotiations with Asia The common commercial policy of the EU, which is one of the few truly supranational policy areas within the union, was for a long time mainly focused on the multilateral level. The frameworks of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), were considered to be the appropriate platform for promoting all kinds of external trade liberalization and cooperation, including the broader ambition to incorporate other policy areas than the pure tariff issues in accordance with objectives that were mirrored in the Doha Development Agenda (DDA) of 2001. In this context, various forms of trade cooperation outside the EU’s own sphere of interest were given less priority, with the exception of continuing relations with former colonies in Africa, the Caribbean and the Pacific within the Lomé/Cotonou cooperation. In contrast, the United States took a number of regional trade policy initiatives in parallel with its WTO agenda, particularly the AsiaPacific Economic Cooperation (APEC) of 1989. Although declarations from the APEC forum were not legally binding, the venue was extensively used by the USA, not only to promote trade liberalization objectives, but also to provide for a broader businessoriented arena for mutual talks around various issues, such as CSR, environmental regulations, and Intellectual Property Rights (IPR) protection.

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At the same time, a large number of bilateral trade agreements were launched in Asia in particular. Regional cooperation within the Association of Southeast Asian Nations (ASEAN) was both broadened and deepened in the 1990s with new members and the initiative for the creation of a free trade area, while Japan, and later also South Korea and China, became more active in initiating bilateral trade negotiations with separate ASEAN member states. When the multilateral DDA negotiations came into trouble in the mid-2000s, the EU found itself lagging behind when it came to the development of strategic trade relations in Asia, being forced to a reactive rather than a proactive policy [AHN 11, AHN 12]. In order to meet the new challenges, and to take a more proactive role in external economic affairs, the EU launched its “Global Europe” strategy in 2006, which was followed up in 2010, and further revised in the “Trade for All – Towards a more responsible trade and investment policy” of 2015 [EUR 15]. This latest strategy has been followed by a reflection paper in May 2017 [EUR 17] and by President Juncker’s State of the Union address on September 2018 [EUR 18]. The EU’s first move within the Global Europe strategy was the initiative of launching inter-regional free trade negotiations with ASEAN as a whole, as well as with South Korea. The EU-ASEAN negotiations proceeded for two years. The talks were, however, characterized by diverging views by the two sides on the general level of ambition – not least regarding human rights, labor standards and other CSR issues – and were “freezed” in 2009 [LIN 12]. The EU has thereafter tested the bilateral approach with separate ASEAN members, having concluded agreements with Singapore and Vietnam, and continues at present with Malaysia and Indonesia [ALV 19]. The long-term objective is still to return to a complete regional agreement with ASEAN. Each new negotiation has thus been used as a “testing ground” for the ambition to gradually reach a higher ambition level regarding CSR and related issues with a clear normative agenda. Even though the EU’s ambition is reflected in the final agreements with Singapore and Vietnam, practical implementation still remains to be seen. The same approach has been adapted in the agreement with South Korea in 2011, and in the latest one with Japan.

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From Japan’s perspective, the EPA negotiations with the EU have also been an essential part of the strategy to maintain a better balance between the “Big 3” partners: China, the US and the EU. After the US withdrawal from the Trans-Pacific Partnership (TPP), and China’s forceful promotion of a Regional Comprehensive Economic Partnership (RCEP) treaty, the need to strengthen the commercial relations with the EU has become even more important. Similarly, the EU has been active since its “Global Europe” and “Trade for All” strategies to strive for trade agreements with Asia and, at the same time, to promote sustainable development issues as part of its trade agenda. Next, we will discuss these in the context of the EU-Japan EPA, based on the interviews with the experts on the topic. 5.5. The EU-Japan EPA and sustainable development issues Sustainable development is not a new issue in international trade negotiations. It has been there for almost three decades, as the Western countries had raised the discussion within the GATT and the WTO already in the 1990s in various occasions. However, the issue was strongly opposed by developing countries that feared it being “hidden protectionism” from the side of developed countries, for example, at the WTO meeting in Seattle in 1999 (Interview A). The approach of the developing countries began to change gradually during the 2000s, and the EU-CARIFORUM EPA2 from 2008 was one of the first agreements by developing countries to include references to sustainable development. The EU took a proactive approach in its negotiations with Asian countries as well. In 2007, the EU started talks with its first Asian FTA partner, South Korea, promoting sustainable development issues as part of the “new generation” comprehensive agreement. The TSD issues were mentioned in the agreement, yet relatively briefly and                                        2 This Economic Partnership Agreement was signed by the EU in October 2008 with a number of Caribbean countries including Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis, Suriname, Trinidad and Tobago, and the Dominican Republic.

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vaguely compared to the EU’s later agreements with Asian countries. This is explained by the sheer novelty of the issues for Korea at the time of the negotiations (Interview B). However, it appears that there has been a “learning process” among the different parties since then, as the EU’s subsequent FTAs with Singapore and Vietnam include somewhat more extensive notions on sustainable development issues [KET 18]. These FTAs have paved the way for the EU-Japan negotiations. 5.5.1. The EU’s aims in the EPA negotiations A main finding from the interviews is that the TSD issues were among those that the EU pushed for in its talks with Japan, yet the European businesses do not expect a major change in the Japanese business environment as a result of the agreement. There are various reasons for this, as discussed in more detail below. The EU’s overall aims in its negotiations with Japan included three specific issues. The EU wanted to address the rules, including the regulation of markets; it aimed to create a tool for implementing the EPA; and it recognized a need to activate constant monitoring of the different issues of the EPA (Interview C). These reflect the perceived need within the EU to ensure the enforcement of the EPA – and other FTAs as well – through more active monitoring of its implementation. Furthermore, the interviewees noted the speed of the final stages of the agreement, i.e. how quickly the EPA was put into force, for which the juridical issues were dealt with in a “record time”. There was also a clear effect from prior agreements, especially from the EU-Korea FTA that had given an important message to Asian countries regarding the specific sectors – such as automobiles and agriculture – that were important for Japan, as well (Interview D). The significance of a competitive effect cannot be underestimated either, as it has been observed that some agreements are negotiated and concluded quickly in order to reach the goal before competitors. This seems to have happened not only with Japan which – because of the Korea effect – started to massively lobby the EU for EPA negotiations but also with some earlier FTA partners. For example,

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Vietnam was regarded as being “aggressive” in pushing to clear the various questions in the talks (Interview E). 5.5.2. Trade and sustainable development issues It is obvious that the EU has been the promoter of the TSD issues in its negotiations with Japan, similar to other Asian partners. The EU side recognizes that sustainable development issues are new for Japan where the normative issues are felt to be “new terrain” and somewhat awkward. Yet it appears that the sustainable development issues could be easily negotiated and discussed, especially at the government level, for a trade agreement. The approach has been to stimulate a change in Japan, and the EU side is content that Japan will soon be “good in the implementation of the provisions on TSD”. Opening a dialog has been of importance with the aim of making Japan more comfortable with the different issues in the EPA. The EU side assumes that in the middle run, Japan will see no harm in the different provisions of the agreements. However, because Japan is not used to comprehensive FTAs, this has been an “educative process”. Furthermore, the EU recognizes that “Japan will be one of the reliable partners” in the overall implementation of the provisions (Interview C). However, the interviewees noted that the situation is totally different at the consumer level and that consciousness about sustainable development issues is still “minimal” in Japan – at least compared to the size of the economy. This is especially when it comes to environmental issues. For example, there are some notable differences compared to the Nordic countries, such as the excessive use of plastic bags and anything disposable for which a lot of stuff is thrown into rubbish in Japan. Similarly, the country lacks the allround return system for used glass or plastic bottles that is commonplace in Northern Europe, where as much as 90% of soft drink bottles are recycled. Therefore, Japan “cannot be regarded as a circular economy”; instead, most of the rubbish is burnt, and some of it is used to fill the ground3. However, the other side of the TSD, the labor issues, is considered to be “in order” in Japan (Interview D).                                        3 For example, in the Tokyo Bay region in the Odaiba area, shopping centers have been built on such filled land (Interview D).

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This appears to differ from the situation in the EU’s first FTA partner in Asia, South Korea, where the relationships between the state and labor unions are known to be rather inflamed (Interview F). From the final EU-Japan EPA text, one can observe that the structure has slightly changed compared to the EU’s prior agreements with Asian countries. The earlier agreements contained Chapter 13 on TSD, whereas the EU-Japan EPA includes Chapter 16 on the same topic. The chapter in the Japan case is somewhat long and detailed, and includes 19 articles. This is slightly more compared to the EU’s prior Asian FTAs that included 17 articles in the same chapter. The articles refer to biological diversity, sustainable management of forests and sustainable use of fisheries resources. CSR is mentioned and discussed in two paragraphs in the EU-Japan EPA, similar to the Vietnam agreement. In contrast, whereas climate change is mentioned several times, it is not given its own article as in the Vietnam FTA. Furthermore, notions about labor issues are not as manifold as in the Singapore FTA. From this brief look, it appears that the TSD issues are there with slight differences when compared to the EU’s other FTAs in Asia. However, a challenge related to the implementation of the TSD issues might emerge from the differences in the European and Japanese societies as a whole. As Zurek [ZUR 19] notes, the overarching objective of the EU’s FTAs is to engage the civil service of the partner countries in a cooperative process to strengthen the national enforcement of international labor and environmental standards. Yet, as the interviewees for this study note, Japan does not have a strong civil service, and one can thus assume that the mechanisms for the enforcement of the TSD issues will differ between the EU and Japan. This has implications on the EU’s existing and future FTAs in Asia as well, as it is typical for Asian countries not to have a strong civil society similar to that in the European countries. Despite these reservations, the interviewed EU officials expect Japan to implement the provisions on TSD, which shows a level of confidence among the trade policy experts in the enforcement of the agreement. Furthermore, the interviewees note the generally strong incentive for Japan to play an increasingly visible role in the global trade policy sphere. One reason for this has been the power “vacuum”

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in the Asia-Pacific after the withdrawal of the United States from the TPP agreement. 5.5.3. Other issues in the negotiations and reflections from the field Other major issues in the EU-Japan negotiations were related to technical barriers to trade (TBT), notably the harmonization of standards. In general, the EU industry has felt that the Japanese side has not been taking into account international standards. However, there were more commitments in this EPA related to international standards, which was a somewhat new issue for Japan (Interview C). In addition to standards, other major challenges in the EPA talks were related to civil society engagement, agriculture, and public procurement. First, the EU’s problem regarding the civil service engagement is rooted in the sheer lack of a strong civil service in Japan – as Japan is instead “corporate minded”, similar to many other Asian countries (Interview C). Second, one of the toughest negotiations concerned agriculture which is excessively protected in Japan. It is an emotional issue for the people because food selfsufficiency is relatively low in the country (Interview D). It was noted that both the earlier TPP and the EU-Japan EPA had quite a big agricultural package, and that finally, Japanese agricultural associations had to “swallow” the EPA. This is despite Japan not being self-sufficient for many dairy products such as butter, for example, which is due to the lack of both livestock and labor for domestic agriculture, in a situation where also imports of Chinese food have decreased (Interview D). Third, regarding public procurement, while the final EPA increased the access of EU firms to Japanese public procurement markets, the issue is generally among one of the most sensitive ones in FTA negotiations. This is often for security reasons. Further, for developing countries with weak institutions, the opening of public procurement is difficult because that is where “local tycoons and ministers make money” (Interview E). When it comes to the EU companies’ view of the Japan EPA, the overall approach is positive. However, there is a difference between those that are established in Japan and those that are not: EU

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companies already operating in Japan do not see a big difference as a result of the agreement, whereas those that are not there yet, are interested in the potential benefits of the EPA (Interview C). This is in line with the business confidence survey conducted by Foreign Chambers in Japan [FCI 18]. The European companies were asked about their expectations on the impact of the EU-Japan EPA on their business. Of the total number of respondents (137), only 9% considered the EPA to have a “strong positive effect”, whereas 42% expected “some positive effect”, and almost half of the firms, 47%, regarded the EPA have “no impact at all”. The main concerns of the firms were related to the lack of harmonization of industrial standards [FCI 18]. For foreign firms, the Japanese business environment is known to be difficult with high entry barriers that are cultural rather than regulatory, similar to the business environment in the neighboring country Korea (Interview G). Therefore, companies may not expect too strong impacts from the agreement, and they are nevertheless involved in the FTAs in other ways. Firms participate in the formulation of trade agreements through industry associations in the different preparation stages of FTAs. However, businesses do not take strong opinions when it comes to sustainable development issues, and the role of businesses in drafting the TSD chapters is generally small. There is relatively little interest and a “cautious approach” among firms toward the issue, apart from firms in cleantech or related industries that may see business opportunities in sustainable development (Interview A). Regarding labor issues, more pressure is exerted from national and EU-level labor unions [KET 18]. Although the implementation and the impacts of the EPA remain to be seen, the interviewees did note its “advertising value” for Europe. Earlier, the Japanese used to know about individual European countries and were also aware of Brexit, but now the general knowledge has also increased about the EU as a union (Interview C). The EU as a whole will come closer to people, firms, and organizations in Japan, and as a result, the Japanese interest for European products increases. There is much knowledge about Europe due to EU-focused information in the Japanese media. The increased general interest of corporate Japan can be seen in various surveys, and

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the EU image is picking up in the Japanese general public as well (Interview C). 5.6. Conclusion We have discussed the EU-Japan trade negotiations with regard to the aims, challenges and business reactions from the European side, and especially regarding sustainable development issues. The recently concluded EU-Japan EPA has been in force as of February 1, 2019, and is one of the EU’s “new generation” comprehensive FTAs. Our main focus is on the inclusion of environmental and labor issues in the agreement, and whether the EPA has the potential to become a normsetter for the EU’s ongoing and future trade negotiations in Asia, considering prior literature on the EU as a norm promoter in its Asian FTAs (e.g. [GAR 15, SIC 15]). As always, the final FTA texts are compromises between the two sides; they thus reflect either the aims of both parties or one party to the extent that the other party has been able to accept them. From the agreement texts alone, one cannot identify which issues were proposed by which party. This is true also for the EU-Japan EPA, and thus, the information from the negotiating parties is essential in order to analyze the aims or challenges in the negotiations. Based on seven interviews with trade policy officials and other representatives of the public sector from the European side, we find that sustainable development issues were among those that the EU endorsed in its talks with Japan, similar to its prior FTAs in Asia. The negotiations included several challenging issues, not only related to TSD but also to TBT, such as standards. Our findings indicate that the EU-Japan EPA is relatively similar to the EU’s prior FTAs with Asian countries. It contains Chapter 16 on TSD with 19 specific articles referring to biological diversity, forests and fisheries, for example. Compared to the other EU-Asian FTAs that show an “evolution” in how widely TSD issues are included [KET 18], the Japan agreement appears at least partly to continue the trend, with some differences in the emphasis. However, an open question remains as to its implementation. The EU side remains quite optimistic, despite the fact that the enforcement may be challenged by the general lack of civil

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society in Japan that would ideally act as a counter-pressure to mere business interests. To conclude, we find the EU to be the promoter of sustainable development issues in its negotiations with Japan. The final EPA text is relatively similar to the EU’s prior agreements in Asia in extending the TSD issues, which can be expected to guide the EU’s ongoing negotiations with ASEAN member states and India. Therefore, at the level of an agreement, the EPA represents a degree of success in the EU’s aims in promoting normative issues such as sustainable development (cf. [POL 18]). This indicates that the EPA has a potential for extending the norms on TSD issues in the EU’s possible future FTAs with other Asian countries as well. However, the real test of this policy will be how it will be interpreted and implemented in a tangible case. 5.7 Acknowledgments For research funding, Erja Kettunen is grateful to the Foundation for Economic Education, Finland. 5.8. References [AHN 11] AHNLID A., ALVSTAM C.G., LINDBERG L., “‘A world without Verona Walls’: new challenges for the external trade policy of the EU in a resilient global economy – with a special focus on Asia”, in ALVSTAM C.G., JÄNNEBRING B., NAURIN D. (eds), I Europamissionens Tjänst, no. 25, Centre for European Research, University of Gothenburg, Sweden, pp. 413–429, 2011. [AHN 12] AHNLID A., “The EU meeting the Asian trade challenge – from follower to forerunner”, in OXELHEIM L. (ed.), EU-Asia and the Repolarization of the Global Economic Arena, World Scientific Press, Singapore, pp. 95–123, 2012. [ALV 16] ALVSTAM C.G., NAKAMURA H.R., The “Lost” trade: ignored factors in the EU-Japan free trade negotiations, Paper presented at the Academy of International Business, Annual Conference, New Orleans, USA, June 27–30, 2016.

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[ALV 17] ALVSTAM C.G., KETTUNEN E., STRÖM P., “The service sector in the free trade agreement between the EU and Singapore: closing the gap between policy and business realities”, Asia Europe Journal, vol. 15, no. 1, pp. 75–105, 2017. [ALV 19] ALVSTAM C.G., LINDBERG L., “The EU’s trade policy in a fragmented world order: tensions among bilateral, regional and multilateral trade agreements”, in BAKARDJIEVA ENGELBREKT A., BREMBERG, N., MICHALSKI, A. et al. (eds), The European Union in a Changing World Order, Palgrave Macmillan, Cham, pp. 81–114, 2019. [BAR 13] BARTELS L., “Human rights and sustainable development obligations in EU free trade agreements”, Legal Issues of Economic Integration, vol. 40, no. 4, pp. 297–314, 2013. [BER 12] BERNSTEIN S., CASHORE B., “Complex global governance and domestic policies: four pathways of influence”, International Affairs, vol. 88, no. 3, pp. 585–604, 2012. [CRE 18] CREMONA M., “Shaping EU trade policy post-Lisbon: opinion 2/15 of 16 May 2017”, European Constitutional Law Review, vol. 14, pp. 231–259, 2018. [DG 18] DG TRADE, EU trade policy with countries and regions: Japan. [Online], available at: http://ec.europa.eu/trade/policy/countries-and-regions/ countries/japan/ [accessed April 9, 2019], 2018. [DG 19] DG TRADE, EU-Japan trade agreement enters into force, Press release. [Online], available at: http://trade.ec.europa.eu/doclib/press/ index.cfm?id=1976 [accessed April 9, 2019], January 31, 2019. [EUR 15] European Commission, Trade for all: towards a responsible trade and investment policy. [Online], available at: http://trade.ec.europa.eu/ doclib/docs/2015/october/tradoc_153846.pdf [accessed April 9, 2019], 2015. [EUR 17] European Commission, Reflection paper on harnessing globalisation. [Online], available at: https://ec.europa.eu/commission/sites/ beta-political/files/reflection-paper-globalisation_en.pdf [accessed April 9, 2019], 2017. [EUR 18] European Commission, The hour of European sovereignty. State of the Union 2018. [Online], available at: https://ec.europa.eu/commission/ sites/beta-political/files/soteu2018speech_en_0.pdf [accessed April 9, 2019], September 12, 2018. [FCI 18] FCIJ, Business confidence survey, Spring 2018. Businesses thrive in an improving environment, Foreign Chambers in Japan and Finnish Chamber of Commerce in Japan, Tokyo, 2018.

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[GAR 15] GARCIA M., MASSELOT A., “EU-Asia free trade agreements as tools for social norm/legislation transfer”, Asia Europe Journal, vol. 13, no. 3, pp. 241–252, 2015. [HAR 16] HARRISON J., CAMPLING L., RICHARDSON B. et al., “Can labour provisions work beyond border? Evaluating the effects of EU free trade agreements”, International Labour Review, vol. 155, no. 3, pp. 357–382, 2016. [KET 18] KETTUNEN M.E., ALVSTAM C.G., “Free trade agreements and responsible business: examples from the EU’s bilateral agreements in East and Southeast Asia”, in ANDREOSSO-O’CALLAGHAN B., JAUSSAUD J., ZOLIN M.B. (eds), Asian Nations and Multinationals: Overcoming the Limits to Growth, Palgrave Pivot, London, UK, pp. 13–28, 2018. [LIN 12] LINDBERG L., ALVSTAM C.G., “Interregional trade facing repolarization: the EU trade negotiations with ASEAN countries”, in OXELHEIM L. (ed.), EU-Asia in the Age of Repolarization of the Global Economy, World Scientific Press, Singapore, pp. 55–94, 2012. [MC 12] MCMICHAEL P., Development and Social Change: A Global Perspective, Sage, London, 2012. [POL 18] POLETTI A., SICURELLI D., The Political Economy of Normative Trade Power, Palgrave Macmillan, Cham, 2018. [SIC 15] SICURELLI D., “The EU as a norm promoter through trade. The perceptions of Vietnamese elites”, Asia Europe Journal, vol. 13, no. 1, pp. 23–39, 2015. [ZUR 19] ZUREK K., “From ‘Trade and Sustainability’ to ‘Trade for Sustainability’ in EU external trade policy”, in BAKARDJIEVA ENGELBREKT A., BREMBERG, N., MICHALSKI, A. et al. (eds), The European Union in a Changing World Order, Palgrave Macmillan, Cham, pp. 115–144, 2019.

Interviews Interview A, with an official of the Trade Policy unit, Ministry for Foreign Affairs, Helsinki, April 19, 2017a. Interview B, with an official of the Market Access unit, Ministry for Foreign Affairs, Helsinki, May 3, 2017b. Interview C, with an official of the EU Delegation in Tokyo, June 25, 2018a. Interview D, with a representative of a Finnish support organization in Tokyo, June 25, 2018b.

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Interview E, with a representative of the EU Chamber of Commerce in Malaysia, December 14, 2015. Interview F, with an official of the Finnish Embassy in Seoul, June 27, 2016a. Interview G, with an official of the EU Delegation in Seoul, June 27, 2016b.

     

6 The Relationship Between Shareholder Value and International Transfer of Environmental Management Practices

This chapter analyzes the relationship between the shareholder value of multinational enterprises and the international transfer of environmental management practices. We examine the hypothesis that the higher return of a firm’s equity is positively related to the higher transfer of environmental management practices to the overseas subsidiary. However, the results of the analysis have not supported the hypothesis. The relationship of a shareholder value with the environmental management system is negative. The shareholder value is thus associated with the reluctance to transfer the environmental management system because the firm regards environmental investment as an additional cost or has minimal environmental concerns. 6.1. Introduction With the philosophy of sustainable development, environmental management has become a prerequisite of business activities for most firms. A large part of the environmental load originates from the activities of firms. Accordingly, firms in developing and developed economies need to make all possible efforts to reduce the                                        Chapter written by Kazuma MURAKAMI and Tatsuo KIMBARA.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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environmental load. Diffusion of advanced technologies and practices, which are owned by multinational enterprises (MNEs), among developing and developed countries, is both necessary and effective in reducing the load. MNEs that operate globally can disseminate their practices in overseas operations and transfer them to a supply chain through transactions. To encourage firms to strengthen global environmental effort, firms must achieve economic performance and improve environmental performance in their overseas operations. When there is an economic incentive in implementing environmental practices, the rational approach is that firms make environmental efforts. As significant constraints of firm behavior, we recognize the influence of the Restrictions of Hazardous Chemicals (RoHS) enacted in 2003 and the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH), which came into effect in 2007. These regulations require that firms take positive environmental action in a whole supply chain. Firms otherwise often incur environmental risks. In this chapter, we analyze environmental management across borders, focusing on the effect of shareholder value on international transfer, from two perspectives. First, we examine the relationship between the economy and the environment in a global dimension. As the environmental management across borders is important for sustainability, this study may contribute to the progress of theories and provide useful information for policy making and business practices. Most existing studies on the relationship between economic performance and environmental performance have investigated domestic operations. We investigate the relationship in a new dimension. Second, we examine the relationship between parent firms and overseas subsidiaries using statistical rather than case study methodology. We briefly review preceding studies in section 6.2. Section 6.3 explains the methodology, section 6.4 is the results of analysis, section 6.5 provides a discussion and, finally, section 6.6 summarizes our findings.

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6.2. Literature review Few studies have investigated the international transfer of environmental management. The predominant interest of existing studies about transfer focuses on individual topics such as ISO14001 or environmental technologies that are practiced in foreign operations. When economic performance and environmental performance are compatible in an overseas operation, the expectation is that environmental management disseminates further across borders. We investigated the relationship between the financial performance of the parent firm and the environmental performance of the overseas operation. This is a new research issue and has two important underlying approaches. First, research has intensively analyzed the relationship between the economy and the environment. Second, research has investigated environmental management transfer. Specific technology transfers such as water treatment or air treatment technology is often mentioned in the context of corporate social responsibility (CSR) or a program of official development aid. 6.2.1. Shareholder value and environmental performance Many researchers have examined the Porter hypothesis [COR 97, HAR 96, PAL 95, POR 95, RUS 97, WAG 02]. The Porter hypothesis indicates that firms can obtain economic performance when they invest in environmental innovations under appropriate regulations, since environmental innovations improve resource efficiency and, in turn, generate competitiveness. These are important underlying studies on the relationship between the financial performance of parent firms and the environmental performance in international operations. Several researchers have investigated the relationship between shareholder value and environmental performance for domestic operations. Of these studies, Corderio and Sarkis [COR 97] used toxic release inventory (TRI) data as environmental performance and a security analyst forecast on earnings per share (EPS) as a measure of economic performance. EPS implies value for shareholders. Corderio

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and Sarkis found a significant negative relationship between the two performances. Hart and Ahuja [HAR 96] used, as the explaining variable, the change rate of emission of toxic chemicals in 1988–1989 based on the TRI data. They used return on sales (ROS), return on assets (ROA), and return on equity (ROE) as explained variables. The control variables were R&D intensity, advertising cost to sales ratio, capital intensity, debt ratio, and growth rate of industry. ROE is the ratio of profit to shareholder equity. Hart and Ahuja showed that pollution prevention is positively related to economic performance with a 1- or 2-year time lag. Wagner et al. [WAG 02] examined the relationship between the two performances in paper manufacturing companies in Germany, Italy, the Netherlands, and the UK. They used a composed index of SO2, NOx, and chemical oxygen demand emission for environmental performance and ROS, ROE, and the rate of return on capital employed (ROCE) for economic performance. Wagner et al. found that ROS and ROE showed a negative relation, whereas ROCE showed a positive relation. 6.2.2. Environmental management transfer Hansen [HAN 02], using case study methodology, analyzed environmental management across borders in India, Malaysia, and China from 1998 to 2001. He showed important details about environmental management diffusion in developing countries, but his analysis does not reflect corporate practices after RoHS and REACH directives have been implemented. We need to examine environmental management practices after the RoHS regulation has been in force and analyze the data using a statistical methodology. Jeppesen and Hansen [JEP 04] explained the environmental upgradation of enterprises in developing countries through linkages to transnational corporations. They indicated that the determinants of international transfer are government regulation, market, internal resources, and environmental strategy. Their model thus presented external and internal factors.

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Kimbara and Murakami [KIM 16] showed the transfer of environmental management across borders using data from Japanese multinational firms in Vietnam. Their conclusion indicated that environmental regulation has a positive significant relationship with the transfer of green procurement, but economic performance was related to the transfer of environmental management systems. One study focused on the transfer of ISO14001 practices. Prakash and Potoski [PRA 07] examined the conditions under which MNEs transfer corporate environmental practices from home countries to host countries. They emphasized that a higher level of ISO14001 adoption in host countries is found only when foreign direct investment originates in the home countries with a high level of ISO14001 adoption. Florida [FLO 96] examined the transfer of environmental practices in Japanese transplants in the United States. He found that practices such as total quality environmental management, recycling, green process technology, worker involvement, supply chain integration, and emission reduction are transferred across borders in the transplant. He suggested that customer–supplier relationships make the transfer of environmental practices to overseas operations possible. 6.3. Methodology 6.3.1. Data Data used in this chapter were obtained from two sources. The first data source is the questionnaire survey that was used for collecting the data on the transfer of environmental practices in the subsidiary. This questionnaire survey was conducted in January and February of 2011, with Japanese manufacturing subsidiaries in Vietnam. We prepared a structured questionnaire. Four hundred manufacturing firms listed in the directories of Japanese affiliated companies in Vietnam by Toyo Keizai Shinpo Sha [TOY 10] and Japan External Trade Organization (JETRO) [JET 14] were contacted by telephone and email and asked to participate in the survey. We worked with Vietnamese researchers in the translation of the questionnaire from Japanese into Vietnamese and discussed the data collection method. Vietnamese research

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assistants were hired to conduct face-to-face interviews with company managers using the structured questionnaire. The number of effective responses obtained was 96. Buckley and Casson [BUC 76] defined an MNE as a firm that operates in more than two countries. This definition, therefore, does not necessarily suggest a large firm. Smaller firms with less than 300 employees in the food, garment, and stationary industries are sometimes included. Our focus is Japanese subsidiaries in Vietnam operating in the manufacturing sector. For these firms, we examined the transfer of environmental practices from parent to subsidiary. The second source was ROE data obtained from Nihon Keizai Shinbunsha’s NEEDS financial data. We used ROE as an indicator of shareholder value based on previous studies. Nihon Keizai Shinbunsha is the largest economic newspaper in Japan. We used the average of 2006 and 2010 ROE data, and the dependent variables refer to the year 2010. We excluded 2008 and 2009 data because the world economy was in chaos after the Lehman Brothers collapse, and the 2008–2009 ROE data was slightly different from the other years. We chose the period, excluding 2008 and 2009, of the most recent five years up to 2010. The two datasets were then matched to obtain 40 effective samples for the analysis. 6.3.2. Analytical framework and hypothesis The issues to be analyzed are: how firms transfer environmental management to overseas operations, and what relationships exist between the shareholder value of the parent firm and the transfer of environmental practices to foreign operations. For the determinants of environmental management, Jeppesen and Hansen [JEP 04] specified the determinants such as government regulations, market, internal resources, and strategy. Schaltegger and Synnestvedt [SCH 02] specified that the environmental management of a firm depends on the state of business management, market, and environmental interest of society and government. Beise and Rennings [BEI 05] also saw that the transfer of environmental innovation was determined by government regulation, market, and organizational capabilities.

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Based on the preceding studies in environmental management and strategic management, we developed a framework that consisted of external factors, environmental strategy, organizational practices, and environmental performance of the subsidiary. With this framework, we investigated the relationship between variables and the influence of individual factors on the transfer. We examined the following hypothesis on the international transfer of environmental practices in Japanese subsidiaries in Vietnam. HYPOTHESIS.– Firms with higher ROE performance tend to transfer environmental practices to overseas operations. The basis for this hypothesis is that when a firm’s ROE performance is better, the firm has more resources with the agreement of shareholders to invest in environment preservation so that the firm is likely to transfer related practices. In contrast, a firm that regards environmental investment as a cost increase will be reluctant to invest in environmental preservation and slow to transfer practices since the firm perceives the practices as leading to additional costs. As shown in section 6.2, a number of prior studies indicated the opposite result; one showed the positive impact of ROE, and the other showed the negative impact of ROE. We examined the effects of ROE regarding the hypothesis of a positive impact of ROE. The analytical model is shown below. The hypothesis is divided into four sub-hypotheses. An explained variable uses four indicators: environmental management (MANA), green procurement (GREN), support in implementing supplier environmental management (EMSUP), and support in supplier improvement of environmental technologies (TESUP). There is a high correlation between GOAL and leadership for environment (LDS) of strategic factor (r = 0.577, p < 0.01). Accordingly, patterns are estimated using two indicators separately. The dummy variable is 0 when the number of employees is less than 299, and 1 when the number of employees is greater than 300. MANA = α + βm1 GOV + βm2 COM + βm3 CUS + βm4 ROE + βm5 OSR + βm6 JOWN + βm7 LDS(GOAL) + βm8 D_Scale [6.1] GREN = α + βg1 GOV + βg2 COM + βg3 CUS + βg4 ROE + βg5 OSR + βg6 JOWN + βg7 LDS(GOAL) + βg8 D_Scale [6.2]

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EMSUP = α + βe1 GOV + βe2 COM + βe3 CUS + βe4 ROE + βe5 OSR + βe6 JOWN + βe7 LDS(GOAL) + βe8 D_Scale [6.3] TESUP = α + βt1 GOV + βt2 COM + βt3 CUS + βt4 ROE + βt5 OSR + βt6 JOWN + βt7 LDS(GOAL) + βt8 D_Scale [6.4] 6.3.3. Variables The main variables in this study are external factors, the organization of the parent firm, the environmental strategy of the subsidiary, the environmental practices, and the system used in the subsidiary and the subsidiary support of the suppliers (Tables 6.1 and 6.2). This framework includes significant dimensions in the analysis of strategic management and organization theory. External factors have three indicators: GOV means the host government environmental regulation is strict; COM means the community has strong demands on the environment; and CUS means the customer requirements in the market are strong. Next, the indicators of the organization of the parent firm are ROE, the ownership ratio of Japanese parent firms (JOWN), and the parent company’s overseas sales ratio (OSR). ROE indicates the shareholder value. The question is: if the shareholder value in parent firms is larger, then the parent firm will make greater environmental investments in foreign operations and, as a result, this will improve environmental performance of the subsidiary firms. JOWN is measured by the ownership ratio of Japanese parent firms. OSR is measured by the parent company’s average ratio of overseas sales from 2006 to 2010 excluding 2008 and 2009, which was influenced by the Lehman Brothers’ collapse. As control variables, R&D intensity, advertising cost ratio, debt ratio, and capital intensity are often used for the analysis of domestic operations [HAR 96]. When we analyze the relationship in foreign affiliates, the OSR and foreign ownership ratio are more relevant since they reflect corporate global strategy. We expect that the internationalization of business will, in general, require that products comply with RoHS regulation.

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Note: The items are measured in a Likert 5-point scale, but ISO and REP are measured with reference to 3 points. Table 6.1. Descriptive statistics

The indicators of strategic factors of the subsidiary are measured in terms of the top LDS and the goal of environmental management (GOAL). The organizational practices and system are measured using three indicators: ISO14001 (ISO), environmental report (REP), and

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green procurement (GREN). Items are measured in a Likert fivepoint scale, but ISO and REP are measured using a three-point scale. ISO and REP are combined as MANA, and the scores are summed up. 1 2 3 4 5 6 7 8 9 10 11 12

GOV COM CUS ROE OSR JOWN LDS GOAL M ANA GREN EM SUP TESUP

1 2 3 1.00 0.52 ** 1.00 0.05 0.25 1.00 0.17 0.13 0.02 0.15 0.25 -0.04 -0.36 * -0.23 0.14 0.24 0.20 0.12 0.42 ** 0.22 0.14 0.14 0.17 0.01 -0.03 0.28 0.31 0.00 0.34 * 0.27 -0.01 0.24 0.20

4

5

1.00 0.61 ** 1.00 -0.19 -0.27 0.01 -0.06 -0.19 -0.08 -0.14 0.25 0.07 0.22 -0.16 0.11 -0.25 0.07

6

7

8

1.00 -0.36 * 1.00 -0.33 * 0.58 ** 1.00 -0.23 0.18 0.51 ** 0.14 0.37 * 0.20 0.08 0.25 0.26 -0.03 0.41 * 0.36 *

9

10

11

12

1.00 0.08 1.00 0.31 * 0.55 ** 1.00 0.31 * 0.57 ** 0.68 ** 1.00

Note: ISO and REP are combined and summed up as MANA. *Significant at the 5% level; ** Significant at the 1% level. Table 6.2. Correlation among variables

The suppliers supported by the subsidiary are measured by the degree of support in implementing supplier environmental management (EMSUP), and by the support in supplier improvement of environmental technologies (TESUP). 6.4. Results of analysis Based on the models, the data was analyzed using ordinary least squares. The results are shown in Table 6.3. The results show the following important points. First, ROE has a significant negative relationship with the transfer of environmental management system (MANA) in both variables of top leadership (LDS) or the environmental goal (GOAL). In the case of EMSUP and TESUP as the explained variables, when LDS is used, the same results were obtained. ROE has a negative relationship with the transfer of green procurement (GREN) even though the result is not significant. The results show that firms with a high ROE are likely to slow down the transfer of environmental practices. These results indicate that the hypothesis is not supported and suggest that

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shareholders do not strongly press firms to disseminate environmental practices. Variable GOV COM CUS ROE OSR JOWN LDS GOAL D_scale Constant Adj R2 F value DW

M odel 1 (M ANA) (1) (2) -0.061 -0.197 0.161 0.199 -0.136 -0.148 -0.533 ** -0.383 0.326 0.372 -0.145 -0.023 0.118 0.452 0.438 ** 0.331 5.864 ** 4.386 0.326 0.441 3.052 * 4.648 2.380 2.241

Variable GOV COM CUS ROE OSR JOWN LDS GOAL D_scale Constant Adj R2 F value DW

M odel 3 (EM SUP) (1) (2) -0.270 -0.298 0.442 * 0.447 * 0.023 0.049 -0.406 * -0.292 0.218 0.234 0.182 0.183 0.319 0.280 0.173 0.152 -0.483 -0.230 0.244 0.218 2.414 * 2.323 * 1.741 1.726

* *

** * ** **

M odel 2 (GREN) (1) (2) -0.320 -0.378 0.385 * 0.411 0.072 0.117 -0.147 -0.044 0.278 0.205 0.397 * 0.265 0.599 ** 0.319 0.085 0.094 -3.278 -0.604 0.429 0.162 4.000 ** 1.823 1.753 1.911 M odel 4 (TESUP) (1) (2) -0.188 -0.242 0.260 0.262 0.079 0.062 -0.443 * -0.347 0.317 0.260 0.157 0.069 0.429 * 0.312 0.241 0.242 -1.144 0.586 0.338 0.212 3.236 * 2.279 * 1.926 2.072

*Significant at the 5% level; ** Significant at the 1% level. Table 6.3. Results of the analysis

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Second, OSR has a positive relationship to MANA, GREN, EMSUP, and TESUP. When GOAL is used, OSR shows a significant positive relationship to MANA. This result indicates that the environmental management system is strongly related to the degree of overseas operations. When firms operate globally, they increasingly face environmental regulations and CSR pressure in both the host country and international markets. They are therefore required to take environment-oriented practices to obtain support from the market and society. Third, GOAL has a significant positive relationship to MANA. This result indicates that the environmental management system is strongly related to the degree to which the management goal of the subsidiary is embedded in the management philosophy. Fourth, firm size plays a decisive role in establishing environmental management systems (MANA). Large firms generally receive more external pressure to act in socially responsible ways, and large firms are more likely to develop environmental management systems than smaller firms since large firms have more resources to adapt to such pressures. Fifth, LDS has a significant positive relationship to GREN and TESUP. This result indicates that the transfer of green procurement and environmental technologies are strongly related to the corporate initiatives of the subsidiary and parent company. Sixth, COM has a significant positive relationship to EMSUP and GREN when we used LDS variables. CSR makes green procurement practices and support for the supplier’s environmental management mandatory. This result implies that the community requires multinational firms to take positive action to implement green procurement and its diffusion to suppliers. Seventh, the regulation of the host government is not significant to MANA, GREN, EMSUP, and TESUP. MNEs, however, are required to submit environmental reports such as air, water, and chemicals to the supervisory office of the host government. Host government regulation does not seem to be a driving force of the transfer, and the

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transfer depends on whether host government regulation is a minimum criterion or a strict requirement and a definitive goal. 6.5. Discussion From the analysis, we found that the relation of shareholder value to environmental management system (MANA) is negative. Shareholder value is thus associated with a reluctance to transfer environmental management systems either because the firm regards environmental investment as a cost increase or because it does not care about the environment. The reasons and the process of the results require further investigation. The effect of ROE on environmental transfer has two aspects. One is positive. Hart and Ahuja [HAR 96] showed that ROE has a significant positive relation with environmental performance. Viewing their evidence, ROE may enhance environmental performance in overseas operations. Then, the transfer of environmental management practices to overseas operations is strengthened. The other is a negative aspect that Corderio and Sarkis [COR 97] showed. Management based on ROE pursues shareholder profit. When the ROE emphasis is strong, the likelihood is avoiding cost increase caused by environmental investment. The result is restraining the international transfer of environmental practices. The relationship between ROE and the transfer then becomes negative. Kimbara and Murakami [KIM 16] in the above-mentioned study showed that economic performance of ROA and ROS positively impacts the discretionary practices of the environmental management system. The results of this chapter showed that ROE has a negative relation to the environmental management system. This means that shareholders do not strongly influence environmental investment, which leads to a decrease in shareholder profit. The shareholder is therefore passive in implementing environmental management and green procurement in the international dimension. Also, ROE does not show strong relationships with green procurement. Green procurement

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reflects regulation and social pressure rather than economic performance. These results imply that when the shareholder control of a firm is strong, firms are not proactive in taking environmental practices in overseas operations. Strengthening the enforcement of environmental regulation or guidelines such as ISO14001 or global reporting initiatives is necessary to contribute to sustainability. In this sense, in the society where firms tend to be controlled to pursue shareholders value, we need stronger regulations. By contrast, when there is a collaborative relationship between firms and society or government [HAL 01], building collaborative relations with direct dialogue is effective. These differences of governance style originate from the difference in corporate governance in each society that has a specific consensus of CSR. To understand environmental management practices and investment behavior, understanding the influence of institutional characteristics of corporate governance is important [DEL 02]. Firms exist as a social institution in a society and that society approves of firm existence. Firm role and conduct are then fundamentally influenced by the societal value system. In fact, there are differences in terms of the objectives of a firm and corporate governance in developed countries. This fact suggests different shareholder influence in the investment of environmental practices. We recognize two models of corporate governance. One is that shareholders have sovereignty since they are regarded as the owners of a firm. The other is that stakeholders have sovereignty. These are often, respectively, termed the Anglo-Saxon model and the Rhine model. With shareholder sovereignty, shareholder value is the supreme objective for firms. As a result, the interest in environmental practices is regarded as an increased cost for firms. Consequently, environmental investment and its transfer to overseas operations will also be slowed in the shareholder approach. Conversely, stakeholder sovereignty encourages firms to take greater positive environmental action since firms need to consider the

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environment, and consumer and community requirements. Firms then with a stakeholder approach need to take environmental action when stronger external pressure is present. 6.6. Conclusion This chapter analyzed the relationship of shareholder value of MNEs to the international transfer of environmental management practices. The results of the analysis have not supported the hypothesis. The results show that the shareholder value of parent firms slows down the transfer of the environmental management system to subsidiary firms under certain conditions. We recognize that environmental management depends on the institutional characteristics of corporate governance. Although our research suggests meaningful findings about the transfer of environmental management practices, the study has limitations. The analysis used a small number of samples, and the samples were collected from one country at a specific economic stage of development. These findings require verification in another country with a larger sample. In spite of these limitations, our research suggests a useful, logical relationship between shareholder value and the transfer of environmental management practices to overseas operations, and contributes to developing and advancing the research agenda. 6.7. References [BEI 05] BEISE M., RENNINGS K., “Lead markets and regulation: A framework for analyzing the international diffusion of environmental innovations”, Ecological Economics, vol. 52, no. 1, pp. 5–17, 2005. [BUC 76] BUCKLEY P.J., CASSON M., The Future of the Multinational Enterprise, MacMillan, London, 1976. [COR 97] CORDERIO J.J., SARKIS J., “Environmental proactivism and firm performance: Evidence from security analyst earnings forecasts”, Business Strategy and the Environment, vol. 6, pp. 104–114, 1997.

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[DEL 02] DELMA M.A., “The diffusion of environmental management standards in Europe and in the United States: An institutional perspective”, Policy Sciences, vol. 35, no. 1, pp. 91–119, 2002. [FLO 96] FLORIDA R., “Lean and green: The move to environmentally conscious manufacturing”, California Management Review, vol. 39, no. 1, pp. 80–105, 1996. [HAL 01] HALL P., SOSKICE D. (eds), Varieties of Capitalism: Institutional Foundations of Comparative Advantage, Oxford University Press, Cambridge, 2001. [HAN 02] HANSEN M.W. (ed.), Managing the Environment Across Borders: A Study of TNC Affiliates Environmental Practices in China, Malaysia and India, Samfundslitteratur, Copenhagen, 2002. [HAR 96] HART S.L., AHUJA G., “Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance”, Business Strategy and the Environment, vol. 5, no. 1, pp. 30–37, 1996. [JEP 04] JEPPESEN S., HANSEN M.W., “Environmental upgrading of third world enterprises through linkages to transnational corporations: Theoretical perspectives and preliminary evidence”, Business Strategy and the Environment, vol. 13, no. 4, pp. 261–274, 2004. [JET 14] JETRO, 2014 JETRO global trade and investment report, Japan External Trade Organization, Tokyo, 2014. [KIM 16] KIMBARA T., MURAKAMI K., “Does financial performance enhance the transfer of environmental management practices to overseas subsidiaries?”, Journal of Business and Policy Research, vol. 11, no. 1, pp. 86–97, 2016. [PAL 95] PALMER K., OATES W.E., PORTNEY P.R., “Tightening environmental standards: The benefit-cost or the no-cost paradigm?”, Journal of Economic Perspectives, vol. 9, no. 4, pp. 119–132, 1995. [POR 95] PORTER M.E., VAN DER LINDE C., “Toward a new conception of the environment-competitiveness relationship”, Journal of Economic Perspectives, vol. 9, no. 4, pp. 97–118, 1995. [PRA 07] PRAKASH A., POTOSKI M., “Investing up: FDI and the crosscountry diffusion of ISO 14001 management systems”, International Studies Quarterly, vol. 51, pp. 723–744, 2007. [RUS 97] RUSSO M.V., FOUTS P.A., “A resource-based perspective on corporate environmental performance and profitability”, Academy of Management Journal, vol. 40, no. 3, pp. 534–559, 1997.

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[SCH 02] SCHALTEGGER S., SYNNESTVEDT T., “The link between ‘green’ and economic success: Environmental management as the crucial trigger between environmental and economic performance”, Journal of Environmental Management, vol. 65, no. 4, pp. 339–346, 2002. [TOY 10] TOYO KEIZAI SHINPOSHA, Kaigaishinshutsukigyosoran 2010, Toyo Keizai Shinposha, Tokyo, 2010. [WAG 02] WAGNER M., PHU N.V., AZOMAHOU T. et al., “The relationship between the environmental and economic performance of firms: An empirical analysis of the European paper industry”, Corporate Social Responsibility and Environmental Management, vol. 9, no. 3, pp. 133–146, 2002.

   

7 Global Crisis of Sustainable Development and Global Warming: A Case Analysis of Indonesia and Laos

7.1. Introduction Climate change and global warming have now become significant issues for the scientific community and for various countries across the globe. Among these countries are Indonesia and Laos, which are suffering from the negative impacts of climate change. Indonesia is the world’s largest producer of palm oil (as per the data circulated by Indonesia investments, June 2017) accounting for 32.5 million tons of crude palm oil production in 2014, of which 80% is exported, representing US$18.6 billion in revenue. The country saw a further increase in production to 36 million tons in 2017. This surge has evidently given a significant boost to the palm oil industry which, in turn, has become the country’s biggest foreign currency earner, second only to Malaysia as the world’s largest exporter of palm oil. The downside of such a significant increase in production is the adverse effect this is having on the country’s physical environment. The situation is similar in Laos. Destruction of rainforests and arable lands of these two countries has led to catastrophic effects on their ecosystems. The objective of the present research, therefore, is to analyze the effects of the rapid expansion of palm oil production on physical environments and ecosystems of both these countries. An                                        Chapter written by Jasmeet LAMBA, Bhumika GUPTA and Sam DZEVER.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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analysis of this nature will also contribute to enhancing our understanding of the impact on climate change and constraints to sustainable development. Our research has found that sustainable agriculture and a focused environment policy can help in curbing the harmful ecological aspects of high-end industrialization and development. These findings suggest that effective enforcement of environmental standards in palm oil production is crucial not only in Indonesia, but also across the globe to ensure that the issue is dealt with carefully, to prevent any further damage. Figure 7.1 shows how the surge in demand for palm oil worldwide – primarily due to lower production costs – has fueled interest in global corporations to replace traditional vegetable oil sources with palm oil: from a modest production output of 13.5 million tons in 1990 to a spectacular 155.8 million tons in 2014. As per the European Palm Oil Alliance report of 2015 (page 20 for global figures), India, China, and the European Union (EU) accounted for just a little under 48% of total global imports.

Figure 7.1. World consumption of oils and fats in 2015 (Source: World consumption of oils and fats in 2015). For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

7.2. Background for climate change policy The year 1992 is best remembered for a landmark initiative taken by the United Nations to bring everyone’s immediate attention toward one of the most significant issues of this decade – climate change. Signed by the representatives of 154 nations, the United Nations

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Framework Convention on Climate Change (UNFCCC) formed the basis for all the future endeavors set to be taken globally to collectively combat climate change. The primary objective of the convention was to stabilize greenhouse gas emissions in the atmosphere. The UNFCCC Convention was followed-up three years later in Kyoto; here a protocol eventually came into effect – through a legally binding agreement by participating nations – to reduce greenhouse gas emissions worldwide, which entered into force on February 16, 2005. The treaty is scheduled to end in 2020, with the current number of nations being 192. A major setback of the treaty is its non-ratification by the United States and also the withdrawal from it by Canada in 2012 which, in turn, gave way to a more elaborate and effective treaty in 2015 – the Paris Climate Accord. As per the new agreement in 2015, a total of 196 nations pledged to follow UNrecognized protocols to combat climate change. With a primary objective to keep the global climate change this century at +1.5°C, the treaty aims to deal with greenhouse gas emission mitigation, starting in the year 2020. It is therefore imperative to have a better understanding of the impact of climate change. Whether it is the melting of arctic ice in Greenland, the many hurricanes on the American continents, or the droughts in Africa, one thing or another has always appeared as a hurdle in the way of development, thereby giving way to the term sustainable development. How do we ensure that effective and healthier global development takes place, ensuring minimal depletion of natural resources and prevention of climate change? In fact, depletion of natural resources has been a concern in Southeast Asia for a long time now. Whether it is the alarming clearance of rainforests in Indonesia or the land-use change in Laos. A change that is not only changing the climate drastically in the region, but is also causing havoc with a series of floods that have plagued the country since the early 1990s. With central and southern parts being the worst hit, Laos has officially recorded 21 floods and storms during the mid-1990s with the most severe ones affecting as many as 500,000 people. It is evident that drastic measures need to be taken in order to prevent such devastation.

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7.3. Literature review According to McGregor et al., most of the arctic regions, such as the northern hemisphere and the North Pole, have been warming more than the South Pole. Global warming then spread quickly and Europe, Asia, and North America started to experience climate change. A study by Koh and Wilcove suggests that forests harvested for wood products are capable of regenerating 84% of forest species within 30 years of deforestation. However, expansion of palm oil plantations does not support regeneration, thereby causing significant loss of biodiversity. According to the Impact Report of Greenpeace UK feature published in June 2017, Indonesia’s rainforests are rich in biodiversity and endemic species, and play a crucial part in controlling the planet’s climate. Despite being such a vital part of the ecosystem, rainforests are being torn down and burned for palm oil plantations, making Indonesia the third largest greenhouse gas emitter in the world according to the article in Reuters [REU 15]. As per the white paper written by Petrenko et al. [PET 16], Indonesia is one of the world’s top five emitters of greenhouse gases, and in a reformatory act, has set a goal to reduce its emissions by 26% by 2020. However, it is nearly impossible for the country to reduce its emissions to such an extent as almost 75% of CO2-equivalent emission is due to land-use change, including destruction of peatlands, all attributed to palm oil production. According to Block [BLO 13], Indonesia is the biggest producer of palm oil in the world and, alongside Malaysia, is leading the global supply chain. In an attempt to avoid fluctuation in prices, both Indonesia and Malaysia have been urged by their governments to increase domestic supply, which resulted in Indonesia passing a mandate requiring all cars and trucks to run on palm oil-mixed biodiesel. Handling the domestic demand, in addition to meeting global requirements of palm oil, accelerated its production and has resulted in massive destruction of rainforests and peatlands – carbon-rich swamps responsible for 10 times more carbon emission. Earl Saxon and Sarah Roquemore [EAR 12] argue that carbon emissions by palm oil industries can be significantly reduced if land selection throughout the entire process is done more responsibly. Deforestation of national parks and peatlands not only poses a threat

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to endangered animals and biodiversity, but also releases copious amounts of carbon into the atmosphere, in turn, drastically changing the climate. Also, the magnitude of the impact that conversion of peatlands to palm oil plantations has is on par with the world’s biggest coal and tar sands projects according to Friends of the Earth [FRI 15]. The expansion of the palm oil industry will continue to worsen climate change and severely affect the health and well-being of communities and ecosystems across the region. As per the feature released by United Nations Development Program in 2017, a set of 17 globally recognized sustainable development goals was finalized to combat various challenges including: poverty, healthy lifestyle, gender equality, and combating climate change. In addition, the 18th, Lao PDR-specific goal to save lives from a major humanitarian threat (UXO), was included as part of localized sustainable development goals or SDG18. As per the article written by John Vidal in The Guardian (2015), extreme weather conditions in the last two decades have posed a series of problems for Lao PDR and its rural population, in particular. The article discussed the challenges faced by farmers and villagers as a result of multiple floods, hurricanes, and sometimes droughts under extreme and erratic temperature variations. A review of the above-mentioned studies clearly reveals an ongoing debatable issue of global warming increasing due to burning of rainforests for palm oil. Even on the demand side, the product has been a major source of income for countries like Indonesia. It is also evident that drastic measures need to be taken in order to prevent vast devastation in Lao PDR, and the government must not leave any stone unturned in achieving the sustainable development goals, in line with the Paris agreement. 7.4. Research objectives According to the above-mentioned literature review, it is clear that the issues of global warming, sustainable development, and climate change are gradually increasing in significance and this is especially the case in the economies of Southeast Asia.

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7.4.1. Major objectives of the research The first objective of this research therefore is to analyze the current situation of the changing climate in Indonesia and Laos. The second objective is to discuss the issue that the burning of rainforests is largely causing climate change through carbon emissions, which are the major source of greenhouse gases. This is leading to deforestation in the region. For the purpose of adopting a holistic approach to the issue, the study is based on secondary data collected from various sources such as annual reports of climate change forums. Research foundation data was also collected and analyzed from the yearly publications of Central Statistical Organization, World Bank reports, and reports generated by United Nations Development Programs from 2012 to 2018. Articles published through online resources were also studied for an overall view of the situation. The methodology adopted to review various data sets collected, from all the sources mentioned above, is to qualitatively analyze all figures and graphs. Based on the figures of increasing palm oil production, increasing deforestation and high impact of climate change has been analyzed through regression analysis. 7.5. Case studies In this section, we shall look specifically at two cases (Indonesia and Laos) in order to illustrate the discussion. 7.5.1. The case of Indonesia Indonesia is the world’s largest producer of palm oil, accounting for 32.5 million tons of crude palm oil in 2014, exporting almost 80% of it to yield, for a considerable US$18.6 billion in revenue (Investment Indonesia, June 2017). The numbers went up even further with 36 million tons of palm oil produced in 2017 alone. Evidently, the surge has given a major boost to the palm oil industry, which has become the biggest currency earner in Indonesia, considering it is only second to Malaysia as the world’s largest

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exporter of palm oil. However, the flip side of it is the devastating effect it has on the environment. Destruction of forests has led to catastrophic effects on our ecosystem. Sumatran rainforests are the last natural habitat in the world to host orangutan, elephants, tigers, and rhinos together. A major population of orangutans is dead as a result of deforestation and fire-destruction, with only 70,000 of them alive and still roaming in the rainforests across Southeast Asia. The expansion of palm oil industries in Indonesia has taken over about 80% of its forests. In Sumatran rainforests, corporations are intentionally setting fire in large sections to clear the land for palm oil plantations. This has led to copious amounts of carbon being released in the atmosphere, in turn making Indonesia one of the world’s worst emitters of greenhouse gases. The carbon emissions in Indonesia due to the common slash-and-burn tactic, daily, is more than the entire US carbon emissions. In addition to tropical rainforests, the peatlands (carbon-rich swamps) containing 10 times more carbon, are also used for palm oil production, and since the easiest way to clear the lands is by setting them on fire, the irresponsible approach by major corporations has led to more devastation, eventually resulting in complete and utter destruction in the region. Trees capture and store CO2 and it is released when they are burned. Tropical deforestation contributes to about 15% of total global warming pollution on an annual basis, which is way more than cars, trucks, ships, and planes in the world combined. In Indonesia, deforestation to clear the land for palm oil plantations is even more devastating as it happens on peatlands. Statistically, the total stored carbon of peatlands in Indonesia is as much as the entire above-surface vegetation of the Amazon. Unfortunately, 10 million of the country’s 22.5 million acres of peatlands have already been deforested by palm oil industries and the number is expected to be doubled by 2020. Simply stated, if all of Indonesia’s peatlands were set on fire, they would emit as much greenhouse gases into the atmosphere as carbon emissions from fossil fuel over nine years. Considering the rate with which peatlands are being destroyed, to be used for palm oil plantations, the 2,025 projections could easily be surpassed by 2020,

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thereby setting the stage for complete destruction of one of the only three remaining large rainforests in the world. However, owing to the complex process flow of palm oil production involving a vast network of companies, coupled with Indonesia’s corrupt law enforcement, it became quite a challenge to put things into practice from day 1. Authorities were unable to stave off the problem because of the high level of corruption. Indonesia is one of the most corrupt countries in the world and in its northernmost region in Sumatra, the law enforcement is even more challenging than the rest of the nation. In 2017, burning of rainforests and the subsequent carbon emissions reached frightening levels, lasting two long months and eventually impacting the neighboring countries of Singapore and Malaysia. According to the data, the Pollutant Standard Index or PSI reached on average 800 PSI, whereas a PSI of 300 and above is considered hazardous. Singapore, in particular, was hit the hardest with levels rising to 401 PSI, officially making it the highest level of pollution ever in the island country. Singapore and Malaysia soon realized the root of the problem and both accused Indonesia. In a rare move, then Indonesian President Susilo Bambang Yodhoyono issued an apology to the neighboring nations, taking full responsibility for the excessive levels of carbon emission and the aftereffects suffered by the Southeast Asian nations. Interestingly and ironically, the biggest palm oil corporations such as Wilmar, Musim Mas, Sime Darby and GAR, operating in Indonesia, and partly responsible for elevated carbon emissions, are all registered in Singapore and Malaysia, respectively. 7.5.2. The case of Laos The ambitious goals of the Climate Change Conference in Paris (COP 21) included a series of plans and strategies and as an immediate response, all participating countries had to submit their “Intended Nationally Determined Contributions” (INDC). INDC is an outline of post-2020 climate actions that are to be taken by each country to hold the increasing global average temperature to below 2°C. Lao PDR’s INDC for greenhouse gas emission reduction was

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implemented through a project funded by the Global Environment Facility in partnership with the UNDP and the Department of Disaster Management and Climate Change. The project, launched in September 2016, focused on the effective implementation of Laos’s contribution. Alongside the submission of Lao PDR’s INDC, it was time to take the other, more significant, step forward. At the Sustainable Development Summit in September 2015, UN Member states adopted the 2030 agenda for sustainable development that distinctly stated the overall sustainable development goals to better implement and execute the plan of action. The nationwide effects of climate change have brought havoc to this beautiful country in the last two decades. The temperature has been steadily increasing since 2000. There is a shocking surge in new infestations of insects, livestock diseases and subsequently, a higher number of animal deaths. Climate unpredictability has become the norm, according to the data recorded in the last 25 years. Rainfall variability, resulting in an increasing number of floods, landslides, and typhoons, has accentuated the troubles of rural livelihoods, which is largely dependent on agriculture. Rice does not grow as well as it did in the past decades, and numerous replanting are not only setting farmers back by months in terms of work, but also costing them a lot in the process. Several health issues have also cropped up as a result of erratic temperature variations and the increasing number of extreme weather patterns. The rivers have fewer fish and the water is not drinkable. There are multiple instances of flash floods in the mountainous region of the country, across all provinces too, making the entire situation worse. According to the conclusion of the fourth assessment report of the Intergovernmental Panel on Climate Change (IPCC), the poorest countries and communities are likely to suffer the most due to their geographical location, low income, and limited institutional capacity, as well as their predominant reliance on climate change-sensitive sectors like agriculture, forestry, and water. It is surprising how in only a matter of few years, Lao PDR became a net emitter of greenhouse gases. Rapid growth of deforestation, primarily due to illegal logging, large mining, and energy projects, coupled with slash-and-burn cultivation, have all contributed to such

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drastic increases in temperature. It remains largely unknown what the single most driving factor is in rapid climate change in the region. Some blame deforestation, some consider energy projects, like building of dams, to be the reason for irregular weather patterns, and others simply blame the government for granting commercial concessions. Such an impact is mentioned in an article by Zhao et al. [ZHA 17]: the temperature increases on this agriculture-driven nation, on every 1°C increase in the temperature, is resulting in almost a 10% decrease in total rice yield. International organizations associating with local groups are now directly providing help to local communities by not only educating them about the effects of climate change, but also providing them with a detailed understanding of how an able adaptation to climate change could help mitigate the losses and prove beneficial in the longer run. 7.6. The 2015 Paris climate agreement In a landmark move on December 12, 2015, a total of 196 nations signed a global treaty by the UNFCCC, pledging to follow UNrecognized protocols to combat climate change. With a primary objective to keep the global climate change this century at +1.5°C, the treaty aims to deal with greenhouse gas emission mitigation, starting in the year 2020, soon after the conclusion of the Kyoto protocol. One of the valid arguments in favor of palm oil plantations is the use of palm oil in environmentally friendly biofuel. Due to its low cost and mitigated effects on ecosystems, biofuel is fast becoming the main choice of countries like China and India who want 15% and 20% of their fuel, respectively, to be grown in fields by 2020. Similarly, EU nations have also shown considerable interest in selling 10% of fuel made from palm oil. Ironically though, these attempts to reduce the adverse effects and impact of climate change could actually alleviate the problem. Clearing forests and burning peatlands for palm oil plantations will cause more carbon emissions than burning fossil fuels. The carbon footprint of the palm oil industry is multifold, with one coming from emissions from deforestation and the other from the processing of palm oil in factories. Palm oil plantations currently cover 27 million

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hectares of the Earth’s surface, a result of massive land-use change leading to the loss of biodiversity on an area the size of New Zealand. 7.7. Regression analysis The regression model is used to evaluate the relationship between the two climate change variables, that is palm oil production and loss of rainforests or deforestation. The dependent variable is palm oil production. This model helped us to understand the changes in the forest land due to increased production of palm oil in last eight years. The linear regression using the least-squares method seek coefficients a and b such that Y = bx + a where Palm oil production = b

forest area loss + a

Summary Output Regression statistics Multiple R 0.470310102 R2 0.221191592 Adjusted R2 0.091390191 Standard error 5043.399904 ANOVA df SS MS F Significance F Regression 1 43344704.43 43344704.43 1.704077076 0.239575511 Table 7.1. Summary output

As per the statistical references in the modeling: Multiple R value is a positive less than one digit, hence it proves that there is a positive relationship between the two chosen variables. This means that there is a positive relationship between increased

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production of palm oil and deforestation in the area in the last few years. Significance the F-value is less than the projected 5% value which is 0.239. Hence, the chosen model (linear regression model) stands factual in terms of increased area of deforestation and increased levels of palm oil production. 7.8. Conclusion Institutional investors as well as individuals play a key role in financing the expansion of the palm oil industry and are in a position to minimize the destruction caused by deforestation. A large-scale promotion of land grab-free investment policies and practices is definitely a first step in the right direction. Depletion of natural resources, causing serious and immediate health issues and in some cases, overall survival of communities, is an act of human rights violation and must be dealt with seriously and sensitively. Policies such as high conservation values assessments may not only protect species, but are also capable of resulting in loss of carbon emissions. As a welcome change, recent statistics, as per the US global warming document (2012), show that as of 2016, over 60% of US-based companies have adopted policies promoting purchases of deforestation-free and peatland-free palm oil. The same approach needs to be followed by corporations globally in order to act responsibly and well within the timeline, to minimize the destruction of ecosystems. And finally, effective enforcement of environmental standards in palm oil production is crucial, not just in Indonesia, but across the world to ensure the issue is dealt with carefully, to prevent any further damage. As encouraging as it may sound, adaptation to climate change with the purpose of managing sustainable development, requires more than training and knowledge transfer. Legal, technical, and government efforts need to be taken in order to mitigate the effects of climate change. Early warning systems along with localized weather forecasting need to be in place to better anticipate extreme weather events. Development and better use of technology in combating these issues will save numerous harvests from being destroyed, thereby

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saving billions of dollars. Lao PDR needs investment in technology, communications, infrastructure, and training and outreach programs to better prepare for natural disasters. As a land-locked country, Lao PDR avails abundant natural resources, like many other Asian countries, especially water, forests, and minerals. However, the total forest declined from 70% of the total land area in 1940 to 41.5% in 2002. In 2007, the government committed itself to the target of increasing the total land area of forest to 70% of the total land area by 2020, which is yet to happen. The study can put forth the following suggestion to assess the growth in industrialization and sustainability: an integrated accountability of environment and expanding markets needs to be established. This is possible with some policy measures for both economy and environment. These policy measures will improve the economic stability of the country as well as the growth of the industries. A proper environmental policy scenario for Indonesia will also analyze the ecological norms and check on the market instruments which are causing environmental degradation. The environmental and economic policies must generate a benchmark for economic behavior, and a practical framework has to be adopted to curb the global warming issues in the country, as well as in the world economy. Combating climate change is a global issue, and no nation can withdraw itself from working together toward achieving what was promised and pledged in the Paris Agreement in 2015. In order to move forward and ensure mitigation of greenhouse gas emissions, a primary focus needs to be on top-emitting countries. Southeast Asia has emerged as one of the most red-lined regions across the globe in the last decade. Governments must collectively deliver a clear and effective strategy to mobilize US$100 billion in climate change budget. Climate change increases the total cost of development in the underdeveloped and least developing countries by 25%–30%. By 2050, it is projected that two-thirds of the world’s population will be urban. To provide nutrition and healthy living to 9 billion people by 2050 is a challenge that is extended to our species at this very moment, as we are fast progressing toward that number. The only way to achieve this is by making agriculture more resilient and productive.

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Climate-smart agriculture is the way forward if such an enormous requirement is to be met in the near future. Climate change, primarily resulting from fuel combustion and deforestation, is a major threat to lives across the globe and if we do not act now through impactful sustainable development, particularly in developing and underdeveloped countries, it will remain a challenge yet to be overcome. 7.9. References [BAR 12] BARTELMUS P., Sustainability Economics: An Introduction, Routledge, Abingdon, UK, 2012. [BLO 10] BLOCK B., Global palm oil demand fueling deforestation, World Watch, available at: INTINDONESIA/Resources/226271-1170911056314/ Discussion.Paper_palmoil.pdf, 2010. [ENV 13] ENVIRONMENTAL PROTECTION AGENCY (EPA), Inventory of U.S. greenhouse gas emissions and sinks: 1990–2011, EPA 430-R-13-001, Washington, DC [Online], available at: http://www.epa.gov/climatechange/ Downloads/ghgemissions/US-GHG-Inventory-2013, 2013. [FRI 15] FRIENDS OF THE EARTH, Up in smoke: failures in Wilmar’s promise to clean up the palm oil business, available at: http://www.foe.org/ projects/oceans-and-forests/forests/up-in-smoke, 2015. [FRI 17] FRIENDS OF THE EARTH, How the palm oil industry is a major driver of climate change, available at: https://foe.org/wp-content/uploads/2017/ webiva_fs_2/PalmOilClimateImpact.pdf [GCC 10] GCCA, The Lao PDR Global Climate Change Alliance Programme, available at: http://www.gcca.eu/platform/project/lao-pdrglobal-climate-change-alliance-programme [GRE 11] GREENPEACE, How the palm oil industry is cooking the climate, available at: http://www.greenpeace.org.uk/files/pdfs/forests/cooking-theclimate-1.pdf, 2011. [GRE 19] GREENPEACE, Palm oil, available at: https://www.greenpeace. org.uk/what-we-do/forests/indonesia/ [IIJ 17] IIJ, Lao PDR Energy Efficient Datacenter Project, available at: https://www.iij.ad.jp/en/news/pressrelease/2017/0920.html

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[IND 19] INDEX MUNDI, Palm Oil Production by Country in 1000 MT, available at: https://www.indexmundi.com/agriculture/?commodity=palm-oil [KAU 15] KAUFMAN K., “Sumatra burning: the heart of palm oil”, 2015. [MCG 16] MCGREGOR H., GERGIS J., ABRAM N. et al., “The Industrial Revolution kick-started global warming”, The Conversation, pp. 3–5, 2016. [PAL 19] THE EUROPEAN PALM OIL ALLIANCE, Certified Sustainable palm oil, available at: http://www.palmoilandfood.eu/en/certified-sustainablepalm-oil [PET 16] PETRENKO C., PALTSEVA J., SEARLE S., Ecological impacts of palm oil expansion in Indonesia, White paper, July 2016. [REU 07] REUTERS, Indonesia world’s No. 3 greenhouse gas emitter: report, available at: https://www.reuters.com/article/environment-climate-indonesiadc/indonesia-worlds-no-3-greenhouse-gas-emitter-report-idUSJAK26206220 070604 [UCS 16] UCSUSA, Palm Oil, available at: https://www.ucsusa.org/globalwarming/stop-deforestation/drivers-of-deforestation-2016-palm-oil#.WmXF haiWbIU [UNI 16] UNION OF CONCERNED SCIENTISTS, The Root of the Problem: What’s Driving Tropical Deforestation Today?, available at: www.bloomberg.com/news/articles/2015-10-28/howindonesia-s-fires-madeit-the-biggest-climate-polluter, 2016. [VID 15] VIDAL J., Laos counts the cost of climate change: record floods, drought and landsides, in The Guardian, available at: https://www. theguardian.com/global-development/2015/nov/25/laos-counts-cost-climatechange-record-floods-drought-landslides-cop-21-paris-pledge [ZHA 17] ZHAO C., LIU B., PIAO, S. et al., “Temperature increase reduces global yields of major crops in four independent estimates,” Proceedings of the National Academy of Sciences, vol. 114, no. 35, pp. 9326–9331, 2017.

Relevant weblinks http://www.la.undp.org/content/lao_pdr/en/home/sustainabledevelopmentgoals.html http://www.worldbank.org/en/news/speech/2014/01/15/climatechange-ischallenge-for-sustainable-development https://www.theguardian.com/world/2013/sep/11/indonesiaharrison-forddeportation-minister

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https://www.ucsusa.org/sites/default/files/legacy/assets/documents/global_wa rming/UCS_DriversofDeforestation_Chap6_PalmOil.pdf.2012 https://www.utu.fi/en/units/ffrc/research/project-archive/environmentint/Pages/cool.aspx

8 Southeast Asian Energy Transformation: Is It Enough and Sustainable?

The Southeast Asian region is characterized by abundant renewable resources that are unevenly distributed. This is viewed as a major deterrent to the development of the renewable energy sector and as an enhancer of the region’s dependency on fossil fuels. Although the region has significant potential to develop renewable energies, its utilization in the electricity generation process requires high levels of capital investment, regional interconnection, and energy market integration – all features that are currently absent in the region. Infrastructural development and the effective implementation and coordination of key stakeholders that implement effective and coherent renewable energy policies with a long-term perspective are viewed as major disincentives to ensure that the region achieves its objectives of minimizing its reliance on conventional energy. Further complexities need to be considered in terms of the countries’ economic and political dynamics, as different regional leaders appear to be more interested in securing their national energy supply and political interests. The region exhibits a clear dependency on fossil fuels for both energy consumption and electricity generation processes, where coal and natural gas are identified as the dominant resources. This is a situation that is not expected to change over the                                        Chapter written by Lucía MORALES and Bernadette ANDREOSSO-O’CALLAGHAN.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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next few decades due to significant challenges in terms of collaboration and cooperation, leading to a regional policy that supports the development of a sustainable green energy sector. 8.1. Introduction Climate change is perceived as an increasing concern at the global level with extensive implications for sustainable economic development and population health [ADD 17]. Urban centers are playing a major role in the advancement of environmental degradation, as most of these remain dependent on fossil fuels in terms of electricity generation and energy consumption, and such urban centers are thus identified as the major contributors to greenhouse emissions. Carbon dioxide emissions affect the ecosystem and have implications for city dwellers with clear consequences for their health. However, in order to promote the development of urban centers that respect the different ecosystems, there is a need for global efforts and for significant levels of cooperation and investment across countries. Yet, high levels of investment are not at the reach of every country in the world, and, in particular, developing economies face major problems when trying to develop a sustainable energy strategy that complies with international environmental requirements in the context of weak and incoherent political leadership. Although energy consumption, greenhouse emissions, and climate change are being considered at the international level, there is an overall lack of action when meeting international protocols requirements [VAN 17]. Southeast Asia is characterized by fast economic growth and increasing energy demands when compared with other regions of Asia [ACE 15, ACE 16a, ACE 16b, ACE 17, ACE nd, AHM 17]. The region is also characterized by strongly diverging institutional conditions that impose significant problems when trying to develop and implement policies at the regional level. Southeast Asian countries are facing a paradox regarding their energy future. In the vast Southeast Asian region, the Association of Southeast Asian Nations (ASEAN) brings together a group of countries to promote cooperation among its members (Brunei, Indonesia, Laos, Thailand, Malaysia, Myanmar, the Philippines, Vietnam, Singapore,

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and Cambodia) with two main objectives: 1) to accelerate economic growth and development in the region, and 2) to promote regional peace and stability through cooperation. The brown energy outlook contained in the “ASEAN Vision 2020” contradicts ASEAN leaders’ vision of “a clean and green ASEAN with fully established mechanisms for sustainable development to ensure the protection of the region’s environment, the sustainability of its natural resources, and the high quality of life of its people” (ASEAN Vision 2020) [ASE 12, ASE 15a, ASE 15b, ASE 16a, ASE 16b]. The absence of the environmental dimension in the regional policy agenda combined with evidence that the regional energy mix is moving toward a more coaldominant one indicates that carbon dioxide emissions from the energy sector have not been properly considered and assessed [YOO 06]. Majid [MAJ 10] indicates that ASEAN governments have not been up to the challenge with regard to meeting their green ambitions, with a significant disconnection between statements of good intentions and specific actions. The region lacks consensus and commitment on the development of an overall policy agenda that seeks to diversify the existing energy mix with a lack of serious support for the development of renewable energies. Some researchers contend that climate change might not be a top priority for the region, and as such urgent developments are not needed, as economic development remains at the top of the political agenda. Another aspect that needs to be carefully considered relates to the economic implications of the energy transition process. The development of a diversified energy model requires significant levels of investment not available in a developing region that just cannot afford the deployment of vast amounts of resources that could be diverted toward the consolidation of its industrialization process. As such, the region’s green vision and its feasibility in the medium to long term might just be an illusion, as discussed in the sections that follow. 8.2. Southeast Asian energy strategy Energy demand in Southeast Asia has grown by 60% over less than 15 years, creating significant pressures on resources availability, energy security, and contributing to environmental degradation [ERD 19]; furthermore, energy consumption in Southeast Asia is expected to rise significantly by 2040. Regional energy needs are

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dominated by fossil fuels (counting for more than half of the energy supply), with coal and natural gas playing a major role in the electricity generation process, whereas oil is the main energy source in the transportation sector. The overreliance on fossil fuels to meet the growing energy demand therefore remains a challenge due to the knock-on effect in terms of energy security, degradation of the environment, and undermining sustainable economic growth and development. For example, the use of thermal power plants to generate electricity leads to the release of huge amounts of greenhouse gases. Rising energy demands signal the need for energy supply diversification that enables economic expansion. At the same time, there is a need to ensure that the region is able to achieve its socioeconomic objectives while caring for the environment and pursuing a sustainable energy strategy. As a result of the 2015 Paris Agreement, the region has shown its commitment to adopting policies and investment frameworks in the development of renewable energies, ranging from hydropower, geothermal and bioenergy, wind installations, and solar PV [GEO 14]. The region aspires to reach a 23% representation of renewable resources in its energy mix by 2025, but are these settled targets on track? This energy transition process needs to be examined to help understand the way in which the region is engaging in effective policy making that supports its energy transition process. Southeast Asian countries are highly reliant on conventional energy resources (primary fossil fuels) with a limited representation of renewable energy, that is, the energy sources that are identified as sustainable and less harmful to the environment (e.g., solar, biomass, wind, water). Southeast Asia is rich in renewable energy resources, but its potential remains largely unexploited. Early research studies examining Southeast Asian energy needs indicate that the region is facing significant challenges regarding the development of appropriate energy policies as the region’s industrializing economies have led toward changes in energy demand derived from the expansion of the middle class that is linked with unprecedented demand for energy and electricity services [ROB 03]. Economic geography is an area of concern as Asia is highly uneven; it is home

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to thousands of low-lying islands comprising major portions of Indonesia and the Philippines that are very susceptible to issues derived from climate change such as rises in sea levels. According to Symon [SYM 08] and Thomson [THO 06], the ASEAN energy policy vision is closely aligned with the organization’s overall vision of economic growth and stability. The organization seeks to create a regional and harmonized framework of energy supply that utilizes commodities of coal, oil, natural gas, and electricity to promote industrialization and economic growth. ASEAN countries acknowledge the importance of moving forward with the development of renewable energies, but at the same time the region is facing major hurdles with implementing their policies due to affordability, accessibility, and awareness issues. Moreover, global energy trends are affecting their governments’ approach to their energy mix, but market trends are not easy to implement, especially for countries that are in the process of enhancing and consolidating their economic models that are heavily reliant on access to cheap energy resources. Southeast Asian countries are heavily reliant on fossil fuels for electricity generation and for transport needs, while having significant potential regarding the development of sustainable energy sources; at the same time, they are facing significant constraints in terms of the development of renewable energies due to social, political, and economic pressures that hinder the implementation of an effective renewable energy policy [ERD 19]. Developed regions are identified as the most energy-intensive consumers and with little insights regarding the energy–climate nexus that facilitates the design of suitable energy models according to countries’ levels of development and investment capacity. Global economic leaders need to start considering the importance of developing a sound and effective energy consumption strategy that helps reduce the impact of climate change and its negative effects on climatic variations with damaging implications for the world population’s health and habitat and with different levels of variation across the planet [AKH 14]. Within the broader Asian region, China and India are making significant efforts to lead a green energy transition. However, there are major challenges ahead to ensure that they are able to perform globally as governments face the challenge of enabling appropriate transition

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policies that discourage the use of fossil fuels through subsidies that stimulate actions seeking to foster the development of the renewable energy sector. The region needs to progress further regarding cooperation and economic integration, and it needs to engage in the implementation of existing research projects that allow the growth of renewable energies. Renewable technologies can help to control greenhouse gas emissions and empower environmentally, cleaner, friendly, and more affordable energy generation processes [ADA 18, HU 18, KAH 18, NAS 17]. Although Southeast Asian countries have indicated that they are working toward addressing their dependency on fossil fuels, there are still major problems when trying to narrow down the gap between energy supply and energy demand as individual countries’ economic needs are dominating the energy agenda that needs to ensure that fast economic growth rates are not affected. Governments around the world can benefit from investing in a renewable energy system that can act as a pillar for sustainable development. However, the proper implementation of policies that help to secure the access to energy while at the same time complying with environmental objectives is quite costly and brings significant challenges to the economies that have limited access to capital and the funds necessary for the required investments. A major factor that needs to be considered relates to the region’s energy needs. In this regard, and as hinted at above, the demand for energy is projected to rise sharply in the future in the Southeast Asian region, bringing significant challenges to many developing economies that need to identify an appropriate energy balance. Sovacool [SOV 09] concludes that the rhetoric of regional energy cooperation publicized by the ASEAN nations does not match its actual practice. He argues that in many cases, discussions of regionalism and energy security are intended to obscure opportunistic thinking within individual countries with a serious lack of willingness to cooperate and to collaborate on regional goals. 8.3. Energy consumption – dependency on fossil fuels Economic growth and energy demand in the ASEAN region share a positive relationship with tight connections to fossil fuels. The region energy model is dominated by the use of fossil fuels with expectations of a significant rise in coal consumption over the next

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two decades [BAK 13, INT 13, YOO 06]. Economic activity is growing in the Asian region, and Southeast Asia in particular is experiencing a surge in its energy demand that is consolidating the shift of a center of global economic gravity toward Asia. Furthermore, the abundance and cost competitiveness of coal in the region needs to be considered together with a lack of appropriate regulations and incentives to control carbon dioxide emissions, indicating that coal will be a major player in the region’s energy sector in the near future. However, the combination of high levels of economic growth, with dependency on fossil fuels and environmental problems derived from a lack of environmental management, are familiar to Asia with China having gone down the road already. Shi [SHI 16] points to the ASEAN paradox regarding its energy strategy given that ASEAN countries are fossil fuel dominated, while they have ambitious aspirations to move toward a green energy mix. The region enjoys many advantages to develop energy renewable resources, but clear efforts regarding its policy agenda are needed to help achieve its green vision. In this regard, the region has stated its desire to become green, but existing strategies are not considered sufficient to meet the stated goals [SHI 16]. The region’s growth trajectory is creating staggering energy pressures and acute concerns regarding energy security and sustainability with serious implications for the environment. With regional economic growth exceeding 4% on an annual basis (among the world’s highest growth rates) and energy consumption having more than doubled since 1995 with expectations that it will continue to grow at a fast pace over the next two decades due to economic growth trends – there are mounting pressures to safeguard the energy supply. Table 8.1 displays a number of macroeconomic indicators such as GDP growth rates and urban population growth across the different ASEAN countries. Thanks, in part, to a strong influx of foreign direct investment, ASEAN is now recognized as an international hub for trade, manufacturing, and financial services. The region now needs to foster “better” growth by securing, in particular, an environment-friendly energy strategy as a crucial element in helping the region consolidate its sustainable economic growth framework. Although renewable sources are part of the energy mix with a large representation of

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hydropower in the case of Cambodia, Myanmar, and Vietnam, clean energy production remains at very low levels. Table 8.2 depicts the marginal share of clean energy production per ASEAN country, which reached at best the top figure of 6.94% of total energy production for Vietnam in 2015. It should be noted that clean energy in this table also encompasses the energy produced from the nuclear sector. The share of fossil fuels in both the consumption and production of electricity of ASEAN countries is dominant. The instability of fossil fuel prices is another factor that needs to be considered with regard to energy sustainability. Figures 8.1 and 8.2 show how energy prices (of coal, natural gas, and oil) tend to be volatile over time. GDP Population Rural Urban Fertility Countries growth rate growth population population rate (annual, %) (%) growth growth Brunei

1.33

1.29

0.12

1.71

1.86

Cambodia

7.1

1.53

1.01

3.28

2.53

Indonesia

5.07

1.1

0.37

2.33

2.34

Laos

6.89

1.47

0.51

3.32

2.64

Malaysia

5.9

1.39

1.05

2.2

2.019

Myanmar

6.76

0.91

0.57

1.71

2.187

Philippines

6.68

1.53

1.15

1.98

2.89

Singapore

3.62

0.089

n/a

0.089

1.16

Thailand

3.91

0.25

1.22

1.79

1.46

Vietnam

6.81

1.02

0.057

3.04

1.95

Table 8.1. Southeast Asian growth metrics (2017) (source: World Bank Data (2019))

66.09

Indonesia

44.29

62.43

90.58

79.84

69.82

Myanmar

Philippines

Singapore

Thailand

Vietnam 63.27

91.46

96.92

74.56

41.15

90.04

n/a

89.34

53.58

99.95

29.57

19.45

1.2

44.51

1.78

42.28

n/a

55.78

48.4

0

Coal

33.21

71.44

95.03

22.91

39.02

46.6

n/a

25.17

0

98.95

Natural gas

0.49

0.57

0.7

7.14

0.34

1.16

n/a

8.4

5.19

1

Oil

36.61

2.67

0

10.51

58.85

9.28

n/a

5.87

45.49

0

6.94

1.11

0.19

2.91

3.13

1.18

n/a

0.84

3.32

n/a

Hydroelectric Clean energy (%) production

Table 8.2. Southeast Asian energy resources (2015)

*Clean energy refers to noncarbohydrate energy that does not produce carbon dioxide when generated. It includes hydropower and nuclear, geothermal, and solar power among others (sources: [INT 14, INT 15, INT 18]).

96.63

Malaysia

n/a

30.63

Cambodia

Laos

100

Brunei

Countries

Fossil fuels Electricity energy production consumption (oil, gas and (%) coal)

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In the case of oil-dependent economies, there is heavy exposure to oil price fluctuations that contributes to increasing energy costs with important implications for those economies that are heavily exposed to oil both from the demand and from the supply side with clear damaging effects on economic growth. Recent research studies indicate that governments can help improve the economy by fostering an appropriate investment environment that leads to the creation of opportunities for investors in terms of developing renewable energy [GAB 16, SEN 17]. In this vein, Southeast Asian countries are expected to identify a strategy that allows them to formulate appropriate energy policies that ensure that minimization of energy shortages [IRE 16, IRE 18]. This is a significant challenge due to the need for cooperation and collaboration and the significance of looking after individual countries’ economic agendas. Another aspect that needs to be explored is how rural regions can become part of the economic–energy puzzle. Renewable energies can play a dual role among poor people located in remote areas with difficult access to resources and where renewable energy solutions can facilitate the generation of needed economic activity. In this regard, investment in the development of renewable energies can lead to the creation of jobs and to the development of an economic model in rural areas that is more inclusive, sustainable, and environment-friendly.

Figure 8.1. Natural gas and oil prices (source: Thomson Reuters DataStream (2019)). For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

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Figure 8.2. Coal prices (source: Thomson Reuters DataStream (2019)). For a color version of this figure, see www.iste.co.uk/andreosso/sustainable.zip

8.4. The Southeast Asia energy dilemma Although developed economies have reached a post-industrial stage, developing economies are focusing on industrialization to help them achieve higher levels of economic growth that consolidate developmental progression. The ASEAN region is facing the potential relocation of industrial activities from China that, by its own, brings a new set of challenges with regard to energy consumption, as countries differ from one another in energy demands and in their contribution to carbon intensity levels [PAP 18]. The findings by Rahman et al. [RAH 16] reveal that the most energy efficient and more environmentfriendly economies with regard to industrial production are among the G8 countries, whereas the least efficient ones are to be found in the Southeast Asian region. The issue of efficient energy consumption in industrial production is identified as a major area of concern due to the effects that energy consumption demands have with regard to improving levels of economic performance and ensuring energy security and environmental sustainability. ASEAN countries are now facing concerns with regard to the connected issues of economic growth, energy security, and environment protection, as part of their energy policies in the ASEAN Economic Community (AEC) blueprint

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for 2025. However, the identified policies are considered as being insufficient in terms of limiting carbon emissions without sacrificing industrial productivity. Currently, fossil fuels are cheaper than renewable energy, but they will become more expensive in the future due to increasing global demand. In this regard, technological innovation can play a major role to help modernize and upgrade industrial plants and to support the creation of renewable energy plants. With the aid of technology and innovation, it would be possible to assist increasing energy efficiency levels so that renewable energy sources become accessible. However, there is a need for assessing the extent to which technology and innovation can materialize in the countries that face severe limitations with regard to the available capital that supports the funding for the projects linked to renewable energy. As such, countries need to define their targets regarding technological innovation, industrial production, and carbon emission levels in the context of their own capacities. The energy–climate nexus is an area of study surrounded by significant levels of controversy. Researchers and analysts differ with regard to the association between energy consumption and climatic variations around the world. Some researchers claim that climate change is linked to human economic activity and that there is evidence indicating that energy consumption is a contributing factor to climate change. In this vein, the more people consume goods and services, the more industry flourishes, and considering that most industries are run on power generated by fossil fuels, the more consumption increases, the more greenhouse emissions are released in the environment. Consequently, effective energy consumption needs to be carefully considered to help reduce the burden of global warming and mitigate the effects of rising temperatures [AKH 14]. Changes in temperature, precipitation, and sea levels, as well as the frequency and severity of extreme events, are likely to affect energy production, delivery, and consumption across regions. Akhmat et al. [AKH 14] argue that climate change poses challenges to energy suppliers and users in terms of the potential increase in the economic costs of energy use. Undoubtedly, rising temperatures put some pressure on electricity demand and such types of patterns contribute to climate change spiraling into a vicious circle where changing environmental

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conditions derived from human economic activity lead to increasing costs associated with environmental degradation. The effects of this dangerous vicious cycle can be minimized through the implementation of efficient and sustainable energy consumption policies. Another aspect to be considered relates to population growth in the region that is also on the rise. As population grows, domestic energy needs increase and so does the demand for faster and sustainable economic growth. In this regard, the region needs to ponder to which extent it can learn from China’s economic ascension to ensure that it is able to develop an economic model that is sustainable and that will not be heavily reliant on energy sources that contribute to the deterioration of the regional environment through the development of economic externalities. The lack of consideration of economic externalities and their negative consequences are aspects that need to be properly integrated in the economic development process, as there are significant social and environmental costs that need to be minimized as they can obstruct countries’ future growth. There is a worldwide demand for the development of energy models that ensure that countries are able to satisfy their energy needs through clean, sustainable, and environment-friendly methods of generating power [ROB 15]. The global demand for electricity is on the rise, and countries are expected to make efforts to reduce their carbon dioxide emissions. In this regard, Southeast Asian countries can benefit from renewable energy resources, as the capacity of the region is underutilized and as it has a heavy dependency on the use of fossil fuels for energy generation with an overall representation above 70% of the total energy mix. Brunei, Singapore, and Thailand are the most dependent on energy, with gas as their primary source. In the case of Cambodia, Indonesia, Malaysia, and the Philippines, the majority of the fuel mix is from coal, with Cambodia relying on imported electricity that is heavily produced by fuel oil. The case of Vietnam and Myanmar is quite diverse, as there is a mix regarding the sources of electricity generation. Myanmar is the least dependent economy on oil and gas, and Vietnam has biomass as part of its energy supply. Most of the Southeast Asian countries are still very much dependent on traditional energy resources that are mainly coal and gas. The region is making significant efforts to diversify its energy mix by seeking to progress with the development of renewable energies and ensuring engagement

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with energy efficiency goals. The Southeast Asian countries have rich potential in geothermal, wind, and solar energy, as the region is surrounded by stocks of water that can be used in an efficient manner to generate electricity. In this regard, there is significant potential to invest in the development of renewable energy, with governments across the region being the core to ensuring the introduction of policies that favor the development of renewable energy, while planning at the same time an appropriate transition process that minimizes the economic consequences and productivity implications. In the short term, the abundance and cost competitiveness of coal motivate countries in the ASEAN to use more coal rather than to further develop other energy resources that are also undermined by a lack of progress with regard to developing low carbon energy sources and integrating energy markets due to low political willingness and limited capacity. Further regional aspects that need to be considered relate to the lack of interest by some ASEAN members in terms of further integration and collaboration; some political leaders are just not willing to move the integration process forward and the region is characterized by the coexistence of very different economic regimes that do not associate with the desired ASEAN identity. According to Kumar et al. [KUM 13], ASEAN countries’ motivation to engage with the development of biofuels is motivated by different factors, and energy security and socioeconomic development are identified as core priorities but climate change mitigation does not seem to play a significant role. Although the ASEAN is rich in geothermal resources, the Geothermal Energy Association indicates that by the year 2014, only 5% of the potential resources were developed. Yoo [YOO 06] argues that the development of hydropower potential in the ASEAN region could enable the replacement of coal-fired plants and foster the transition process toward greener electricity generation without increasing generation costs. However, some researchers’ findings reveal that there is no relationship between the potential of renewable energy and its generation. The evidence suggests that in some countries the share of renewable energies in the energy mix has declined; this raises concerns with regard to underutilized resources and to an ineffective design of green policies with the speeches not being followed by concrete actions [BAK 13]. Another aspect of interest relates to the implications for countries that are not able to engage in

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sustainable development and in the promotion of renewable energies, as they can meet their energy needs by domestic nonrenewable power generation; this raises concerns with regard to the viability of suggested changes in the energy models in countries that do not have the capacity and the economic means to engage in such a process. 8.5. Conclusion Southeast Asia carries great promises for scaling up renewable energy deployment over the coming decades. According to the International Energy Association [IEA 17], the development of renewable energies in the ASEAN region is subject to economic and noneconomic barriers that are playing a significant role in discouraging foreign investment in renewable energies. The region faces major challenges, as different countries need to enable appropriate macroeconomic policies that contribute to the development of suitable investment environments supporting the energy transition process. Countries need to be able to develop the appropriate foundations of their energy development plan. Core aspects to be assessed involve settling comprehensive policy frameworks, enacting the optimal fiscal incentives, identifying strong targets, and developing robust institutions that make possible the needed changes. The region needs to attract private investment that contributes to the acceleration of the deployment of cost-effective renewable energy solutions across countries. In order to promote energy efficiency, the region needs to engage in an energy model that is less reliant on fossil fuels and to start to engage in policy reforms that seek to address rooted fossil fuel subsidies with a cleaner and environment-friendly energy plan being endorsed. Researchers seem to share a common view regarding the ASEAN region dependency on fossil fuels and its underdeveloped renewable energy sector that bring significant potential to secure the region’s energy future. 8.6. References [ACE 15] ACE (ASEAN Centre for Energy), “The 4th ASEAN Energy Outlook 2013–2035”, ACE, Jakarta, available at: www.aseanenergy.org/ resources/publications/the-4th-asean-energy-outlook/, 2015.

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[ACE 16a] ACE, “ASEAN-RESP: Levelised cost of electricity of selected renewable technologies in the ASEAN member states”, ACE, Jakarta, available at: www.aseanenergy.org/resources/publications/asean-resplevelised-cost-ofelectricity-of-selected-renewable-technologies-in-theaseanmember-states/, 2016. [ACE 16b] ACE, “ASEAN renewable energy policies”, ASEAN Centre for Energy, Jakarta, available at: www.aseanenergy.org/resources/publications/ asean-renewable-energy-policies/, August 2016. [ACE 17] ACE, “The 5th ASEAN Energy Outlook 2015–2040”, ACE, Jakarta, available at: www.aseanenergy.org/resources/the-5th-asean-energyoutlook/, 2017. [ACP nd] ACP (Asia Climate Partners), “A history of excellence, trust and responsible investing”, ACP, available at: www.asiaclimatepartners.com.hk/ about.php, n.d. [ADA 18] ADAMS S., KLOBODU E.K.M., APIO A., “Renewable and nonrenewable energy, regime type and economic growth”, Renewable Energy, vol. 125, pp. 755–767, available at: https://doi.org/10.1016/j.renene.2018. 02.135, 2018. [ADD 17] ADDANKI S.C., VENKATARAMAN H., “Greening the economy: A review of urban sustainability measures for developing new cities”, Sustainable Cities and Society, vol. 32, pp. 1–8, 2017. [AHM 17] AHMED T., MEKHILEF S., SHAH R. et al., “ASEAN power grid: A secure transmission infrastructure for clean and sustainable energy for South-East Asia”, Renewable and Sustainable Energy Reviews, vol. 67, pp. 1420–1435, 2017. [AKH 14] AKHMAT G., ZAMAN K., SHUKUI T. et al., “Does energy consumption contribute to climate change? Evidence from major regions of the world”, Renewable and Sustainable Energy Reviews, vol. 36, pp. 123–134, 2014. [ASE 12] ASEAN, “ASEAN Vision 2020”, available at: http:// www.asean.org/news/item/asean-vision-2020 [accessed May 1, 2019], 2012. [ASE 15a] ASEAN, “ASEAN energy development”, in ASEAN Plan of Action for Energy Cooperation (APAEC) 2016–2025, ASEAN, Jakarta, available at: www.aseanenergy.org/wp-content/uploads/2015/12/HighResAPAEC-onlineversion-final.pdf, 2015. [ASE 15b] ASEAN, Building the ASEAN community – ASEAN power grid: Enhancing electricity interconnectedness, ASEAN, Jakarta, Report, 2015. [ASE 16a] ASEAN, ASEAN investment report 2016, ASEAN, Jakarta, 2016.

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[ASE 16b] ASEAN, ASEAN joint statement on climate change to the 22nd conference of the parties (COP-22) to the United Nations Framework Convention on Climate Change (UNFCCC), ASEAN, Jakarta, Report, 2016. [BAK 13] BAKHTYAR B., SOPIAN K., SULAIMAN M.Y. et al., “Renewable energy in five South East Asian countries: Review on electricity consumption and economic growth”, Renewable and Sustainable Energy Reviews, vol. 26, pp. 506–514, 2013. [ERD 19] ERDIWANSYAH, MAMAT R., SANI M.S.M. et al., “Renewable energy in Southeast Asia: Policy and recommendations”, Science of the Total Environment, vol. 670, pp. 1095–1102, 2019. [GAB 16] GABRIEL C.A., KIRKWOOD J., “Business models for model businesses: Lessons from renewable energy entrepreneurs in developing countries”, Energy Policy, vol. 95, pp. 336–349, available at: https:// doi.org/10.1016/j.enpol.2016.05.006, 2016. [GEO 14] GEOTHERMAL ENERGY ASSOCIATION, “Geothermal 101-basics of geothermal energy, Geothermal Energy Association”, available at: http://geoenergy.org/SearchResult.aspx?cx=001782177019630767804%3 Agqdxwv_ fbeo&cof=FORID%3A9&ie=UTF-8&q=Geothermal+Energy+Association %2C+Geothermal+101-basics+of+geothermal+energy%2C+Geothermal+ Energy+Association%2C+2014.&sa=Search, 2014. [HU 18] HU H., XIE N., FANG D. et al., “The role of renewable energy consumption and commercial services trade in carbon dioxide reduction: Evidence from 25 developing countries”, Applied Energy, vol. 211, pp. 1229–1244, available at: https://doi.org/10.1016/j.apenergy.2017.12.019, 2018. [IEA 17] IEA, “Southeast Asia Energy Outlook 2017”, available at: https://www.iea.org/southeastasia/, 2017. [INT 13] INTERNATIONAL ENERGY AGENCY, Energy statistics of non OECD countries: Energy Statistics 1971–2013, UK Data Serv 2014, available at: http://dx.doi.org/10.5257/iea/esnon/2014. [INT 14] INTERNATIONAL ENERGY AGENCY, Energy statistics of non OECD countries, energy statistics 1971–2013, UK Data Service 2014, available at: http://dx.doi.org/10.5257/iea/esnon/2014, 2014. [INT 15] INTERNATIONAL ENERGY AGENCY, Key world energy statistics 2015, International Energy Agency, doi: 10.1787/9789264039537-en, 2015. [INT 18] INTERNATIONAL RENEWABLE ENERGY AGENCY, Renewable energy market analysis – Southeast Asia, IRENA, Abu Dhabi, available at: https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/ Jan/IRENA_Market_Southeast_Asia_2018.pdf, 2018.

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[IRE 16] IRENA, Renewable energy data in Lao PDR: EAST and Southeast Asia renewable energy statistic training workshop, Institute of Renewable Energy Promotion, Ministry of Energy and Mines, Bangkok, available at: www.irena.org/eventdocs/Laos%20presentation.pdf, December 12–14, 2016. [IRE 18] IRENA, Renewable energy market analysis, Southeast Asia, IRENA, Abu Dhabi, available at: https://www.irena.org/publications/2018/ Jan/Renewable-Energy-Market-Analysis-Southeast-Asia, 2018. [KAH 18] KAHOULI B., “The causality link between energy electricity consumption, CO2 emissions, R&D stocks and economic growth in Mediterranean countries (MCs)”, Energy, vol. 145, pp. 388–399, available at: https://doi.org/10.1016/j.energy.2017.12.136, 2018. [KUM 13] KUMAR S., SHRESTHA P., ABDUL SALAM P., “A review of biofuel policies in the major biofuel producing countries of ASEAN: Production, targets, policy drivers and impacts”, Renewable and Sustainable Energy Reviews, vol. 26, pp. 822–836, 2013. [MAJ 10] MAJID M., Climate change: Is Southeast Asia up to the challenge?, LSE IDEAS, London, Report, 2010. [NAS 17] NASREEN S., ANWAR S., OZTURK I., “Financial stability, energy consumption and environmental quality: Evidence from South Asian economies”, Renewable and Sustainable Energy Reviews, vol. 67, pp. 1105–1122, available at: https://doi.org/10.1016/j.rser.2016.09.021, 2017. [PAP 18] PAPPAS D., CHALVATZIS K.J., GUAN D. et al., “Energy and carbon intensity: A study on the cross-country industrial shift from China to India and SE Asia”, Applied Energy, vol. 225, pp. 183–194, 2018. [RAH 16] RAHMAN M.S., NOMAN, A.H.MD., SHAHARI F. et al., “Efficient energy consumption in industrial sectors and its effect on environment: a comparative analysis between G8 and Southeast Asian emerging economies”, Energy, vol. 97, pp. 82–89, 2016. [ROB 03] ROBERTS P., CULL A., “Building the trans-ASEAN gas pipeline”, Asia Pacific Review, July edition, pp. 15–20, 2013. [ROB 15] ROBLES QUIRAPAS M.A.J., LIN H., LOCHINVAR S.A. et al., “Ocean renewable energy in Southeast Asia: A review”, Renewable and Sustainable Energy Reviews, vol. 41, pp. 799–817, 2015. [SEN 17] SEN S., GANGULY S., “Opportunities, barriers and issues with renewable energy development – a discussion”, Renewable and Sustainable Energy Reviews, vol. 69, pp. 1170–1181, available at: https://doi.org/ 10.1016/j.rser.2016.09.137, 2017. [SHI 16] SHI X., “The future of ASEAN energy mix: A SWOT analysis”, Renewable and Sustainable Energy Reviews, vol. 53, pp. 672–680, 2016.

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9 Analyzing the Reasons for the Low Ratio of Female Researchers in Japan: An Exploration of the Issue of Diversity and Sustainability in Japanese Academia

The ratio of female researchers in Japan, at 16.2%, is the lowest among Organisation for Economic Co-operation and Development countries and the ratio of female professors, at 16.9%, is also very low. This study analyzes the reasons for the low ratio of female researchers based on a large-scale survey. It then explores the issue of diversity and sustainability in Japanese academia. Questionnaires were distributed to female and male researchers mainly working in universities, and belonging to academic associations of the Science Council of Japan. A total of 2,972 researchers responded to questionnaires via the web by the end of November 2018. Based on the analysis of the data obtained through the survey, the study discusses the reasons for the low ratio of female researchers as well as the low ratio of female researchers in leading positions in Japanese academia. It then considers what remedial actions should be taken to improve the situation, and how research performance should be evaluated in the recruitment process. The study concluded that academia should be able to introduce more creative perspectives,                                        Chapter written by Shiho FUTAGAMI.

Sustainable Development and Energy Transition in Europe and Asia, First Edition. Edited by Bernadette Andreosso-O’Callaghan, Sam Dzever, Jacques Jaussaud and Robert Taylor. © ISTE Ltd 2020. Published by ISTE Ltd and John Wiley & Sons, Inc.

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increase flexibility, and achieve inclusive growth, leading to more sustainable development by promoting female researcher advancement from the perspective of diversity. 9.1. Current situation of female researchers in Japan The ratio of female researchers in Japan at 16.2% is the lowest among Organisation for Economic Co-operation and Development (OECD) countries. In the Science Council of Japan (SCJ), the number of female council members is 69, accounting for 32.9% of the total 210 council members. The number of female members is 542, accounting for 28.8% of the total 1,883 members [GEN 18]. The SCJ is the representative organization of approximately 870,000 Japanese scientists from all fields of science, including humanities, social sciences, life sciences, natural sciences, and engineering. The SCJ was established in January 1949 as a “special organization” under the jurisdiction of the Prime Minister; operating independently of the government, for the purpose of promoting and enhancing the field of science, and having science reflected in and permeated throughout administration, industries, and people’s lives. The number of female researchers who are board members in the academic societies in Japan is 9,024, accounting for 14.1% of the total 64,191 board members of academic societies in science and research bodies affiliated to the SCJ. The number of female presidents of academic societies is 178, accounting for 8.8% of the total 2,029 presidents [GEN 18]. In Japanese universities, the ratio of female lecturers is 32.3%, female associate professors is 24.6%, and female professors is 16.9%, which is also very low. The ratio of female vice presidents is 11.7% and female presidents is 11.3%, according to the School Basic Survey (Ministry of Education, Culture, Sports, Science, and Technology, 2018). This study analyzes the reasons for the low ratio of female researchers in Japan, based on a large-scale survey. It then explores the issue of diversity and sustainability in Japanese academia.

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9.2. Research method 9.2.1. Survey The survey was conducted by the Gender Committee of the SCJ1 and the Gender Equality Association for Humanities and Social Sciences (GEAHSS). The questionnaires were distributed to female and male researchers mainly working in universities and belonging to academic associations of the SCJ. A total of 2,972 researchers responded to questionnaires via the web by the end of November 2018. It is the first large-scale survey ever conducted for researchers in the field of social sciences and humanities in Japan. 9.2.2. Profile of respondents Research fields

Number

Female ratio

Literature History Philosophy Linguistics Psychology Law/politics Economics/commerce/ management Sociology Other social sciences Pedagogy Others Total

243 127 234 280 598 177 354

65% 40% 24% 55% 66% 44% 32%

Ratio of the total 8％ 4％ 8％ 9％ 20％ 6％ 12％

359 116 376 108 2,972

56% 65% 59% 71% 53%

12％ 4％ 13％ 4％ 100％

Table 9.1. Research fields of respondents

Of the total number of 2,972 respondents, the number of male respondents is 1,384 (46.6%), female 1,576 (53.0%), and others                                        1 The author is a member of the Gender Committee of the SCJ and she is responsible for data analysis.

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12 (0.4%). The respondents have self-identified their gender in their answers. Others include lesbian, gay, bisexual, and transgender. The study analyzes this latter group from the perspective of diversity, although the sample size is small. The number of respondents aged