- Time and Date: 17:00-19:10 (Japan Standard Time), Tuesday, March 2, 2021
- Language: English
- Hosts: Research Institute of Economy, Trade and Industry (RIETI) / Centre for Economic Policy Research (CEPR)
Due to the unprecedented effects of COVID-19, the world has changed rapidly and we will need to change further in order to adapt to the new normal. Governments and organizations around the world have positioned green growth and digital transformation as two main areas to recover from the global pandemic. To successfully achieve these goals, countries and their respective leaders must consider multilateral cooperation moving forward.
In this joint symposium of RIETI and CEPR, both of these important and timely topics will be covered by academic and industry experts from the U.S., Europe, and Japan. They will share efforts currently taking place in the public and private sectors, as well as future policies and measures to be taken internationally and domestically. New and innovative approaches will need to be discussed and developed in order to change course towards a brighter future.
YANO Makoto (Chariman, RIETI)
For today's symposium, we will discuss green growth and digital transformation, which are both key factors in reestablishing ourselves after the coronavirus outbreak. In Europe, the U.S., and Japan, they have become an important topic of discussion. Today, prominent researchers from these regions are going to participate in this symposium.
We have two distinguished speakers. Prof. Christoph SCHMIDT, President of RWI-Leibniz Institute for Economic Research in Essen, will talk about green growth. Prof. Richard BALDWIN, professor of international economics at the Graduate Institute in Geneva, will talk about digital transformation. Following the main speakers, we will also hear from several guest speakers and get their valuable insights on the situation.
Session 1: Green Growth
Presentation: Green Growth
Christoph M. SCHMIDT (President, RWI Essen/Research Fellow, CEPR)
Rational EU climate policy
In order to combat climate change, there are strong arguments for setting a uniform carbon price. We could create a market for emissions and set a price, which would coordinate individual actions toward the right goal at the lowest possible cost and also reveal information about the sectors that are involved. In Europe, we have the EU emissions trading system (EU ETS). There will always be distributional consequences of moving from one energy system to another, but we need to transform, so the idea would be to manage the transition by increasing the scope and introducing a uniform price over time.
The European Green Deal
Preventing carbon leakage
One solution for carbon leakage would be border carbon adjustment (BCA), which takes every imported product, looks at its carbon content, and implements an appropriate pricing. It seems straightforward and promising, but it is difficult to accurately measure carbon content, and policymakers need to consider who is and who is not pursuing an "equivalent" climate policy. We should take the tailwind created by the Biden administration to find a solution that will work on a global scale. The first step forward would be to introduce a uniform carbon pricing mechanism for all relevant sectors in Europe, which should also be multilaterally negotiated because global problems require global solutions.
Speech 1: Promoting Innovation on Low-carbon Technologies
David POPP (Caroline Rapking Faculty Scholar in Public Administration and Policy at the Maxwell School, Syracuse University)
To meet increasingly ambitious climate policy goals, we will need to replace vast amounts of fossil fuel energy with alternative sources. Innovation is needed to reduce the cost of current technologies, as well as to develop new breakthroughs and complementary technologies.
Policies to promote clean energy innovation must address several market failures. Demand-pull policies increase demand for clean energy. Technology-push policies promote scientific progress more broadly, compensating for the public goods nature of new knowledge. We should combine these broad-based policies with targeted subsidies for technologies that are furthest from the market.
In general, targeted policies should focus on technologies that will be underserved by broad-based policies. Energy innovations take a long time to get to market and often have large, fixed costs. Government support can help overcome these hurdles. The government can also take on risk in a way that the private sector cannot. There is evidence for increased funding in R&D, in that spillovers are particularly large.
Targeted policies that address such market failures are needed, even if broad-based carbon pricing becomes a reality. R&D is important and should complement demand-side policies. These targeted policies may also help build support for future broad-based policies. By getting the cost down, it makes it easier to get political support for things such as a carbon tax.
Speech 2: Perspectives on Carbon Pricing in Japan: Toward green growth
ARIMURA Toshi (Faculty Fellow, RIETI/Professor, Faculty of Political Science and Economics and Director, Research Institute for Environmental Economics and Management, Waseda University)
In Japan, we have the Tax for Climate Change Mitigation, which is 289 yen per ton of CO2. The tax revenue has been used for the promotion of energy efficiency and renewable energy. Prime Minister SUGA announced that Japan will aim for carbon neutrality by 2050, so we need more technology and innovation, which an additional tax on coal, for example, could pay for. We can use this kind of tax revenue to promote new technologies. He also mentioned that carbon pricing is an important policy tool that should be discussed to achieve carbon neutrality.
One potential approach to green growth is the double dividend of a carbon tax. The first dividend of carbon pricing is promoting renewable energy, energy saving, innovation, and reducing carbon emissions. If we use carbon tax revenue to reduce corporate tax, it could promote investment and lead to an increase in GDP. This is the second dividend. I simulated the potential of the double dividend in Japan and found that using carbon tax revenue to reduce corporate or consumption tax may lead to an increase in GDP. On the other hand, I did an economic analysis for a carbon border adjustment mechanism (CBAM) for Japan and found that it may not be the best way to deal with competitiveness issues.
Speech 3: VALEO for Green Growth Sustainably
Jean-Luc di PAOLA-GALLONI (Group Vice-President, Sustainable Development and External Affairs, Valeo)
Valeo is an automotive supplier that has believed in green growth for over 10 years. Green solutions for us have been transformative, especially with the recent popularity of EVs. The reduction of CO2 is important for a supplier to survive. We have worked to achieve energy efficiency especially in powertrains, thermal management, and lighting. In addition to our products, we have also applied decarbonization to our processes and supply chains.
Environmental sustainability is not just about CO2, but also about the ecosystem and the economy, as well as recycling, reducing, remanufacturing, and retrofitting. For a large company like ours, it is very important to reduce our total carbon footprint. Basically, it is thanks to suppliers like us that vehicle manufacturers are succeeding in introducing vehicles that avoid subsequent emissions. That is why we consider ourselves as part of the new mobility scenario.
In the market, electrification is growing everywhere in the world. All types of electric vehicles are growing in percentage around the world, and there will likely be a boom of different types of mobility such as scooters and three-wheelers in the next decade. This is why we believe a technology supplier that invests a lot in electrification will proactively bring the transformation of green mobility worldwide.
We have received many questions from the audience, but I would like to categorize and present them first to Dr. SCHMIDT. We understand the theoretical rationale for carbon pricing, but there are still many concerns.
First, you mentioned the importance of public acceptance. There are many concerns about the negative impact of the competitiveness of industries and losing employment, as well as the negative impact on the poorer economies where people cannot afford the increased costs.
Second, you mentioned that CBAMs are to avoid carbon leakage, but what is the European strategy to involve large emitters like China and other emerging economies?
Third, how perfect are the price signals and market information, especially for the products and services which have a long tail and a long value chain? How can you measure the carbon price and the carbon footprint?
What Prof. POPP has pointed out is such a perfect complement to what I have been saying. In my opinion, carbon pricing is meant to be a leading instrument, but not as a soloist, so of course we need research policy. I think that was very well-taken by Prof. POPP. In response to Dr. ARIMURA, a double dividend is exactly what I was talking about. It is also a very nice complement to my remarks because carbon pricing offers the opportunity to engage in a comprehensive tax reform, releasing some previous brakes to growth and enabling more growth.
Vice President, what you asked is very well-taken. The issue of burden sharing is very important at the national level and at the international level. It is important at the national level for low-income households because we need to compensate them by using the revenue from carbon pricing, at least to a good extent, to compensate the larger burden borne by low-income households. At the European level, you need to have acceptance of all member states. That is also a matter of the initial allocation of the emission trading certificates. So there are solutions, but definitely they need to be implemented. It is not a matter that we can put on the backburner. An efficient pricing solution needs to come along, one-to-one, with a good approach to compensation and to retaining acceptance.
Regarding the competitiveness issues, especially for products where the value chains are long and you would have to go back step-by-step along the value chains to determine the carbon content at each stage, it is very intricate, and so nothing beats an international alliance to carbon pricing that makes it less relevant whether we know these contents or not because we have a common approach to carbon pricing.
What is the EU's approach? Well, I very much hope that, as their standing offer to all other participants at the negotiating table, the European policymakers and representatives will always adamantly require us to think of the ultimate objective of having a common global carbon pricing system and understand each step along the way towards that issue as a step towards the optimal solution. This is the only really conceivable promising strategy that I could think of and I very much hope that sessions such as these, with such a high content of consensus about these issues, will contribute to that.
Session 2: Digital Transformation
Presentation: Digital Transformation: Future globalization and future work
Richard BALDWIN (Professor of International Economics, Graduate Institute, Geneva)
Computers have acquired new cognitive capacities due to machine learning, which has allowed a whole new set of jobs to become automated. Digital technology has also enabled an unbundling of service value chains allowing certain tasks to be broken up and offshored or automated.
Digital technology is also making remote workers less remote. There is a coordinated shift to telework, in part due to COVID-19 and the development advanced communications. Online software collaboration suites have made it easier to coordinate teams, and machine translation has made it easier for speakers of different languages to work together. All of these digital technologies are essentially opening up a whole set of possibilities and transforming both globalization and the future of work.
Digital technology is enabling "telemigration", where people sit in one country and work in another. It is essentially enabling arbitrage of jobs. When we think about the future of globalization, we have to think about what jobs are offshoreable and where people are who have the cultural and linguistic affinity and underlying capacity to those jobs. We will find that some countries will be much less affected by globalization than others.
When we think about the future of work, we should be using a process of elimination. Instead of thinking about what the jobs of the future will be, we should think about what they will not be.
In rich nations, I think we will be doing jobs that involve tasks that cannot be automated or offshored such as tasks that involve empathy, creativity, or ethics, and tasks that involve cultural and linguistic peculiarities or face-to-face communication.
In poor nations, it is different because they are the ones who will be telemigrating. I think it will be very much like the transformation India saw with call centers and business processing outsourcing.
Speech 1: To Build Free Flow with Trust, We Need to Rethink Digital Trade Agreements
Susan AARONSON (Research Professor and Director of the Digital Trade and Data Governance Hub/GWU Cross-Disciplinary Fellow and Affiliate, Institute for International Economic Policy, Sigur Center, and Institute for Science and Technology Policy, Elliot School of International Affairs, George Washington University)
In order to achieve free flow with trust, we need to rethink digital trade agreements. The current approach is built on the notion that free flow and trust are equally important, but trust has become less important and subordinate to free flow. Why? As evidence, the provisions make the free flow of data a default with the GATT and GATS exceptions. This language is binding. But the provisions which would make users feel more comfortable online are aspiration and unfortunately not interoperable yet. Hence, I would argue that these agreements are not expanding trust.
Digital platform firms are essential to the global economy and national security, but we have little control over how they monetize and control our data. Moreover, these firms increasingly use their global presence to bully governments. As example, Facebook told the Trump Administration that Tiktok was an existential threat to the company and to U.S. security. Certainly, security on the Chinese owned app is inadequate…but we have seen no evidence it is a national security threat. More recently, in Australia, platforms such as Google and Facebook used g their political clout to influence proposals on how to pay publisher. When governments act in this way, policymakers are focusing on the concerns of "national champion" firms, but not necessarily on the concerns of the people.
If we want to build trust, we have to do more. We should put trust at the heart of agreements and make rules related to trust binding (e.g. add to the provisions on consumer welfare, personal data protection, and online stability. Policymakers should be thinking about how to establish greater trust among the market actors online. We should find ways to make regulations interoperable, . One way to do so is to build on the work of UNCITRAL and create model personal data protection and consumer protection laws, provide capacity building assistance to developing countries to enact and enforce these laws, and also use data innovations to make the policymaking process more trusted and interactive (such as crowdsourcing).
Speech 2: Digital Transformation, COVID-19, and Labor Markets
Georgios PETROPOULOS (Research Fellow, Bruegel)
If we want to look at the implications of new technologies, we need to look at the transformative power they have on the way we work and on the characteristics of jobs. One transformative power is job polarization. If we separate occupations and jobs into three categories of low-skill, middle-skill, and high-skill; middle-skill occupations will decrease, and low and high-skill occupations will increase. In the future, with the development of AI and machine learning, it is expected also that non-routine jobs, especially in the low-skill dimension, will be significantly affected relative to high-skill jobs that will not be transformed to a great extent.
According to a study by DINGEL and NEIMAN, we see that high-skill jobs are more likely to be done from home compared to middle-skill and low-skill jobs, so we see that COVID-19 can accelerate the transformative impact of new technologies because of the nature of the pandemic. In the long run, according to a survey, remote work is expected to remain even after the pandemic, with up to three times more remote work than before. Therefore, we see that low-skill occupations will face an important transformative direction from COVID-19 and the subsequent acceleration of digitalization.
Speech 3: Implications to Global Value Chains of Japanese Firms
TODO Yasuyuki (Faculty Fellow, RIETI/Professor, Faculty of Political Science and Economics, Waseda University)
Our global supply chains are expanding, but what is more important is the expansion of our global innovation networks. I would like to emphasize that international research collaboration is quite important to promote innovation and economic growth. Digital transformation lowers communication costs and makes it easier for companies and institutions to be linked globally, but collaboration is only easier among those who are already linked or have similar cultural, ethnic, and linguistic backgrounds. In other words, digital communication may not be easy among those who are unfamiliar with each other.
According to some surveys, productivity decreases due to working from home, with the largest reason being the loss of quick communication through face-to-face communication. In addition, the effect of poor inter-firm communication is larger than that of poor intra-firm communication. These results suggest challenges for Japan in the expansion of global value chains in the digital transformation era because Japan is not very globalized and its background is quite different from other countries. To solve this, we need deliberate business strategies and policies. One possible policy measure is to effectively utilize international frameworks such as the Trans-Pacific Partnership (TPP) and Free and Open Indo-Pacific (FOIP). Another is to expand scholarships for overseas studies.
Speech 4: Digital Innovation is a Step to Changing the Society of Today and the Future
TANAKA Kazuya (Research Fellow, GRIPS ALLIANCE/School of Engineering, University of Tokyo/CTO and CSO, scheme verge, Inc.)
Recently, companies have heavily contributed academically through data and data collection systems. Through legacy businesses, we can obtain new data, but through digital innovation and new businesses, we can obtain new kinds of data. This is why data innovation is important.
I established a smart city start-up called scheme verge, which focuses on data-driven urban development. We need data, so we made two applications to collect data. One is called horai in which users select sightseeing places they would like to visit and then we suggest an itinerary through an AI algorithm. The other is called horai for Biz in which we optimize the shifts or schedules of business operators depending on the scheduling data of visitors. In essence, we are doing supply-demand matching with AI to get data about sightseeing places so that we can determine what new buildings to establish in the area.
Through these activities, I found some key issues about digital innovation. First, new business areas have no rules, so it is a sort of gray zone which is especially difficult in Japan. Second, data collection systems and data cannot be protected by patents if innovation is the goal. Third, these technologies are very new, so we need a new university ecosystem of AI.
Richard BALDWIN (Professor of International Economics, Graduate Institute, Geneva)
I do not have much to say except that it is almost as if we coordinated everything. I think it all fit together in a very nice way, so I think we were quite complementary. I think the set of slides together make a very valuable contribution from many different directions. It is always a good thing at a conference when you have too much to say and there are too many questions, so we will just leave it at that, wanting people to want more. Thank you very much.
Richard BALDWIN (Professor of International Economics, Graduate Institute, Geneva)
First of all, I will say that climate goals cannot be met with the usual growth and technology. We discussed many ways digital technology can make this possible, but I would add that 5G and the internet of things (IoT) can help coordinate everything and improve efficiency.
Deep down, this is a problem of the digital divide. A lot of things that are possible in rich countries are not possible in poor countries, so we will never have this until renewable energy sources get cheaper than coal. We need a global effort to solve this.
Lastly, we are talking about introducing new products and technologies, all of which will have huge markets around the world. There are going to be lots of good jobs and businesses built on the digital green transformation.