EXPOSURE AND VULNERABILITIES

OF THE LOW-CARBON TRANSITION

I D E N T I F Y I N G & O V E R C O M I N G R I S K S I N D E V E L O P I N G C O U N T R I E S
 • Espagne et al. (2021):
1. Strengths of the study
2. Points to develop
3. Thinking of policy
application
4. Questions

OUTLINE
STRENGTHS OF
THE STUDY

• N U A N C E D A P P ROAC H

• C AT E G O R I Z AT I O N
EXPOSURE VS. VULNERABILITY
• “High exposure, however, does not necessarily
mean high vulnerability. Countries with high socio-
economic exposure to the low-carbon transition that
also present high inequality, a large share of the
population below the poverty line and low levels of
social protection are much more vulnerable than
countries where sunset industries are relevant but
population is relatively well protected against job
losses” (Espagne et al., 2021, p. 22).
• Example: “China ranks first in the GCP
[Green Complexity Potential index],
which means that it is the country with
the higher capacity to migrate to green
products. Therefore, despite the higher
exposure and the SPC [Social Protection
Coverage] around the average, one
cannot affirm that China is a vulnerable
country” (Espagne et al., 2021, p. 23).
 Fiscal

Production Exports and

BoP
Exposure
of Sunset
Sectors

Employment Wages
 A N U A N C E D A P P ROAC H

Variables related to sunset industries Alternative tools

External exposure • Net raise of foreign currency (% of total) • Green Complexity Potential (GCP)
• Product Emission Intensity Index (PEII)

Fiscal exposure • Production, including indirect (% of total)

• Tax revenue, including indirect (% of total)

Socio-economic exposure • Employment, including indirect (% of total) • Social Protection Covarage (SPC)
• Wages, including indirect (% of total) • Human Development Index (HDI)

Multidimensional Net raise of foreign currency (NXr), Tax revenue (Taxes), Production (Prod), Employment
exposure (Empl) and Wages
 • The study provides
a categorization
of countries
according to their
macroeconomic
exposure to the
low-carbon
transition

C AT E G O R I Z AT I O N
POINTS TO
DEVELOP

• P RO B L E M S W I T H M E A S U R I N G :

✓ C A PAC I T Y T O A DA P T

✓ A G G R E G AT I O N
PROBLEM (1) WITH MEASURING:
C A PAC I T Y T O A DA P T
• Possible alternatives:
• Macroeconomic exposure is difficult to
measure. It requires measuring also the
capacity of a country to adapt its productive
structure, which may come at high social and
political costs.
• Is the using of wages and employment
enough to account for social variables?
• Index of State Weakness (Rice and
Patrick 2008)
• Historical evidence
• Green transformation policy objectives
• Exposure to natural disaster that will
lead to displacement, migration and
social-political hardship (Natural Risk
Index)
• Gender Inequality Index (UN HDR)
PROBLEM (2) WITH
MEASURING:
AG G R E AG AT I O N

• The risk of being at risk: The study does not

measure the risk of onshoring of carbon intensive
industries for developing countries.
• Transport and electricity not being considered
sunset industries in the study indicates the
necessity of disaggregation:
• Sunset industries → Sunset products
THINKING OF
POLICY
A P P L I C AT I O N

• I N T E R N AT I O N A L D E V E L O P M E N T
C O O P E R AT I O N

• I N T E R N AT I O N A L T R A D E
 What happens?
External Balance-of-payment constraints: “Developing countries
exposure tend to be less diversified and less competitive in in
green industries, with special regards to machinery and
equipment and inputs necessary to reduce emissions in
other industries . . . Therefore, these countries need to
import capital goods and inputs to reduce emissions,
which demands high volume of foreign currency. On the
other hand, emission intensive industries may face a
DIFFERENT Fiscal
reduction in export revenues” (p. 9).
Path dependency: “For many developing countries,
COUNTRIES, exposure sunset industries . . . are a very important source of
fiscal revenues, and hence the transition poses an
DIFFERENT
eminent risk: governments need to increase spending
while the low-carbon transition itself may reduce fiscal
revenues . . . The transition can thus be costly for
SOLUTIONS Socio-
governments, and difficult to be implemented” (p. 5).
Negative distributional effects: “. . . a ‘just transition’
economic need to account for the decline of living standards in
exposure these regions. According to Saget et al. (2020),
although the net impact on employment is expected to
be positive, there will be important imbalances, with
countries more dependent on this industries to generate
employment tend to be more impacted than others . . .
countries relying heavily on current and future export
revenues from sunset industries are likely to face the
largest challenges” (p. 5-6).
What can be done?
“The capacity of countries to overcome the
resulting potential balance-of-payment
constraints depends on their capacity to adapt
to changes in world demand and to produce
domestically the goods and services
necessary for this transition” (p. 5)
“Public expenditures are necessary to promote
green industries either via direct fiscal stimulus
or by investments in green infrastructure, such as
public mobility and renewable energy and
other green technologies . . . , as well as to
mitigate the cost of the sunset industries ” (p. 5).
“. . . although the net impact of low-carbon
transition on employment is expected to be
positive in the long run, costs for retraining re-
allocated workers and social spending to
guarantee basic needs for unemployed workers
will be necessary . . . Different climate policies
. . . will have very different social and
macroeconomic impacts in different contexts.
Carbon pricing has . . . no direct fiscal costs, but
. . . imposes welfare losses, especially on the
poor. Green fiscal stimulus, on the other hand,
despite having high fiscal costs, boosts economic
growth” (p. 5).
 Main financing instruments available
for developing countries

Internal External

Private capital Migrant International International

Fiscal policy Development
flows remittances trade
Cooperation

Monetary policy North-South

Cooperation

South-South
Cooperation
 Main financing instruments available
for developing countries

Internal External

Private capital Migrant International International

Fiscal policy Development
flows remittances trade
Cooperation

Monetary policy North-South

Cooperation

South-South
Cooperation
W H AT I F T H E E X P O S U R E T O T H E L O W -
CARBON TRANSITION WAS CRITERIA ...
... to orient cooperation loans given by ... for WTO special provisions or even
ODA donnors and multilateral banks? for a climate TRIPS waiver?
 1. Regarding the measurement of countries’ macroeconomic
exposures to the low-carbon transition, this presentation outlined
possible problems, related to both (a) social variables and (b)
aggregation (onshoring, transport and electricity). Do you also
recognize these as measuring problems with your estimates?
If so, how do you think these problems may be overcome in
future research?

QUESTIONS 2. Regarding policy application, we suggested the categorization

of countries according to macroeconomic exposure such as the
one you constructed could, for example, serve as criteria for both
international development cooperation (e.g., via ODA or
multilateral development banks) and international trade (e.g., via
WTO provisions). Do you think these policy suggestions make
sense? If so, how can we imagine them to be implemented?
 T H A N K YO U !

H E L O I S A B R E N H A R I B E I R O ( E P O G + , M A J O R C )
K A M A L R A M B U R U T H - H U R T ( E P O G + , M A J O R A )

P A R I S , J A N U A R Y 1 4 , 2 0 2 2
REFERENCES
• Espagne, E., Godin, A., Magacho, G., Mantes, A., Yilmaz, D. (2021, October). Developing Countries’ Macroeconomic Exposure to the
Low-carbon Transition. Research papers, Agence Française de Développement (AFD), 220.
• Cardona, O.D., M.K. van Aalst, J. Birkmann, M. Fordham, G. McGregor, R. Perez, R.S. Pulwarty, E.L.F. Schipper, and B.T. Sinh. (2012).
Determinants of risk: exposure and vulnerability. In: Managing the Risks of Extreme Events and Disasters to Advance Climate Change
Adaptation: A Special Report of Working Groups I and II of the IPCC. Cambridge University Press, Cambridge, UK, and New York,
NY, USA, pp. 65-108. https://www.ipcc.ch/site/assets/uploads/2018/03/SREX-Chap2_FINAL-1.pdf
• El Hamma, I. (2018). Migrant Remittances and Economic Growth: The Role of Financial Development and Institutional Quality.
Economie et Statistique / Economics and Statistics, 503 504, 123-142. https://doi.org/10.24187/ecostat.2018.503d.1961
• Nwadike, F. (2021, August 13). The Possibility of a Waiver of TRIPS Obligations for the Transfer of Carbon Capture Technology
(CCT). Jurist Legal News & Research Services, Inc. Pittsburgh, USA. https://www.jurist.org/commentary/2021/08/frances-nwadike-
waiver-trips-transfer-cct/
• OECD. (2021). Risk and Resilience: Understanding resilience. OECD.org. https://www.oecd.org/dac/conflict-fragility-resilience/risk-
resilience/
• Rice, S.E. and Patrick, S., (2008) Index of state weakness in the developing world (p. 14). Washington, DC: Brookings Institution.