Transcript Of “In Coversation With President Tharman Shanmugaratnam” At The IPEF Clean Economy Investor Forum Welcome Dinner

Professor Simon Tay (Chairman, Singapore Institute of International Affairs): You've often talked about this 'perfect long storm’ we're in. There are security dimensions that we covered recently in the Shangri-La Dialogue; there are wars. There are also economic, financial, business issues. And there are the social issues of inequality, debt at the household level, at the government level, post-pandemic.

In this maelstrom, this ‘perfect long storm’ you’ve talked about, how would you situate the climate crisis, the current challenge facing us? Could you spend some time helping us understand the priorities that can and should be given to this? And secondly, could you perhaps share with us some of the benefits and opportunities that can arise from dealing with the climate issue in this context of problems? 

President: Simon's question is about how we situate climate within the multiple insecurities and tensions that we face. The first thing I will say is that climate is both cause of some insecurities and tensions, as well as a victim of the tensions we see in the world today. It is a cause because the need for climate action is causing stresses, it is leading to some tensions, coming out of competition over specific resources, competition over technologies, competition in trade.

But it's a victim, more importantly, because the global tensions are holding back action on climate on a coordinated and collaborative basis, which we very much need.

To put it in context, we are running against time, and we are losing the race so far. You don't have to believe every detail the scientists say, but we more or less know that at the current rate of global emissions, we have at least a 50 per cent chance of hitting 1.5 degrees in seven years’ time, give or take a little.

And that is actually the optimistic projection because the risks are on the downside. The risks are that we'll be facing something worse than 1.5 degrees in seven years’ time. Because those calculations firstly don't take into consideration the non-CO₂ agents of warming; and more importantly, there are tipping points that are already tipping before us.

The world doesn't tip suddenly off a cliff. The tipping points are already happening step by step in the Arctic, in the Antarctic, in the boreal forests, in the chemistry of the oceans, in the changed flow of the Atlantic. The scientists find it very hard to model the implications of these tipping points - exactly what impact it has on global warming, or on the complex interaction between climate, water, biodiversity.

It is not linear, and very hard to model. But it is not that this leads to uncertainty in both directions, where things could also turn out better than what we think. The uncertainty – is whether things could turn out much worse than we expect.

So when we say we have got a 50 per cent chance of reaching 1.5 degrees in seven years’ time, that is quite possibly optimistic.

So we have to move urgently. We have to all own this problem. Too much of the framing in international discussion, climate diplomacy, is around who caused this problem the most, and who should pay the most, rather than the question of “How do we all own this, how do we all move faster?”

It's going to affect all of us. And one of the paradoxes, I find, is that some of the countries that are moving the slowest or trying to slow things down somewhat, are the ones that are going to be the most affected by climate change. They are the ones that are going to be most affected by excessive heat, by extreme floods and droughts, by rising sea levels.

We have to all own this. We are doing it not just because of international obligations, but because it's the most responsible thing to do within each of our countries, for today's generation and tomorrow's. And then see, how do we coordinate? How do we get those with more resources to invest more and not think of it as a distribution of a burden?

It's not about burden sharing; it’s about how we invest together for a return - an economic return and a social return. In other words, beyond the economic returns, there are manifold benefits – lower pollution, more liveable conditions, more equitable distribution of power through solar grids, and so on.

So we have to move to a mindset of how do we collaborate to invest for a return. It's not about burden sharing, it's about investing.

And this is the largest investment opportunity the world has seen in 50 years - to be able to invest in renewable energies and everything else to do with the clean economy. It is the largest investment and growth opportunity we've seen in 50 years. So we have to bring every source of investment capital together, from early stage, growth capital, venture capital, commercial banks, public sector money, philanthropic money, each with their different risk and return preferences. We have got to bring them together.

It's not about a burden. It's not about forcing someone else to pay. It's about investing for a return that we are all going to benefit from.

Professor Simon Tay: I think you've covered the point about the problems of cooperation and the opportunities very well. Now, can I ask you, Mr President, how do we make that change of mindset and move towards cooperation? What needs to be done, especially in the world of trade and investment?

President: Well, I think the first change in mindset required when we think about climate and the broader ecological crisis that is coming, is not to cast the issue just in terms of 2050 and 2100. It's too distant, and it's in any event too much based on linear projections. “Do we hit 2.5 degrees in 2100? Do we get to net zero in 2050?” It's distant for the ordinary body politic.

What we have to focus on is the costs we are already seeing, and the benefits we can already get by acting early. The tragedies that we are already seeing. Record floods in Brazil. Record heat in India - 50 degrees last week in Delhi. Indonesia too has seen record heat. They are not freak events. They are part of a new landscape.

But the one positive in this is that it gets everyone to realise that something serious is happening, and it's not just about 2050 or 2100. It's happening now, and it hits this region more than that region in any particular month, but it's happening to all of us. So let's bring the horizon down to what's happening now, in the years to 2030, and over the medium term. And work on the benefits that people can get.

How do we lower pollution? Even if not everyone understands what climate change is about, how do we lower pollution in cities in ways in which ordinary people really appreciate, quite apart from the science showing that (lowering pollution) makes a great difference to the future lives of today’s children? How do we make life more liveable by working to reduce heat levels? How EVs are actually much better to drive, not just because they are helping in the battle against global warming. Bring it down to what ordinary people appreciate.

The costs are already seen today, but the benefits can also be gained from today. The economic growth benefits - last year, clean energy alone contributed about 10 per cent of global growth. What that means for jobs, the ripple effects that brings.

And we are still at the early stage of the journey – or the largest investment, growth and job creation opportunity we have seen in a long time. We’ve got to ensure that those opportunities are spread around the world. It requires some coordination, but it's a real opportunity.

So what happens now and over the medium term can help change minds. It develops the political constituency to support the types of measures we need to take everywhere, including carbon pricing, intelligent subsidy strategies, retraining and skills upgrading for workers, so they can move out of industries that are too polluting, towards the new industries.

Professor Simon Tay: I think the movement of the time horizon is a very important issue. But time and time again, we see the political system and people's mindsets - they can't seriously think about things beyond their lifespan. Now, President, you've talked about global issues in a broad way. But as I'm reminded, we are here at Indo-Pacific Economic Framework (IPEF) discussion. Could I ask your view about this gathering, this definition of a region and framework - what could be done here and also, of course, around Singapore in ASEAN?

President: Southeast Asia offers the opportunity for us to show how we can invest together and get good returns.

It's a region where you don't have hardened mindsets on either globalisation or the ecological issues and climate change. Everyone does want to move forward.

And one way or another we're going to have to move a lot more energetically, because under even optimistic scenarios of energy-efficiency, energy demand is going to grow in Southeast Asia very significantly in the next decade.

So we are going to have to meet the needs of growing economies, but in a way that increasingly involves the use of cleaner energies - some transitional, some green. We’ve got to start making that shift.

Southeast Asia, which is at the core of IPEF, is where we can show that there's opportunity, there's a willingness to move, and there's a way in which we can bring together all stakeholders without too much difficulty. The investor community, including the institutional funds, the corporates that are involved in each of the industry verticals that presenting opportunity; the public sector, the multilateral development banks and the regional development banks; and the scientists and NGOs who are providing very useful knowledge and also trying to push governments to move faster. It's a good combination of stakeholders, and we should be able to develop momentum here through IPEF - getting the pipeline of projects in place quickly, matching projects to investors, getting durable financing, and showing how blended finance can provide a good return.

It will be a good example to the rest of the world, and IPEF is a very convivial framework for us to get this done within.

Professor Simon Tay: I think you're right, Mr President. The numbers show that while ASEAN countries are moving on energy, the overall energy needs are so great that they are turning to coal and other more carbon-heavy energy sources. I think the case for transitional forms of energy is also very important for our region. In what tangible ways can we pave the way for this kind of investment and take real action rather than being a talk shop? Could there be ways to help people invest at high levels over longer periods? What is the role of blended finance?

President: If one simplifies or cuts across a whole range of projects, essentially there is a cost gap today between what is grey and what is green. If you leave it to markets, it's going to take a very long time before green becomes competitive enough, particularly if you take end-to-end costs. And we can't take that length of time for the reasons discussed earlier: because along the way we’ll face tipping points, and the situation gets much more dire.

So we do need to front-load this shift from grey to green. How do we do it with commercial players, and with their clients and customers who are concerned about costs - where grey is cheaper than green?

First, we need public sector, multilateral development bank and philanthropic action to be able to build scale in green technologies and solutions, and accept that doing so requires some subsidy. They require some subsidy in order that we build scale and come down the cost abatement curve.

That's the central economic objective - how do we get down the cost abatement curve faster? If you leave it to markets; it will take too long. You need the broad public sector and philanthropic sector to get involved.

For instance, the Inflation Reduction Act (IRA) in the United States is achieving exactly that. It is plugging that cost gap between grey and green, and accelerating that move down the cost abatement curve. China has done the same with many green technologies.

That's our challenge. How do we do it in a way that is not protectionist, not clumsy, not simply rewarding incumbents under the guise of supporting national champions? How do we preserve enough competition so that innovation is spurred?

That's the challenge. Implementing industrial policy so that you get innovation, you get productivity growth, you get the competition, and you're able to come down that cost abatement curve and reduce the gaps between green and grey.

Professor Simon Tay: Your point about the dangers of protectionism is very real. Are there things that we need to do at the WTO? Where does this problem sit? 

President: We cannot be naive about this. When we talk about international order, the WTO, the IMF, the World Bank and others, we have to recognise that we had an international order, broadly described as liberal and open market-oriented, which did rest on a certain geopolitical and geoeconomic balance.

And that balance has shifted. When you get a shift in the geopolitical and geo-economic balance, you have to expect that the way in which trade, investment and the rules surrounding it are devised and accepted will have to shift.

The economic realities have changed. First, you now have new, powerful competitors in the world. Superpower rivalry in economics is now much sharper than it used to be. That's a new economic reality.

Another economic reality is that we have large challenges of the global commons: tackling climate change, a water crisis, the biodiversity crisis. That requires a lot more collaborative endeavour between superpowers and between all of us. That's a new economic reality.

These new economic realities require some changes in the way we organise ourselves internationally, and we have to accept that the previous urge to open up, to trade on the basis of pure comparative advantage – that urge is lessened today. I wouldn't say it has actually rolled back very significantly; globalisation is still very active and healthy, but it's not increasing, it's probably at a plateau. That's economic reality.

But what we are also seeing is a changed political reality. Because coming out of a changed economic reality within each society, particularly the larger democracies, you find that there's a new political narrative and even a new ideological narrative - more nationalistic, more focused on an enemy outside, and on responding to losses within your own society in ways that breeds disaffection and unhappiness rather than breeds solutions.

The political and ideological narratives coming out of new economic realities, have the danger of taking over. To use the framework of an old philosopher, the superstructure may now be driving the base, it is ideology that may be driving economic realities. And that becomes dangerous because then you can actually have a vicious cycle of more protection, retaliation by other partners, slower growth, slower innovation. Conditions worsen for ordinary people, and you then get that hardening of the ideology of us versus them.

There was a time when the reality of electoral politics was that there was always some nationalism, some degree of protection that one talked about as part of electoral politics. But after the elections these things receded, and one went back to hard-headed calculations of economic interests: How do we compete, cooperate, ensure there's fair play? How does the global trade order remain open but fair? It was never purist, a little messy, but it kept things open.

But that was the old dispensation. Now, we are less sure that it will continue in a whole range of societies around the world, particularly the larger democracies – not sure we still get the rhetoric receding and governments going back to figuring out how you can compete and collaborate in a positive-sum fashion.

Question from the floor: If you are king for the day, even in Singapore, would you enforce a carbon tax?

President: One doesn't need to feel that one is a king or ruler to recognise that it is in everyone's interest that we start pricing carbon, and that we go for a system of coordinated carbon pricing around the world.

How do we make sure that it can be implemented in a way that ordinary folk, and particularly, those who are poorer, are not disadvantaged? There are ways of doing it. There are ways in which you can use subsidies to support them. A combination of carbon pricing, subsidies, and grants is also needed to help companies drive down the cost of alternatives. And finally, you may need some regulation. Because some investments will be encouraged if you are setting a very clear time frame for when industry has to phase out what is dirty.

So we need that combination. Carbon pricing - be it taxes, or other forms of carbon pricing. Subsidies for ordinary folk to make sure they are not disadvantaged, and subsidies to spur investment in clean energies and move down that cost abatement curve faster. Some regulations, a framework where people know that by a certain date, you are going to have to move out of internal combustion engines, or other features of the old economy.

The combination of the three is, I think, going to be superior. But let’s not take too much comfort from it and assume that carbon taxes will not be necessary. Carbon taxes or carbon pricing is still a very important way the world moves fast enough to address climate change.