WHILE Malaysia has made huge strides in modernising and diversifying our economy, the Covid-19 pandemic has demonstrated our continued reliance on our natural resource base, in particular, oil and gas.
The restrictions on movement enforced in most parts of the world resulted in reduced demand for oil, with Brent crude oil price dropping to as low as US$20 per barrel at one point.
While at the time of writing, oil prices have rallied to US$44 (RM184.26) per barrel, it has taken a toll on the Malaysian economy as oil-related revenues make up about 20 per cent of total government revenue.
For those who think that the fluctuating oil prices is a one off due to Covid-19, think again. The future will likely continue to see a decline in oil prices as the world begins to transition to more renewable sources of energy and wean itself off its dependence on oil and gas.
The unprecedented impact of Covid-19 to the economy means that we will be seeing some of the biggest public investments in history to restart the economy.
And true to the saying “never let a crisis go to waste”, a review of recovery plans around the world demonstrate that it may be a watershed moment for climate action.
TheEuropean Union (EU) leads the way, devoting €750 billion (RM3.72 trillion) — about 30 per cent share of the total package — to a green recovery. This is the single largest climate pledge ever made and billed as the biggest green stimulus package in history.
And what about the United States? President Trump’s views are well known to be an avowed supporter of fossil fuel.
Nonetheless, the Democrats have proposed a Green New Deal for America, led by the popular Representative Alexandria Ocasio-Cortez.
Modelled after president Franklin Roosevelt’s New Deal, a broad based reform that helped the US recover from the Great Depression, it calls for a 10-year mobilisation plan that builds resiliency against climate change and decarbonisation of their energy production.
Although the Republican-led senate did not approve the resolution, Democratic presidential nominee Joe Biden has endorsed the Green New Deal in all but name.
China, as the world’s biggest emitter of carbon, is also pioneering on green technology through their “Made in China 2025” policy, focusing on high-tech green technology manufacturing. such as on electric cars.
Nonetheless, how China moves forward will very much depend on who Americans vote for in November, as their ambitions will be aligned to that of their rivals. Therefore, a Biden presidency may well and truly signal a global green transition.
South Korea also has plans to implement its own version of the Green New Deal.
After previously leading the world on their National Green Growth Strategy, their focus turns to decarbonising the electricity supply, with a goal of net-zero emissions by 2050.
Even Big Oil have begun to transition towards a greener future. Leading the way, BP has pledged to reduce its oil and gas production by 40 per cent by 2030. It was reported that regardless of whether oil prices rallied or not, it is prepared to divest and sell off its oil and gas assets to invest more in renewable energy.
With solar and wind power costs continuing to fall rapidly, it makes commercial sense to invest in renewable energy.
It is crucial that Malaysia, and other countries, pay attention to these global developments.
For example, under the green recoveries mentioned above, one option that is being actively discussed is to implement a carbon tax.
What that would mean is that regardless of whether Malaysia implements its own carbon tax or not, as an export-oriented economy, Malaysian companies will be less competitive as well as potentially miss out in being part of the supply chain of multinational companies if they are carbon intensive, or worse, lack the capacity to monitor their emissions.
As we spend billions to restart the economy, the option is to continue to rely on a declining sector or to pursue a more green and longer term vision to our economy.
This article was first appeared in New Straits Times on 22 August 2020.